<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998
OR
[ ] FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9637
LILLIAN VERNON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2529859
(State of incorporation) (I.R.S. Employer Identification No.)
543 MAIN STREET, NEW ROCHELLE, NEW YORK 10801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (914) 576-6400
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- -------------------
Common Stock, par value $.01 per share. American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (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 information statement, incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value for the Voting Stock held by non-affiliates
(based upon the closing price on May 15, 1998) was approximately $95,508,965.
As of May 15, 1998, there were 9,370,883 shares of Common Stock, par value
$.01 per share, outstanding.
Part III is incorporated by reference to the registrant's Proxy Statement
pursuant to Regulation 14A, covering the Annual Meeting of Stockholders to be
held July 15, 1998.
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THE INDEX TO EXHIBITS APPEARS ON PAGE 15.
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LILLIAN VERNON CORPORATION
FISCAL 1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. Business........................................................ 1
ITEM 2. Properties...................................................... 6
ITEM 3. Legal Proceedings............................................... 7
ITEM 4. Submission of Matters to a Vote of Security Holders............. 7
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters .......................................... 8
ITEM 6. Selected Financial Data......................................... 9
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 10
ITEM 7(a) Quantitative and Qualitative Disclosure about Market Risk....... 14
ITEM 8. Financial Statements and Supplementary Data..................... 14
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 14
PART III
ITEM 10. Directors and Executive Officers of the Registrant ............. 15
ITEM 11. Executive Compensation.......................................... 15
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management ................................................... 15
ITEM 13. Certain Relationships and Related Transactions.................. 15
PART IV
ITEM 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K ..................................................... 15
i
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PART I
ITEM 1. BUSINESS
General
Lillian Vernon Corporation (the "Company") is a direct mail specialty
catalog company concentrating on the marketing of gift, household, gardening,
kitchen, Christmas and children's products. The Company, a predecessor of
which was founded in 1951, seeks to provide customers with reasonably priced
products that can be differentiated from competitive products either by
design, price or personalization. In fiscal 1998, the Company published 34
catalog editions, and mailed approximately 179,000,000 catalogs to past and
prospective customers.
The Company has developed a proprietary customer data base containing
information about its customers, including such data as order frequency, size
and date of last order, and type of products purchased. These and other
factors are analyzed by computer to rank and segment customers to determine
those most likely to purchase products offered in the Company's catalogs. The
data base contains information with respect to approximately 21,800,000
people, approximately 3,250,000 of whom have placed orders with the Company
during the last fiscal year. The Company derives a small portion of its
revenue from the rental of its customer list to direct mail marketers and
other organizations. The Company has a Special Markets division, which makes
sales of premium and incentive products to numerous businesses, including
Fortune 500 companies. The Special Markets division also sells to the
wholesale market. The Company also operates a chain of outlet stores which
offers Lillian Vernon merchandise.
The following table reflects the Company's history in the areas of
circulation of its catalogs, number of orders received and average revenue
per order received, over the last five fiscal years.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
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FEBRUARY 26, FEBRUARY 25, FEBRUARY 24, FEBRUARY 22, FEBRUARY 28,
1994 1995 1996 1997 1998 (3)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of catalogs mailed (000's)(1) .. 150,846 179,424 179,539 175,232 178,917
Number of catalog editions............. 22 26 27 29 34
Number of orders received (000's) ..... 4,602 4,940 4,903 4,643 4,936
Average revenue per order
received (2).......................... $ 42.86 $ 44.61 $ 49.31 $ 52.57 $ 54.13
</TABLE>
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(1) "Number of catalogs mailed" includes catalog circulation to the extent
that related orders are received in that fiscal year.
(2) "Average revenue per order received" is not reduced for refunds, nor
does it include shipping and handling or applicable state sales tax
remittance.
(3) Fiscal 1998 contained 53 weeks.
Catalogs and Products
The Company's catalogs are designed to capture the reader's interest
through the use of distinctive covers, colorful product presentations and
product descriptions that highlight significant features. The catalogs are
created and produced by the Company's in-house creative staff, which includes
designers, writers and production assistants. The Company also hires
free-lance designers and photographers, as needed. The combination of
in-house and free-lance staff enables the Company to maintain both quality
control and flexibility in the production of its catalogs.
The Company varies the quantity of its catalog mailings based on the
selling season, anticipated revenue per catalog, the price of paper and other
catalog costs, and its capacity to process and fill orders. In fiscal 1998,
the Company produced 34 different catalog editions.
1
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The following table provides a breakdown of the various catalogs mailed in
fiscal 1998, and information regarding the range of pages and product
offerings in each:
<TABLE>
<CAPTION>
APPROXIMATE
NO. OF
NO. OF NO. OF PRODUCTS
CATALOG TITLE EDITIONS PAGES OFFERED
- ------------- -------- ----- -------
<S> <C> <C> <C>
Lillian Vernon ................... 9 84-132 500-850
Private Sale...................... 5 96 500-600
Lilly's Kids...................... 6 48-84 350-600
Christmas Memories................ 3 56-64 250-350
Neat Ideas for an Organized Life 2 48 300
Favorites......................... 4 48-72 300-500
Lillian Vernon Kitchen............ 3 56-72 450-550
Personalized Gift................. 2 48-64 380-500
</TABLE>
Merchandise offered by the Company includes gifts, holiday products, toys
and children's products, personal and home accessories, kitchen and houseware
products, gardening and outdoor products. The Company employs a staff of
experienced buyers, who seek reliable sources for what the Company believes
to be unique, quality merchandise. The buyers attend numerous domestic and
international trade and merchandise shows, study merchandising trends, and
review the performance of merchandise previously offered. The Company also
uses both its creative staff and free-lance artists to develop distinctive
designs for many of its products, which the Company copyrights and has
manufactured to its specifications. The Company provides free monogramming
and full name personalization on many of the products it sells. In the past
fiscal year, products which can be personalized or which were manufactured to
the Company's exclusive design specifications accounted for about half of the
products offered by the Company. It is anticipated that sales of personalized
merchandise will continue to grow in fiscal 1999.
Private Sale catalogs are primarily used to sell merchandise overstocks
and deleted products, and are generally mailed only to customers in the
Company's data base.
The Company's Lilly's Kids catalogs feature toys, games, baby products,
room decor and fashion accessories for children.
The Company's Christmas Memories catalogs are targeted to the Christmas
season and offer ornaments, holiday decor, gifts, cards and many unique and
exclusive products.
The Company introduced a new Favorites catalog in early fiscal 1998. The
Favorites catalog features many of the best-selling products across all
Lillian Vernon catalog divisions.
The Company's Personalized Gift catalogs primarily feature gift items, all
offered with personalization.
Lillian Vernon Kitchen catalogs offer products which include cookware,
dinnerware, gourmet accessories, cutlery, glassware, flatware and gifts, many
of them exclusive to this catalog.
The Neat Ideas For An Organized Life catalogs offer a variety of home
decor, organizational products and housewares.
In fiscal 1999, the Company plans to combine Lillian Vernon's Kitchen and
Neat Ideas into one catalog utilizing the strongest elements of each catalog.
The new catalog will offer products which include holiday, closet, food
preparation, kitchen accessories, kitchen decor, tabletop, organization,
bath, laundry, car/garage and outdoor products.
The Company introduced a new catalog, Lillian Vernon Gardening, in March
1998, which features a cross-section of functional garden products, as well
as garden and floral-themed decorative accessories.
The Company offers a deferred billing program to its customers, in which
it agrees to charge the customers' credit cards for the full amount of their
purchase at a future date specified in each catalog. The Company does not
charge interest to the customers who participate in the deferred billing
program.
2
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All products sold, including personalized products, are unconditionally
guaranteed. An unsatisfied customer may return any product, even if
personalized, for any reason. The dollar value of refunds requested by
customers under the guarantee in fiscal 1998 was approximately 4.5% of
revenues.
The Company purchases its products from approximately 1,100 suppliers.
Approximately 76% of the items sold by the Company are purchased abroad,
predominantly from manufacturers located in Taiwan, Hong Kong, the Peoples'
Republic of China, Italy and Germany. Most purchase orders are denominated in
U.S. dollars. Although no manufacturer is individually material to the
Company's operations, the Company buys significant quantities through several
Far East trading companies which utilize multiple manufacturers. Also, the
Company buys approximately 8% of its purchases through one Far Eastern buying
agent, which acts as the Company's representative in its dealings with many
different manufacturers in the Peoples' Republic of China and Hong Kong. As a
result of its reliance upon foreign suppliers, the Company is subject to the
risks of doing business abroad, but has experienced no material disruptions.
To date, the recent Asian economic downturn has not materially affected the
Company's sourcing of products in the region. Management is closely
monitoring the situation and believes that adequate replacement sources are
available to the Company should some of the Company's suppliers fail.
Marketing
The Company maintains a proprietary customer data base containing
information with respect to approximately 21,800,000 customers, gift
recipients and people who have requested its catalogs, approximately
3,250,000 of whom have placed orders with the Company during the last fiscal
year. In addition, the Company rents from and exchanges mailing lists or
specific portions of lists with direct marketers and other organizations in
an attempt to gain new customers. Approximately 179,000,000 catalogs were
mailed in fiscal 1998, of which approximately 80% were mailed to people whose
names were in the Company's proprietary data base and approximately 20% were
mailed to prospects derived from rented lists.
The Company believes that its ability to analyze its computerized data
base, as well as rented lists, and to select recipients for a particular
mailing are important factors in its development. The Company analyzes
various factors (e.g., frequency of order, date of last order, order size,
type of products purchased and demographic data) to rank its customer and
prospect groups in order to target its catalog mailings to those most likely
to purchase its merchandise. The Company updates its data base to include new
customers and eliminate non-responders. The Company does not engage in
unresearched, speculative mailings.
The Company periodically offers customers special promotions such as gifts
with purchase, free shipping and handling, and a deferred billing option, in
order to increase sales.
List Rental
The Company derives a small portion of its revenue from the rental of its
data base to direct mail marketers and other organizations, and from the
placement of advertisements for other companies' products in its outgoing
packages.
Order Fulfillment and Distribution
Orders for merchandise are received by mail, telephone, fax, and via the
Internet. Orders are received and processed at the Company's National
Distribution Center in Virginia Beach, Virginia. Customer Service operations
are also conducted at this facility. The Company also operated temporary
telephone order call centers in New Rochelle, New York and Las Vegas, Nevada,
during its peak selling season. The Company receives telephone orders on a
24-hour basis, seven days a week, with orders generally entered directly into
the computer. Mail orders are opened, compared to payments, batched and
entered into computer terminals. The Company uses its own data processing
personnel to enter mail and telephone orders, as well as service bureaus to
enter telephone orders on an as-needed basis. During fiscal 1998, the Company
continued upgrading its computer capacity to enable it to handle an increase
in telephone orders.
3
<PAGE>
The Company has recently decided to install a new order entry system. The
new system will expand the Company's flexibility in processing customer
orders, aid the Company in year 2000 compliance, and allow the Company to
more easily offer incentives such as gift certificates, business to business
order processing and customer loyalty programs. It is expected that the new
system will be implemented by April, 1999.
All orders are processed, packed and shipped at the Company's National
Distribution Center. Approximately 50% of customer orders are shipped by
United Parcel Service, with nearly all other orders being sent by the U.S.
Postal Service. The Company also offers UPS Second Day Air delivery as an
option to its customers, for an extra charge.
The Company's National Distribution Center, an 821,000 square foot
facility located in Virginia Beach, Virginia, is owned and operated by the
Company's wholly-owned subsidiary, Lillian Vernon Fulfillment Services, Inc.
All of the Company's distribution, and a majority of its warehousing
activities, are conducted at this facility. The National Distribution Center
is generally operated on a five-day-a-week basis, except during the Holiday
season, when, depending upon demand, it may operate on a six or
seven-day-a-week, three-shift basis. Personalization of products is also done
at the Company's National Distribution Center. The Company is increasing the
size of its personalization area at the National Distribution Center to be
able to meet its needs for the 1998 peak season. The Company also owns a
154,000 square foot building in Virginia Beach used for additional
distribution and warehousing space.
The Company continually assesses the need to upgrade the capacity of its
distribution facilities. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")
Paper and Mailing Costs
The Company expends significant amounts on paper in the production of its
catalogs. The Company also uses substantial amounts of packing supplies and
corrugated paper for boxes in which it ships its products. In fiscal 1998,
the Company spent approximately $23.0 million in total paper costs and
approximately $57.9 million in mailing catalogs and packages to its
customers. In recent years, the U.S. Postal Service has increased its rates
for both the mailing of catalogs and packages. It is anticipated that the
U.S. Postal Service will again increase its rates in late fiscal 1999. The
size of the increase is estimated to be 3.0% to 3.5%. No assurance can be
given that postal rates will not continue to increase in the future. United
Parcel Service, which increased its rates in 1995, 1996 and 1997, has also
recently increased its rates. The Company expects that this rate increase
will raise its UPS shipping rates by 9.0% to 9.5%.
The price of paper is dependent upon supply and demand in the marketplace.
Fiscal 1996 and fiscal 1997 financial results were negatively affected by
substantially higher paper prices than prevailed prior to fiscal 1996, in
fiscal 1998, and those that presently prevail. The Company anticipates that
the price of paper will rise through fiscal 1999 and has secured the majority
of its fiscal 1999 paper needs at market prices for high-volume purchasers.
The Company attempts to recover a portion of these cost increases by
increasing its shipping and handling charges, and where possible, reducing
the dimensions and weight of catalogs, adjusting catalog page counts and
circulation, and improving efficiencies in distribution and shipping. While
the Company cannot estimate the magnitude of future paper and postage
increases or decreases, such changes may impact the Company's future
earnings. (See "Management's Discussion and Analysis of Financial Condition
and Results of Operations.")
Merchandise Overstocks
The Company sells its overstocks to its customers at reduced prices,
primarily through its Private Sale catalogs, its outlet stores and through
special offers made to customers placing orders by telephone and the
Internet.
Seasonality
The Company's business is seasonal. Historically, a substantial portion of
the Company's revenues and net income have been realized during its third and
fourth fiscal quarters, which encompass the period September through
February. Revenues and net income have been lower during its first and second
fiscal
4
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quarters, comprising the period March through August. The Company believes
this is the general pattern associated with the mail order and retail
industries. Further discussion of the effect of seasonality upon revenues and
income is contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Government Regulations
The Company must comply with Federal, state and local laws affecting its
business. In particular, the Company is subject to Federal Trade Commission
regulations governing the Company's advertising and trade practices and
Consumer Product Safety Commission regulations governing the standards its
products, particularly toys, must meet. While the Company believes it is
presently in compliance with such regulations, in the event of noncompliance,
the Company may be subject to cease and desist orders, injunctive
proceedings, civil fines and other penalties. To date, such governmental
regulations have not had a material adverse effect on the Company. On
occasion, products offered by the Company have been subject to voluntary
recall; however, no such recall has had a material adverse effect on the
Company.
The United States and the other countries in which the Company's products
are manufactured may, from time to time, impose new or adjust existing
quotas, duties, tariffs or other restrictions, with the result that the
Company's operations and its ability to continue to import merchandise at
required levels could be adversely affected. The Company cannot now predict
the likelihood of any such events occurring or the effect on its business of
any such event.
A number of the Company's products are purchased from sources located in
Hong Kong. On July 1, 1997, Hong Kong's status as a British Crown Colony
ended, with its rule reverting to the Peoples' Republic of China. The Company
has not experienced any disruptions in its sourcing of merchandise since the
reversion.
In the past, various states had taken action to require mail order
retailers to collect sales tax from residents in their states, even if the
only contact with such states is the mailing of catalogs into the states. On
May 26, 1992, the Supreme Court ruled that state governments could not
require out of state mail order companies to collect and remit sales and use
taxes without Congressional authorization. Since that time, bills have
periodically been introduced in Congress which would allow states to impose
sales tax collection responsibility upon mail order companies. Management is
unable to predict the likelihood of Congress passing such legislation, and
whether the Company will, in the future, be required to collect sales and use
taxes in the various states. The collection of sales tax by mail order
companies could have an adverse effect on customer response to the Company's
catalogs, and the Company's competitive position by increasing both its cost
of doing business and the effective price of its products to its customers.
Although the Company believes the aforementioned adverse effect will not be
of a material nature, the Company is unable, at this time, to predict the
impact of the collection of sales tax on its financial position and results
of operations. The Company does not expect that the collection of sales tax
would have a material effect on its liquidity.
Trademarks and Copyrights
The Company has federally registered service marks and/or logos for
"Lillian Vernon" and many of its catalog titles. In the opinion of the
management of the Company, the service mark "Lillian Vernon" is of
significant value because of its market recognition as a result of many years
of use and the significant quantity of catalogs circulated.
The Company also possesses numerous copyrights and/or trademarks on its
products, none of which individually is material to the Company.
Employees
As of February 28, 1998, the Company and its subsidiaries employed
approximately 1,500 employees. During the peak Holiday season, the Company
employs approximately 4,700 employees including seasonal employees working in
the telephone order, order processing and distribution areas. Employees are
not covered by collective bargaining agreements. The Company considers its
employee relations to be satisfactory.
5
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Competition
The retail business in general, and mail order in particular, is highly
competitive. The Company competes primarily with other mail order catalogs
and secondarily with retail stores, including specialty shops and department
stores, many of which have substantially greater financial resources than the
Company. The Company competes on the basis of its product selection,
personalization, its proprietary customer list, the quality of its customer
service and its unconditional guarantee. Although the Company attempts to
market products not available elsewhere, many products similar to those
marketed by the Company can be purchased through other mail order catalogs or
in retail stores.
ITEM 2. PROPERTIES
The Company's corporate headquarters and administrative offices are
presently located in a 41,664 square foot building in New Rochelle, New York.
This facility is leased from David C. and Fred P. Hochberg, under a net
sublease expiring on July 30, 1998, with a present annual net rental of
$429,788. David C. Hochberg is an officer, director and a principal
stockholder of the Company. Fred P. Hochberg is a former officer and
director, and a stockholder of the Company. The terms of such net lease
provide that the Company is also responsible for the payment of all real
estate taxes and other expenses associated with the operation and maintenance
of the premises, including structural repairs. In fiscal 1998, the total cost
to the Company for this space, including rent, real estate taxes, and other
expenses was approximately $580,000 ($14 per square foot). After an
independent study of the Company's current space requirements, its need to
accommodate future growth, current rental prices, and the proposed rental
increase for the New Rochelle facility, as well as a thorough analysis of
available office space in Westchester County and environs, the Company
decided to vacate this facility at the expiration of the lease.
In July 1998 the Company will relocate its corporate headquarters and
administrative offices to a 65,000 square foot building in Rye, New York. The
corporate headquarters includes the executive offices, merchandising,
creative, marketing and finance departments, as well as the wholesale
division. This facility is leased from CVS New York, Inc. under a sublease
agreement expiring on January 30, 2005, with a present annual rental of
$1,153,000 ($17.75 per square foot). The sublease provides that the Company
is only responsible for increases in real estate taxes and operating costs
over a base year. The Company has received two renewal options, each for five
years, from the owners of the building, an unaffiliated entity, upon the
expiration of the sublease, in 2005.
The Company believes that the new headquarters facility, with its
increased area in one building, will be adequate for its anticipated growth
needs. Additionally, management believes that the new facility will provide
certain operational and managerial efficiencies.
The Company's 821,000 square foot National Distribution Center is located
on approximately 62 acres in Virginia Beach, Virginia. The facility, which
became fully operational during the summer of 1988, is owned and operated by
the Company's wholly-owned subsidiary, Lillian Vernon Fulfillment Services,
Inc. The Company is constructing a 10,000 square foot mezzanine expansion in
the personalization area of the National Distribution Center in order to
increase capacity in the personalization department, which is anticipated to
be needed in the 1998 peak season.
All distribution and the majority of its warehousing activities, as well
as mail order processing, customer service and telemarketing activities, are
conducted at the Virginia Beach facility.
The Company also owns a 154,000 square foot building in Virginia Beach
which it utilizes for additional distribution and warehousing space.
The Company leases, on a year-to-year basis, 11,000 square feet in an
office building in New Rochelle, New York, which provides additional
telephone order facilities for its peak selling season and administrative
office space.
In fiscal 1998 the Company leased a 3,600 square foot office in Las Vegas,
Nevada, which served as a temporary telephone order facility for its peak
selling season, and intends to lease a larger facility for the peak selling
season of fiscal 1999.
6
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The Company leases fifteen retail locations, which serve as outlet stores,
in the states of Virginia, New York, Delaware and South Carolina. The typical
retail store is approximately 3,000 square feet, with leases expiring from
fiscal 1999 through fiscal 2004, and various renewal options through fiscal
2009.
The Company leases additional outlet store locations on a short-term
basis, particularly during the holiday season.
The Company believes that its facilities are adequate and that its
properties are in good condition.
ITEM 3. LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to its business, no
legal proceedings to which the Company is a party, or to which any of its
properties are subject, are pending or are known to be contemplated, and the
Company knows of no material legal proceedings, pending or threatened, or
judgments entered against any Director or Officer of the Company in his or
her capacity as such. See "Government Regulations" for additional discussion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange
(symbol: LVC). The following table sets forth the high and low sale prices
for each quarterly period for the two most recent years. The stock prices are
rounded to the nearest 1/16 point.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
May 25, 1996............................................ 15 1/4 12 5/8
August 24, 1996 ........................................ 14 5/8 10 3/8
November 23, 1996....................................... 13 1/2 10 7/8
February 22, 1997....................................... 13 11 1/4
May 24, 1997............................................ 15 15/16 12 1/2
August 23, 1997 ........................................ 17 1/4 15 1/2
November 22, 1997....................................... 17 1/2 14 7/8
February 28, 1998....................................... 18 5/8 14 1/8
</TABLE>
As of May 15, 1998, there were 372 registered holders of the Company's
Common Stock.
The Company has paid quarterly cash dividends on its common stock since an
initial quarterly dividend of five cents ($.05) per share was paid in May of
1992. The quarterly dividend was increased to seven cents ($.07) per share
payable September 1, 1994. Since March 2, 1998, a quarterly dividend of eight
cents ($.08) per share has been paid to stockholders. The Board of Directors
intends to continue to declare and pay a quarterly cash dividend. The amount
of any such dividends will depend on the Company's earnings, financial
position, capital requirements and other relevant factors.
On October 10, 1995, the Board of Directors authorized the Company to
purchase up to 1 million shares of its common stock in the open market from
time to time, subject to market conditions. As of May 15, 1998, the Company
has purchased 687,700 shares at a total cost of approximately $10.0 million.
The Company uses these shares to make matching contributions to its Profit
Sharing/401(k) Plan and to issue shares under its Option Plans.
8
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 22, FEBRUARY 24, FEBRUARY 25, FEBRUARY 26,
1998 (1) 1997 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS (000'S)
Revenues ............................. $258,224 $240,053 $238,192 $222,211 $196,331
Income before income taxes ........... 13,603 8,112 8,425 19,134 19,495
Net income ........................... 8,978 5,354 5,729 13,620 12,772
PER SHARE
Net income--Basic (3)................. $ .94 $ .55 $ .59 $ 1.43 $ 1.35
Net Income--Diluted (3) .............. .93 .55 .57 1.38 1.33
Book value ........................... 12.45 11.90 11.75 11.44 10.22
Dividends ............................ .29 .28 .28 .26 .20
FINANCIAL POSITION AT YEAR END (000'S)
Cash and cash equivalents ............ $ 25,132 $ 22,746 $ 25,771 $ 38,779 $ 52,880
Working capital ...................... 74,453 70,739 76,721 79,068 72,665
Total assets ......................... 143,667 138,549 136,385 137,768 130,937
Long-term obligations (2) ............ 1,394 2,883 4,335 5,755 7,150
Stockholders' equity.................. 116,713 114,326 113,193 110,187 97,255
AVERAGE SHARES OUTSTANDING (000'S)
Basic (3) ............................ 9,532 9,658 9,713 9,555 9,448
Diluted (3) .......................... 9,636 9,664 9,981 9,892 9,632
</TABLE>
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(1) Fiscal year 1998 contained 53 weeks.
(2) Includes current installments and long-term portions of debt and
capital lease obligations.
(3) Net income per share and average shares outstanding data have been
restated to comply with Statement of Financial Accounting Standards No.
128, "Earnings Per Share".
9
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the results of
operations as a percentage of revenues. The table reflects certain
reclassifications made to conform to the current year's presentation.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------
FEBRUARY 28, FEBRUARY 22, FEBRUARY 24,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues ...................................... 100.0% 100.0% 100.0%
Costs and expenses:
Product and delivery costs ................... (48.2) (46.0) (46.1)
Selling, general and administrative expenses (46.2) (50.6) (50.3)
Corporate headquarters relocation ............ (0.5) -- --
----- ----- -----
Operating income ............................ 5.1 3.4 3.6
Interest income ............................... 0.4 0.2 0.6
Interest expense .............................. (0.2) (0.3) (0.3)
Merger-related expenses ....................... -- -- (0.4)
----- ----- -----
Income before income taxes ................... 5.3 3.3 3.5
Provision for income taxes ................... (1.8) (1.1) (1.1)
----- ----- -----
Net income .................................. 3.5% 2.2% 2.4%
----- ----- -----
</TABLE>
FISCAL 1998 AND FISCAL 1997
Revenues for fiscal 1998 were $258.2 million, an increase of $18.2
million, or 7.6%, over fiscal 1997. Average revenue per catalog rose by
approximately 7.4%, with increases in both response rate and average revenue
per order. Order volume rose by approximately 6.5%, including the effect of
an additional week in fiscal 1998 compared to 1997. While total catalog
circulation increased only about 2%, the Company added new Spring mailings of
its Lilly's Kids, Personalized Gift, and Neat Ideas catalogs. The Company
also introduced the Favorites catalog, featuring many strong-selling products
from its other catalogs.
Product and delivery costs include the cost of merchandise sold, the cost
of receiving, personalizing, filling and shipping orders, reduced by shipping
and handling revenue collected from customers. These costs of $124.4 million
increased by $14.0 million, or 12.7% in fiscal 1998 compared to fiscal 1997,
partially because of the higher volume of orders shipped. As a percentage of
revenues, product and delivery costs increased from 46.0% in fiscal 1997 to
48.2% in fiscal 1998. The increase in the percentage of revenues was due both
to reduced profit margins on merchandise sold, as well as higher costs to
process orders in the Company's National Distribution Center. Some factors
affecting this ratio included offering merchandise at a broader range of
price points to increase sales, an increase in the percentage of personalized
products, with the related higher labor costs, an increase in government
tariffs on toll-free telephone calls, and higher package delivery costs due
to rate increases, heavier packages, and an increase in multiple shipments
per order. The Company believes that offering lower price points and more
personalized merchandise contributed favorably to achieving higher revenue
per catalog, although it increased costs relative to revenues.
Selling, general and administrative ("SG&A") expenses were $119.3 million
in fiscal 1998, compared to $121.5 million in fiscal 1997, a decrease of $2.3
million, or 1.9%. As a percentage of revenues, SG&A expenses also declined,
from 50.6% in fiscal 1997 to 46.2% in fiscal 1998. The largest component of
these expenses are the costs of producing, printing, and mailing the
Company's catalogs. Catalog circulation increased approximately 2% in fiscal
1998 compared to fiscal 1997. A lower ratio of catalog costs to revenues was
the principal reason for the improvement in SG&A expenses as a percentage of
revenues. The improvement came almost equally from lower paper costs and an
improvement in revenue generated per catalog.
The average cost of paper used in the Company's catalogs was approximately
25% lower in fiscal 1998 compared to fiscal 1997. Paper prices are expected
to rise in the upcoming fiscal year 1999. The Company
10
<PAGE>
has obtained commitments from its suppliers to provide the majority of its
expected paper needs at the then-prevailing market price for high-volume
purchasers. Postal rates to mail the Company's catalogs are expected to rise
by 3.0% to 3.5% in fiscal 1999, but the timing of the rate increase is not
known at this time. United Parcel Service rates for packages have also
increased in fiscal 1999. The Company expects that this rate increase will
raise its UPS shipping rates by 9.0% to 9.5%. U.S. Postal rates for packages
are also expected to rise in the latter part of the fiscal year. Management
continually implements strategies to attempt to increase product sales, and,
in May 1998, raised the fees for shipping and handling that are charged to
its customers. These strategies are expected to partially offset the cost
increases; however, management cannot assess the negative impact of these
factors on its future earnings.
In fiscal 1998, the Company decided to relocate its Corporate Headquarters
to a larger facility located in Rye, New York. The relocation will take place
at the end of the Company's existing lease, in July 1998. The move will allow
for continued growth. In connection with the move, the Company wrote-off $1.3
million in the fourth quarter of fiscal 1998, representing the unamortized
value of the leasehold improvements in the old corporate headquarters. The
Company does not anticipate incurring any other significant expenses in
connection with the move.
Interest income in fiscal 1998 was $.9 million, compared to $.6 million in
fiscal 1997. The increase of $.3 million was the result of a higher average
investment balance, because of improved profitability and lower capital
expenditures. Interest expense declined by $.1 million, principally because
of the scheduled repayment of long-term debt.
The Company's effective income tax rate in fiscal 1998 was 34%, the same
as in fiscal 1997.
FISCAL 1997 AND FISCAL 1996
Revenues for fiscal 1997 were $240.1 million, an increase of $1.9 million,
or 0.8% over fiscal 1996. Sales grew marginally, principally because catalog
circulation for the year was reduced by about 2% compared to fiscal 1996.
Circulation was reduced in the first half of the fiscal year because higher
paper costs required the Company to more closely target its circulation to
those customers whose purchases were expected to cover the higher costs of
the catalogs. Average revenue per catalog rose by approximately 3%, driven by
an increase in average order value of almost 7%. The volume of orders shipped
decreased by approximately 5%.
Product and delivery costs of $110.4 million increased $.5 million, or
0.4% in fiscal 1997 as compared to fiscal 1996. As a percentage of revenues,
product and delivery costs decreased slightly from 46.1% in fiscal 1996 to
46.0% in fiscal 1997. Product profit margin improved significantly,
principally because less inventory liquidation was needed. The Company's
postage expense to customers was positively impacted by the expansion of the
Company's National Distribution Center, which eliminated some capacity
constraints of the prior year. These cost reductions were partially offset by
less shipping and handling revenue, which was lower because less orders were
shipped, and because of certain marketing promotions run by the Company.
Selling, general and administrative ("SG&A") expenses were $121.5 million
in fiscal 1997, compared to $119.6 million in fiscal 1996, an increase of
$1.9 million, or 1.6%. As a percentage of revenues,SG&A expenses increased
from 50.3% in fiscal 1996 to 50.6% in fiscal 1997. The ratio of catalog costs
to revenues improved in fiscal 1997, even though the cost of producing an
average catalog was slightly higher. The ratio improved because of a rise in
average revenue per catalog. High paper costs continued to be reflected in
the Company's catalog expense, particularly in the core catalogs, while the
prices of its specialty catalog paper improved during the latter part of the
fiscal year.
Paper prices have declined, and the Company has future commitments for
paper at favorable prices. Postal costs to mail the Company's catalogs also
declined in the second half of fiscal 1997 because of Postal Classification
Reform regulations.
Other elements of SG&A expense besides catalog costs rose, principally
because the Company made investments in staff in the executive, merchandising
and creative areas. In addition, growth in the Company's Special Markets
division, which sells to other businesses, and an increase in the number of
outlet stores, were major factors affecting this increase.
11
<PAGE>
Fiscal 1996 earnings reflect a non-recurring pre-tax charge of $921,000
for the costs of a terminated merger agreement (see Note 11 to Financial
Statements).
Interest income in fiscal 1997 was $.6 million, as compared to $1.3
million in fiscal 1996. The decrease of $.7 million was the result of a lower
average investment balance, because of higher expenditures required for
expansion of the Company's National Distribution Center. Interest expense
increased by $.1 million in fiscal 1997 as compared to fiscal 1996 because of
short term borrowings under the Company's revolving credit facility during
fiscal 1997.
The Company's effective income tax rate in fiscal 1997 was 34.0% as
compared to 32.0% in fiscal 1996, principally due to higher tax deductions
for charitable contributions in fiscal 1996.
SEASONALITY
The Company's business is seasonal. Historically, a substantial portion of
the Company's revenue and net income has been realized during the third and
fourth fiscal quarters, which encompass the period September through
February. Revenue and net income have been lower during the first and second
fiscal quarters, comprising the period March through August. The Company
believes this is the general pattern associated with the mail order and
retail industries.
Because of slower demand for its products in the first half of its fiscal
year, and because of added fixed costs to increase sales year-round and
invest in future growth, the Company incurred a cumulative net loss during
the first six months of fiscal 1998, 1997, and 1996. Due to these factors,
management expects to incur a loss for the first half of fiscal 1999 as well.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet and liquidity are strong. At the end of fiscal
1998, cash and cash equivalents totaled $25.1 million; the current ratio was
4.3:1; stockholders' equity totalled $116.7 million; and debt obligations
(including current maturities) represented 1.2% of equity.
In fiscal 1998, the Company generated $13.7 million of cash from operating
activities. Inventory rose by $6.5 million as of the end of fiscal 1998
compared to 1997, due to new product offerings, in anticipation of higher
sales, and to enable the Company to better service customers. Management
expects to be able to sell this inventory without significant gross margin
reductions. The Company used $1.5 million of funds for long-term debt
repayments, and generated $.4 million from the sale of common stock through
its employee stock option and purchase plans.
Capital spending in fiscal 1998 was $3.1 million. Capital expenditures in
fiscal 1997 totaled $10.3 million, of which $8.5 million related to the
expansion of the Company's National Distribution Center. The expansion
project, consisting principally of a 335,000 square foot addition to the
building, and related warehousing, shipping and computer equipment, cost
approximately $14 million (including fiscal 1996 expenditures), and was
completed in August of 1996. The fiscal 1998 major capital expenditures, as
well as the balance of the capital expenditures in fiscal 1997, were made to
upgrade the Company's computer equipment, and its distribution center
machinery and equipment. In fiscal 1999, the Company is planning to expand
the personalization area of its National Distribution Center to be able to
handle increased demand for personalized merchandise. The Company may
continue to find it necessary to expand the capacity of the National
Distribution Center in the future. The Company has committed to upgrade its
order entry system. In fiscal 1998, approximately $1.0 million was spent on
this project, and the Company expects to spend approximately $2.9 million on
hardware and software for the remainder of the project. In addition to
allowing the Company's telemarketing staff to enter orders more efficiently,
the new system will be Year 2000 compliant, and allow the Company to expand
certain marketing opportunities. The new system is expected to be operational
in April 1999.
The Company entered into a $42 million four-year revolving credit facility
in August 1996, which can be used to finance working capital needs, fixed
assets, and up to $12 million of inventory letters of credit. At the
Company's option, up to $20 million of the facility can be converted into
term loans, with maturity dates no later than 2003. Interest is payable at
LIBOR plus 50 basis points, prime rate, bankers'
12
<PAGE>
acceptance rate plus 50 basis points, or a fixed rate, at the Company's
option. The credit facility is unsecured, and the Company is subject to
financial covenants principally relating to its working capital, net worth,
interest coverage ratio and capital spending restrictions.
The Company has paid quarterly cash dividends since May 1992, and has
increased its quarterly dividend from $.05 to $.07 per share in September
1994, and from $.07 to $.08 per share in March 1998. The Company anticipates
continuing to pay cash dividends to its stockholders in the future. The
amount of any such dividends will depend on the Company's earnings, financial
position, capital requirements, and other relevant factors. Dividends
declared in fiscal 1998 totaled $2.8 million, or $.29 per share.
On October 10, 1995, the Board of Directors authorized the Company to
purchase up to 1 million shares of its common stock in the open market from
time to time, subject to market conditions. During the fiscal year ended
February 28, 1998, the Company purchased 270,700 shares at a total cost of
$4.4 million. Shares repurchased under the plan from inception through
February 28, 1998 total 655,200, at a cost of $9.5 million.
The Company believes that its cash flow from operations, current
investment balance, and credit facilities will be sufficient to meet its
operating needs.
YEAR 2000 COMPLIANCE
The Company is in the process of modifying its computer software
applications and systems to function properly with respect to dates in the
Year 2000 and thereafter. The Company expects to complete the necessary
changes by early calendar 1999, using both its in-house staff and outside
resources, at a cost of less than $1 million. An assessment of the readiness
of external entities with which the Company interfaces, such as its vendors,
is ongoing. The Company does not currently anticipate any material disruption
to its operations as a result of a failure to properly modify its own
systems. However, failure of third parties with which the Company does
business to properly modify their systems could have a material adverse
effect upon the Company.
EFFECTS OF INFLATION AND FOREIGN EXCHANGE
The Company is generally able to reflect cost increases and decreases
resulting from the effects of inflation and foreign currency fluctuations in
its selling prices. In addition, most foreign purchase orders are denominated
in U.S. dollars. Accordingly, the results of operations for the periods
discussed have not been significantly affected by these factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and
losses); and No. 131 "Disclosures about Segments of an Enterprise and Related
Information," which establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, geographic areas and major customers. Adoption of these statements
will not impact the Company's consolidated financial position, results of
operations, or cash flows, and any effect will be limited to the form and
content of its disclosures. Both Statements are effective for fiscal years
beginning after December 15, 1997, and accordingly, the Company will adopt
them in fiscal 1999.
Effective in the fourth quarter of fiscal 1998, the Company adopted SFAS
No. 128, "Earnings Per Share ", which required the Company to state a dual
presentation of basic and diluted earnings per share in its financial
statements. The basic calculation replaces the calculation of primary
earnings per share, and did not have a material impact on reported earnings
per share.
FORWARD LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-K
contains forward-looking statements which are based on the Company's current
expectations and assumptions. Various factors
13
<PAGE>
could cause actual results to differ materially from those set forth in such
statements. These factors include, but are not limited to, the potential for
changes in consumer spending, consumer preferences and general economic
conditions, increasing competition in the direct mail industry, changes in
government regulations, dependence on foreign suppliers, and possible future
increases in operating costs, including postage and paper costs.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this
report on pages F-1 through F-17.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by these Items is omitted because the Company
will file a definitive proxy statement pursuant to Regulation 14A with the
Commission, not later than 120 days after the end of the fiscal year, which
information is herein incorporated by reference as if set out in full.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) and (2). The response to this portion of Item 14 is submitted as a
separate section of this report on pages F-1 through F-17.
(a)(1) Consolidated Financial Statements
--Balance Sheets--February 28, 1998 and February 22, 1997............... F-2
--Statements of Income for the three Fiscal Years ended 1998, 1997
and 1996 ........................................................... F-3
--Statements of Stockholders' Equity for the three Fiscal Years ended
1998, 1997 and 1996................................................. F-4
--Statements of Cash Flows for the three Fiscal Years ended 1998,
1997 and 1996 ...................................................... F-5
--Notes to Financial Statements......................................... F-6
--Report of Independent Accountants..................................... F-17
(a)(2) Schedules
All schedules called for under Regulation S-X are not submitted because
they are not applicable or not required or because the required information
is not material or is included in the financial statements or notes thereto.
(b) Reports on Form 8-K.
No Form 8-K reports have been filed by the Registrant during the last
quarter of the period covered by this report.
(a)(3) and (c). Exhibits (numbered in accordance with Item 601 of
Regulation S-K).
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
2.1 --Plan and Agreement of Merger dated June 29, 1987 between
Lillian Vernon Corporation, a New York corporation, and the
Company.......................................................(1)
2.2 --Certificate of Ownership and Merger between Lillian Vernon
Corporation and the Company filed in Delaware.................(1)
2.3 --Certificate of Merger between Lillian Vernon Corporation and
the Company filed in New York.................................(2)
3.1 --Certificate of Incorporation with Amendments of Lillian
Vernon Corporation............................................(2)
3.2 --By-Laws of Lillian Vernon Corporation.........................(1)
10.1 --Amended and Restated Lillian Vernon Corporation Profit
Sharing Plan..................................................(16)
10.2 --Employees' Pension Plan.......................................(1)
10.3 --1987 Performance Unit, Restricted Stock, Non-Qualified Option
and Incentive Stock Option Plan...............................(1)
15
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.4 --First Amendment to Employment Agreement with Lillian Vernon,
formerly Lillian M. Katz......................................(6)
10.5 --Executive Deferred Compensation Agreement and first amendment
thereto with Lillian Vernon, formerly Lillian M. Katz.........(7)
10.6 --Second Amendment to Deferred Compensation Agreement with Fred
P. Hochberg...................................................(8)
10.7 --Second Amendment to Deferred Compensation Agreement with
David C. Hochberg.............................................(9)
10.8 --Form of Indemnification Agreement with officers and
directors.....................................................(1)
10.9 --Lease for Company's facility at New Rochelle, New York........(1)
10.10 --Trademark Registrations for Lillian Vernon Corporation--
Service Mark and Logo.........................................(1)
10.11 --Loan Agreement with Crestar Bank and related documents........(3)
10.12 --Note Purchase Agreement between the Company and Northwestern
National Life Insurance Co., Farm Bureau Life Insurance Co.
of Michigan, FB Annuity Corp., and Farm Bureau Mutual
Insurance Co. of Michigan and related Promissory Notes dated
September 9, 1988.............................................(4)
10.13 --Note Purchase Agreement between the Company and Northern Life
Insurance Co., Commercial Union Life Insurance Co. of
America, Life Insurance Co. of Georgia and Texas Life
Insurance Co. and related Promissory Notes dated October 28,
1988..........................................................(4)
10.14 --Letter Amendment dated November 30, 1990 to Note Purchase
Agreement between the Company and Northwestern National Life
Insurance Co., Farm Bureau Life Insurance Co. of Michigan, FB
Annuity Corp., and Farm Bureau Mutual Insurance Co. of
Michigan and related Promissory Notes dated September 9, 1988.(5)
10.15 --Letter Amendment dated November 30, 1990 to Note Purchase
Agreement between the Company and Northern Life Insurance
Co., Commercial Union Life Insurance Co. of America, Life
Insurance Co. of Georgia and Texas Life Insurance Co. and
related Promissory Notes dated October 28, 1988...............(5)
10.16 --Sublease between Fred P. and David C. Hochberg and
Company--New Rochelle facility................................(8)
10.17 --Lillian Vernon Corporation 1993 Stock Option Plan for
Non-Employee Directors........................................(10)
10.18 --Employment Agreement with Larry Blum..........................(11)
10.19 --Employment Agreement with Howard Goldberg.....................(12)
10.20 --Employment Agreement with Robert S. Mednick...................(13)
10.21 --Revolving Credit Agreement, Letter of Credit and Bankers
Acceptance facility dated as of August 19, 1996 among Lillian
Vernon Corporation as Borrower, Lillian Vernon Fulfillment
Services, Inc., LVC Retail Corporation and Lillian Vernon
International Ltd. as Guarantors, the Banks named therein and
The Chase Manhattan Bank as agent.............................(14)
10.22 --1997 Performance Unit, Restricted Stock, Non-Qualified Option
and Incentive Stock Option Plan...............................(15)
10.23 --1997 Stock Option Plan for Non-Employee Directors.............(15)
10.24 --Form of Agreement re Change of Control with certain executive
officers......................................................E-1
10.25 --Agreement of Sublease dated January 30, 1998 between CVS New
York, Inc. and the Company and exhibits.......................E-16
22 --Subsidiaries of registrant....................................E-140
24 --Consent of Coopers & Lybrand re: incorporated reference to
Form S-8......................................................E-141
27 --Financial Data Schedule.......................................E-142
16
<PAGE>
- --------------
(1) Filed with Registration Statement on Form S-1 (File No. 33-15430) and
incorporated by reference herein.
(2) Filed with Quarterly Report on Form 10-Q for the quarter ended August
28, 1987 and incorporated by reference herein.
(3) Filed with Annual Report on Form 10-K for the year ended February 26,
1988 and incorporated by reference herein.
(4) Filed with Annual Report on Form 10-K for the year ended February 24,
1989 and incorporated by reference herein.
(5) Filed with Annual Report on Form 10-K for the year ended February 23,
1991 and incorporated by reference herein.
(6) Filed with Annual Report on Form 10-K for the year ended February 29,
1992 and incorporated by reference herein.
(7) Amendment filed with Quarterly Report on Form 10-Q for the quarter
ended May 30, 1992 and incorporated by reference herein. Original
deferred compensation agreement filed with Registration
Statement--see (1) above.
(8) Filed with Annual Report on Form 10-K for the year ended February 27,
1993 and incorporated by reference herein. Original deferred
compensation agreement filed with Registration Statement. See (1)
above.
(9) Filed with Quarterly Report on Form 10-Q for the quarter ended August
28, 1993 and incorporated by reference herein. Original deferred
compensation agreement filed with Registration Statement--see (1)
above.
(10) Filed with Registration Statement on Form S-8 (File No. 33-71250) and
incorporated by reference herein.
(11) Filed with Annual Report on Form 10-K for the year ended February 25,
1995, and incorporated by reference herein.
(12) Filed with Quarterly Report on Form 10-Q for the quarter ended May
27, 1995 and incorporated by reference herein.
(13) Filed with Quarterly Report on Form 10-Q for the quarter ended May
25, 1996 and incorporated by reference herein.
(14) Filed with Quarterly Report on Form 10-Q for the quarter ended August
24, 1996 and incorporated by reference herein.
(15) Filed with Registration Statement on Form S-8 on September 26, 1997
(File No. 333-36467) and incorporated by reference herein.
(16) Filed with Registration Statement on Form S-8 on March 31, 1998 (File
No. 333-48951) and incorporated by reference herein.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, duly authorized.
LILLIAN VERNON CORPORATION
Dated May 26, 1998 By: /s/ Lillian Vernon
-------------------------------
Lillian Vernon, Chairman
of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Lillian Vernon Chairman of the Board of
- ------------------------------ Directors (Principal Executive
Lillian Vernon Officer) May 26, 1998
/s/ Robert S. Mednick Vice President--Chief
- ------------------------------ Financial Officer (Principal
Robert S. Mednick Financial and Accounting May 26, 1998
Officer)
/s/ Howard Goldberg President, Chief Operating
- ------------------------------ Officer and Director May 26, 1998
Howard Goldberg
/s/ David C. Hochberg Vice President--Public Affairs
- ------------------------------ and Director May 26, 1998
David C. Hochberg
/s/ Leo Salon Director May 26, 1998
- ------------------------------
Leo Salon
/s/ William E. Phillips Director May 26, 1998
- ------------------------------
William E. Phillips
/s/ Bert W. Wasserman Director May 26, 1998
- ------------------------------
Bert W. Wasserman
/s/ Elizabeth M. Eveillard Director May 26, 1998
- ------------------------------
Elizabeth M. Eveillard
/s/ Richard A. Berman Director May 26, 1998
- ------------------------------
Richard A. Berman
/s/ Jonah Gitlitz Director May 26, 1998
- ------------------------------
Jonah Gitlitz
18
<PAGE>
LILLIAN VERNON CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULES AND REPORTS
F-1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 28, 1998 FEBRUARY 22, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 25,132 $ 22,746
Accounts receivable, net.............................................. 22,632 24,476
Merchandise inventories............................................... 36,935 30,480
Deferred income taxes (Note 2)........................................ 2,034 1,548
Prepayments and other current assets (Note 4)......................... 10,173 10,438
-------- --------
Total current assets................................................. 96,906 89,688
Property, plant and equipment, net (Notes 5 and 7)..................... 37,633 40,319
Deferred catalog costs................................................. 5,922 6,140
Other assets........................................................... 3,206 2,402
-------- --------
Total................................................................ $143,667 $138,549
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and accrued expenses (Note 4).................. $ 16,331 $ 14,485
Customer deposits..................................................... 147 260
Current portion of long-term debt and lease obligations (Notes 6, 7) 1,394 1,489
Income taxes payable (Note 2)......................................... 4,581 2,715
-------- --------
Total current liabilities............................................ 22,453 18,949
Long-term debt, less current portion (Note 6).......................... -- 1,270
Capital lease obligations, less current portion (Note 7) .............. -- 124
Deferred compensation (Note 8)......................................... 3,426 3,500
Deferred income taxes (Note 2)......................................... 1,075 380
-------- --------
Total liabilities.................................................... 26,954 24,223
-------- --------
Commitments & Contingencies (Note 7)
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized; no
shares issued and outstanding........................................ -- --
Common stock, $.01 par value; 20,000,000 shares authorized;
issued--10,389,674 shares in 1998 and 10,363,320 shares in 1997 ..... 104 104
Additional paid-in capital............................................ 31,160 30,783
Retained earnings..................................................... 100,757 94,553
Unearned compensation................................................. (6) (94)
Treasury stock, at cost--1,016,491 shares in 1998 and
753,458 shares in 1997 (Note 12)..................................... (15,302) (11,020)
-------- --------
Total stockholders' equity........................................... 116,713 114,326
-------- --------
Total................................................................ $143,667 $138,549
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 22, FEBRUARY 24,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues........................................... $258,224 $240,053 $238,192
Costs and expenses:
Product and delivery costs........................ 124,419 110,374 109,915
Selling, general and administrative expenses .... 119,278 121,530 119,635
Corporate headquarters relocation (Note 7) ....... 1,330 -- --
-------- -------- --------
245,027 231,904 229,550
-------- -------- --------
Operating income................................. 13,197 8,149 8,642
Interest income.................................... 910 614 1,314
Interest expense................................... (504) (651) (610)
Merger-related expenses (Note 11).................. -- -- (921)
-------- -------- --------
Income before income taxes....................... 13,603 8,112 8,425
Provision for (benefit from) income taxes (Note
2):
Current........................................... 4,566 3,622 3,560
Deferred.......................................... 59 (864) (864)
-------- -------- --------
4,625 2,758 2,696
-------- -------- --------
Net income....................................... $ 8,978 $ 5,354 $ 5,729
-------- -------- --------
Net income per common share--Basic................. $ .94 $ .55 $ .59
-------- -------- --------
Net income per common share--Diluted............... $ .93 $ .55 $ .57
-------- -------- --------
Weighted average number of common shares--Basic ... 9,532 9,658 9,713
Weighted average number of common shares and
common share equivalents--Diluted................. 9,636 9,664 9,981
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------ PAID-IN RETAINED UNEARNED --------------------
TOTAL SHARES AMOUNT CAPITAL EARNINGS COMPENSATION SHARES AMOUNT
----- ------ ------ ------- -------- ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 25, 1995............. $110,187 9,771,744 $ 98 $23,300 $ 88,922 ($2) (139,892) ($2,131)
Exercise of non-qualified stock
options............................... 1,262 214,000 2 3,253 (95,307) (1,993)
Amortization of unearned compensation . 2 2
Shares purchased by employees pursuant
to Employee Stock Purchase Plan ...... 106 7,899 -- 106
Purchase of treasury stock............. (1,732) (124,800) (1,732)
Dividends ($.28 per share)............. (2,728) (2,728)
Other.................................. 367 367
Net income............................. 5,729 5,729
-------- ---------- ---- ------- -------- --- ---------- --------
BALANCE, FEBRUARY 24, 1996............. 113,193 9,993,643 100 27,026 91,923 0 (359,999) (5,856)
Shares issued to employees at $.01 per
share pursuant to Restricted
Stock Plan............................ -- 15,000 -- 197 (197)
Exercise of non-qualified stock
options............................... 893 337,000 4 2,720 (133,759) (1,831)
Amortization of unearned compensation . 103 103
Shares purchased by employees pursuant
to Employee Stock Purchase Plan ..... 184 17,677 -- 184
Purchase of treasury stock............. (3,333) (259,700) (3,333)
Dividends ($.28 per share)............. (2,724) (2,724)
Other.................................. 656 656
Net income............................. 5,354 5,354
-------- ---------- ---- ------- -------- --- ---------- --------
BALANCE, FEBRUARY 22, 1997............. 114,326 10,363,320 104 30,783 94,553 (94) (753,458) (11,020)
Exercise of non-qualified stock
options............................... 297 16,000 -- 200 (17) 7,667 114
Amortization of unearned compensation . 88 88
Shares purchased by employees pursuant
to Employee Stock Purchase Plan ...... 140 10,354 -- 140
Purchase of treasury stock............. (4,396) (270,700) (4,396)
Dividends ($.29 per share)............. (2,757) (2,757)
Other.................................. 37 37
Net income............................. 8,978 8,978
-------- ---------- ---- ------- -------- --- ---------- --------
BALANCE, FEBRUARY 28, 1998............. $116,713 10,389,674 $104 $31,160 $100,757 ($6) (1,016,491) ($15,302)
-------- ---------- ---- ------- -------- --- ---------- --------
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 22, FEBRUARY 24,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 8,978 $ 5,354 $ 5,729
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation..................................................... 4,478 4,092 3,586
Amortization..................................................... 324 454 395
Corporate Headquarters relocation................................ 1,330 -- --
(Gain) loss on sale of assets.................................... (7) (8) (6)
(Increase) decrease in accounts receivable....................... 1,844 (3,041) 47
(Increase) decrease in merchandise inventories................... (6,455) 468 (530)
(Increase) decrease in prepayments and other current assets ..... 265 3,793 (6,736)
(Increase) decrease in deferred catalog costs.................... 218 366 126
(Increase) decrease in other assets.............................. (1,040) (309) (296)
Increase (decrease) in trade accounts payable and accrued
expenses ....................................................... 1,846 2,370 (1,941)
Increase (decrease) in customer deposits......................... (113) 132 (257)
Increase (decrease) in income taxes payable...................... 1,866 (177) (684)
Increase (decrease) in deferred compensation..................... (74) 401 186
Increase (decrease) in deferred income taxes..................... 209 (868) (865)
------- -------- --------
Net cash provided by (used in) operating activities ............ 13,669 13,027 (1,246)
------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment........................ (3,122) (10,284) (7,712)
Proceeds from sale of assets...................................... 7 8 95
------- -------- --------
Net cash used in investing activities........................... (3,115) (10,276) (7,617)
------- -------- --------
Cash flows from financing activities:
Principal payments on long-term debt and capital lease
obligations...................................................... (1,489) (1,452) (1,420)
Proceeds from issuance of common stock............................ 437 1,077 1,368
Dividends paid.................................................... (2,757) (2,724) (2,728)
Payments to acquire treasury stock................................ (4,396) (3,333) (1,732)
Other............................................................. 37 656 367
------- -------- --------
Net cash used in financing activities........................... (8,168) (5,776) (4,145)
------- -------- --------
Net increase (decrease) in cash and cash equivalents ........... 2,386 (3,025) (13,008)
------- -------- --------
Cash and cash equivalents at beginning of period................... 22,746 25,771 38,779
------- -------- --------
Cash and cash equivalents at end of period......................... $25,132 $ 22,746 $ 25,771
------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest......................................................... $ 347 $ 582 $ 599
Income taxes..................................................... 2,646 3,028 3,971
Supplemental disclosure of noncash financing activities--see Note 13
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Lillian Vernon Corporation is a direct mail specialty catalog company,
concentrating on the marketing of gift, household, gardening, kitchen,
Christmas and children's products.
The consolidated financial statements include the accounts of Lillian
Vernon Corporation and its wholly-owned subsidiaries, Lillian Vernon
Fulfillment Services, Inc., Lillian Vernon International, Ltd., and LVC
Retail Corporation (the "Company"). All material intercompany balances and
transactions have been eliminated.
The Company has a fiscal year consisting of 52 or 53 weeks ending on the
last Saturday in February. Under this policy, fiscal 1998 consisted of 53
weeks, and fiscal 1997 and fiscal 1996 each consisted of 52 weeks.
Cash Equivalents
Cash equivalents, for purposes of the Statements of Cash Flows, consist
principally of commercial paper, municipal securities and U.S. Treasury
securities, with remaining maturities at acquisition of less than three
months. Under Statement of Financial Accounting Standards (SFAS) No.
115--"Accounting for Certain Investments in Debt and Equity Securities", the
Company's investments, totaling $25.7 million and $23.3 million as of
February 28, 1998 and February 22, 1997, respectively, are classified as
held-to-maturity securities, and as such, are stated at amortized cost, which
approximates market value.
Merchandise Inventories
Merchandise inventories are principally stated at the lower of average
cost or market, determined by the retail inventory method.
Catalog Costs
Catalog costs are deferred and amortized over the estimated productive
life of the catalog, generally three months. Such deferred costs are
considered direct-response advertising in accordance with AICPA Statement of
Position No. 93-7, "Reporting on Advertising Costs", and are reflected as
long-term assets in the accompanying Balance Sheets.
Capitalized Software Costs
Direct costs of developing new software applications are capitalized and
are being amortized over five years. Amortization of capitalized software
costs totaled $188,000 in fiscal 1998, $320,000 in fiscal 1997, and $378,000
in fiscal 1996.
Capitalized software costs, net of accumulated amortization, are included
in other assets, and amounted to $1,275,000 and $429,000 at February 28, 1998
and February 22, 1997, respectively.
Depreciation and Amortization
Depreciation is provided on the straight line method for assets placed in
service over estimated useful lives of approximately 30 and 8 years for
buildings and building improvements, respectively, and for other property,
over estimated useful lives ranging from 3 to 10 years. Leasehold
improvements and assets under capital leases are amortized over approximately
15 years.
Income Taxes
Deferred income taxes arise from differences in the timing of income and
expense recognition for financial and income tax reporting purposes.
Statement of Financial Accounting Standards No. 109 requires the company to
compute deferred income taxes on the differences between the financial
statement and tax bases of the assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse.
F-6
<PAGE>
Per Share Data
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". The standard revises the computation and presentation of earnings per
share and was adopted by the Company in the fourth quarter of fiscal 1998.
Earnings per share is computed and reported on a dual presentation basis.
Basic earnings per share is computed by dividing net income by the weighted
average number of outstanding shares for the period. Diluted earnings per
share is computed by dividing net income by the sum of the weighted average
number of outstanding shares and share equivalents computed. The Company's
common share equivalents consist of stock options issued to key employees and
Directors. As required by SFAS 128, all prior periods' reported earnings per
share computations were restated to reflect the new calculation methods. The
change in reported earnings per share was not material.
Basic and diluted earnings per share were calculated as follows (amounts
in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 22, FEBRUARY 24,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net Income--Basic and Diluted...................... $8,978 $5,354 $5,729
------ ------ ------
Weighted average shares for Basic EPS.............. 9,532 9,658 9,713
Add: incremental shares from stock option
exercises......................................... 104 6 268
------ ------ ------
Weighted average shares for Diluted EPS............ 9,636 9,664 9,981
------ ------ ------
</TABLE>
In fiscal 1998, 1997, and 1996, options on 369,000, 813,500, and 212,000
shares of common stock, respectively, were not included in the calculation of
weighted average shares for diluted EPS because their effects were
antidilutive.
Fair Value of Financial Instruments
The fair value of the Company's financial instruments does not materially
differ from their carrying values.
Revenue Recognition
The Company records revenue at the time of shipment for catalog sales, and
at point of sale for retail stores.
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,
disclosure of contingent assets and liabilities at the dates of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Stock-Based Employee Compensation
The Company follows the provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for stock-based compensation
arrangements. Under the guidelines of Opinion 25, compensation cost for
stock-based employee compensation plans is recognized based on the
difference, if any, between the quoted market price of the stock on the date
of grant and the amount an employee must pay to acquire the stock. The
Company implemented the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," in
fiscal 1997, but continued its current accounting for stock-based employee
compensation, under APB Opinion No. 25 (see Note 9).
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income", which establishes standards for
F-7
<PAGE>
reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses); and No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major
customers. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations, or cash flows, and
any effect will be limited to the form and content of its disclosures. Both
Statements are effective for fiscal years beginning after December 15, 1997,
and, accordingly, the Company will adopt them in fiscal 1999.
In fiscal 1997, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The adoption of SFAS 121 did not have a material effect on the Company's
financial statements.
2. INCOME TAXES
The current income tax provision consists of (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 22, FEBRUARY 24,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Federal... $4,198 $3,314 $3,206
State..... 368 308 354
------ ------ ------
$4,566 $3,622 $3,560
====== ====== ======
</TABLE>
The deferred income tax provision (benefit) consists of (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 22, FEBRUARY 24,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Charitable
contributions........... $ 124 $(216) $(499)
Depreciation............. 360 (63) (192)
Headquarters relocation . (502) -- --
Catalog costs............ (96) (204) (40)
Other, net............... 173 (381) (133)
----- ----- -----
$ 59 $(864) $(864)
===== ===== =====
</TABLE>
The exercise of non-qualified stock options and the vesting of restricted
stock (see Note 9) result in a tax deduction to the Company equivalent to the
taxable compensation recognized by the individuals. For accounting purposes,
the tax benefit of these deductions is credited directly to additional
paid-in capital. These amounts totaled $37,000, $656,000, and $367,000 for
fiscal 1998, 1997, and 1996, respectively.
The Company's effective income tax rate is reconciled to the U.S. Federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 22, FEBRUARY 24,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Federal statutory tax rate..................... 34.0% 34.0% 34.0%
State income taxes, net of Federal tax
benefit....................................... 1.9 2.5 2.8
Charitable contributions of merchandise ....... (1.2) (3.5) (6.7)
Expired charitable contribution carry
forwards...................................... -- -- 4.9
Other, net..................................... (0.7) 1.0 (3.0)
---- ---- ----
34.0% 34.0% 32.0%
==== ==== ====
</TABLE>
F-8
<PAGE>
During fiscal 1996, expired charitable contribution carry forwards of
$1,079,000 resulted in a reduction in deferred tax assets of $416,000.
The deferred tax assets and deferred tax liabilities recorded on the
balance sheets are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, 1998 FEBRUARY 22, 1997
----------------------- ----------------------
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Current:
Catalog deferrals....... $ -- $2,270 $ -- $2,373
Charitable
contributions.......... 2,042 -- 2,152 --
Inventory
capitalization......... 848 -- 807 --
Accrued expenses........ 660 -- 607 --
Headquarters
relocation............. 502 -- -- --
Other................... 261 9 363 8
------ ------ ------ ------
Total current......... 4,313 2,279 3,929 2,381
------ ------ ------ ------
Non-current:
Depreciation............ -- 2,208 -- 1,688
Amortization............ 33 183 84 101
Deferred compensation .. 1,283 -- 1,325 --
------ ------ ------ ------
Total non-current...... 1,316 2,391 1,409 1,789
------ ------ ------ ------
Total................. $5,629 $4,670 $5,338 $4,170
====== ====== ====== ======
</TABLE>
As of February 28, 1998, the Company has $5,246,000 of charitable
contribution carry forwards for Federal income tax purposes, which expire
from fiscal 1999 to 2002.
3. CREDIT FACILITIES
The Company entered into a $42 million four-year revolving credit facility
in August 1996 with two banks. This credit facility can be used for general
corporate purposes, including working capital needs, capital expenditures,
and up to $12 million of inventory letters of credit. At the Company's
option, up to $20 million of the facility can be converted into term loans,
with maturity dates no later than 2003. Interest is payable at LIBOR plus 50
basis points, prime rate, bankers' acceptance rate plus 50 basis points, or a
fixed rate, at the Company's option. The credit facility is unsecured, and
the Company is subject to various financial covenants principally relating to
its working capital, net worth, interest coverage ratio and capital spending
restrictions. The new credit facility replaced previous unused credit
facilities totaling $15 million, which were in effect in fiscal 1996, bearing
interest at the prime rate.
In fiscal 1998 and fiscal 1997, the Company incurred commitment fees on
the new credit facility ranging from 5 basis points on the letters of credit
to 20 basis points on the available revolving credit line. In fiscal 1996,
the Company incurred commitment fees of approximately 20 basis points.
During fiscal 1998, the maximum amount outstanding under the new revolving
credit agreement was $11.5 million (excluding letters of credit). Interest
expense related to these borrowings was approximately $75,000. No amounts
were outstanding under the Company's credit facilities as of February 28,
1998 and February 22, 1997.
The Company had outstanding letters of credit approximating $7,324,000 and
$4,773,000 as of February 28, 1998 and February 22, 1997, respectively, for
the purchase of inventory in the normal course of business.
4. OTHER
Prepayments and other current assets include prepaid catalog costs of
$7,365,300 and $7,851,800 as of February 28, 1998 and February 22, 1997,
respectively (see Note 1).
F-9
<PAGE>
Trade accounts payable and accrued expenses consist of (dollars in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 22,
1998 1997
------------ ------------
<S> <C> <C>
Trade accounts payable ... $ 8,644 $ 6,061
Catalog costs............. 1,892 1,696
Salaries and
compensation............. 1,264 1,566
Other..................... 4,531 5,162
------- -------
$16,331 $14,485
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 22,
1998 1997
------------ ------------
<S> <C> <C>
Land and buildings............................ $31,778 $31,656
Machinery and equipment....................... 29,035 26,512
Furniture and fixtures........................ 3,561 3,313
Leasehold improvements........................ 909 3,776
Capital leases................................ 1,262 1,262
------- -------
Total property, plant & equipment, at cost .. 66,545 66,519
Less, accumulated depreciation &
amortization................................. 28,912 26,200
------- -------
Property, plant & equipment, net............. $37,633 $40,319
======= =======
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 22,
1998 1997
------------ ------------
<S> <C> <C>
Senior Notes due September 1998, payable in semi-annual
installments of $300,000 with interest at 10.09%............. $ 600 $1,200
Senior Notes due October 1998, payable in semi-annual
installments of $335,000 with interest at 10.0%.............. 670 1,340
Industrial Revenue Bond of the City of New Rochelle
Industrial Development Agency, payable in quarterly
installments of $1,500 with interest at prime rate (February
1997--8.25%) through October 1997............................ -- 4
------ ------
$1,270 $2,544
Less, current portion....................................... 1,270 1,274
------ ------
$ -- $1,270
====== ======
</TABLE>
The Company's long-term debt agreements require that the Company meet
certain financial covenants, principally related to working capital and
tangible net worth, both as defined in the agreements.
7. LEASES
The Company leases its New Rochelle, New York corporate headquarters under
a capital lease arrangement with a partnership, Port Chester Properties, the
partners of which are stockholders of the Company. The leased asset consists
of land and a 41,000 square foot building with a cost of $1,262,000 and
accumulated amortization of $1,223,000 as of February 28, 1998 and $1,144,000
as of February 22, 1997.
F-10
<PAGE>
The lease expires July 30, 1998 and provides for the payment by the Company
of an annual rent of $430,000, and all real estate taxes, insurance, and
certain other costs (total lease and related costs are approximately $580,000
or $14.00 per square foot).
The Company will relocate its corporate headquarters in July 1998 to a
65,000 square foot building in Rye, New York. This facility is leased from
CVS New York, Inc. under a sublease agreement expiring on January 30, 2005.
This operating lease will have an annual rent of $1,153,000 ($17.75 per
square foot), plus increases in real estate taxes and operating costs over
the initial lease year base costs. The Company has the right to renew the
lease, for 2 five-year periods, with the building owner upon expiration of
the sublease.
In connection with the planned relocation of its corporate headquarters,
in fiscal 1998, the Company wrote-off $1,330,000 on a pre-tax basis ($878,000
after tax), representing the entire unamortized value of its leasehold
improvements at the existing corporate headquarters facility in New Rochelle,
New York.
The Company has operating lease agreements for certain computer and other
equipment used in its operations and for its outlet store locations, with
existing lease terms ranging from fiscal 1999 through fiscal 2004, and
various renewal options through fiscal 2009. Most of the store leases also
provide for payment of common charges such as maintenance and real estate
taxes. Twelve stores require the payment of additional rent based upon a
percentage of sales. Minimum rental payments required under these agreements,
as well as the new Corporate Headquarters Sublease, are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1999............................................................... $ 2,549
2000............................................................... 2,934
2001............................................................... 2,703
2002............................................................... 2,566
2003............................................................... 2,127
Thereafter......................................................... 2,319
-------
$15,198
=======
</TABLE>
Rent expense for fiscal 1998, 1997 and 1996 amounted to $2,612,000,
$2,171,000, and $1,840,000, respectively, which included $30,000, $14,000 and
$20,000 in fiscal 1998, 1997 and 1996, respectively, for contingent rentals
based upon a percentage of outlet store sales.
8. EMPLOYEE BENEFIT PLANS
The Company maintains a profit sharing plan for the benefit of all
employees who meet certain minimum service requirements. The Company's profit
sharing contribution is discretionary, as determined by the Board of
Directors. Employees become fully vested in their profit sharing account
balance after seven years. The authorized profit sharing contributions for
fiscal 1998, 1997, and 1996 were $480,000, $500,000, and $450,000,
respectively.
The Company's profit sharing plan includes an employee contribution and
employer matching contribution (401k) feature. Under the 401k feature of the
plan, eligible employees may make pre-tax contributions up to 10% of their
annual compensation. Employee contributions of up to 6% of compensation are
currently matched by the Company at a rate of 50%. The matching contribution
is made with Company stock. Employees are 100% vested in their pre-tax
contributions at all times, and become fully vested in the employer matching
contribution after two years of service. The Company's matching contributions
to the plan for fiscal 1998, 1997, and 1996 were $460,000, $425,000, and
$398,000 respectively.
The Company has deferred compensation agreements to provide additional
retirement benefits for certain principal stockholders of the Company. The
deferred compensation agreements also provide for death benefits to be paid
to each party's beneficiary. The Company has purchased life insurance
policies to fund, in part, the payment of these benefits. Amounts expensed in
connection with these agreements were $353,000 in fiscal 1998, $366,000 in
fiscal 1997 and $150,000 in fiscal 1996.
F-11
<PAGE>
9. STOCK COMPENSATION PLANS
At February 28, 1998, the Company had three stock-based compensation
plans, which are described below. The Company applies APB Opinion 25 and
related Interpretations in accounting for its stock compensation plans.
Accordingly, no compensation cost has been recognized for its non-qualified
stock options granted and for shares issued through its Employee Stock
Purchase Plan. Compensation cost has been charged against income for the
issuance of restricted stock during fiscal 1997; net income was reduced by
approximately $68,000 in fiscal 1997, and by approximately $58,000 in fiscal
1998. If compensation cost for the Company's non-qualified stock options
issued and shares purchased through its stock purchase plan had been
determined based on the fair value at the grant dates for awards under those
plans consistent with the requirements of Statement of Financial Accounting
Standards No. 123, the Company's net income and earnings per share would have
been reduced to the proforma amounts indicated below (dollars in thousands,
except per share amounts):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 22, FEBRUARY 24,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Income................. As reported $8,978 $5,354 $5,729
Pro forma $8,617 $5,112 $5,662
Basic earnings per share .. As reported $.94 $.55 $.59
Pro forma $.90 $.52 $.58
Diluted earnings per
share..................... As reported $.93 $.55 $.57
Pro forma $.89 $.52 $.56
</TABLE>
The Company has a 1997 Performance Unit, Restricted Stock, Non-Qualified
Option and Incentive Stock Option Plan, and a total of 525,000 shares of
common stock have been reserved for issuance thereunder. Prior to adoption of
the 1997 Plan, the Company's 1987 Plan, which expired during the fiscal year,
had a total of 2,000,000 shares reserved for issuance. The Company has
granted and sold shares of restricted stock to certain executives at a
nominal price per share. In connection with the issuance of restricted stock,
unearned compensation is recorded ($197,400 in fiscal 1997) and amortized
over the respective vesting periods. Restricted shares were granted, and vest
as follows:
<TABLE>
<CAPTION>
DATE GRANTED NUMBER OF SHARES DATE VESTED
------------ ---------------- -----------
<S> <C> <C>
March 1996..... 5,000 March 1997
March 1996..... 5,000 March 1998
June 1996...... 5,000 June 1997
</TABLE>
The Company has also granted non-qualified stock options to employees.
Such options have been granted at market value, vest within three years from
the date of grant and expire within ten years from the date of grant. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions for fiscal
years ended February 24, 1996 and February 22, 1997: dividend yield of 2.0%,
expected volatility of 29.1%, risk-free interest rate of 6.3%, expected
option term of five years, and a forfeiture rate of 25%; for fiscal year
ended February 28, 1998: dividend yield of 2.0%, expected volatility of
29.0%, risk-free interest rate of 5.7%, expected term of five years, and a
forfeiture rate of 25%.
F-12
<PAGE>
A summary of the Company's non-qualified stock option activity and
weighted average exercise prices for the three years ended February 28, 1998
follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------------------------------------
FEBRUARY 24, 1996 FEBRUARY 22, 1997 FEBRUARY 28, 1998
-------------------------- -------------------------- -------------------------
NUMBER WEIGHTED NUMBER WEIGHTED NUMBER WEIGHTED
OF AVERAGE OF AVERAGE OF AVERAGE
SHARES EXER. PRICE SHARES EXER. PRICE SHARES EXER. PRICE
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. 1,253,500 $13.36 1,057,000 $12.59 878,500 $14.20
Granted.................. 187,500 $13.38 262,500 $13.15 209,500 $16.29
Exercised................ (214,000) $15.21 (337,000) $8.08 (23,667) $12.62
Forfeited................ (170,000) $15.82 (104,000) $15.07 (10,000) $14.25
--------- --------- ---------
Outstanding at end of
year.................... 1,057,000 $12.59 878,500 $14.20 1,054,333 $14.72
========= ========= =========
Options exercisable at
year-end................ 695,667 472,833 628,165
Weighted-avg. fair value
of options granted
during the year......... $2.43 $2.38 $2.85
</TABLE>
The following table summarizes information about stock options outstanding
at February 28, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -------------------------
WEIGHTED AVG.
REMAINING WEIGHTED WEIGHTED
SHARES CONTRACTUAL AVERAGE SHARES AVERAGE
RANGE OF EXER. PRICES OUTSTANDING LIFE EXER. PRICE EXERCISABLE EXER. PRICE
- --------------------- ----------- ---- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$12.25-$18.13......... 1,054,333 7.1 YRS. $14.72 628,165 $14.71
</TABLE>
The Company also has a 1997 Stock Option Plan for Non-Employee Directors,
and has reserved a total of 50,000 shares of common stock for issuance
thereunder. Prior to the adoption of the 1997 Plan, the Company's 1993 Plan,
which expired during the fiscal year, had a total of 100,000 shares reserved
for issuance. The Company has granted non-qualified stock options to its
non-employee Directors both pursuant to the Plan and outside of the Plan.
These options are granted at market value, vest one year from the date of
grant and expire within ten years from the date of grant. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions for fiscal years ended
February 24, 1996 and February 22, 1997: dividend yield of 2.0%, expected
volatility of 29.1%, risk-free interest rate of 6.3%, expected term of five
years, and a forfeiture rate of 6%; for the fiscal year ended February 28,
1998; dividend yield of 2.0%, expected volatility of 29.0%, risk-free
interest rate of 5.7%, expected term of five years, and a forfeiture rate of
6%.
F-13
<PAGE>
A summary of the Company's stock option activity under the Non-Employee
Director Plan, and options granted to non-employee Directors outside the
Plan, for the three years ended February 28, 1998 follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------------------------
FEBRUARY 24, 1996 FEBRUARY 22, 1997 FEBRUARY 28, 1998
----------------------- ----------------------- ----------------------
NUMBER WEIGHTED NUMBER WEIGHTED NUMBER WEIGHTED
OF AVERAGE OF AVERAGE OF AVERAGE
SHARES EXER. PRICE SHARES EXER. PRICE SHARES EXER. PRICE
-------- ------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. 20,000 $15.25 30,000 $14.79 40,000 $14.19
Granted.................. 10,000 $13.88 10,000 $12.38 20,000 $16.38
Exercised................ 0 -- 0 -- 0 --
Forfeited................ 0 -- 0 -- 0 --
------ ------ ------ ------ ------ ------
Outstanding at end of
year.................... 30,000 $14.79 40,000 $14.19 60,000 $14.92
====== ====== ======
Options exercisable at
year-end................ 20,000 30,000 40,000
Weighted-avg. fair value
of options granted
during the year......... $4.02 $3.61 $4.59
</TABLE>
The following table summarizes information about stock options outstanding
under the Non-Employee Directors Plan, and options granted to non-employee
Directors outside the Plan, at February 28, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
SHARES CONTRACTUAL AVERAGE SHARES AVERAGE
RANGE OF EXER. PRICES OUTSTANDING LIFE EXER. PRICE EXERCISABLE EXER. PRICE
- --------------------- ----------- ---- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$12.38-$18.00......... 60,000 8.0 YRS. $14.92 40,000 $14.19
</TABLE>
The Company also has an Employee Stock Purchase Plan, with a total of
150,000 shares reserved for issuance. Under the Employee Stock Purchase Plan,
eligible employees can purchase shares of the Company at the end of each
fiscal quarter, at a price equal to 85% of the average price of the stock on
the last trading day of the fiscal quarter. A maximum of 450 shares may be
purchased by an eligible employee in each fiscal year. Under the Plan,
employees elected to purchase 9,450 shares, 13,809 shares, and 9,878 shares
in fiscal 1998, 1997, and 1996, respectively. Pro forma compensation cost
equal to the 15% discount received by employees who purchased shares was
approximately $23,000 in fiscal 1998, $24,000 in fiscal 1997, and $21,000 in
fiscal 1996.
F-14
<PAGE>
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDED
------------------------------------------------------
MAY 24, AUGUST 23, NOVEMBER 22, FEBRUARY 28,
FISCAL 1998 1997 1997 1997 1998
- ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues....................................... $27,748 $37,257 $106,305 $86,914
Income (loss) before income taxes.............. (3,553) (580) 14,476 3,260(1)
Net income (loss).............................. (2,345) (383) 9,554 2,152(1)
Net income (loss) per common share--Basic (2) . (.24) (.04) 1.00 .23(1)
Net income (loss) per common share--Diluted
(2)........................................... (.24) (.04) .99 .23(1)
Market price of shares outstanding
--market high................................. 15 15/16 17 1/4 17 1/2 18 5/8
--market low.................................. 12 1/2 15 1/2 14 7/8 14 1/8
</TABLE>
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDED
------------------------------------------------------
MAY 25, AUGUST 24, NOVEMBER 23, FEBRUARY 22,
FISCAL 1997 1996 1996 1996 1997
- ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues....................................... $26,313 $32,970 $100,343 $80,428
Income (loss) before income taxes.............. (5,419) (3,128) 13,059 3,599
Net income (loss).............................. (3,631) (2,096) 8,677 2,403
Net income (loss) per common share--Basic (2) . (.38) (.22) .90 .25
Net income (loss) per common share--Diluted
(2)........................................... (.38) (.22) .90 .25
Market price of shares outstanding
--market high................................. 15 1/4 14 5/8 13 1/2 13
--market low.................................. 12 5/8 10 3/8 10 7/8 11 1/4
</TABLE>
- --------------
(1) Includes pre-tax write-off of $1,330 of unamortized leasehold
improvements ($878 or $.09 per share after-tax) due to the relocation
of the Company's Corporate Headquarters.
(2) Net income (loss) per common share has been restated to comply with
SFAS No. 128 (see Note 1 to the Consolidated Financial Statements).
11. TERMINATED MERGER AGREEMENT
On June 13, 1995, the Company entered into a Merger Agreement with an
affiliate of Freeman Spogli & Co., Incorporated. Pursuant to the Agreement,
the Company would have been recapitalized through a merger transaction in
which all of the shares of common stock of the Company, other than certain
shares held by Lillian Vernon and David Hochberg, would have been converted
into the right to receive $19 per share in cash. The Merger Agreement was
terminated on September 18, 1995 when it was determined that financing for
the transaction at the $19 per share price could not be obtained. The costs
of the terminated merger of $921,000 have been recorded in the fiscal 1996
financial statements. These costs consisted principally of legal, accounting
and filing fees.
12. STOCK REPURCHASE PROGRAM
On October 10, 1995, the Board of Directors authorized the Company to
repurchase up to 1 million shares of its common stock in the open market from
time to time, subject to market conditions. As of February 28, 1998, the
Company had purchased 655,200 shares at a total cost of $9,461,000. The
shares are used by the Company to make the matching contribution to its
Profit Sharing/401(k) Plan, and to issue shares under its 1997 Performance
Unit, Restricted Stock, Non-Qualified and Incentive Stock Option Plan.
F-15
<PAGE>
13. NONCASH FINANCING ACTIVITIES
During fiscal 1996 and 1997, certain non-qualified stock options were
exercised by stock plan participants using noncash consideration. The Company
has received shares of its Common Stock in consideration for the exercise
price and for income taxes required to be withheld. Such stock is reported as
Treasury Stock on the Balance Sheets. The number of Treasury Stock shares
accepted as consideration for such stock option exercises was determined by
the market price of the Company's Common Stock on the exercise dates. These
transactions, for purposes of the Statements of Cash Flows, are deemed to be
noncash financing activities and, as such, have not been reflected on the
Statements.
A summary of activity follows:
<TABLE>
<CAPTION>
CONSIDERATION
--------------------------------
FISCAL OPTIONS EXERCISE LILLIAN VERNON CORP.
YEAR EXERCISED PRICE LOAN COMMON STOCK
---- --------- ----- ---- ------------
<S> <C> <C> <C> <C>
1996..... 112,500 shares $1,766,550 $117,393 95,307 shares
1997..... 180,000 shares $1,440,000 -- 133,759 shares
</TABLE>
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Lillian Vernon Corporation:
We have audited the accompanying consolidated balance sheets of Lillian
Vernon Corporation and Subsidiaries as of February 28, 1998 and February 22,
1997, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three fiscal years in the period ended
February 28, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lillian
Vernon Corporation and Subsidiaries as of February 28, 1998 and February 22,
1997, and the consolidated results of their operations and their cash flows
for each of the three fiscal years in the period ended February 28, 1998, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
New York, New York
April 15, 1998
F-17
<PAGE>
AGREEMENT
AGREEMENT effective as of July 1, 1997 between LILLIAN VERNON
CORPORATION, a Delaware corporation, having its principal office at 543 Main
Street, New Rochelle, New York 10801 ("Company"), and ______________________
("Executive"), residing at ________________________________.
W I T N E S S E T H :
WHEREAS, in consideration of the contribution that has been, and can
continue to be, made by Executive toward the success of the business of the
Company, the Company desires to enter into this Agreement.
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS:
(a) "ADJUSTED W-2 INCOME" shall mean Executive's total earnings
reported by the Company on Executive's most recent annual W-2 statement prior
to a Change in Control less income included therein attributable to the
issuance, vesting or exercise of stock options or restricted stock.
(b) "CAUSE" shall mean (i) the failure of Executive to remedy any
intentional material breach of Executive's obligations to the Company within
fifteen (15) business days after Executive has received written notice from the
Company specifying such breach in reasonable detail, or if such breach cannot
be reasonably remedied within a fifteen (15) business day period, the Executive
shall have commenced diligent efforts to remedy such breach within such fifteen
(15) business day period and
<PAGE>
shall have remedied such breach within sixty (60) days after Executive has
received written notice as aforesaid;
(ii) The Executive shall intentionally materially breach any
such obligation on a second occasion after he has received written notice of
such breach as provided in clause (i) above;
(iii) Conviction of a felony crime;
(iv) The crime of theft or misappropriation of the Company's
property; and
(v) Intentionally making a material false written statement to
the Company's Board of Directors ("Board") regarding the affairs of the
Company.
(c) "CHANGE IN CONTROL" shall be deemed to have occurred
A. (i) if there has occurred a "change in control", as the term
"control" is defined in Rule 12b-2 promulgated under the Securities Exchange
Act of 1934, as amended at the date hereof (the "Act") or (ii) when any
"person" (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Act)
becomes a beneficial owner (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities of the Company
representing fifty (50%) percent or more of the Company's then outstanding
securities having the right to vote on the election of directors excluding,
however, in either case the acquisition of control by Lillian Vernon, members
of her immediate family, or their respective estates, trusts for
2
<PAGE>
their benefit or charitable foundations or charitable trusts established by any
of them or an underwriter (as such term is defined in Section 2(ii) of the
Securities Act of 1933, as amended) for the purpose of making a public offering
or an employee benefit plan (or related trust) sponsored or maintained by the
Company, or
B. (i) when individuals who are members of the Company's Board
of Directors at any one time shall immediately thereafter cease to constitute a
majority of the Board of Directors or (ii) when a majority of the directors
elected at an annual or special meeting of stockholders are not individuals
nominated by the Company's incumbent Board of Directors in either case within
two (2) years of: (x) the completion of a tender offer for the voting stock of
the Company (other than a tender offer or exchange offer by the Company) or a
proxy contest in connection with the election of members to the Company's
Board; or (y) a merger or consolidation of the Company.
(d) "CHANGE IN CONTROL AGREEMENT" shall mean a non-binding letter
of intent or a binding agreement executed by the Company with respect to a
transaction which if consummated would result in a Change in Control.
(e) "DISABILITY" shall mean an illness, disability or other
incapacity (whether physical or mental) which has prevented Executive from
performing Executive's regular duties on a full-time basis for ninety five (95)
consecutive days, or ninety five (95) days in any consecutive twelve (12) month
period. In the
3
<PAGE>
event Executive disputes that Executive is disabled and provides to the Company
a written opinion of a licensed physician of the State of New York (the
"Executive's Physician") to that effect, then Executive agrees to submit to a
physical examination by a licensed physician of the State of New York chosen by
the Company (the "Company's Physician"). If the Company's Physician issues a
written opinion to the effect that Executive is disabled, then such dispute
shall be submitted to a third physician chosen jointly by the Executive and the
Company (the "Neutral Physician"). If the Executive and the Company cannot
agree on the Neutral Physician within ten (10) days after the issuance of the
Company's Physician's opinion, then either party may apply to the American
Arbitration Association for the appointment of the Neutral Physician. The
determination of the Neutral Physician shall be final and binding upon the
parties hereto.
(f) "GOOD REASON" shall mean a termination by Executive of
Executive's employment with the Company after Executive has given the Company
thirty (30) day written notice of the occurrence of any one or more of the
following events and the Company has failed to remedy the same within such
thirty (30) day period:
(i) A reduction in Executive's base salary or a significant
change in the nature or scope of the authorities, powers, functions or duties
normally attached to Executive's position with the Company as of the date
hereof;
4
<PAGE>
(ii) The assignment to Executive of duties inconsistent with
his positions, duties, responsibilities and status with the Company immediately
prior to the Change in Control or any change in the management process of the
Company which materially and adversely affects the Executive's ability to
perform his duties;
(iii) A change in the location at which substantially all of
Executive's duties with the Company are to be performed to a location which is
not within thirty (30) miles of the location of the Company's present executive
office.
(g) "QUALIFYING CHANGE IN CONTROL AGREEMENT TERMINATION" shall mean
a termination of Executive's employment without Cause by the Company or its
successor prior to a Change in Control but after the execution of a Change in
Control Agreement provided a Change in Control occurs (whether with the entity
or entities party to such Change in Control Agreement or with other entities)
within six (6) months after the execution of such Change in Control Agreement.
(h) "TERMINATION DATE" shall mean the last day of Executive's
employment with the Company except in the case of a Qualifying Change in
Control Agreement Termination, the Termination Date shall mean the date of the
Change in Control.
(i) "WITHOUT CAUSE" shall mean a termination of Executive's
employment by the Company for any reason other than death, disability or for
Cause.
5
<PAGE>
2. TERM AND OPERATION OF AGREEMENT.
(a) This Agreement shall be effective only with respect to a Change
in Control which is consummated on or prior to June 30, 2002. Unless the term
hereof is extended in a writing signed by the parties hereto, this Agreement
shall have no effect and Executive shall have no rights hereunder with respect
to the termination of Executive's employment following a Change in Control
which is consummated on or after July 1, 2002. Nothing in this Agreement shall
be construed to restrict in any way the Company's right or Executive's right to
terminate Executive's employment with the Company either with or without Cause
prior to a Change in Control or after a Change in Control; provided, however,
if there currently exists an employment agreement between the Company and
Executive or if the Company and the Executive hereafter enter into an
employment agreement, then the terms and conditions of such employment
agreement shall to the extent inconsistent herewith prevail over the terms of
this Agreement. If any such employment agreement has no Change in Control
provisions, then the Change in Control provisions set forth herein, including
the limitations set forth in Section 2(e) hereof, shall prevail.
(b) If Executive's Employment with the Company is terminated:
(i) without Cause by the Company or its successor within two
(2) years after the occurrence of a Change in Control;
6
<PAGE>
(ii) without Cause by the Company or its successor after the
execution of a Change in Control Agreement but prior to a Change in Control and
a Change in Control occurs (whether with the entity or entities party to such
Change in Control Agreement or with other entities) within six (6) months after
the execution of such Change in Control Agreement; or
(iii) with Good Reason by the Executive within two (2) years
after the occurrence of a Change in Control, then, in any of such events,
Executive shall be (i) entitled to his normal salary, bonuses, awards,
perquisites and benefits, including, without limitation, benefits and awards
under the stock option plans of the Company, the Company's bonus plan and the
Company's retirement plans and programs, through the date the Executive's
employment with the Company terminated and, in addition thereto, (ii) shall be
paid in a lump-sum, on the Termination Date, an amount of cash computed as a
percentage of Adjusted W-2 Income based upon the time (measured in months)
elapsed from the actual date of the Change in Control, to the Termination date
as set forth in the following table:
Time Elapsed between
Change in Control and Percentage of
Termination Date Adjusted W-2 Income
---------------- -------------------
0-12 Months 200%
13-18 Months 150%
18-24 Months 100%
24 Months & thereafter 0%
(c) After a Change in Control has occurred and while the Company's
shares of common stock shall remain publicly traded, the Company will honor,
whether or not vested by their
7
<PAGE>
terms, Executive's exercise of all Executive's outstanding stock options
("Options"). After a Change in Control has occurred and if the Company's shares
of common stock are not publicly traded, the Company shall immediately pay in
cash to Executive that amount equal to the product of (1) the aggregate number
of shares subject to option, whether or not vested, multiplied by (2) the
difference between (x) the exercise price of each such option, and (y) the
highest tender price paid for the Company's common stock in the effort to
retire Company's publicly traded common stock.
(d) Notwithstanding anything to the contrary contained above, if
there currently exists an agreement between the Company and Executive or if the
Company and the Executive hereafter enter into an agreement or if existing or
future policies of the Company would provide for severance payments to
Executive or pro rata bonus awards or like payments upon termination of
Executive's employment, then, unless such agreement or policy specifically
refers to and nullifies this Section 2(d), any sums paid to Executive under
such Company policies or other agreement by reason of the termination of
Executive's employment shall reduce the sums payable to Executive under this
Agreement. However, any sums payable to Executive by reason of a termination of
Executive's employment from any profit, pension, 401K or similar employee
benefit plan shall not be deducted from the sums otherwise due Executive
hereunder.
8
<PAGE>
(e) Notwithstanding anything contained elsewhere in this Agreement:
(i) In the event that any payment or benefit received or to be
received by the Executive in connection with a Change in Control or the
termination of the Executive's employment (whether payment pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a Change in Control or any person
affiliated with the Company or such person (collectively, with the severance
and other benefits accruing to Executive pursuant to this Agreement ("Severance
Benefits"), the "Total Payments")) would not be deductible (in whole or in
part) as a result of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the Severance Benefits shall be reduced until no
portion of the Total Payments is not deductible as a result of Section 280G of
the Code, or the Severance Benefits are reduced to zero (the "Reduced Amount");
and
(ii) If the firm of independent public accountants most
recently acting as the Company's auditors prior to the Change in Control (the
"Auditors") determine that any Severance Benefit would be nondeductible by the
Company because of Section 280G of the Code, then the Company shall promptly
give the Executive notice to that effect and a copy of the detailed calculation
thereof and of the Reduced Amount (the "280G Notice"), and the Executive may
then elect, in his sole discretion, which and how much of the Severance
Benefits shall be
9
<PAGE>
eliminated or reduced (as long as after such election the aggregate present
value of the Severance Benefits equals the Reduced Amount) and shall advise the
Company in writing of his election within ten (10) days of his receipt of the
280G Notice. If no such election is made by the Executive within such ten (10)
day period, then the Company may elect which and how much of the Severance
Benefits shall be eliminated or reduced (as long as after such election the
aggregate present value of the Severance Benefits equals the Reduced Amount)
and shall notify the Executive promptly of such election. All determinations
made by the Auditors under this paragraph shall be binding upon the Company and
the Executive and shall be made within sixty (60) days of the date of
termination. As promptly as practicable following such determination and the
elections hereunder, the Company shall pay to or distribute to or for the
benefit of the Executive such amounts as are then due to him under this
Agreement.
3. NON-QUALIFYING TERMINATION. If the Executive terminates his
employment with the Company more than two (2) years after a Change in Control,
or if Executive terminates his employment within two (2) years of a Change in
Control for any reason other than for Good Reason or if the Company terminates
Executive's employment for Cause or by reason of the Executive's disability or
if the Executive shall die, then in any of such events, Executive shall not be
entitled to any benefits under this Agreement, but Executive or his estate, as
the case may be,
10
<PAGE>
shall be entitled to the benefits, if any, which Executive would be entitled to
by law, the Company's policies as then in effect or the Company's employee
benefit plans as then in effect together with such other rights or benefits, if
any, as may be set forth in any separate written agreement between the
Executive and the Company.
4. USE OF INFORMATION. Executive recognizes and acknowledges that
trade secrets and other confidential information including, but not limited to,
customer and supplier lists, marketing plans, pricing policies and methods of
operation are valuable, special and unique assets of the business of the
Company and its affiliates. Accordingly, Executive shall not, after the
Termination Date, use, disclose or cause to be disclosed any of such trade
secrets or other confidential information to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, the provisions of this Section 4 shall not apply
to information generally known to the public or the trade, information
available in trade or other publications and information which becomes public
through no fault of the Executive. Furthermore, this Section 4 shall not
prohibit Executive from entering into employment with any of the Company's
competitors or any other person, firm, corporation, association or other entity
so long as Executive does not reveal any of the aforesaid trade secrets and
other confidential information during the course of or in connection with such
employment.
11
<PAGE>
5. SOLICITATION. Executive agrees that, for two (2) years following
the date his employment with the Company terminates either with or without
Cause or with or without Good Reason, Executive will not, directly or
indirectly, induce any person connected with or employed by the Company or any
of its subsidiaries or affiliates to leave the employ of the Company or of any
such subsidiary or affiliate.
6. REMEDIES. In the event of a breach or threatened breach by
Executive of any of the provisions of Sections 5 and 6 hereof, the Company
shall be entitled, upon establishing the existence of such breach or threatened
breach, to an injunction to be issued by any tribunal of competent jurisdiction
to restrain Executive from committing or continuing any such violation. In any
proceeding for an injunction and upon any motion for temporary, preliminary or
permanent injunction, Executive agrees that Executive's ability to answer in
damages shall not be a bar or be interposed as a defense to the granting of
such temporary, preliminary or permanent injunction against Executive.
Executive acknowledges that the Company will not have an adequate remedy at law
in the event of any breach by Executive as aforesaid and that the Company may
suffer irreparable damage and injury in the event of such a breach by
Executive. Executive waives the posting of a bond or other security in
connection with the issuance of any such temporary or preliminary injunction.
Nothing contained in Sections 4 or 5 or elsewhere herein shall be construed as
prohibiting the Company from pursuing any other
12
<PAGE>
remedy or remedies available to the Company, including without limitation, the
recovery of damages from Executive or as limiting the Company's rights under
law or under any separate agreement between Executive and the Company.
7. ASSIGNABILITY. This Agreement may not be assigned by Executive and
all of its terms and conditions shall be binding upon and enure to the benefit
of Executive and his heirs and legal representatives and the Company and its
successors and assigns. Successors of the Company shall include, without
limitation, any corporation or corporations acquiring directly or indirectly
all or substantially all of the assets of the Company whether by merger,
consolidation, purchase or otherwise and such successor shall thereafter be
deemed the "Company" for purposes hereof.
8. NOTICES. All notices, requests, demands and other communications
provided for hereby shall be in writing and shall be deemed to have been duly
given when delivered personally or sent by registered or certified mail, return
receipt requested, to the party entitled thereto at the address first above
written or to such changed address as the addressee may have given by a similar
notice.
9. MODIFICATION. This Agreement may be modified or amended only by an
instrument in writing signed by the party hereto against whom any such waiver
is sought to be enforced.
13
<PAGE>
10. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision contained herein.
11. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
executed in and to be performed entirely within the State of New York.
12. CAPTIONS. The captioned headings herein are for convenience of
reference only and are not intended and shall not be construed to have any
substantive effect.
13. ARBITRATION. The parties agree to arbitrate any and all claims,
controversies or disputes arising under or out of this Agreement or relating in
any way thereto. All such claims, controversies or disputes shall be submitted
to arbitration in the City of New York, State of New York, to three (3)
arbitrators designated under and pursuant to the Rules of the American
Arbitration Association, and the arbitration shall be heard under the auspices
of said Association and subject to its rules. The arbitrators shall have the
power to award costs and counsel fees. The parties consent to the jurisdiction
of the Courts of the State of New York located in the County of Westchester
with respect to any and all proceedings relating to any such arbitration, and
further agree that any and all process and notices of motion or applications in
relation to any such arbitration maybe served upon a party personally or by
registered or certified mail, return receipt requested. Such service may be
14
<PAGE>
accomplished either within or without the State of New York, and such notice
shall be given of all applications and hearings as is provided by the laws of
the State of New York. The award of the arbitrators shall be final and binding
upon the parties and judgment thereon may be entered as provided by the laws of
the State of New York. The foregoing notwithstanding, either party may apply to
any court of competent jurisdiction for an injunction pending the award of the
arbitrators.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.,
LILLIAN VERNON CORPORATION
By:
-------------------------------
Chairman and Chief Executive
Officer
----------------------------------
15
<PAGE>
INDEX
HEADINGS PAGE
A
ACCESS TO PREMISES..........................................................5
ALTERATIONS.................................................................7
ASSIGNMENT AND SUBLETTING...................................................6
B
BROKER.....................................................................11
C
COMMENCEMENT RENT...........................................................4
COMMON AREA MAINTENANCE COSTS..............................................10
D
DAMAGE AND DESTRUCTION......................................................6
DEFAULTS....................................................................8
DELIVERY OF THE PREMISES/USE OF FURNITURE -.................................4
E
EMINENT DOMAIN..............................................................6
ENTIRE AGREEMENT...........................................................14
ESTOPPEL CERTIFICATE, ATTORNMENT AND SUBORDINATION.........................14
EXTRA HAZARDOUS USE........................................................11
F
FIXED RENT..................................................................3
FORCE MAJEURE -............................................................13
H
HAZARDOUS MATERIALS........................................................13
HEADINGS...................................................................15
I
INSURANCE..................................................................11
L
LESSOR NOT LIABLE...........................................................7
N
NO WAIVER..................................................................12
NOTICES.....................................................................9
P
PREMISES....................................................................3
R
REMOVAL OF FIXTURES & SIGNS.................................................7
REPAIRS.....................................................................5
S
SEVERABILITY...............................................................14
SIGNS.......................................................................7
SUBLANDLORD'S INDEMNITY....................................................12
SUBLEASE....................................................................1
SUBROGATION.................................................................8
SUBTENANT'S INDEMNITY......................................................12
SUCCESSORS AND ASSIGNS.....................................................15
T
TAXES......................................................................10
TERM........................................................................3
U
USE.........................................................................3
UTILITIES...................................................................8
<PAGE>
subrye.doc
1.19.98
SUBLEASE
AGREEMENT OF SUBLEASE made this 30th day of January, 1998, by
and between CVS NEW YORK, INC., formerly known as MELVILLE CORPORATION, a New
York corporation, having its principal office at One CVS Drive, Woonsocket,
Rhode Island 02895 (hereinafter referred to as "Sublandlord"), and LILLIAN
VERNON CORPORATION, a Delaware corporation, having its principal office at 543
Main Street, New Rochelle, New York 10801 (hereinafter referred to as
"Subtenant").
W I T N E S S E T H:
WHEREAS, URBCO, INC. n/k/a CM Property Management, Inc. leased to
Sublandlord pursuant to a Lease dated April 7, 1988 (hereinafter referred to as
the "Master Lease") certain premises situated on land containing approximately
Seven (7) acres consisting of an office building having approximately
Sixty-Five (65,000) thousand square feet of space located at One Theall Road,
Rye, New York, as more fully described in the Master Lease such premises having
been subsequently sold and the Master Lease assigned to New York Investment
Limited Partnership (hereinafter referred to as "Master Landlord"); and
WHEREAS, Sublandlord is desirous of subleasing such premises to
Subtenant, and Subtenant is desirous of subleasing such premises from
Sublandlord; and
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants contained in this agreement, Sublandlord and Subtenant
mutually agree as follows:
SUBLEASE -
1. (a) It is understood and agreed that this instrument is a Sublease.
The Master Lease is incorporated as a part hereof except as specifically set
forth herein and except as to any provisions of the Master Lease which are
inconsistent with the terms hereof, and Subtenant hereby acknowledges receipt
of a copy of the Master Lease.
(b) All rights of Subtenant hereunder are subject to the terms and
provisions of the Master Lease. In the event of any
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inconsistency between the provisions of this Sublease (hereinafter referred to
as "Sublease" or "Lease") and the Master Lease, then except as to those matters
which are the obligations of Sublandlord hereunder, Subtenant agrees that it
shall be bound by the stricter provision. In the event that the Master Lease
shall expire or shall terminate as provided in Article Ten or Article Eleven of
the Master Lease or otherwise due to a matter outside of the control of
Sublandlord, then notwithstanding anything to the contrary herein set forth,
this Lease will simultaneously and automatically terminate, without recourse to
the parties hereto. Further, Subtenant agrees to indemnify Sublandlord and save
it harmless from and against any and all claims, actions, damages, liability,
and expenses in connection with or arising out of Subtenant's holdover after
the termination of this Sublease. In addition, Subtenant agrees that
Sublandlord shall not be liable to Subtenant in damages or otherwise for any
breach of the Master Landlord under the Master Lease. Provided, upon written
notice from Subtenant to Sublandlord, Sublandlord will permit Subtenant to
enforce Sublandlord's rights against Master Landlord with respect to such
breach and upon receipt of a written request from Subtenant, with respect to
such breach, Sublandlord shall demand performance by the Master Landlord, with
respect to the cure thereof.
(c) Subtenant agrees to perform, fulfill and observe all covenants and
agreements of Sublandlord as tenant, as set forth in the Master Lease, to the
extent applicable to the Premises and the Additional Areas, except for the
covenants and agreements of Sublandlord set forth therein with respect to the
payment of rent and other charges to the Master Landlord and except for these
covenants which are to be performed by Sublandlord hereunder and except with
regard to any other provision thereof, the content or context of which would
render them inapplicable to Subtenant. Subtenant acknowledges that nothing
contained in this Lease shall be deemed to create any contract or obligation
between Master Landlord and Subtenant hereunder.
(d) Sublandlord further represents and warrants that: (i) the Master
Lease, a true and complete copy of which is attached hereto as Exhibit A, is
now in full force and effect; (ii) to its knowledge, neither the Master
Landlord nor Sublandlord is in default of its obligations thereunder, nor has
any event occurred which with the giving of notice and/or passage of time would
be a default thereunder; and (iii) subject to the provisions of the
2
<PAGE>
Master Lease, Sublandlord has full right, power, and authority to sublet the
Premises as provided herein.
PREMISES -
2. Sublandlord does hereby let to Subtenant and Subtenant does hereby
hire from the Sublandlord, for the term and on the conditions hereinafter
provided, that certain office building having approximately Sixty-Five (65,000)
thousand square feet of space having an address of One Theall Road, Rye, New
York (hereinafter referred to as the "Premises") together with Sublandlord's
rights with respect to all other additional areas as defined in the Master
Lease ("Additional Areas") which include but are not limited to the present
parking areas used in connection with the Premises and situated on the
Additional Areas.
TERM -
3. The term of this Lease shall commence on the actual date of
delivery of the Premises to Subtenant in the manner and condition provided
under Article 6 hereof, and said term shall expire on January 30, 2005 (the
"Term"), subject to the conditions hereinafter set forth, and subject to the
provisions of the Master Lease.
USE -
4. Subtenant shall use and occupy the Premises for general office use
only and for no other purpose whatsoever without obtaining the prior written
consent of Master Landlord and Sublandlord.
FIXED RENT -
5. (a) From the Date of Rent Commencement, as hereinafter defined,
Subtenant shall pay to Sublandlord, at the address specified in Article 19
hereof, without any prior demand therefor and without any deduction or set-off
whatsoever, the following monthly installments of annual fixed rent:
ANNUAL MONTHLY
FIXED RENT INSTALLMENTS
$1,153,750.00 $96,145.83
(b) Said fixed rent shall be payable to Sublandlord on the first day
of each month in advance. In the event that Subtenant shall be late in its
payment of fixed rent or any other charges
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<PAGE>
due hereunder for a period of five (5) days or more, Subtenant shall pay
Sublandlord a late fee in the amount of Four (4%) percent of the amount due.
DATE OF RENT COMMENCEMENT -
It is understood and agreed that fixed rent under this Lease shall
commence on August 1, 1998 (herein referred to as the "Date of Rent
Commencement").
DELIVERY OF THE PREMISES/USE OF FURNITURE -DELIVERY OF THE PREMISES/USE OF
FURNITURE -
6. (a) Sublandlord hereby covenants and agrees to deliver possession
of the Premises and Additional Areas to Subtenant within ten (10) days of the
execution hereof, in substantially the same condition the Premises and
Additional Areas were in on January 14, 1998.
(b) All furniture, fixtures and telephone systems now situated on the
Premises belong to Sublandlord are free and clear of all liens and
encumbrances, and except as to those items designated by Subtenant to be
removed by Sublandlord pursuant to written notice received by Sublandlord
within Sixty (60) days of the date of execution hereof, shall remain on the
Premises for Subtenant's use during the Term and during any period Subtenant
leases the Premises from Master Landlord. All maintenance, repairs and personal
property taxes with respect to such furniture, fixtures and phone systems shall
be the responsibility of Subtenant and Subtenant shall indemnify and hold
harmless Sublandlord with respect to any liability in connection therewith and
with the use of such furniture, fixtures and telephone system. Subtenant shall
be responsible for the removal and disposal of such furniture, fixtures and
phone systems upon the conclusion of the Term and/or upon the termination of
such lease or rental period with the Master Landlord, provided, if this
Sublease is terminated prior to the expiration of the Term, such fixtures and
phone systems shall be returned to Sublandlord in the same condition they were
in on the date hereof, reasonable wear and tear excepted. At the conclusion of
the Term, provided Subtenant is not in default of its obligations hereunder,
Sublandlord will deliver a bill of sale, without warranties except as title, to
Subtenant for consideration consisting of One ($1.00) Dollar with respect to
such furniture, fixtures and telephone system. Subtenant shall be responsible
for all taxes and other costs associated with such transfer and shall hold
harmless and indemnify Sublandlord with respect thereto.
Subtenant agrees that such furniture, fixtures and phone system are
delivered to Subtenant in "as is" condition and Sublandlord makes no warranty
or representation with respect to the same or their condition, state of repair
or fitness for a
4
<PAGE>
particular purpose. Sublandlord will assign, without warranty, all
manufacturer's warranties with respect to such furniture, fixtures and
telephone system to Subtenant.
REPAIRS -
7. (a) At Subtenant's sole cost, Subtenant shall take good care of the
Premises and Additional Areas and shall keep same clean and free of dirt and
debris, shall replace all glass broken by Subtenant, its employees or agents,
have responsibility for its own trash removal and janitorial services, and
shall do the work required to maintain the furniture, fixtures and telephone
system and equipment excepting such work as is the obligation of Sublandlord or
Master Landlord.
(b) Except to the extent performed by Master Landlord, Sublandlord
agrees to maintain and repair the heating, ventilating, and air-conditioning
systems located in and servicing the Premises, maintenance of grounds
(including grass cutting and maintenance of shrubs and landscaping) and to be
responsible for providing personnel to operate building systems as necessary.
Except as provided in Article 7(a) above and 17, 21, 22, 23 and 30 below and
except as provided by Master Landlord, Sublandlord shall be responsible for all
operating expenses relating to the Premises including without limitation, snow
removal from parking lots and sidewalks, external building and window cleaning
(quarterly) and service contracts for HVAC repairs and maintenance and elevator
service contractors. Sublandlord shall maintain the Premises as a first-class
headquarters facility in accordance with industry standards applicable to the
location of the Premises.
(c) Except if Subtenant exercises any option to extend the Master
Lease granted by Master Landlord, at the end, expiration, or other termination
of the Term, except for such work as is Sublandlord's obligation hereunder,
Subtenant shall deliver up the Premises and Additional Areas in as good order
and condition as they are required to be upon the termination of the Master
Lease and with all of Subtenant's trade fixtures and equipment removed
therefrom.
ACCESS TO PREMISES -
8. Sublandlord, its duly authorized agents and representatives shall
have the right, following reasonable notice to Subtenant (except in the case of
an emergency, when no notice shall be necessary), to enter into and upon the
Premises and Additional Areas, or any part thereof, during Subtenant's business
hours, or at any time in the event of an emergency, for the purpose of
examining the same or making such repairs therein as may be necessary for the
safety and preservation thereof.
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<PAGE>
DAMAGE AND DESTRUCTION -
9. (a) Subtenant shall give prompt notice to Sublandlord in case of
fire, damage, destruction or accidents in the Premises and Additional Areas or
of defects therein or in any fixtures or equipment. However, such notices, or
any occurrence giving rise thereto, shall not impose any duty on Sublandlord
except as otherwise expressly provided herein. Provided, Sublandlord agrees to
give notice thereof and to demand performance of Master Landlord's obligations
pursuant to Article Ten of the Master Lease. If Master Landlord fails or
refuses to comply with its obligations to repair the Premises as provided in
the Master Lease, Sublandlord will permit Subtenant to enforce Sublandlord's
rights against Master Landlord with respect to such breach and will cooperate
with Subtenant in such enforcement, at no expense to Sublandlord.
(b) If following any fire, accident, damage or destruction, the Master
Lease shall terminate pursuant to Article Ten thereof, Sublandlord shall give
Subtenant notice thereof and this Sublease shall simultaneously and
automatically terminate without recourse to the parties hereto.
EMINENT DOMAIN -
10. (a) In the event the entire Premises shall be appropriated or
taken under the power of eminent domain by any public or quasi-public
authority, this Sublease shall terminate and expire as of the date prior to the
date of such taking, and Sublandlord and Subtenant shall thereupon be released
from any liability thereafter accruing hereunder. The rights of the parties
shall be governed by the terms of the Master Lease.
(b) In the event the Master Lease shall terminate pursuant to Article
Eleven thereof, Sublandlord shall give Subtenant notice thereof and this
Sublease shall simultaneously and automatically terminate without recourse to
the parties hereto.
ASSIGNMENT AND SUBLETTING -
11. Subtenant may sublet the whole or any part of the Premises, with
Sublandlord's prior written consent which shall not be unreasonably withheld or
delayed, provided Master Landlord consents to same pursuant to the provision of
the Master Lease. Subtenant may assign this Sublease or sublease the Premises
in whole or in part to an affiliate, subsidiary or related entity without the
prior written consent of Sublandlord, provided Master Landlord consents
pursuant to the provision of the Master Lease and Subtenant agrees in writing
to continue to be bound to
6
<PAGE>
Sublandlord pursuant to the provisions hereof for its obligations hereunder for
the remainder of the Term.
ALTERATIONS -
12. Subtenant may make alterations to the Premises which are
non-structural in nature. All alterations shall be in compliance with all
applicable laws and with all requirements of the Master Lease. At the end of
the Term, Subtenant shall return the premises to Sublandlord in the condition
required under the Master Lease.
SIGNS -
13. All signs located on the Premises or the Additional Areas shall be
subject to the approval of the appropriate governing authorities and the
provisions of the Master Lease.
REMOVAL OF FIXTURES & SIGNS -
14. All alterations, additions, and improvements in or upon the
Premises made by either party (except Subtenant's furniture, trade fixtures,
and other equipment), shall become the property of Sublandlord and shall remain
upon and be surrendered with the Premises as a part thereof at the termination
or other expiration of the term (or any renewal term) hereby granted provided,
at the termination or other expiration of the Term, Subtenant shall remove the
items enumerated in the parenthetical above and any other items required to be
removed pursuant to the provisions of the Master Lease. as well as its signs
and identification marks, from the Premises and Additional Areas. Subtenant
agrees to repair any and all damage caused by such removal.
SUBLANDLORD NOT LIABLE -
15. Neither Sublandlord nor Sublandlord's agents shall be liable for
any injury or damage to persons or property resulting from steam, gas,
electricity, water, rain or snow or leaks from any part of the Premises or
Additional Areas, or from the pipes, appliances or plumbing works or from the
roof, street or sub-surface or from any other place or by dampness or by any
other cause of whatsoever nature, unless caused by or due to the negligence of
Sublandlord, its agents, servants or employees; nor shall Sublandlord or its
agents be liable for any such damage caused by Master Landlord or other persons
in the Premises or Additional Areas, or caused by operations in construction of
any private, public or quasi-public work.
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<PAGE>
SUBROGATION -
16. The parties release each other, and their respective authorized
representatives, from any claims for damage to any person or to the Premises
and Additional Areas and to the fixtures, personal property, Subtenant's
improvements, and alterations of either Sublandlord or Subtenant in the
Premises and Additional Areas that are caused by or result from risks insured
against under any insurance policies carried by the parties and in force at the
time of any such damage. Each party shall cause each insurance policy obtained
by it to provide that the insurance company waives all right to recovery by way
of subrogation against either party in connection with any damage covered by
any policy. Neither party shall be liable to the other for any damage caused by
fire or any other risks insured against under any insurance policy required by
this Sublease. If any insurance policy cannot be obtained with a waiver of
subrogation or is obtainable only by the payment of an additional premium
charge above that charged by insurance companies issuing policies without
waiver or subrogation, the party undertaking to obtain the insurance shall
notify the other party of this fact. The other party shall have a period of
twenty (20) days after receiving the notice either to place the insurance with
a company that is reasonably satisfactory to the other party and that will
carry the insurance with a waiver of subrogation, or to agree to pay the
additional premium if such a policy is obtainable at additional cost. If the
insurance cannot be obtained or the party in whose favor a waiver of
subrogation is desired refuses to pay the additional premium charge, the other
party is relieved of the obligation to obtain a waiver of subrogation rights
with respect to the particular insurance involved.
UTILITIES -
17. Effective upon delivery of the premises to Subtenant, Subtenant
agrees to pay for all water consumed by it and to pay for any public sewer
charges applicable to the Premises to the extent not included as a portion of
real property taxes. Subtenant also agrees to pay for all other utilities,
including gas and electricity, consumed by it in the Premises and covenants and
agrees that it will keep sufficient heat in the Premises, at all times, to
prevent pipes from freezing.
DEFAULTS -
18. (a) If Subtenant shall default in the payment of the rent reserved
herein or any item of additional rent herein mentioned, or any part of either,
and such default shall continue for Five (5) days after written notice to
Subtenant; or if Subtenant shall default in fulfilling any of the other
covenants
8
<PAGE>
of this Sublease and such default shall continue for a period of Fifteen (15)
days after written notice thereof from Sublandlord, provided, however, that
Subtenant shall not be deemed to be in default if the nature of such default is
such that the same cannot be reasonably cured within such Fifteen (15) day
period and Subtenant shall, within such period, commence such cure and
thereafter diligently prosecute the same to completion or if any execution or
attachment shall be issued against Subtenant or any of its property whereby the
premises shall be taken or occupied or attempted to be taken or occupied by
someone other than Subtenant and the same shall not be bonded, dismissed or
discharged as promptly as possible under the circumstances; or if Subtenant
shall file or have filed against it a petition under the United States
Bankruptcy Code which is not vacated within Sixty (60) days; then, and in any
such event Sublandlord may give to Subtenant Fifteen (15) days' notice of its
intention to end the term of this Sublease and Subtenant shall then quit the
premises and surrender the same, but shall remain liable as hereinafter
provided. Sublandlord may without further notice re-enter the Premises and
Additional Areas, and dispossess Subtenant and the legal representative of
Subtenant or other occupant of the Premises and Additional Areas by summary
proceedings or otherwise, and remove their effects and hold the Premises and
Additional Areas as if this Sublease had not been made.
(b) In case of any such default, re-entry, expiration and/or
dispossession by summary proceedings or otherwise, the rent shall become due
thereupon and shall be paid up to the time of such re-entry, dispossession
and/or expiration, together with such reasonable expenses as Sublandlord may
incur for legal expenses, attorneys' fees, brokerage and/or putting the
premises in good order or for preparing same for re-rental, and Subtenant shall
also pay to Sublandlord as liquidated damages for the failure of Subtenant to
observe and perform its covenants herein contained, any deficiency between the
rent herein reserved and the net amount, if any, of the rents collected on
account of the re-letting of the Premises for each month of the period which
would otherwise have constituted the remainder of the Term. Mention in this
Sublease of any particular remedy shall not preclude Sublandlord from any other
remedy in law or in equity. Subtenant hereby expressly waives any and all
rights of redemption granted by or under any present or future laws in the
event Subtenant is evicted or dispossessed, for any cause, or in the event
Sublandlord obtains possession of the Premises by reason of the violation by
Subtenant of any of the covenants and conditions of this Lease.
NOTICES -
19. All notices that shall be given or served upon either party to
this Lease shall be in writing and shall be given or served as follows: If
given or
9
<PAGE>
served by Subtenant, by mailing the same to Sublandlord by registered or
certified mail, return receipt requested, or by overnight courier service which
provides a receipt, addressed to Sublandlord, PO Box 1376, c/o Property
Administration Department, Attention: Property Administration Department,
Woonsocket, Rhode Island 02895, or at such other address as Sublandlord may
from time to time designate by notice given to Subtenant; and if given or
served by Sublandlord, by mailing the same to Subtenant by registered or
certified mail, return receipt requested, or by overnight courier service which
provides a receipt, addressed to Subtenant at the address listed on Page 1 of
this Lease and to Salon, Marrow & Dyckman, LLP, 685 Third Avenue, New York, New
York 10017, Attention: Joel Salon, Esquire, or at such other address as
Subtenant may from time to time designate by notice given to Sublandlord.
DELETED PROVISIONS -
20. (a) Subtenant shall have no option to extend the Term of this
Sublease.
(b) Subtenant shall have no rights under subsections 19.15, 19.23 or
19.24 of the Master Lease.
COMMON AREA MAINTENANCE COSTS -
21. Subtenant agrees to pay One Hundred (100%) percent of the increase
in operating expenses paid by Sublandlord over the cost of such operating
expenses in the base year July 1, 1998 through June 30, 1999. Operating
expenses shall mean all expenses incurred by Sublandlord in performing its
obligations hereunder and under the Master Lease (other than payment of Rent)
or payable or incurred by Sublandlord or Master Landlord under the Master Lease
except for those obligations of Sublandlord for real property taxes provided
for in Section 22 hereof. Any sum payable to Sublandlord under this Article 21
shall be paid by Subtenant within fifteen (15) days of the date a bill is
rendered to Subtenant accompanied by a detailed statement of the calculation of
the sum due. Subtenant or its agent shall have the right to inspect
Sublandlord's books and records regarding operation expenses for a period of
one (1) year after the date a bill is rendered.
TAXES -
22. (a) Subtenant further agrees to pay Sublandlord, One Hundred
(100%) percent of the increase in real property taxes, other taxes and
assessments payable with respect to the Premises and Additional Areas over such
real property taxes, other taxes and assessments payable with respect to the
base year July 1, 1998 through June 30, 1999. Any sum payable to Sublandlord
under this
10
<PAGE>
Article shall be payable within Fifteen (15) days of the date a bill is
rendered to Subtenant together with copies of the relevant tax bills.
(b) To the extent permitted by the Master Lease, Subtenant shall have
the right, in good faith and by appropriate proceedings, and at Subtenant's
sole cost to contest the validity or amount of any real property tax on the
Premises; provided that Subtenant shall first satisfy any requirements of law
and the Master Lease. Sublandlord agrees, at Subtenant's sole cost, to render
to Subtenant all assistance reasonably necessary in contesting the validity or
amount of any such tax at no cost to Sublandlord, including joining in and
signing any protest or pleadings which Subtenant may deem necessary or
advisable under applicable law. It is agreed that should any rebate be received
in regard to such proceedings, then Subtenant shall first recover its
reasonable legal costs and expenses, and then the pro rata share of such rebate
shall reduce Subtenant's tax obligation hereunder. If Sublandlord shall attempt
to obtain an assessment reduction, Subtenant shall be responsible to pay to
Sublandlord, Subtenant's Pro Rata Share of any reasonable legal costs and
expenses of Sublandlord arising therefrom.
INSURANCE -
23. Subtenant agrees to carry all liability insurance required to be
carried by Sublandlord under the Master Lease.
Subtenant agrees to deliver to Sublandlord a certificate of such
insurance naming Sublandlord and Master Landlord as "additional insureds" upon
the execution hereof and thirty (30) days prior to the expiration of any such
policy. Subtenant also shall comply with the Master Lease with respect to any
other insurance policies and/or certificates required by the Master Landlord or
Sublandlord as tenant thereunder except for workers compensation, disability
and similar insurance payable by Sublandlord in connection with its employees
EXTRA HAZARDOUS USE -
24. The Subtenant shall not use or occupy the Premises or Additional
Areas or any part thereof or suffer or permit the same to be used or occupied
for any business or purpose deemed extra hazardous on account of fire or
otherwise.
BROKER -
25. Sublandlord and Subtenant each represent and warrant that it has
had no dealings or conversations with any real estate broker in connection with
the negotiation and execution of this Lease other than with
Insignia/Rostenberg-Doern, Benson,
11
<PAGE>
Commercial Realty and Austin Corporate Properties. Sublandlord and Subtenant
each agree to indemnify the other against all liabilities arising from any
claim of any other real estate brokers, including cost of counsel fees,
resulting from their respective acts. Sublandlord warrants and agrees that it
shall be solely responsible for any and all brokerage commissions owing to said
brokers pursuant to separate agreements, as a result of the negotiation and
execution of this Sublease.
NO WAIVER -
26. A waiver by either party of any breach or breaches by the other of
any one or more of the covenants, agreements or conditions of this Sublease
shall not bar the enforcement of any other rights or remedies for any
subsequent breach of any of the same or other covenants, agreements or
conditions.
SUBTENANT'S INDEMNITY -
27. (a) Subtenant shall defend, indemnify and save harmless
Sublandlord and its agents and employees against and from all costs, expenses,
claims, demands or liabilities arising from the following:
(i) any willful, negligent or tortious act or omission on the part of
Subtenant or any of its agents, contractors, subcontractors, servants,
employees, licensees or invitees; or
(ii) any failure by Subtenant to comply with any applicable law
governing its use of the Premises and/or the Additional Areas; or
(iii) any failure on the part of Subtenant to perform or comply with
any of the covenants, agreements, terms, provisions, conditions or limitations
contained in this Sublease or the Master Lease on its part to be performed or
complied with, except to the extent such liability is occasioned by
Sublandlord's willful, negligent or tortious act or omission.
In case any action or proceeding is brought against Sublandlord by
reason of any such claim, Subtenant, upon written notice from Sublandlord,
shall, at Subtenant's expense, resist or defend such action or proceeding.
SUBLANDLORD'S INDEMNITY -
28. Sublandlord shall defend, indemnify and save harmless Subtenant
and its agents and employees against and from all costs, expenses, claims,
demands or liabilities arising from the following:
12
<PAGE>
(i) any willful, negligent or tortious act or omission on the part of
Sublandlord or any of its agents, contractors, subcontractors, servants,
employees, licensees or invitees; or
(ii) any failure by Sublandlord to comply with any applicable law
governing its leasing or use of the Premises and/or the Additional Areas; or
(iii) any failure to the part of Sublandlord to perform or comply with
any of the covenants, agreements, terms, provisions, conditions or limitations
contained in this Sublease or the Master Lease on its part to be performed or
complied with, except to the extent such liability is occasioned by Subtenant's
willful, negligent or tortious act or omission.
In case any action or proceeding is brought against Subtenant by
reason of any such claim, Sublandlord, upon written notice from Subtenant,
shall, at Sublandlord's expense, resist or defend such action or proceeding.
FORCE MAJEURE -
29. The time of Sublandlord or Subtenant, as the case may be, to
perform any of its obligations hereunder, with the exception of monetary
payments due to Sublandlord hereunder, shall be extended if and to the extent
that the performance thereof shall be prevented due to strikes, lockouts, civil
commotion, war-like operation, invasion, rebellion, hostilities, military or
usurped power, governmental regulations or controls, inability to obtain labor
or materials despite due diligence, act of God, or other cause beyond the
control of the party hereto whose performance is required.
HAZARDOUS MATERIALS -
30. (a) For the purposes hereof, the term "Hazardous Materials" shall
include, without limitation, substances defined as "hazardous substances",
"hazardous materials", or "toxic substances" in any applicable federal law, any
applicable state law, and/or any rules or regulations adopted or promulgated
pursuant to any of said laws.
(b) Subtenant represents and warrants that it will not use, store or
dispose of any Hazardous Materials in the premises or the additional areas.
With regard to any Hazardous Materials released or caused to be released at the
Premises or the Additional Areas by Subtenant, Subtenant shall remove same, in
compliance with all applicable laws, and at Subtenant's sole cost and expense;
and Subtenant agrees to defend, indemnify and hold Sublandlord and Master
Landlord harmless from and against any and all costs,
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damages, expenses, and/or liabilities (including reasonable attorneys' fees)
which Sublandlord or Master Landlord may suffer as a result of any claim, suit
or action regarding any such Hazardous Materials (whether alleged or real),
and/or regarding the removal and clean-up of same.
(c) Subtenant's obligations pursuant to this Article shall survive any
expiration and/or termination of this Sublease.
(d) Sublandlord represents that to its knowledge there are no
hazardous materials at the Premises or the Additional Areas and will indemnify
and hold harmless Subtenant in connection with liability arising due to the
presence of any Hazardous Materials on or under the Premises or the Additional
Areas at the commencement of the Sublease.
GOVERNING LAW -
31. This Sublease shall be governed and construed in accordance with
the laws of the State in which the premises are located.
ENTIRE AGREEMENT -
32. This Sublease contains and embraces the entire agreement between
the parties hereto and may not be changed or terminated orally or by any
agreement unless such agreement shall be in writing and signed by the party
against whom enforcement of such change or termination is sought.
SEVERABILITY -
33. If any term or provision of this Sublease or the application
thereof to any persons or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Sublease or the application of such term
or provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby, and each term and
provision of this Sublease shall be valid and enforceable to the fullest extent
permitted by law.
ESTOPPEL CERTIFICATE, ATTORNMENT AND SUBORDINATION -
34. (a) Subtenant and Sublandlord shall at any time and from time to
time upon not less than thirty (30) days prior request, execute, acknowledge
and deliver to the other party or to any mortgagee of the Premises a statement
in writing certifying the date of commencement of this Sublease, that the
Sublease is unmodified and in full force and effect or if there have been
modifications to this Sublease, that it is in full force and effect as modified
and stating the date of modifications), the
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dates to which the rent and other charges have been paid and there are no
defenses or offsets to this Lease (or stating those claimed).
(b) Upon the request of Sublandlord, Subtenant will subordinate its
rights hereunder to the lien of any mortgages, deed(s) of trust or the lien
resulting from any other method of financing or refinancing, now or hereafter
in force against the Premises and/or the Additional Areas and to all advances
made or hereafter to be made upon the security thereof. This section shall be
self-operative and no further instrument or subordination shall be required to
be delivered to any lender. Upon the request of any such lender, Subtenant will
attorn as Subtenant under this Sublease to such lender provided that the lender
execute a non-disturbance agreement with the Subtenant upon terms reasonably
acceptable to Subtenant. Sublandlord agrees to request Master Landlord to
deliver a non-disturbance agreement to Subtenant, such instrument to be
executed by Master Landlord's present mortgagee.
(c) If Subtenant does not receive confirmation from Master Landlord
that there is no lien on the Premises or if there is such a lien, a
nondisturbance agreement from the lien holder, on or before the date Master
Landlord approves this Sublease, Subtenant shall have a period of ten (10) days
after the date of such approval to terminate this Lease by notice in writing to
Sublandlord.
HEADINGS -
35. It is agreed that the headings of the various paragraphs herein
are for reference only and are not to be construed as part of this agreement.
SUCCESSORS AND ASSIGNS -
36. This Sublease shall inure to the benefit of and be binding upon
the successors and assigns of Subtenant and the successors and assigns of
Sublandlord.
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IN WITNESS WHEREOF, Sublandlord and Subtenant have duly executed this
Lease on the day and year first above written.
WITNESS: SUBTENANT:
LILLIAN VERNON CORPORATION
/s/ BY: /s/ Lillian Vernon
- --------------------------- -------------------------------
WITNESS NAME: Lillian Vernon
-----------------------------
TITLE: CEO
----------------------------
WITNESS: SUBLANDLORD:
CVS NEW YORK, INC.
/s/ BY: /s/ Herni J. Mackor
- --------------------------- -------------------------------
WITNESS NAME: Herni J. Mackor
-----------------------------
VICE PRESIDENT
CVS LEGAL APPROVAL:
---------------
BY: /s/ Philip C. Gablo
-------------------------------
NAME: Philip C. Gablo
-----------------------------
Vice President and Treasurer
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GUARANTY
IN CONSIDERATION of the execution and delivery of the within Sublease
dated the 30th day of January, 1998, by and between CVS NEW YORK, INC., as
Sublandlord, and LILLIAN VERNON CORPORATION, as Subtenant (the "Sublease"), the
undersigned, CVS CORPORATION ("Guarantor"), having its office at One CVS Drive,
Woonsocket, Rhode Island 02895, hereby guarantees to Subtenant, the timely
payment and performance by Sublandlord of its covenants and agreements
contained in the Sublease; and Guarantor hereby expressly waives notice of all
defaults and agrees that the waiver of any rights by Subtenant against
Sublandlord, arising out of defaults by Sublandlord or otherwise, shall not in
any way modify or release the obligations of Guarantor.
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IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
this 3rd day of February, 1998.
GUARANTOR:
WITNESS: CVS CORPORATION
BY: /s/ Zenon P. Lankowsky
- ----------------------------- -----------------------------
WITNESS NAME: Zenon P. Lankowsky
---------------------------
TITLE: Secretary
--------------------------
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EXHIBIT A
<TABLE>
<CAPTION>
INDEX
-----
<S> <C> <C>
PAGE
----
ARTICLE ONE. GRANT AND TERM 1
1.01 Leased Premises 1
1.02 Use of Additional Areas 2
1.03 Commencement of Term 2
1.04 Length of Term 2
1.05 Termination 3
ARTICLE TWO. RENT 3
2.01 Rent 3
2.02 Operating Expense Adjustments 3
ARTICLE THREE. CONDUCT OF BUSINESS BY TENANT 6
3.01 Use of Premises 6
3.02 Suitability 6
3.03 Uses Prohibited 6
3.04 Governmental Regulation 7
3.05 Advertising, Signs 7
ARTICLE FOUR. INSURANCE
4.01 Liability Insurance 7
4.02 Fire Insurance and Fire Insurance Premiums 8
4.03 Exemption of Landlord and Management
Company from Liability 8
4.04 Insurance of Improvements 9
4.05 Waiver of Subrogation 10
4.06 Covenant to Hold Harmless 11
ARTICLE FIVE. CONSTRUCTION OF LEASED PREMISES 11
ARTICLE SIX. UTILITIES 12
ARTICLE SEVEN. PARKING AND COMMON USE AREAS AND FACILITIES 13
ARTICLE EIGHT. FIXTURES, ALTERATIONS AND IMPROVEMENTS 14
8.01 Tenant's Right to Make Alterations 14
8.02 Mechanic's Lien 15
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INDEX (cont'd)
Page
----
8.03 Fixtures and Personal Property 17
8.04 Windows 18
ARTICLE NINE. MAINTENANCE OF LEASED PREMISES 18
9.01 Maintenance 18
9.02 Rules and Regulations 19
ARTICLE TEN. DAMAGE AND DESTRUCTION 19
10.01 Notice by Tenant 19
10.02 Destruction of Leased Premises 19
10.03 Abatement of Rent 20
ARTICLE ELEVEN. EMINENT DOMAIN 20
ARTICLE TWELVE. DEFAULT 22
12.01 Default of Tenant 22
12.02 Remedies of Landlord 22
12.03 Late Charges 24
12.04 Bankruptcy or Insolvency of Tenant 25
12.04a Tenant's Interest Not Transferable 25
12.04b Termination 25
12.04c Tenant's Obligation to Avoid Creditors
Proceedings 26
12.04d Rights and Obligations Under the Federal
Bankruptcy Code 27
12.04e Severability 28
12.05 Default by Landlord 28
12.06 Excuse of Landlord's Performance 29
ARTICLE THIRTEEN. ASSIGNMENT AND SUBLETTING 29
ARTICLE FOURTEEN. ESTOPPEL CERTIFICATE, ATTORNMENT, AND
SUBORDINATION 31
14.01 Estoppel Certificate 31
14.02 Transfer by Landlord 32
14.03 Subordination 32
ARTICLE FIFTEEN. ACCESS BY LANDLORD 33
15.01 Right of Entry 33
15.02 Excavation 33
ARTICLE SIXTEEN. QUIET ENJOYMENT 34
</TABLE>
ii
<PAGE>
LEASE
This Lease is entered into as of this 7th day of April , 1988, by and
between URBCO, INC., (hereinafter referred to as "Landlord") and MELVILLE
CORPORATION (hereinafter referred to as "Tenant"):
WHEREAS, Landlord is the owner of those certain premises more fully
described in Paragraph 1.01 hereof; and
WHEREAS, Tenant desires to lease such premises from Landlord;
NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter contained, Landlord and Tenant agree as follows:
ARTICLE ONE
GRANT AND TERM
Section 1.01. Leased Premises
In consideration of the rents, covenants, and agreements on the part of
Tenant to be paid and performed, Landlord leases to Tenant, and Tenant leases
from Landlord, a single tenant two story 65,000 square foot building to be
constructed on the northerly portion of a 14 acre site which is to be
subdivided into two parcels of approximately seven (7) acres each, and is
presently known as 120 Old Post Road, Rye, New York, as shown on a
preliminary site plan prepared by Fox & Fowle Architects, P.C. and dated
February 24, 1988 and which is incorporated herein by reference (herein called
the "Site Plan") (herein called the "Office Building," "Premises" or "Leased
Premises"). The Office Building will be constructed generally in accordance
with the preliminary design prepared by Fox & Fowle Architects, P.C. and
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dated October 9, 1987 and which is incorporated herein reference. If during
construction of the Office Building changes need to be made to the Site Plan
Tenant agrees to cooperate with Landlord in making all necessary changes.
The Premises are leased subject to encumbrances, covenant easements,
restrictions, rights-of-way, utility rights and easements, and all other
matters of record whether presently existing or hereafter granted which may
affect the premise provided that none of them adversely affects the
construction and continued use of the Office Building to be erected thereon
for the purposes described in this Lease.
Section 1.02. Use of Additional Areas
The use and occupation by Tenant of the leased premises shall include the
use in common with others entitled thereto of the common areas, employees'
parking areas, service areas, service roads, loading facilities, sidewalks and
customer car parking areas, and other facilities as may be designated from
time to time by Landlord, subject however to the terms and conditions of this
Lease and to reasonable rules and regulations for the use thereof as
prescribed from time to time by Landlord.
Section 1.03. Commencement of Term
The term of this Lease and Tenant's obligation to pay rent shall commence
ninety (90) days after notification to Landlord and Tenant from Fox & Fowle
Architects, P.C. (hereinafter referred as the "Architect") that the core and
shell are substantially complete or upon the Architect's determination that
the tenant improvements are substantially complete, whichever sooner occurs.
Section 1.04. Length of Term
The term of this Lease shall be for fifteen (15) years and no (0) months
following the commencement date with the term commencing at 8:00 o'clock A.M.
on such commencement date and terminating at 5:00 o'clock P.M. on the last
day of the term.
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<PAGE>
Section 1.05. Termination
This Lease is conditioned upon Landlord obtaining all state, county, town
or municipal department approvals required for the subdivision of the property
and construction of the Office Building, including building permits for the
core and shell. In the event said approvals are not obtained from the
appropriate governmental entities by December 31, 1988, either Landlord or
Tenant may, upon sixty (60) days' written notice, terminate this Lease if the
approvals are not obtained within said sixty (60) day period.
ARTICLE TWO
RENT
Section 2.01. Rent
The fixed minimum annual base rent during the term of this Lease shall be
payable by Tenant in equal monthly installments on or before the first day of
each month in advance, at the office of Landlord or its designated agent, or
at such other place designated in writing by Landlord, without any prior
demand therefor, and without any deduction or set-off whatsoever, and shall
initially be $1,313,000.00 annually ($109,416.66 per month) for years 1-5;
$1,508,000.00 annually ($125,666.66 per month) for years 6-10; and
$1,703,000.00 annually ($141,916.66 per month) for years 11-15.
Section 2.02. Operating Expenses
Tenant shall bear the cost of all the expenses paid or incurred by
Landlord on account of the operation or maintenance of the Office Building
(herein called "Operating Expenses") including but not limited to the following
types of expenses:
Tenant Expenses: All costs and expenses relating to the repair and
maintenance of the HVAC systems and the elevator, real property taxes and
assessments, rent taxes, gross receipts taxes (whether assessed against
Landlord or assessed against Tenant and collected by Landlord, or both) plus
costs incurred in the management of the Office Building calculated at the
rate of 1.5%
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<PAGE>
of the total of the rent, taxes and opening expenses. Tenant shall pay for
100% of the Tenant Expenses.
Shared Expenses: All costs and expenses relating to landscaping, snow
removal, grounds security, common area electric and common area water.
Grounds security shall be a Shared Expense unless the security needs of one
of the parcels increases beyond that of the other in which event grounds
security shall be provided separately to each parcel and Tenant shall bear its
own cost of security. It is anticipated that Landlord will provide these
services jointly to the two seven (7) acre parcels and in such event, Tenant
shall pay for 50% of the total of the Shared Expenses.
Pro-Rata Expenses: All costs and expenses relating to a building engineer,
porter/matron, cleaning supplies, cleaning contract, window cleaning,
insurance, trash removal, general repairs and maintenance (e.g. fire
protection, minor repairs to the building and plumbing, exterminator, plants,
etc.) and miscellaneous expenses (e.g. office supplies, petty cash, telephone,
beepers, etc.) It is anticipated that Landlord will provide these services
jointly to both of the buildings on the entire parcel and in such event, Tenant
will pay its share of these expenses on a pro-rata basis, the numerator of
which is square footage of Tenant's premises and the denominator of which is
the total square footage of the two buildings on the entire parcel. In the
event either Landlord or Tenant determines that a pro-rata allocation of any
or all of these services is inequitable, impractical or unfeasible, Landlord
will provide these services by separate contract(s) solely for Tenant, in
which event Tenant shall pay the full amount of said expenses.
Operating Expenses shall not include depreciation on the Office Building
or on equipment used therein, loan payments, executive salaries, real estate
broker's commissions or capital improvements.
Tenant shall pay such Operating Expenses (also referred to herein from
time to time as "Additional Rent") to Landlord in
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<PAGE>
equal monthly installments, in amounts estimated from time to time by Landlord,
in advance on the first day of each month. If the aggregate amount of such
monthly payments paid by Tenant exceeds the actual amount thereafter due, the
overpayment shall be credited on Tenant's next succeeding charge or charges for
each expense or, during the last lease year, Landlord will refund such excess
to Tenant within thirty (30) days following the expiration of the lease term,
provided Tenant is not then in default of any of its obligations under this
Lease. If the aggregate amount of such monthly payments paid by Tenant shall
be less than the actual amount due, Tenant shall pay to Landlord the difference
between the amount paid by Tenant and the actual amount due, within thirty (30)
days after written demand from Landlord.
Annually, Landlord shall provide Tenant with a written statement from
Landlord setting forth the amount of such Additional Rent and showing in
reasonable detail the manner in which it has been computed. Tenant shall have
the right upon prior written notice to Landlord, to examine Landlord's books
and records at any reasonable time during ordinary business hours to verify
Landlord's statement of such expenses.
Notwithstanding that the lease term has expired and Tenant has vacated the
leased premises, when the final determination is made of Tenant's Operating
Expenses for the year in which this Lease terminates, Tenant shall immediately
pay any increase due over the estimated expenses paid and conversely any
overpayment made in the event said expenses decrease shall be immediately
rebated by Landlord to Tenant.
If Tenant shall fail to pay, within thirty (30) days from the date when
due, any rent, Operating Expense, amounts or any other charges payable
hereunder, such unpaid amounts shall bear interest from the date due to the
date of payment at the rate of eighteen (18%) percent per annum.
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<PAGE>
ARTICLE THREE
CONDUCT OF BUSINESS BY TENANT
Section 3.01. Use of Premises
The leased premises shall be used and occupied by Tenant for general
office use only and for no other purposes whatsoever without obtaining the
prior written consent of Landlord.
Section 3.02. Suitability
This Lease shall be subject to all applicable zoning ordinances and to
any municipal, county and state laws and regulations governing and regulating
the use of the premises.
Section 3.03. Uses Prohibited
Tenant shall not do or permit anything to be done in or about the premises
which will in any way obstruct or interfere with the rights of any other
tenants or occupants of any other buildings on the adjacent Property or injure
or annoy them, or use or allow the premises to be used for any improper,
immoral, unlawful or objectionable purposes, nor shall Tenant cause, maintain
or permit any nuisance in, on or about the premises. Tenant shall not commit or
allow to be committed any waste in or upon the premises. No portion of the
premises may be used for any of the purposes prohibited by or in contravention
of the rules and regulations reasonably promulgated by Landlord from time to
time and delivered to Tenant pursuant to Section 9.02 hereof. Tenant shall not
interfere with the quiet enjoyment of any other tenant in other buildings on
the adjacent Property. Without limiting the generality of the foregoing,
nothing shall be prepared or manufactured in the leased premises which might
emit an odor outside the Office Building, or cause an objectionable noise or
vibration in the Office Building. Tenant further agrees not to connect any
apparatus, machinery or device to the electric wires or water or other pipes in
the leased premises except as set forth in Article Six hereof, except that
Tenant may install the usual office machines and equipment, such as electric
typewriters, adding machines, teletypewriters and
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similar equipment.
Section 3.04. Governmental Regulations
Tenant shall, at Tenant's sole cost and expense, comply with all of the
requirements, statutes, and ordinances of all county, municipal, state, federal
and other governmental authorities having jurisdiction, now in force or which
may hereafter be in force, pertaining to the leased premises.
Section 3.05. Advertising, Signs
Tenant shall not affix or maintain upon the glass panes and supports of
the windows, (or within 24 inches of any window), doors and the exterior walls
of the premises, any signs, advertising, placards, names, insignia, trademarks,
descriptive material or any other such like items except such as shall have
first received the written approval of Landlord as to size, type, color,
location, copy, nature and display qualities. Advertising by way of handbills,
leaflets, pamphlets or other written materials given to members of the general
public is not permitted in the Office Building or any of the common areas.
Tenant shall not affix any sign to the roof of the Office Building. Upon
receipt of appropriate municipal approvals and subject to the consent of
Landlord, Tenant shall be permitted to erect an exterior sign as described on
attached Exhibit A.
ARTICLE FOUR
INSURANCE
Section 4.01. Liability Insurance
Tenant shall, during the entire term hereof, keep in full force and
effect a policy of public liability and property damage insurance with respect
to the leased premises and the business operated by Tenant in the leased
premises, in which the limit of public liability shall not be less than one
million ($1,000,000) dollars per single occurrence. Landlord shall have the
right to require Tenant to increase such insurance limits to such amounts as
Landlord shall reasonably require from time to time during the lease term. The
policy shall name Landlord, Landlord's agent, Landlord's designated management
company and Tenant as insured,
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<PAGE>
and shall contain a clause that the insurer will not cancel or change the
insurance without first giving Landlord thirty (30) days prior written notice.
The insurance carrier shall have at least a Best's key rating of A:XV. A copy
of the policy or a certificate of insurance showing Landlord and its
designated agent as named additional insured shall be delivered to Landlord
and to its designated agent. Such insurance policy shall contain a provision
that it and the coverage evidenced thereby shall be primary and
non-contributing with respect to any policies carried by Landlord, and that
any coverage carried by Landlord shall be excess insurance.
Section 4.02. Fire Insurance and Fire Insurance Premiums
Tenant agrees that it will not keep, use, sell, or offer for sale in or
about the leased premises, any article which may be prohibited by Landlord's or
Tenant's fire insurance policy then in effect covering the leased premises
and/or the Office Building or any of its contents. In the event Tenant's
occupancy causes any increases of premium or cancellation of the fire and/or
any other insurance policy covering the Office Building or any part thereof
above the rate for an office building of the type and use contemplated in
Article Three, Tenant shall pay the additional premium on the fire and/or
casualty insurance policy by reason thereof. Tenant shall also pay in such
event any additional premium on the rent loss insurance policy that may be
carried by Landlord for its protection against rent loss through fire. Bills
for such additional insurance premiums shall be rendered by Landlord or Tenant
at such times as Landlord may elect, and shall be due and payable by Tenant
when rendered.
Section 4.03. Exemption of Landlord and Management Company from Liability
Neither Landlord, its agents nor its designated management company shall
be liable for injury to Tenant's business for loss of income therefrom or for
injury or damage which may be sustained by the person or property of Tenant,
its employees, invitees, customers, agents or contractors, or any other person
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in or about the leased premises caused by or resulting from fire, explosion,
falling plaster, steam, electricity, gas, dampness, water or rain which may
leak or flow from or into any part of the leased premises from the roof,
street or sub surface condition or from any other place, or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or by any other
cause of whatsoever nature, whether said damage or injury results from
conditions arising upon the leased premises or from other sources or places,
and regardless of whether the cause of such damage or injury or the means of
repairing same is inaccessible to Tenant. Neither Landlord, its agents nor its
designated management company shall be liable for any damage caused by other
persons in the leased premises, occupants of adjacent property of the
Office Building, or the public, or caused by operations in construction of any
private, public or quasi-public work. Landlord shall not be liable for any
latent defect in the leased premises unless such latent defect is covered by a
guarantee from Landlord's contractor(s) in which case Landlord's liability
shall not exceed that of the contractor(s).
Section 4.04. Insurance of Improvements
Tenant shall at all times maintain fire insurance with broad form extended
coverage in the name of both Landlord, its agent, and Tenant, in an amount
adequate to cover the full replacement cost in the event of fire or extended
coverage loss of all trade fixtures, alterations, decorations, additions, or
improvements made to the leased premises by Tenant or by Landlord on Tenant's
behalf which do not become property or Landlord, with loss proceeds payable
to Landlord and/or Tenant as their interests may appear, it being expressly
understood and agreed that none of such property shall be insured by Landlord
under such insurance as it may carry upon the Office Building. Such insurance
policy shall be maintained with an insurance company having at least a Best's
key rating of A:XV. At Tenant's option, and so long as Tenant maintains a net
worth of at least twenty five million
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dollars ($25,000,000.00), as disclosed in its annual report, Tenant may
provide the insurance coverage required by this section 4.04 through self
insurance. In the event of fire or other damage Tenant will repair the
premises and restore them to the condition that existed prior to the damage.
Tenant shall deliver to Landlord certificates of such fire insurance policy or
policies which show Landlord and its designated agent as named additional
insured and shall each contain a clause requiring insurer to give Landlord
thirty (30) days written notice of modification or cancellation of such
policies.
Section 4.05. Waiver of Subrogation
The parties release each other, and their respective authorized
representatives, from any claims for damage to any person or to the Office
Building and to the fixtures, personal property, Tenant's improvements, and
alterations of either Landlord or Tenant in the Office Building that are
caused by or result from risks insured against under any insurance policies
carried by the parties and in force at the time of any such damage. Each party
shall cause each insurance policy obtained by it to provide that the insurance
company waives all right to recovery by way of subrogation against either
party in connection with any damage covered by any policy. Neither party shall
be liable to the other for any damage caused by fire or any other risks insured
against under any insurance policy required by this Lease. If any insurance
policy cannot be obtained with a waiver of subrogation or is obtainable only by
the payment of an additional premium charge above that charged by insurance
companies issuing policies without waiver or subrogation, the party undertaking
to obtain the insurance shall notify the other party of this fact. The other
party shall have a period of twenty (20) days after receiving the notice either
to place the insurance with a company that is reasonably satisfactory to the
other party and that will carry the insurance with a waiver of subrogation, or
to agree to pay the additional premium if such a policy is obtainable at
additional cost. If the insurance cannot
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be obtained or the party in whose favor a waiver of subrogation is desired
refuses to pay the additional premium charge, the other party is relieved of
the obligation to obtain a waiver of subrogation rights with respect to the
particular insurance involved.
Section 4.06. Covenant to Hold Harmless
Tenant covenants, to the extent permitted by applicable law, to indemnify
Landlord, its partners, representatives, agents and employees, and save them
harmless from and against any and all claims, actions, damages, liability and
expense including the attorney's fees of counsel designated by Tenant and
approved by Landlord, in connection with all losses, including loss of life,
personal injury and/or damage to property (except for loss or damage caused
solely by the negligence of Landlord or its agents or representatives), arising
from or out of any occurrence in, upon or at the leased premises or the
occupancy or use by Tenant of the leased premises or any part hereof, or arising
from or out of Tenant's failure to comply with any provision of this lease or
occasioned wholly or part by any act or omission of Tenant, its agents,
contractors, suppliers, employees, servants, customers or licensees. In case
Landlord or any other party so indemnified shall, without fault, be made a
party to any litigation commenced by or against the Tenant, then Tenant shall
protect and hold them harmless and shall pay all costs, expenses and reasonable
attorney's fees incurred or paid by them in connection with such litigation.
ARTICLE FIVE
CONSTRUCTION OF LEASED PREMISES
Landlord shall, at its cost and expense, pursue to completion the core
and shell of the Office Building as described in that certain "Scope of Work"
dated March 23, 1998, which is marked Exhibit B and is attached hereto and made
a part hereof. Tenant shall, at its sole cost and expense, cause the tenant
improvements to be built in accordance with plans and specifications approved
in writing by Landlord prior to
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commencement of the work. All such construction shall be completed in compliance
with Article Eight hereof. During the course of construction Landlord shall have
the right to visit the Premises to review and inspect the progress of the work.
Tenant shall receive a credit of $25.00 per square foot to be applied to
the cost of approved tenant improvements. Tenant will be billed directly by the
contractor(s) for work performed and Landlord will advance the allowance to
Tenant as the leasehold improvements are constructed, on a pro-rata basis.
If the cost of the approved tenant improvements exceed $25.00 per square
foot, at Tenant's request, the annual rent will be increased by the amount
necessary to amortize such additional cost over the term of the Lease at the
rate of 11% per annum.
ARTICLE SIX
UTILITIES
Landlord shall arrange for gas, if required by the preliminary design,
water and electricity to be brought to the site for use by the Tenant in the
Office Building. Tenant shall pay for gas, water and electricity attributable
to Tenant's use and occupancy of the Premises. Landlord shall cause to be
installed separate meters to measure Tenant's use of gas, water and
electricity. Landlord shall direct the appropriate utility companies to bill
said utilities directly to Tenant.
Landlord shall not be liable for failure to furnish any of the foregoing
services when such failure is caused by accident or conditions beyond the
control of Landlord, or by repairs, labor disturbances, labor disputes of any
character; nor shall Landlord be liable for loss of or injury to property
however occurring through or in connection with incidental to the furnishing of
any of the foregoing, nor shall such failure relieve Tenant from its duty to
pay the full amount of rent herein reserved, or constitute or be construed as
a constructive or other eviction of Tenant.
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Tenants shall not use any device or apparatus in the Office Building which
will require electric current in excess of the Office Building's capacity.
ARTICLE SEVEN
PARKING AND COMMON USE AREAS AND FACILITIES
Landlord will provide on-site parking for a minimum of 103 cars for
Tenant's use. However, in the event any governmental authority having
jurisdiction over the Premises requires additional parking, pursuant to any
zoning law or ordinance, Landlord shall provide Tenant with the additional
on-site parking in accordance with said law or ordinance.
All automobile parking areas, driveways, entrances and exits thereto, shown
on the Site Plan and other facilities furnished by Landlord in or near the
Office Building, including employee parking areas, loading docks, if any,
sidewalks and ramps, landscaped areas, and other areas and improvements shall
at all times be subject to the exclusive control and management of Landlord.
Landlord shall have the right to construct, maintain and operate lighting
facilities on all said areas and improvements, to police same, from time to
time to change the area, level, location and arrangement of parking areas and
other facilities hereinabove referred to, to close all or any portion of said
areas to facilities to such extent as may, in the opinion of Landlord's counsel,
be legally sufficient to prevent a dedication thereof or the accrual of any
right to any person or the public therein, to close temporarily all or any
portion of the parking areas or facilities, to discourage non-customer parking,
and to do and perform such other acts in and to said areas and improvements as
in the use of good business judgment Landlord shall determine to be advisable
with a view to the improvement of the convenience and use thereof by Tenant, its
officers, agents, employees, clients and customers. Landlord will operate and
maintain the common facilities referred to above in such manner as Landlord, in
its sole discretion, shall determine from time to time, provided that Tenant's
use of the
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same shall be materially affected and provided further that Landlord shall
provide commercially reasonable services at competitive rates. Without
limiting the scope of such discretion, Landlord shall have the full right
and authority to employ all personnel pertaining to and necessary for the
proper operation and maintenance of the common areas and facilities.
ARTICLE EIGHT
FIXTURES, ALTERATIONS AND IMPROVEMENTS
Section 8.01. Tenant's Right to Make Alterations.
Landlord agrees that Tenant may, at its own expense and after giving
Landlord or its designated agent at least thirty (30) days notice in writing
of its intention to do so, from time to time during the term hereof make
alterations, additions and changes in and to the interior of the premises
(except those of a structural nature) as it may find necessary or convenient
for its purposes, provided that the value of the leased premises is not
hereby diminished, and provided, however, that no alterations, additions
or changes costing in excess of Two Hundred Thousand Dollars ($200,000.00)
may be made without first procuring the approval in writing of Landlord,
which approval shall not be unreasonably withheld. In addition, no
alterations, additions or changes shall be made to the exterior walls or roof
of the premises, nor shall Tenant erect any mezzanine or increase the size
of same if one be initially constructed, without the prior written approval
of Landlord. In no event shall Tenant make or cause to be made any penetration
through the roof of the leased premises. Tenant shall be directly responsible
for any and all damages resulting from any violation of the provisions of
this Article. All alterations, additions, improvements or changes to be made
to the leased premises which require the approval of Landlord shall be under
the supervision of a competent architect or competent licensed structural
engineer and made in accordance with plans and specifications with respect
thereto, approved in writing by Landlord before the commencement of the work.
Tenant shall carefully select all contractors and other entities
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utilized to make alterations to the leased premises in order to insure labor
harmony. All work done with respect to alterations, additions and changes must
be done in a good and workmanlike manner and diligently prosecuted to
completion to the end that the premises shall at all times be a complete unit
except during the period of work. Any such changes, alterations and
improvements shall be performed and done strictly in accordance with the laws
and ordinances relating thereto. In performing the work of any such
alterations, additions or changes, Tenant shall have the work performed in
a manner which will not obstruct the access to the Property of any other
tenant in the Property. Tenant may remove any alterations, improvements and
changes made by Tenant pursuant to this section upon the termination of this
Lease, provided Tenant repairs all damage caused by such removal. All
improvements not removed by Tenant shall become a part of the premises.
In the event that Tenant shall make any permitted alterations, additions
or improvements to the premises under the terms and provisions of Section 8.01,
Tenant agrees to carry such insurance as required by Article Four covering
any such alteration, addition or improvement, it being expressly understood
and agreed that none of such alterations, additions or improvements shall
be insured by Landlord under such insurance as it may carry upon the Office
Building, nor shall Landlord be required under any provisions for
reconstruction of the premises to reinstall any such alterations,
improvements or additions, unless Landlord's insurance company pays for such
reinstallation.
Section 8.02. Mechanics' Lien
Tenant agrees that it will pay or cause to be paid all costs for work
done by it or caused to be done by it on the premises, and Tenant will keep
the premises free and clear of all mechanics' liens and other liens on account
of work done for Tenant or persons claiming under it. Tenant agrees to and
shall indemnify, defend and save the Landlord free and harmless against
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liability, loss, damage, costs, attorney's fees and all other expenses on
account of claims of lien of laborers or materialmen or others for work
performed or materials or supplies furnished for Tenant or persons claiming
under it.
If Tenant shall desire to contest any claim or lien, it shall furnish
to Landlord or the appropriate court adequate security of the value or in
the amount of the claim, plus estimated costs and interest, or a bond of a
responsible corporate surety in such amount conditioned on the discharge of
the lien. If a final judgment establishing the validity or existence of a
lien for any amount is entered, Tenant shall pay and satisfy the same at once.
If Tenant shall be in default in paying any charge for which a mechanics'
lien claim and suit to foreclose the lien have been filed, and shall not have
given Landlord or the appropriate court security to protect the property and
Landlord or the appropriate court security to protect the property and
Landlord against such claim of lien, Landlord may (but shall not be required
to) pay the said claim and any costs, and the amount so paid, together with
reasonable attorneys' fees incurred in connection therewith, shall be
immediately due and owing from Tenant to Landlord, and Tenant shall pay the
same to Landlord with interest at the maximum lawful rate from the date(s)
of Landlord's payment(s).
Should any claims of lien be filed against the leased premises or
any action affecting the title to such property be commenced, the party
receiving notice of such lien or action shall forthwith give the other
party written notice thereof.
Landlord or its representatives shall have the right to go upon and
inspect the premises at all reasonable times after three (3) days written
notice to Tenant and shall have the right to post and keep posted thereon
notices of non-responsibility or such other notices which Landlord may deem
to be proper for the protection of Landlord's interest in the premises.
Tenant shall, before the commencement of any work which might result in any
such lien, give to Landlord written notice of its intention to do so pursuant
to section 8.01 to enable the posting of such
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notices.
Section 8.03. Fixtures and Personal Property
Any trade fixtures, signs and other personal property of Tenant not
permanently affixed to the premises shall remain the property of Tenant and
Landlord agrees that Tenant shall have the right, at any time, and from time
to time, provided Tenant not be in default hereunder, to remove its trade
fixtures and other personal property which it may have stored or installed
in the premises. Nothing contained in this Article shall be deemed or
construed to permit or allow Tenant to remove so much of such personal
property of comparable or better quality, as to render the premises unsuitable
for conducting the type of business specified herein. Tenant at its expense
shall immediately repair any damage occasioned to the premises by reason
of the removal of any such trade fixtures and other personal property, and
upon the last day of the lease term or a date of earlier termination of this
Lease, shall leave the premises in a neat and broom clean condition, free of
debris, normal wear and tear excepted.
All improvements to the premises by Tenant, including but not limited
to light fixtures, floor coverings and non-movable partitions, but
excluding trade fixtures, shall become the property of Landlord upon
expiration or earlier termination of this Lease.
Tenant shall be responsible for and pay before delinquency all taxes,
assessments, license fees and public charges levied, assessed or imposed
upon its business operations, as well as upon its trade fixtures, leasehold
improvements, any leasehold interest, merchandise and other personal property
in, on or upon the premises. In the event, any such items of property are
assessed with property of Landlord, then and in such event, such assessment
shall be equitably divided between Landlord and Tenant to the end that Tenant
shall pay its equitable proportion of such assessment. Landlord shall determine
the basis of prorating any such assessments and such determination shall be
binding upon
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both Landlord and Tenant.
Section 8.04. Windows
Notwithstanding anything in this Lease to the contrary, Tenant shall
not place or cause to be placed any item in the windows of the leased
premises, including but not limited to signs and/or window treatment, without
the prior approval of Landlord.
ARTICLE NINE
MAINTENANCE OF LEASED PREMISES
Section 9.01. Maintenance
Landlord will, at Tenant's expense, keep and maintain the Office
Building and common areas in good order and repair, including but not
limited to cleaning and janitorial service, in accordance with the standards
of first-class office buildings in the vicinity of the Office Building.
Tenant will at its own expense keep and maintain in good order and repair
during the full term of the Lease all parts of the leased premises, except
that Tenant shall not be required to make any structural alterations or
repairs.
At the expiration of the Lease, Tenant shall surrender the leased premises
in good condition, reasonable wear and tear and damage by casualty excepted,
and shall surrender all keys for the leased premises to Landlord or its
designated agent at the place then fixed for the payment of rent and shall
inform Landlord or its designated agent of all combinations on locks, safes and
vaults, if any, in the leased premises. Tenant may remove all of its trade
fixtures, alterations and improvements, including vaults, from the premises at
the expiration of the lease term. Before surrendering the leased premises,
Tenant shall repair any damage caused by removal of said trade fixtures,
alterations and improvements, such repairs to be performed in a good and
workmanlike manner, and shall broom clean the premises thoroughly. Tenant's
obligation to observe or perform this
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covenant shall survive the expiration or other termination of this Lease.
The voluntary or other surrender of this Lease by Tenant, or mutual
cancellation thereof, shall not work a merger but shall, at the option of the
Landlord, terminate any or all existing subleases or subtenancies or operate
as an assignment to Landlord of any or all such subleases or subtenancies.
Section 9.02. Rules and Regulations
Tenant shall faithfully observe and comply with such reasonable rules and
regulations that Landlord may from time to time promulgate and/or modify
relating to the use and operation of the Office Building and/or protection
of the improvements of the Office Building, including but not limited to the
common areas. The rules and regulations shall be binding upon Tenant upon
delivery of a copy of same to Tenant.
ARTICLE TEN
DAMAGE AND DESTRUCTION
Section 10.01. Notice by Tenant
Tenant shall give prompt notice to Landlord in case of fire or accidents
in the leased premises or of defects therein or in any fixtures or equipment.
However, such notices, or any occurrence giving rise thereto, shall not impose
any duty on Landlord except as otherwise expressly provided herein.
Section 10.02. Destruction of the Leased Premises
Landlord shall maintain fire and extended coverage insurance on the Office
Building in an amount sufficient to avoid application of any coinsurance
provisions. In the event that the leased premises are damaged by fire or other
perils covered by fire and extended coverage insurance, for which damage the
cost of repair is less than thirty-three and one-third percent (33-1/3%) of the
cost of replacement of the leased premises and is less than the amount of
minimum rent remaining due hereunder for the balance of the term hereof
including any renewal periods for which Tenant has exercised its option or
for which Tenant commits to exercise its option prior to the time set forth
in section
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19.14 hereof, the damage shall be promptly, repaired by Landlord at Landlord's
expense, provided Landlord shall not be obligated to expend for such repair an
amount in excess of the insurance proceeds recovered as a result of such
damage, and in no event shall Landlord be required to repair or replace Tenant's
stock in trade, files, documents, fixtures, improvements, furnishings, and/or
equipment. In the event of any damage to the leased premises, and if Landlord
is not required to repair as hereinabove provided, Landlord may elect whether
to repair or rebuild the leased premises, or to terminate this Lease effective
as of the date of damage, upon giving notice of such election in writing to
Tenant within forty-five (45) days after the occurrence of the event causing
damage. Nothing in this Section 10.02 shall be construed as a limitation of
Tenant's liability for such occurrence should such liability otherwise exist.
Section 10.03. Abatement of Rent
If damage to the leased premises or repairing or rebuilding of the leased
premises after such damage shall render the leased premises untenantable in
whole or in part, and Landlord shall repair such damage pursuant to the
provisions of this Article Ten, than a proportionate abatement of the monthly
minimum rent and additional rent shall be allowed from the date when such
damage occurs until the date Landlord completes its repairs. The proportionate
abatement shall be computed on the basis of the relation which the area of
space rendered untenantable bears to the total area of the leased premises prior
to such damage. If Landlord is required or elects to repair the leased premises
as herein provided, Tenant shall promptly repair or replace its improvements,
fixtures, furniture, furnishings and equipment, and if Tenant has closed,
Tenant shall promptly reopen for business.
ARTICLE ELEVEN
EMINENT DOMAIN
In the event the entire premises shall be appropriated or taken under the
power of eminent domain by any public or quasi-
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public authority, this Lease shall terminate and expire as of the date of such
taking, and the Tenant shall thereupon be released from any liability
thereafter accruing hereunder.
In the event more than twenty-five (25%) percent of the total square
footage of floor area of the premises is taken under the power of eminent
domain by any public or quasi-public authority, or if by reason of any
appropriation or taking, regardless of the amount so taken, the remainder
of the premises is not one undivided parcel of property, either Landlord or
Tenant shall have the right to terminate this Lease as of the date Tenant is
required to vacate a portion of the premises upon giving notice in writing of
such election within thirty (30) days after receipt by Tenant from Landlord of
written notice that said premises have been so appropriated or taken. In the
event of such termination, both Landlord and Tenant shall thereupon be released
from any liability thereafter accruing hereunder. Landlord agrees immediately
after learning of any appropriation or taking to give to Tenant notice in
writing thereof. If both Landlord and Tenant elect not to so terminate this
Lease, Tenant shall remain in possession of the portion of the premises which
shall not have been appropriated or taken as herein provided.
If this Lease is terminated in either manner hereinabove provided,
Landlord shall be entitled to the entire award or compensation in such
proceedings, but the rent and other charges for the last month of Tenant's
occupancy shall be prorated and Landlord agrees to refund to Tenant any rent
or other charges paid in advance. Tenant's right to receive compensation or
damages for its fixtures and personal property shall not be affected in any
manner hereby.
In the event that this Lease is not terminated in any manner as provided
above, then Landlord agrees at Landlord's cost and expense as soon as
reasonably possible to restore the leased premises to a complete unit of as
like quality and character as possible, in view of the taking, as existed prior
to such appropriation or taking; and thereafter the minimum annual rent
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and additional rent and other expenses paid by Tenant shall be reduced on the
basis of the relation which the area of space remaining bears to the total area
of the leased premises prior to such taking. Landlord shall be entitled to
receive the total award or compensation in such proceedings.
For the purposes of this Article Eleven, a voluntary sale or conveyance in
lieu of condemnation, but under threat of condemnation, shall be deemed an
appropriation or taking under the power of eminent domain. In any such event,
Landlord shall provide Tenant with documentation evidencing such threat of
condemnation.
ARTICLE TWELVE
--------------
DEFAULT
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Section 12.01. Default of Tenant
- --------------------------------
The occurrence of any of the following shall constitute a material
default and breach of this Lease by Tenant:
a. Any failure by Tenant to pay the rent within then (10) days after the
due date thereof, or to pay any other monetary sums required to be paid
hereunder on the due date thereof;
b. The abandonment or vacation of the premises by Tenant for a period of
more than ten (10) days;
c. A failure by Tenant to observe and perform any other provisions of this
Lease to be observed or performed by Tenant, where such failure continues for
thirty (30) days after written notice thereof by Landlord to Tenant; provided,
however, that Tenant shall not be deemed to be in default if the nature of such
failure is such that the same cannot reasonably be cured within such thirty
(30) day period and Tenant shall within such period commence such cure and
thereafter diligently prosecute the same to completion.
Section 12.02. Remedies of Landlord
- -----------------------------------
In the event of any such material default and breach by Tenant, Landlord
may at any time thereafter, with or without notice and demand and without
limiting Landlord in the exercise
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of any right or remedy at law or in equity which Landlord may have by reason of
such default or breach:
a. Maintain this Lease in full force and effect and recover the rent and
other monetary charges as they become due, without terminating Tenant's right
of possession, irrespective of whether Tenant shall have abandoned the
premises. In the event Landlord elects not to terminate the Lease, Landlord
shall have the right to attempt to re-let the premises at such rent and upon
such conditions and for such a term, and to do all acts necessary to maintain
or preserve the premises, as Landlord deems reasonable and necessary without
being deemed to have elected to terminate the Lease including removal of all
persons and property from the premises; such property may be removed and stored
in a public warehouse or elsewhere at the cost of, and for the account of,
Tenant. In the event such re-letting occurs, this Lease shall terminate
automatically upon the new Tenant's taking possession of the premises, and
Landlord shall be entitled to recover from Tenant all damages incurred by
reason of Tenant's default, as more fully set forth below. Notwithstanding
that Landlord fails to elect to terminate the Lease initially, Landlord at any
time during the term of this Lease may elect to terminate this Lease by virtue
of such previous uncured default by Tenant.
b. Terminate Tenant's right to possession by any lawful means, in which
case this Lease shall terminate and Tenant shall immediately surrender
possession of the premises to Landlord. In such event Landlord shall be
entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default including without limitation thereof, the following: (i) the
worth at the time of award of any unpaid rent which has been earned at the time
of such termination; plus (ii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after termination exceeds the
amount of such rental loss that is proved could be reasonably avoided; plus
(iii) such other amounts in addition to or in lieu of the foregoing as may be
permitted from time to time by applicable
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state law, including but not limited to reasonable attorneys' fees. Upon any
such re-entry, Landlord shall have the right to make any reasonable repairs,
alterations or modifications to the premises, which Landlord in its sole
discretion deems reasonable and necessary. As used above, the "worth at the
time of award" shall be computed by discounting such amounts at the discount
rate of the U.S. Federal Reserve Bank at the time of award plus one (1%)
percent. The term "rent", as used in this Article Twelve, shall mean the rent
to be paid pursuant to Article Two together with all other monetary sums
required to be paid by Tenant pursuant to the terms of this Lease.
Notwithstanding anything contained in this Lease to the contrary, Landlord
shall give Tenant ten (10) days written notice prior to terminating Tenant's
right to possession for non-payment of rent.
c. Collect as an additional item of damages the cost of repairs,
alterations, redecorating, lease commissions and Landlord's other expenses
incurred in reletting the premises to a new tenant.
d. Enter the premises and remove therefrom all persons and property. Such
property may be stored in a public warehouse or elsewhere at the cost of and
for the account of Tenant, and may be sold by Landlord by public or private
sale, without notice to or demand upon Tenant, if said property is stored for
thirty (30) days or more and Tenant has not paid the entire cost of storage.
Section 12.03. Late Charges
- ---------------------------
Tenant hereby acknowledges that the late payment by Tenant to Landlord of
rent and any and all other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the premises.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Landlord or
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Landlord's designee within ten (10) days after such amount shall be due,
Tenant shall pay to Landlord a late charge equal to four (4%) percent of such
overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no
event constitute a waiver of Tenant's obligation to make timely payments, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder.
Section 12.04. Bankruptcy or Insolvency of Tenant
- -------------------------------------------------
Except as specifically provided in this Section 12.04, the occurrence of
any of the following shall constitute a material default and breach of this
Lease by Tenant: the making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or of a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
the appointment of a trustee or receiver to take possession of substantially
all of Tenant's assets located at the premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the premises or of Tenant's interest in this Lease,
where such seizure is not discharged within (30) days.
Section 12.04a. Tenant's Interest Not Transferable
- --------------------------------------------------
Neither Tenant's interest in this Lease, nor any estate hereby created in
Tenant nor any interest herein or therein, shall pass to any trustee or
receiver or assignee for the benefit of creditors or otherwise by operation of
law except as may specifically be provided pursuant to the Federal Bankruptcy
Code.
Section 12.04b. Termination
- ---------------------------
In the event the interest or estate created in Tenant hereby
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shall be taken in execution or by other process of law, or if Tanant's
Guarantor, if any, or its executors, administrators, or assigns, if any, shall
be adjudicated insolvent or bankrupt pursuant to the provisions of any State
Act or the Federal Bankruptcy Code or if Tenant is adjudicated insolvent by a
Court of competent jurisdiction other than the United States Bankruptcy Court,
if a receiver or trustee of the property of Tenant or Tenant's Guarantor, if
any, shall be appointed by reason of the insolvency or inability of Tenant or
Tenant's Guarantor, if any, to pay its debts, or if any assignment shall be
made of the property of Tenant or Tenant's Guarantor, if any, for the benefit
of Creditors, then and in any such events, this Lease and all rights, but not
the duties or obligations, of Tenant hereunder, at the option of Landlord,
shall automatically cease and terminate with the same force and effect as
though the date of such event were the date originally set forth herein and
fixed for the expiration of the term, and Tenant shall vacate and surrender the
leased premises but shall remain liable as herein provided.
Section 12.04c. Tenant's Obligation to Avoid Creditor's Proceedings
- -------------------------------------------------------------------
Tenant or Tenant's Guarantor, if any, shall not cause or give cause for
the appointment of a trustee or receiver of the assets of Tenant or Tenant's
Guarantor, if any, and shall not make any assignment for the benefit of
creditors, or become or be adjudicated insolvent. The allowance of any
petition under insolvency law except under the Federal Bankruptcy Code or the
appointment of a trustee or receiver of Tenant or Tenant's Guarantor, if any, or
of the assets of either of them, shall be conclusive evidence that Tenant
caused, or gave cause therefor, unless such allowance of the petition, or the
appointment of a trustee or receiver, is vacated within thirty (30) days after
such allowance or appointment. Any act described in this Section shall be
deemed a material breach of Tenant's obligations hereunder, and this Lease
shall thereupon automatically
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terminate. Landlord does, in addition, reserve any and all other remedies
provided in this Lease or in law.
Section 12.04d. Right and Obligations Under the Federal Bankruptcy Code
- -----------------------------------------------------------------------
(i) Upon the filing of a petition by or against Tenant under the Federal
Bankruptcy Code, Tenant, as debtor and as debtor in possession, and any trustee
who may be appointed agree as follows: (a) to perform each and every obligation
of Tenant under this Lease including, but not limited to, conforming to the
manner of operation of the business as provided in Section 3.01 of this Lease
until such time as this Lease is either rejected or assumed by order of the
United States Bankruptcy Court; (b) to pay monthly in advance on the first day
of each month as reasonable compensation for use and occupancy of the Leased
Premises an amount equal to all minimum rental and other charges otherwise due
pursuant to this Lease: (c) to reject or assume this Lease within sixty (60)
days of the filing of such petition under Chapter 7 of the Federal Bankruptcy
Code or within one hundred twenty (120) days (or such shorter term as Landlord,
in its sole discretion, may deem reasonable so long as notice of such period is
given) of the filing of a petition under any other Chapter; for purposes of
this Section 12.04 d., it shall be conclusively presumed that the time periods
set forth herein constitute a reasonable period of time within which to
determine whether to reject or assume this Lease, and it shall be the burden of
Tenant or the trustees to overcome this presumption; (d) to give Landlord at
least forty-five (45) days prior written notice of any proceedings relating to
any assumption of this Lease; (e) to give at least thirty (30) days prior
written notice of any abandonment of the leased premises; such abandonment to
be deemed a rejection of this Lease; (f) to do all other things of benefit to
Landlord or otherwise required under the Federal Bankruptcy Code; (g) to be
deemed to have rejected this Lease in the event of the failure to comply with
any of the above; (h) to have consented to the entry of an order by an
appropriate United
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States Bankruptcy Court providing all of the above waiving notice, and hearing
of the entry of same.
(ii) No default under this Lease by Tenant, either prior to or subsequent
to the filing of such a petition, shall be deemed to have been waived unless
expressly done so in writing by Landlord.
(iii) Included within and in addition to any other conditions or
obligations or obligations imposed upon Tenant or its successor in the event
of assumption and/or assignment are the following: (a) the cure of any monetary
defaults and the reimbursement of pecuniary loss within not more than thirty
(30) days of assumption and/or assignment; and (b) the deposit of any
additional sum equal to three (3) month's rental to be held as security
deposit concurrently with assumption and/or assignment; and (c) the use of the
leased premises as set forth in Section 3.01 of this Lease, and (d)
demonstration in writing by the reorganized debtor or assignee of such debtor
in possession or of Tenant's trustee that it has sufficient background,
including but not limited to financial ability, to operate a business out of
the leased premises in the manner contemplated in this Lease and to meet all
other reasonable criteria of Landlord as did Tenant upon execution of this
Lease; and (e) the prior written consent of any mortgagee to which this Lease
has been assigned as collateral security; and (f) the premises, at all times,
shall remain an office or office suite and no physical changes of any kind
shall be made to the premises unless in compliance with the applicable
provisions of this Lease.
Section 12.04e. Severability
- ----------------------------
The invalidity of any term of provision, or any part thereof, of this
Section 12.04, as determined by a court of competent jurisdiction, shall in no
way affect the validity and/or enforceability of any other term of provision,
or any part thereof, of this Section 12.04.
Section 12.05. Default by Landlord
- ----------------------------------
Landlord shall not be in default unless Landlord fails to
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perform obligations required of Landlord within a reasonable time, but in no
event later than thirty (30) days after written notice by Tenant to Landlord
and to Landlord's designated agent and to the holder of any first deed of trust
covering the premises whose name and address shall have theretofore been
furnished to Tenant in writing, specifying wherein Landlord has failed to
perform such obligations; provided, however, that if the nature of Landlord's
obligations is such that more than thirty (30) day are required for
performance, then Landlord shall not be in default if Landlord commences
performance within said thirty (30) day period and thereafter diligently
prosecutes the same to completion.
Section 12.06. Excuse of Landlord's Performances
- ------------------------------------------------
Anything in this Lease to the contrary notwithstanding, providing such
cause is not due to the willful act, omission or neglect of Landlord, Landlord
shall not be deemed in default with respect to the performance of any of the
terms, covenants and conditions of this Lease if same shall be due to any
strike, lockout, civil commotion, war-like operation, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations or
controls, inability to obtain any material or service, through Act of God or
other cause beyond the control of Landlord.
ARTICLE THIRTEEN
----------------
ASSIGNMENT AND SUBLETTING
-------------------------
Tenant shall not transfer, assign, sublet, change ownership, mortgage
or hypothecate this Lease or Tenant's interest in and to the Leased Premises,
or any part thereof, prior to occupancy, or, any time thereafter without first
procuring the written consent of Landlord. Any such attempt to transfer,
assign, sublet, change ownership, mortgage or hypothecate this Lease without
Landlord's prior written consent shall be void and confer no rights upon any
third person. Landlord shall not unreasonably withhold or delay consent to an
assignment of this Lease or to
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<PAGE>
subletting of the demised premises subsequent to occupancy, provided that any
such assignment or subletting shall be made solely upon the following terms and
conditions:
a. Tenant shall provide Landlord for Landlord's approval at least
forty-five (45) days prior to any proposed sublease or assignment, written
notice of such proposed assignment, containing the name and address of the
proposed sublessee or assignee, adequate information as to its reputation and
financial condition, which financial condition shall be at least equivalent to
that of Tenant, and the intended use of the premises, and a copy of the
proposed sublease or assignment. No assignment or sublease shall become
effective unless and until Landlord shall have reviewed and approved the
information set forth in such notice which approval shall not be unreasonably
withheld or delayed.
b. Landlord shall have the option, exercisable by written notice within
thirty (30) days after receipt of the notice from Tenant, to terminate this
Lease effective as of a date specified by Landlord in such notice, which date
shall be not later than thirty (30) days after the date of Landlord's notice.
In the event that Landlord shall elect to so terminate this Lease, Tenant shall
have the right, for a period of seven (7) days from the date of Landlord's
termination notice, to withdraw its proposed sublease or assignment.*
c. (Intentionally Deleted)
d. Each transfer, assignment, subletting, mortgage or hypothecation shall
be by an instrument in writing in a form reasonably satisfactory to Landlord
and shall be executed by the transferor, assignor, sublessee, hypothecator or
mortgagor and the transferee, assignee, sublessee or mortgagee in each instance
as the case may be. Each transferee, assignee, sublessee or mortgagee shall
agree in writing to assume and be bound by and to perform the terms, covenants
and conditions of this Lease to be performed by Tenant including the payment of
all amounts due or to become due under this Lease directly to Landlord. No
such
* and this Lease Agreement shall continue in full force and effect.
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<PAGE>
assignment of sublet shall relieve Tenant of any obligations under this Lease.
In the event Landlord shall review, at Tenant's request, a proposed assignment,
transfer, subletting, mortgage or hypothecation, Tenant shall pay to Landlord a
sum no less than $250.00 for the time and expense incurred by Landlord or its
agent in connection with the transaction. In addition, Tenant shall reimburse
Landlord for Landlord's reasonable attorney's fees incurred in conjunction with
processing and the documentation of any such transaction.
Notwithstanding anything to the contrary contained in this Lease, Tenant
shall have the right, upon forty-five (45) days prior written notice to
Landlord, to assign this Lease or sublet the Premises to a corporation which:
(i) is Tenant's parent organization; or
(ii) is a wholly-owned subsidiary of Tenant.
Any transfer pursuant to (i) or (ii) above shall be subject to the
following conditions:
(a) Tenant shall remain fully liable during the unexpired term of this
Lease;
(b) any such assignment, sublease, or transfer shall be subject to all of
the terms, covenants and conditions of this Lease and such assignee,
sublessee or transferee shall expressly assume for the benefit of
Landlord the obligations of Tenant under the Lease by a document
reasonably satisfactory to Landlord; and
(c) Tenant shall reimburse Landlord for Landlord's reasonable attorneys'
fees incurred in conjunction with the processing and documentation of
any such assignment or transfer.
ARTICLE FOURTEEN
----------------
ESTOPPEL CERTIFICATE, ATTORNMENT, AND SUBORDINATION
---------------------------------------------------
Section 14.01. Estoppel Certificate
- -----------------------------------
Tenant and Landlord shall at any time and from time to time upon not less
than thirty (30) days prior request, execute, acknowledge and deliver to the
other party or to any mortgagee a statement in writing certifying the date of
commencement of this
31
<PAGE>
Lease, that the Lease is unmodified and in full force and effect (or if there
have been modifications to this Lease, that it is in full force and effect as
modified and stating the date of modifications), the dates to which the rent
and other charges have been paid and there are no defenses or offsets to this
Lease (or stating those claimed).
Section 14.02. Transfer by Landlord
- -----------------------------------
In the event of any transfers of interest hereunder by Landlord whether
by sale, foreclosure, exercise of a power of sale under a mortgage or
otherwise, Tenant shall attorn to such transferee of Landlord and recognize
such transferee as Landlord under this Lease. In the event of such a transfer
of Landlord's interest hereunder, then from and after the effective date of
such transfer, Landlord shall be released and discharged from any and all
obligations under this Lease except those already accrued.
Section 14.03. Subordination
- ----------------------------
Upon the request of the Landlord, Tenant will subordinate its rights
hereunder to the lien of any mortgages, deed(s) of trust or the lien resulting
from any other method of financing or refinancing, now or hereafter in force
against the land and buildings of which the leased premises are a part or upon
any buildings hereafter placed upon the land of which the Leased Premises are
a part, and to all advances made or hereafter to be made upon the security
thereof. This section shall be self-operative and no further instrument or
subordination shall be required to be delivered to any lender. Upon the
request of any such lender, Tenant will attorn as Tenant under this Lease to
such lender provided that the lender execute a non-disturbance agreement with
the Tenant upon terms reasonably acceptable to Tenant. Landlord agrees to
deliver a non-disturbance agreement to Tenant within twenty (20) days of
execution of this Lease which will be executed by Landlord's present mortgagee
within (20) days of Tenant's execution thereof.
32
<PAGE>
ARTICLE FIFTEEN
---------------
ACCESS BY LANDLORD
------------------
Section 15.01. Rights of Entry
- ------------------------------
Landlord and Landlord's agent shall have the right to enter the leased
premises at all reasonable times upon written notice to Tenant, to examine the
same, and to show them to prospective purchasers of the Office Building, and to
make such repairs, alterations, improvements or additions as Landlord may deem
necessary or desirable, and Landlord shall be allowed to take all material into
and upon said premises that may be required therefore without the same
constituting an eviction of Tenant in whole or in pat, and the rent shall in no
way abate while said repairs, alterations, improvement, or additions are being
made, by reason of loss or interruption of business of Tenant or otherwise,
provided such repairs, alterations, improvements or additions are promptly made
and Landlord shall take any and all steps reasonably necessary so as not to
interfere with the normal business operations of Tenant. During the six (6)
months prior to the expiration of the term of this Lease or any renewal term,
Landlord may exhibit the premises to prospective Tenants or purchasers, and
place upon the premises the usual notice "For Lease" or "For Sale" which
notices Tenant shall permit to remain thereon without molestation. Noting
herein contained, however, shall be deemed or construed to impose upon Landlord
any obligation, responsibility or liability whatsoever, for the care,
maintenance or repair of the Office Building or any part thereof, except as
otherwise herein specifically provided.
Section 15.02. Excavation
- -------------------------
If an excavation shall be made upon land adjacent to or under the Leased
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
Leased Premises for the purpose of doing such work as Landlord shall reasonably
deem
33
<PAGE>
necessary to preserve the Leased Premises, or the plumbing in and/or under the
Office Building from injury or damage, and to support the same by proper
foundations, without any claim for damages or indemnification against Landlord
or diminution or abatement of rent, provided no damage is caused to the Leased
Premises or injury to Tenant, and provided the rentable space is not
materially reduced.
ARTICLE SIXTEEN
---------------
QUIET ENJOYMENT
---------------
Upon payment by the Tenant of the rents herein provided, and upon the
observance and performance of all the covenants, terms, and conditions on
Tenant's part to be observed and performed, Tenant shall peaceably and quietly
hold and enjoy the Leased Premises for the term hereby demised without
hindrance or interruption by Landlord or Landlord's agents or representatives,
subject to the terms and conditions of this Lease.
ARTICLE SEVENTEEN
-----------------
(Intentionally Deleted)
ARTICLE EIGHTEEN
----------------
HOLDING OVER, SUCCESSORS
------------------------
Section 18.01. Holding Over
- ---------------------------
Tenant hereby waives, for Tenant and all those claiming under it, all
rights now or hereafter existing to redeem the Leased Premises after
termination of Tenant's right of occupancy, by order or judgment of any court
or by any legal process or writ. If Tenant should continue in possession of
the leased premises after the expiration or any sooner termination of the term
hereof, said holding over shall, at the Landlord's option, be construed to be a
tenancy from month to month, and Tenant agrees to pay Landlord for each day
Tenant holds over, rent equal to the daily equivalent of one hundred and fifty
percent (150%) of the total rent and all other charges which Tenant was
obligated to pay to Landlord during the twelve (12) months immediately
preceding such termination or expiration, plus all
34
<PAGE>
damages sustained by Landlord by reason of such retention. Such tenancy shall
be on the terms and conditions herein specified, so far as applicable. Nothing
contained herein shall constitute a consent by Landlord to Tenant's continued
possession following the expiration or other termination of this Lease, and
nothing contained in this paragraph shall limit Landlord's rights and remedies
as provided by law or elsewhere in this Lease.
Section 18.02. Successors
- -------------------------
All rights and liabilities herein given to, or imposed upon, the
respective parties hereto shall extend to and bind the several respective
heirs, executors, administrators, successors, and assigns of the parties. No
rights, however, shall inure to the benefit of any assignee of Tenant unless the
assignment to such assignee has been approved by Landlord in writing as
provided in Article Thirteen hereof.
ARTICLE NINETEEN
----------------
MISCELLANEOUS PROVISIONS
-------------------------
Section 19.01. Brokerage Commission
- -----------------------------------
Landlord has agreed to pay a brokerage commission to William A. White
/Tishman East Inc. pursuant to the terms of a separate agreement. Landlord
shall indemnify and hold Tenant harmless against and from any liabilities
arising from any claim for brokerage commissions including, without limitation,
the cost of attorney's fees in connection therewith.
Section 19.02. Entire Agreement
- -------------------------------
This Lease and the exhibits, and riders, if any, attached hereto and
forming a part hereof, set forth all the covenants, promises, agreements,
conditions an understandings between Landlord and Tenant concerning the leased
premises and there are no covenants, promises, agreements, conditions or
understandings between them other than are herein set forth. No subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
Landlord or Tenant unless reduced to writing and signed by the party to be
charged with their performance.
35
<PAGE>
Section 19.03. Waiver
- ---------------------
The waiver by Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any subsequent breach
of same or any other term, covenant or condition herein contained. The
subsequent acceptance of rent hereunder by Landlord shall not be deemed to be
a waiver of any preceding breach by Tenant of any term, covenant or condition
of this Lease, other than the failure of Tenant to pay the particular rental
so accepted, regardless of Landlord's knowledge of such preceding breach at
the time of acceptance of such rent. No covenant, term or condition of this
Lease shall be deemed to have been waived by Landlord or Tenant, unless such
waiver be in writing signed by said party.
Section 19.04. No Partnership
- -----------------------------
Landlord shall not by virtue of this Lease, in any way or for any purpose,
be deemed to have become a partner of Tenant in the conduct of its business, or
otherwise, or joint venturer or a member of a joint enterprise with Tenant,
nor is Tenant an agent of Landlord for any reason whatsoever.
Section 19.05. Accord and Satisfaction
- --------------------------------------
No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check as payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy in this Lease provided.
Section 19.06. Captions
- -----------------------
The captions, section numbers, article numbers and index appearing in this
Lease are inserted only as a matter of convenience and no way define, limit or
construe the scope or intent of such sections or articles in this Lease.
Section 19.07. Tenant Defined
- -----------------------------
The word "Tenant" shall be deemed and taken to mean each and
36
<PAGE>
every person or party mentioned as a Tenant herein, be the same one or more;
and if there shall be more than one Tenant, any notice required or permitted by
the terms of this Lease may be given by or to any one thereof, and shall have
the same force and effect as if given by or to all thereof. The use of the
neuter singular pronoun to refer to Landlord and Tenant shall be deemed a
proper reference even though Landlord or Tenant may be an individual, a
partnership, a corporation, or a group of two or more individuals or
corporations. The necessary grammatical changes required to make the
provisions of this Lease apply in the plural sense where there is more than
one Landlord or Tenant and to either corporations, associations, partnerships,
or individuals, males or females, shall in all instances be assumed as though
in each case fully expressed. If there shall be more than one Tenant occupying
the leased premises, all liabilities hereunder shall be joint and several.
Section 19.08. Corporation Authority
- ------------------------------------
Each individual executing this Lease on behalf of Tenant represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation in accordance with a duly adopted resolution of the Board
of Directors of said corporation or in accordance with the By-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
Section 19.09. Notices
- ----------------------
All notices or other communications hereunder shall be in writing and
shall be deemed to have been duly given if personally delivered, or if mailed
by United States certified mail, postage prepaid, return receipt requested, to
Landlord and Tenant at the addresses set froth in the Fundamental Lease
Provisions hereto, or at such other address as the Landlord, or Tenant, shall,
from time to time, designate to the other in writing. The date of service of
any notice hereunder shall be the date of personal delivery, or five (5)
business days after the postmark on the certified mail, as the case may be.
37
<PAGE>
Section 19.10. Applicable Law
- -----------------------------
The laws of the State of New York shall govern the validity, performance
and enforcement of this Lease.
Section 19.11. Partial Invalidity
- ---------------------------------
If any term, covenant or condition of this Lease or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each
term, covenant or condition of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
Section 19.12. Time
- -------------------
Time is of the essence of this Lease and each and all provisions hereof in
which performance is a factor.
Section 19.13. No Option
- ------------------------
The submission of this Lease by Landlord to Tenant does not constitute a
reservation of or option for the leased premises.
Section 19.14. Renewal
- ----------------------
(a) Tenant may at its option, extend the term of this Lease for two
additional terms of five (5) years each at the annual rent set froth herein.
The annual rent is to be 95% of the then market rent for the Premises during
the first five year renewal term and 90% of the then market rent for the
Premises during the second five year renewal term. Landlord shall advise
Tenant of the renewal rent for the Premises upon request by Tenant which
request must be received at least two (2) months prior to the date by which
Tenant is required to exercise its option. Tenant shall give notice to
Landlord of its intention to extend at least twelve (12) months prior to the
end of the lease (or renewal) term, and thereupon the term of this Lease shall
be so extended without any further action by either party.
In the event Tenant exercises its option to renew pursuant to section
10.02 hereof, the annual rent will be agreed upon
38
<PAGE>
prior to commencement of the renewal terms rather than prior to Tenant's
exercising said option.
Landlord and Tenant shall mutually agree as to what the then market rent
shall be. In the event of a dispute between Landlord and Tenant as to the
market rent for the Leased Premises, Landlord shall submit its figure and
Tenant shall submit its figure to an independent arbitrator, (appointed by
the American Arbitration Association) who shall select either the Landlord's
figure or Tenant's figure. The cost of arbitration shall be equally shared
by the parties and the decision of the arbitrator shall be final and binding
upon the parties hereto.
(b) Any such option granted to Tenant shall be personal to Tenant and may
not be exercised or assigned, voluntarily or involuntarily, except upon
assignment or sublet of this Lease in strict conformance with the provisions of
Article Thirteen. In the event Tenant has multiple options, a later option
cannot be exercised unless the prior option(s) has been duly and properly
exercised.
(c) Tenant shall have no right to exercise an option, notwithstanding
anything contained herein to the contrary, (i) during the time during which
Tenant has received notice of default pursuant to any provision of this Lease
and continuing until the default is cured, or (ii) during the period of time
commencing on the date a monetary obligation to Landlord is due and continuing
until the obligation is paid in full, or (iii) in the event Landlord has given
Tenant three (3) or more notices of default for nonpayment of rent and where
late charges become payable under the provisions of this Lease during the
twelve (12) month period prior to the time Tenant intends to exercise the
option.
Section 19.15. Construction of Additional Space
- ----------------------------------------------
At Tenant's request, Landlord shall construct or arrange to have
constructed for lease by Tenant approximately 25,000 square feet of additional
office space adjacent to, and accessible from, the Office Building as shown on
the Site Plan (herein called
39
<PAGE>
"Additional Space"). The Additional Space shall consist of core and shell
comparable to the Office Building.
Upon its completion, the minimum annual rent for the Additional Space will
be Landlord's total cost of construction, including architectural(1), if any,
amortized over the remaining term of the Lease at a rate equal to 250 basis
points above average rate for Ten Year Treasury Bills for the six (6) month
period prior to Tenant's notice to Landlord to build the Additional Space,
with adjustments(2).
In the event that construction of the Additional Space is not permitted by
the laws and regulations in effect when Tenant makes such request, Tenant has
the right, at its sole cost and expense, to apply for all necessary variances
or amendments to zoning ordinaces, provided that all such variances,
amendments, and approvals are obtained within six (6) months from the date
Tenant notified Landlord of its intent to obtain relief from such prohibitions.
Tenant's obligation to pay rent for the Additional Space shall commence
thirty (30) days after the Architect's notification to Landlord and Tenant that
the core and shell are substantially complete or upon the Architect's
determination that the tenant improvement are substantially complete, whichever
sooner occurs.
Except for the renewal rent provisions of section 19.14(a), all other
terms and conditions of this Lease shall apply to the Additional Premises and
upon their completion, the terms "Office Building", "Premises" and "Leased
Premises" shall include the Additional Space.
Section 19.16. Recording
Tenant shall not record this Lease or any memoranda thereof without the
prior written consent of the Landlord.
Section 19.17. Cumulative Remedies.
No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other
1. fees and costs associated with obtaining all approvals, coordinating
construction and construction interest,
2. See Rider A attached hereto and made a part hereof.
40
<PAGE>
remedies at law or in equity.
Section 19.19. Attorneys' Fees
- ------------------------------
If suit is brought by either party against the other arising out of or
based upon any provision of this Lease and/or the tenancy created hereby, the
losing party shall pay to the prevailing party all costs of such suit
including, but not limited to, appraiser's and other expert witness fees and all
attorneys' fees incurred.
Section 19.19. Necessary Acts
- -----------------------------
All parties hereto shall do all acts and execute all documents necessary,
convenient or desirable to effect all provisions of this Lease.
Section 19.20. Effectiveness of Lease
- -------------------------------------
This Lease shall not become effective until a copy executed by Landlord is
delivered to Tenant. The submission of this form of Lease to Tenant by
Landlord, or Landlord's agent, does not constitute an offer to Lease. No
employee or agent of Landlord or any person with whom Tenant may have
negotiated this Lease has any authority to modify the terms hereof or to make
any agreements, representations, or promises unless the same are contained
herein or added hereto in writing.
Section 19.21. No Representation
- --------------------------------
There are no representations or warranties whatsoever between the parties
other than as set forth herein or in the exhibits, rider or other amendment
hereto, any reliance with respect to representations is solely upon the
representations and agreements contained therein.
Section 19.22. Interpretation of Language
- -----------------------------------------
This Lease and any amendments, exhibits or rider thereto shall not be
construed either for or against Landlord or Tenant by reason of the same
having been drafted by one or the other party.
Section 19.23. Lunch Room
- -------------------------
Tenant will design and build the Premises in order to include a lunch
room for use by Tenant's employees. Mondays
41
<PAGE>
through Fridays Landlord shall arrange for a caterer or other operator to
bring prepackaged lunch-time food to the lunch room for sale to Tenant's
employees.
Section 19.24. Access to Subdivided Parcel
- ------------------------------------------
Notwithstanding that the Office Building is to be constructed on the
northerly portion of a 14 acre site (hereinafter referred to as the "Entire
Parcel") being subdivided into two parcels and subject to the provisions of
section 3.03 hereof, Tenant's employees and employees of tenants on the
southerly portion of the entire parcel shall have the right to walk upon and
use the Entire Parcel.
Section 19.25. Limitation on Further Development By Landlord
- ------------------------------------------------------------
Landlord agrees that during Tenant's occupancy of the Office Building,
Landlord will construct no additional structures on the Entire Parcel other
than those shown on the preliminary site plan prepared by Fox & Fowle
Architects, P.C. and dated February 24, 1988, without Tenant's consent.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first above written.
LANDLORD: TENANT:
URBCO, INC. MELVILLE CORPORATION
By: /s/ By: /s/
-------------------------- --------------------------
President
Its: Its: Vice President
------------------------ ---------------------------
Attest:
Secretary: /s/
----------------------------
42
<PAGE>
RIDER A
as follows: increases of 15% of the prior year's minimum annual rent every five
(5) years in Additional Space up to fifteen (15) years; provided Tenant
exercises the renewal option set forth in Paragraph 19.14, the rent for years
16 through 20, or any part thereof in the additional space, is to be 95% of the
then market rent for the Additional Space and the rent for years 21 through 25,
if any, is to be 90% of the then market rent for the Additional Space (pursuant
to the terms of Section 19.14(A)).
<PAGE>
[ARTWORK]
<PAGE>
Exhibit B
MELVILLE CORPORATION
RYE, NEW YORK
March 23, 1998
SCOPE OF WORK
BASE BUILDING
SITE WORK
1. Site Preparation
a. Site Clearance - Clear site of dead trees and shrubs
b. Strip top soil and stockpile
c. Site grading
2. Parking and Roads
a. Asphaltic concrete pavement at paved parking areas
b. Drainage at parking lot
c. Lighting at parking area and walkways
d. Curbed Islands in parking area - curbs to be concrete
e. Service road w/drainage and lighting and curbs
3. Site Structures
a. Canopy at entry
b. Brick entry walk
4. Landscaping
a. Spread top soil for stockpile
b. Fine grade and seed all areas
c. Planting trees and shrubs as per Urbco standards
d. Site irrigation - 35 sprinkler heads
5. Utilities Services
a. Water/Fire piping from road
b. Fire hydrants
c. Storm service and manholes
d. Sanitary piping from road
e. Electric from road
f. Telephone conduit
6. Receiving Area
a. Paved access turnaround at receiving area
b. (2) 3' -0" doors (pair) at receiving area for building entry.
<PAGE>
-2-
7. Foundations
a. Concrete footings
b. Concrete walls
c. Elevator pit
8. Slab on Grade
9. Super Structure Including Roof Structure
a. Structural Steel
b. Concrete on Metal Deck - 80 #/S.F. live Load
c. Roof Deck (no concrete)
10. Roofing
a. IRMA Roof and insulation
b. Barrel vault skylight at entry
c. Mech equipment area
d. NOTE - Roof skylights (quantity, aprrox. 14, size up to 6' -10"
to be incl.
11. Building Enclosure
a. Precast concrete panels - using local exposed aggregate
b. Windows at Second Floor with operable section in President's office
only (approx. every 7 linear ft.)
c. Recessed ribbon windows at First Floor (approx. every 7 linear ft.)
d. Glazed curtainwall at entry
e. Enclosure at equipment on roof
PROPOSED INTERIOR ARCHITECTURAL DEVELOPMENT UNDER BASE BUILDING CONTRACT
12. Vestibule:
Floor : Mats built in floor
Walls : Glazed partitions
Doors : (2) 3' -0" glass doors & handware
13. (2) Story Lobby:
Floor : Stone pavers
Walls : Wood panels over gypsum board
Base : Wood base
Lighting : Wall mounted incandescent fixtures on dimmers
H.V.A.C : Systems in place
Electrical : Floor mounted outlets for reception desk (power
telephone, signal cable & alarms)
Sprinkler : System in place
<PAGE>
-3-
PROPOSED INTERIOR ARCHITECTURAL DEVELOPMENT UNDER BASE BUILDING CONTRACT
14. Monumental Stair:
Treads & Raisers : Wood with partial carpet coverage
Rail : Wood & metal handrail
15. Building Core Enclosures: (1st & 2nd Floor)
Walls : Gypsum board painted
Base : 1/8" Rubber base
16. Elevator Lobby: (1st & 2nd Floor):
Floors : Carpet
Walls : Gypsum board painted
Base : 1/8" Rubber base
Ceiling : Gypsum board
Lighting : Recessed incandescent fixtures
H.V.A.C. : Systems in place
Sprinkler : Systems in place
17. Elevator Cab Interior: Service and Handicap use
18. Elevator Pump Room/Telephone & Electrical Closets & Janitors Closets:
Floors : Concrete
Walls : Gypsum board painted
Base : 1/8" Thick Rubber base
Ceiling : Accessible acoustical tile system
Lighting : Incandescent fixtures
H.V.A.C : Systems in place
Sprinkler : Systems in place
Door : Primed 2' -8": x 8' -0" x 3/4" thick H.M.
doors
19. Toilet Rooms: (1st & 2nd Floor)
Floors : Ceramic Tile
Walls : Ceramic Tile
Base : Ceramic cove tile base
Ceiling : (1'x1') Accessible acoustical tile system
Lighting : Recessed fluorescent fixtures and wall
mounted fluorescent fixtures (valence
over vanity)
Bathroom Accessories : Painted metal toilet partitions, paper
towel, toilet paper, sanitary napkin, and
soap dispensers, trash receptacles, etc.
(2 handicapped stalls required)
H.V.A.C. : System in place
Sprinkler : System in place
Doors : Primed 2' -8" x 8" -0" x 3/4" thick H.M.
Doors
<PAGE>
-4-
PROPOSED INTERNAL ARCHITECTURAL DEVELOPMENT UNDER BASE BUILDING CONTRACT
20. Core Fire Stair:
Floor : Finished concrete
Wall : Gypsum board painted
Base : 1/8" thick Rubber base
Ceiling : Gypsum board painted
Lighting : Wall mounted fluorescent
Stairs : Concrete filled/steel pan type
Rails : Painted 1 1/2" & steel rail
Sprinkler : Systems in place
H.V.A.C : Systems in place
Doors : Primed 3' -0" x 8' -0" x 3/4" thick H.M.
door
21. Secondary Fire Stair:
Floor : Vinyl Tile
Wall : Gypsum board with wall covering
Base : 1/8" thick Rubber base
Ceiling : Gypsum board painted
Lighting : Wall mounted fluorescent
Stairs : Concrete filled steel pan type with vinyl
tile
Rails : Painted 1 1/2" & steel rail
Sprinkler : Systems in place
H.V.A.C : Systems in place
Doors : Primed 3' -0" x 8' -0" x 3/4" thick H.M.
door
22. Misc. Interior Finishes:
Perimeter Wall : Insulated gypsum board backup at interior
building perimeter. Tape and spackle only
23. H.V.A.C. Interior Notes:
a. Perimeter system with reheats
b. Core area distribution complete
c. Lobby area distribution complete
d. Distribution to include VAV boxes in Tenant area as terminal
point
24. Electrical Interior Notes:
a. Main service & distribution
b. Lighting/power for core area & Lobby
c. Fire alarm & other special systems as required by code for T.C.O.
for core and shell
<PAGE>
-5-
PROPOSED INTERIOR ARCHITECTURAL DEVELOPMENT UNDER BASE BUILDING CONTRACT
25. Fire protection Interior Note:
a. Risers and sprinklers for core/lobby
b. Main loop into tenant areas
26. Plumbing Note:
a. Bathroom fixtures as required
b. (2) drinking fountains
<PAGE>
SECRETARY'S CERTIFICATE
CVS CORPORATION
The undersigned hereby certifies that he is the duly elected Secretary
of CVS CORPORATION, a Delaware corporation (the "Corporation"), and as such is
the custodian of the Corporation's books and records and is authorized to
execute and deliver this Certificate in connection with the guaranty of the
Sublease between the Corporation and Lillian Vernon Corporation dated January
30, 1998 with respect to One Theall Road, Rye, New York (the "Guaranty").
The undersigned further certifies that the Guaranty has been duly
authorized by the Corporation and has been duly executed by an officer of the
Corporation authorized to so act.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
26th day of February, 1998.
By: /s/ Zenon P. Lankowsky
----------------------------
ZENON P. LANKOWSKY
SECRETARY
<PAGE>
STATE OF RHODE ISLAND )
) SS:
COUNTY OF PROVIDENCE )
On this 26th day of February, 1998, before me personally appeared
Zenon P. Lankowsky, who, being before me duly sworn, did depose and say that he
resides at Harrisville, Rhode Island; and that he is Secretary of CVS
Corporation, the corporation described in and which executed the above
instrument, and that he signed his name thereto by like order.
/s/ Brenda Herb
---------------------
NOTARY PUBLIC
<PAGE>
[EXECUTION COPY]
CONSENT TO SUBLETTING
AND
OPTION FOR DIRECT LEASE
NEW YORK INVESTMENT LIMITED PARTNERSHIP, a Delaware limited
partnership, having a place of business at c/o BHF-Bank, 55 East 59th Street,
New York, New York 10022, as successor-in-interest to URBCO, INC. n/k/a CM
Property Management, Inc. ("LANDLORD"), hereby consents to the subletting by
CVS NEW YORK, INC. formerly known as MELVILLE CORPORATION, a New York
corporation, having its principal office at One CVS Drive, Woonsocket, Rhode
Island 02895 ("TENANT"), to LILLIAN VERNON CORPORATION, a Delaware corporation,
having its principal office at 543 Main Street, New Rochelle, New York 10801
("SUBTENANT"), of certain space (hereinafter referred to as the "Sublet
Space"), situated on land located at One Theall Road, Rye, New York containing
approximately seven (7) acres and consisting of an office building having
approximately sixty-five thousand (65,000) square feet ("BUILDING") and certain
parking and common use areas and facilities, which Sublet Space constitutes the
entire premises ("PREMISES") now leased and demised by Landlord to Tenant by
that certain Lease, dated as of April 7, 1988 as amended by that certain Letter
Agreement dated as of February 26, 1998 (which Lease, as the same may have been
and may hereafter be amended, is hereinafter called the "LEASE"), such consent
being subject to and upon the following terms and conditions, to each of which
Tenant and Subtenant expressly agree:
1. SUBLEASE SUBORDINATE TO LEASE, ETC. (a) All capitalized terms
herein shall have the meaning ascribed to them in the Lease, unless otherwise
indicated herein. The Sublease, dated January 30, 1998, covering the Sublet
Space (hereinafter referred to as the "SUBLEASE") which is attached hereto as
EXHIBIT A shall be subject and subordinate at all times to the Lease, and,
except as otherwise expressly provided herein, to all of the provisions,
covenants, agreements, terms and conditions (collectively, "PROVISIONS") of the
Lease and of this Consent to Subletting (the "CONSENT"), and Subtenant shall
not do or permit anything to be done in connection with Subtenant's occupancy
of the Sublet Space which would violate any of said provisions. Any breach or
violation of any provision of the Lease by Subtenant (whether by act or
omission) shall be deemed to be and shall constitute a default by Tenant in
fulfilling such provision and, in such event, Landlord shall have all of the
rights, powers and remedies provided in the Lease or at law or in equity or by
statute or otherwise with respect to defaults.
(b) Nothing herein contained shall be construed to (i) modify, waive,
impair or affect any of the provisions contained in the Lease (except as may be
expressly provided herein), (ii) waive any present or future breach of, or
default under, the Lease or any rights of Landlord against any person, firm,
association or corporation liable or responsible for the performance thereof,
(iii) enlarge or increase Landlord's obligations or Tenant's rights under the
Lease or
<PAGE>
2
otherwise; and all provisions of the Lease are hereby declared by Tenant to be
in full force and effect.
(c) Nothing herein contained shall be construed as an approval or
ratification by Landlord of any of the particular provisions of the Sublease
(except as may be herein expressly provided) or as a representation or warranty
by Landlord. Landlord has not, and will not, review or pass upon any of the
provisions of the Sublease and Landlord shall not be bound or estopped in any
way by the provisions of the Sublease.
(d) Tenant shall remain liable and responsible for the due keeping,
and full performance and observance, of all of the provisions of the Lease on
the part of Tenant to be kept, performed and observed, including, without
limitation, the payment of fixed minimum annual base rent and Operating
Expenses/Additional Rent (including, without limitation, Tenant Expenses,
Shared Expenses and Pro-Rata Expenses).
(e) Tenant shall continue to be liable for all bills rendered by
Landlord for charges incurred or imposed for Operating Expenses with respect to
the Sublet Space as provided in the Lease.
(f) Tenant assigns and transfers to Landlord, Tenant's interest in all
rentals and income arising from the Sublease. Landlord, by consenting to the
Sublease, agrees that, until Tenant defaults in performing its monetary or
other material obligations under the Lease, Tenant may receive, collect, and
enjoy the rents accruing under the Sublease.
(g) In the event of any default by Tenant or Subtenant in the full
performance and observance of any of their respective obligations hereunder or
in the event any representation of Tenant or Subtenant contained herein should
prove to be untrue, such event may, at Landlord's option, be deemed a default
under the Lease, the Landlord shall have all of the rights, powers and remedies
provided for in the Lease or at law or in equity or by statute or otherwise
with respect to defaults. If Tenant shall default in its obligations under the
Lease or this Consent and Landlord shall give a notice to Tenant of such
default, Landlord shall also give a copy of such notice to Subtenant and (i) in
the case of a monetary default by Tenant under the Lease, Subtenant shall have
five (5) business days after the expiration of the applicable grace period to
cure such default, including, without limitation, the payment of any costs,
expenses or interest that may be due pursuant to the terms of the Lease and
(ii) in the case of a non-monetary default by Tenant under the Lease, Subtenant
shall have five (5) business days after the expiration of the applicable grace
period to cure such default, or if such default is not susceptible of being
cured within said five (5) business day period, such five (5) business day
period shall be extended for a reasonable period to cure such default as long
as Subtenant shall have commenced such cure within said five (5) business day
period and shall continuously and diligently prosecute such cure to completion.
If Subtenant shall cure such default, Landlord shall recognize such cure and
shall not exercise its remedies available to it under the Lease with respect
thereto; provided, however, no such cure by Subtenant shall act as a waiver of
Tenant's obligation to comply with all terms, covenants,
<PAGE>
3
agreements and conditions on the part of Tenant to be observed, performed and
complied with under the Lease, nor shall such cure be deemed to establish a
direct landlord/tenant relationship between Landlord and Subtenant with respect
to the Sublet Space. If Subtenant shall default in its obligations under the
Lease or this Consent and Landlord shall give a notice to Subtenant of such
default, Landlord shall also give a copy of such notice to Tenant and (i) in
the case of a monetary default by Subtenant under the Lease, Tenant shall have
five (5) business days after the expiration of the applicable grace period to
cure such default, including, without limitation, the payment of any costs,
expenses or interest that may be due pursuant to the terms of the Lease and
(ii) in the case of a non-monetary default by Subtenant under the Lease, Tenant
shall have five (5) business days after the expiration of the applicable grace
period to cure such default, or if such default is not susceptible of being
cured within said five (5) business day period, such five (5) business day
period shall be extended for a reasonable period to cure such default as long
as Tenant shall have commenced such cure within said five (5) business day
period and shall continuously and diligently prosecute such cure to completion.
If Tenant shall cure such default, Landlord shall recognize such cure and shall
not exercise its remedies available to it under the Lease with respect thereto;
provided, however, no such cure by Tenant shall act as a waiver of Subtenant's
obligation to comply with all terms, covenants, agreements and conditions on
the part of Subtenant to be observed, performed and complied with under the
Lease or this Consent.
(h) Tenant irrevocably authorizes and directs Subtenant, on receipt of
any written notice from Landlord stating that a default exists in the
performance of Tenant's obligations under the Lease, to pay to Landlord the
rents and any other sums due and to become due under the Sublease. Tenant
agrees that Subtenant has the right to rely on any such statement from
Landlord, and that Subtenant will pay those rents and other sums to Landlord
without any obligation or right to inquire as to whether a default exists and
despite any notice or claim from Tenant to the contrary. Tenant will not have
any right or claim against Subtenant for those rents or other sums paid by
Subtenant to Landlord. Landlord will credit Tenant with any rent received by
Landlord under this assignment, but the acceptance of any payment on account of
rent from Subtenant as the result of a default by Sublandlord will not: (a) be
an attornment by Landlord to Subtenant or by Subtenant to Landlord; (b) be a
waiver by Landlord of any provision of the Lease; or (c) release Tenant from
any liability under the terms, agreements, or conditions of the Lease. No
payment of rent by Subtenant directly to Landlord, regardless of the
circumstances or reasons for that payment, will be deemed an attornment by
Subtenant to Landlord in the absence of a specific written agreement signed by
Landlord and Subtenant to that effect.
(i) In case of any conflict between the provisions of (i) the Lease
and the Sublease, then the provisions of the Lease shall prevail (except as to
Tenant and Subtenant's rights and obligations with respect to each other), and
(ii) this Consent and the Lease and/or the Sublease, then the provisions of
this Consent shall prevail.
(j) Subtenant shall have no rights under Sections 19.14, 19.15, 19.23,
19.24 and 19.25 of the Lease.
<PAGE>
4
2. NO ASSIGNMENT. Neither this Consent nor any right created hereunder
may be assigned by Tenant or Subtenant, except that the Consent shall be
assigned to a permitted assignee under the Lease and/or Sublease, as the case
may be.
3. NO FURTHER SUBLET, ETC. This Consent is not, and shall not be
construed as, a consent by Landlord to, or as permitting, any other or further
subletting by either Tenant or Subtenant. Notwithstanding anything to the
contrary contained in the Lease and/or the Sublease, without the prior written
consent of Landlord in each instance except in accordance with the terms of the
Lease: (a) the Sublease shall not be assigned, extended or renewed and (b)
neither the Sublet Space nor any part thereof shall be further sublet.
4. USE. The Sublet Space and each part thereof shall be used by
Subtenant solely for the uses permitted under the Lease.
5. TERMINATION OF LEASE. If for any reason at any time prior to the
expiration of the term of the Lease, the Lease shall terminate or be terminated
by operation of law or by any provision of the Lease, the Sublease and the term
thereof shall terminate on or prior to the day of such termination, and
Subtenant, at Subtenant's sole cost and expense, shall quit and surrender the
Sublet Space to Landlord in accordance with the terms of the Lease and the
Sublease. Landlord shall have the right to retain any property and personal
effects which shall remain in the Sublet Space or the Building, on the date of
termination of the Sublease after the Premises have been vacated on such date,
without any obligation or liability to Tenant or Subtenant, and to retain any
net proceeds realized from the sale thereof, without waiving Landlord's rights
with respect to any default by Subtenant under the foregoing provisions of this
paragraph and the provisions of the Lease and Sublease. If Subtenant shall fail
to vacate and surrender the Sublet Space in accordance with the provisions of
this paragraph, Landlord shall be entitled to all of the rights and remedies
which are available to a landlord against a tenant holding over after the
expiration of a term, and any such holding over shall be and be deemed to be a
default under the Lease. Subtenant expressly waives for itself and for any
person claiming through or under Subtenant, any rights which Subtenant or any
such person may have under the provisions of Section 2201 of the New York Civil
Practice Law and Rules and of any successor law of like import then in force,
in connection with any holdover summary proceedings which Landlord may
institute to enforce the foregoing. If the date of the termination of the
Sublease shall fall on a Sunday or holiday, then Subtenant's obligations under
the first sentence of this paragraph shall be performed on or prior to the
Saturday or business day immediately preceding such Sunday or holiday.
Subtenant's obligations under this paragraph shall survive the expiration or
earlier termination of the terms of the Lease and Sublease.
6. NO ALTERATIONS, ETC. Except as permitted under the Lease, no
alterations, additions (electric or otherwise), or physical changes shall be
made in the Sublet Space, or any part thereof, without Landlord's prior written
consent in each instance which consent shall not be unreasonably withheld.
<PAGE>
5
7. NO AMENDMENT. Notwithstanding anything to the contrary contained in
the Lease and/or the Sublease, Tenant and Subtenant shall not, without the
prior written consent of Landlord in each instance (which consent shall not be
unreasonably withheld), execute any amendment to or modification or extension
of the Sublease, and any amendment or modification entered into without such
consent shall be void and of no force or effect.
8. REPRESENTATIONS OF TENANT AND SUBTENANT. Tenant and Subtenant
jointly and severally represent to and agree with Landlord that: (a) the term
of the Sublease will expire on January 30, 2005, one (1) day prior to the date
set for the expiration of the term of the Lease and (b) other than those
payments provided for in the Sublease, Subtenant has not made, nor is it
obligated to make, any payments to Tenant in connection with the Sublease;
provided, however, Landlord acknowledges that, from and after the expiration of
the Sublease, Subtenant shall have the option to continue to lease the Premises
as a direct tenant in accordance with the terms and conditions of Paragraph 9
hereof.
9. SUBTENANT'S OPTION TO LEASE PREMISES. (a) Following the expiration
of the Sublease, Subtenant shall have an option to continue its occupancy at
the Premises by entering into a direct lease with the Landlord in the form
attached hereto as EXHIBIT B (the "DIRECT LEASE"). Subtenant may exercise its
option to enter into the Direct Lease by giving written notice thereof to
Landlord at least twelve (12) months prior to the expiration of the Sublease;
provided, however, that upon written request by the Subtenant, which must be
received at least two (2) months prior to the date by which Subtenant is
required to exercise its option, Landlord shall advise Subtenant of the market
rent on which the fixed minimum annual base rent under the Direct Lease shall
be based. In the event of a dispute between Landlord and Subtenant as to the
market rent for the Premises, Landlord and Subtenant shall each submit its
respective figure (together with an explanation of how such figure was arrived
at) to an independent arbitrator (mutually agreed to by Landlord and Subtenant
or if the Landlord and Subtenant are unable within fifteen (15) days to agree
on an independent arbitrator, then such arbitrator shall be appointed by the
American Arbitration Association) who shall select either the Landlord's figure
or the Subtenant's figure. The cost of arbitration shall be equally shared by
the Landlord and the Subtenant and the decision of the arbitrator shall be
final and binding upon Landlord and Subtenant.
(b) Subtenant's option hereunder shall be personal to Subtenant and
may not without the prior written consent of Landlord, be assigned or
exercised, voluntarily or involuntarily, by any person other than the
Subtenant.
(c) Notwithstanding anything to the contrary herein, Subtenant shall
have no right to exercise the option, (i) during the time during which
Subtenant has received notice of default pursuant to any provision of the
Lease, the Sublease or this Consent, (ii) during the period of time any amounts
past due to Landlord under the Lease remain outstanding beyond any applicable
grace period and continuing until such amounts are paid in full, or (iii) in
the event Landlord reasonably believes based on Subtenant's past defaults under
the Lease, Sublease or this Consent and/or its financial condition at the time
such option may be validly exercised that Subtenant has
<PAGE>
6
suffered a material adverse change in its ability to satisfy its obligations
under Direct Lease. Nothing contained in (i) and (ii) hereof shall affect
Landlord's right to terminate the Lease at any time following a default when
Landlord is otherwise entitled to do so, it being expressly understood that
Subtenant shall have no right to exercise such option if the Lease is so
terminated.
(d) In the event Landlord and Subtenant enter into a Direct Lease upon
the expiration of the Sublease term, upon Landlord or Tenant's written request,
Landlord and Tenant shall enter into a mutual release whereby Landlord and
Tenant shall each release the other from all future liability under the Lease.
10. LETTER AGREEMENT. Subtenant acknowledges receipt of a copy of the
Letter Agreement dated as of February 26, 1998 between New York Investment
Limited Partnership and CVS New York, Inc. and agrees that said Letter
Agreement amends the Master Lease (as defined in the Sublease).
11. INDEMNITY. Tenant hereby indemnifies Landlord against liability
resulting from any claims that may be made against Landlord by Subtenant or by
any brokers, including, without limitation, Insignia/Rostenberg-Doern, Benson,
Commercial Realty and Austin Corporate Properties or other persons claiming a
commission or similar compensation in connection with the Sublease. Subtenant
hereby represents that it has dealt with no brokers other than the ones listed
in the foregoing sentence. This indemnity shall include indemnity from and
against any and all liabilities, fines, suits, demands, costs, and expenses
(including, without limitation, reasonable attorneys' fees and disbursements)
incurred in or in connection with any such claim. The provisions of this
Paragraph 10 shall survive the expiration or earlier termination of the
Sublease.
12. MISCELLANEOUS. (a) This Consent is conditioned upon Tenant's
payment to Landlord of the reasonable costs (including attorneys' fees and
disbursements of Landlord's counsel) incurred by Landlord in connection with
the Sublease and this Consent within five (5) days of Tenant's and Subtenant's
receipt of an executed Consent from the Landlord.
(b) This Consent may not be altered, amended, modified or changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any such alteration, amendment, modification or change is being
sought.
(c) Captions are inserted for convenience only and will not affect the
construction hereof.
(d) Any bills, statements, notices, demands, requests, consents or
other communications given or required to be given under this Consent shall be
effective only if rendered or given in writing and delivered personally or sent
by mail (registered or certified, return receipt requested), postage prepaid,
or by overnight courier providing a receipt, addressed to the respective party
at the address hereinbelow set forth or at such other address as such party may
designate as its new address for such purpose by notice in accordance with the
provisions
<PAGE>
7
hereof, or, if addressed to Subtenant after the date on which such party first
occupies the Premises or the Sublet Space, as the case may be, at the Building;
and the same shall be deemed to have been rendered or given on the date
delivered, if delivered personally, or five (5) business days after the
postmark, if mailed, or the next business day, if sent by overnight courier.
If to Landlord: New York Investment Limited Partnership
c/o BHF-Bank
55 East 59th Street
New York, New York 10022
Attention: Mr. Daniel Dornier, President
with a copy to:
New York Investment Limited Partnership
c/o Silvius Dornier Verwaltungsgesellschaft mbH
Prinzregentenplatz 11
D-81675 Muenchen
Attention: Dr. B. Engelbrecht
Ms. Inge Danner-Buchholz
with a copy to:
King & Spalding
1185 Avenue of the Americas
New York, New York 10036
Attention: Dr. Wilfried Witthuhn, Esq.
If to Tenant: CVS New York, Inc.
PO Box 1376
c/o Property Administration Department
Woonsocket, Rhode Island 02895
Attention: Property Administration Department
If to Subtenant: Lillian Vernon Corporation
543 Main Street
New Rochelle, New York 10801
Attention: Larry Blum, Executive Vice President
<PAGE>
8
with a copy to:
Salon, Marrow & Dyckman, LLP
685 Third Avenue
New York, New York 10017
Attention: Joel Salon, Esq.
(e) This Consent constitutes the entire agreement of the parties
hereto with respect to the matters stated herein.
(f) This Consent will for all purposes be construed in accordance with
and governed by the laws of the State of New York applicable to agreements made
and to be performed wholly therein.
(g) This Consent shall not be effective until executed by all the
parties hereto and may be executed in several counterparts, each of which will
constitute an original instrument and all of which will together constitute one
and the same instrument.
(h) Each right and remedy of Landlord provided for in this Consent or
in the Lease shall be cumulative and shall be in addition to every other right
and remedy provided for herein or therein or now or hereafter existing at law
or in equity or by statute or otherwise, and the exercise or beginning of the
exercise by Landlord of any one or more of the rights or remedies so provided
for or existing shall not preclude the simultaneous or later exercise by
Landlord of any or all other rights or remedies so provided for or so existing.
(i) The terms and provisions of this Consent bind and inure to the
benefit of the parties hereto and their respective successors and assigns
except that no violation of the provisions of Paragraph 2 shall operate to vest
any rights in any successor or assignee of Tenant or Subtenant.
(j) If any one or more of the provisions contained in this Consent
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused these presents to
be duly executed as of February 26, 1998.
LANDLORD:
NEW YORK INVESTMENT LIMITED PARTNERSHIP
By: Silvius Rye, Inc., a general partner
By: /s/ Daniel Dornier
-------------------------------------
Name: Daniel Dornier
Title: President
TENANT:
CVS NEW YORK, INC.
By: /s/ Zenon P. Lankowsky
-------------------------------------
Name: Zenon P. Lankowsky
--------------------------------
Title: Secretary
-------------------------------
SUBTENANT:
LILLIAN VERNON CORPORATION
By: /s/ Lillian Vernon
-------------------------------------
Name: Lillian Vernon
--------------------------------
Title: Chairman / CEO
-------------------------------
<PAGE>
10
EXHIBIT A
SUBLEASE
[See attached]
<PAGE>
11
EXHIBIT B
FORM OF DIRECT LEASE
[See Attached]
<PAGE>
LEASE
BY AND BETWEEN
NEW YORK INVESTMENT LIMITED PARTNERSHIP,
AS LANDLORD
AND
LILLIAN VERNON CORPORATION,
AS TENANT
ONE THEALL ROAD
RYE, NEW YORK
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
GRANT AND TERM................................................1
Section 1.01. Leased Premises...............................................1
Section 1.02. Use of Additional Areas.......................................1
Section 1.03. Commencement of Term..........................................1
Section 1.04. Length of Term................................................2
ARTICLE II
RENT; OPERATING EXPENSES......................................2
Section 2.01. Rent..........................................................2
Section 2.02. Operating Expenses............................................2
Section 2.03. Delinquent Rent Payment.......................................3
ARTICLE III
CONDUCT OF BUSINESS BY TENANT.................................4
Section 3.01. Use of Premises...............................................4
Section 3.02. Suitability...................................................4
Section 3.03. Uses Prohibited...............................................4
Section 3.04. Governmental Regulations......................................4
Section 3.05. Advertising, Signs............................................4
Section 3.06. Hazardous Substances..........................................5
ARTICLE IV
INSURANCE.....................................................7
Section 4.01. Tenant's Insurance Obligations................................7
Section 4.02. Insurance Provisions..........................................8
Section 4.03. Waiver of Subrogation.........................................8
Section 4.04. Blanket Insurance Coverage....................................9
Section 4.05. Exemption of Landlord and Management Company from Liability...9
Section 4.06. Covenant to Hold Harmless.....................................9
i
<PAGE>
ARTICLE V
[INTENTIONALLY DELETED]......................................10
ARTICLE VI
UTILITIES....................................................10
ARTICLE VII
PARKING AND COMMON USE AREAS AND FACILITIES..................11
ARTICLE VIII
FIXTURES, ALTERATIONS AND IMPROVEMENTS.......................11
Section 8.01. Tenant's Right to Make Alterations...........................11
Section 8.02. Mechanics' Lien..............................................12
Section 8.03. Fixtures and Personal Property...............................13
Section 8.04. Intentionally Deleted........................................13
ARTICLE IX
MAINTENANCE OF PREMISES......................................13
Section 9.01. Maintenance..................................................13
Section 9.02. Intentionally Deleted........................................14
ARTICLE X
DAMAGE AND DESTRUCTION.......................................14
Section 10.01. Notice by Tenant.............................................14
Section 10.02. Destruction of the Premises..................................14
Section 10.03. Abatement of Rent............................................15
ARTICLE XI
EMINENT DOMAIN...............................................15
ARTICLE XII
DEFAULT......................................................16
ii
<PAGE>
Section 12.01. Default of Tenant...........................................16
Section 12.02. Remedies of Landlord........................................17
Section 12.03. Late Charges................................................18
Section 12.04. Bankruptcy or Insolvency of Tenant..........................18
Section 12.04a. Tenant's Interest Not Transferable..........................19
Section 12.04b. Termination.................................................19
Section 12.04c. Tenant's Obligation to Avoid Creditor's Proceedings.........19
Section 12.04d. Right and Obligations Under the Federal Bankruptcy Code.....19
Section 12.04e. Severability................................................20
Section 12.05. Default by Landlord.........................................20
Section 12.06. Intentionally Deleted.......................................21
ARTICLE XIII
ASSIGNMENT AND SUBLETTING...................................21
ARTICLE XIV
ESTOPPEL CERTIFICATE, ATTORNMENT, AND SUBORDINATION.........22
Section 14.01. Estoppel Certificate........................................22
Section 14.02. Transfer by Landlord........................................23
Section 14.03. Subordination...............................................23
ARTICLE XV
ACCESS BY LANDLORD..........................................23
Section 15.01. Right of Entry..............................................23
Section 15.02. Excavation..................................................24
ARTICLE XVI
QUIET ENJOYMENT.............................................24
ARTICLE XVII
[INTENTIONALLY DELETED].....................................24
ARTICLE XVIII
HOLDING OVER, SUCCESSORS....................................24
iii
<PAGE>
Section 18.01. Holding Over................................................24
Section 18.02. Successors..................................................25
ARTICLE XIX
MISCELLANEOUS PROVISIONS....................................25
Section 19.01. Brokerage Commission........................................25
Section 19.02. Entire Agreement............................................25
Section 19.03. Waiver......................................................25
Section 19.04. No Partnership..............................................25
Section 19.05. Accord and Satisfaction.....................................25
Section 19.06. Captions....................................................26
Section 19.07. Tenant Defined..............................................26
Section 19.08. Corporate Authority.........................................26
Section 19.09. Notices.....................................................26
Section 19.10. Applicable Law..............................................27
Section 19.11. Partial Invalidity..........................................27
Section 19.12. Time........................................................27
Section 19.13. Intentionally Deleted.......................................27
Section 19.14. Renewal.....................................................28
Section 19.15. Intentionally Deleted.......................................28
Section 19.16. Recording...................................................28
Section 19.17. Cumulative Remedies.........................................28
Section 19.18. Attorneys' Fees.............................................29
Section 19.19. Necessary Acts..............................................29
Section 19.20. Effectiveness of Lease......................................29
Section 19.21. No Representations..........................................29
Section 19.22. Interpretation of Language..................................29
Section 19.23. Intentionally Deleted.......................................29
Section 19.24. Intentionally Deleted.......................................29
Section 19.25. Intentionally Deleted.......................................29
iv
<PAGE>
LEASE
This Lease is entered into as of this 31st day of January, 2005, by
and between NEW YORK INVESTMENT LIMITED PARTNERSHIP, a Delaware limited
partnership, having a place of business at c/o BHF-Bank, 55 East 59th Street,
New York, New York 10022 (hereinafter referred to as "LANDLORD") and LILLIAN
VERNON CORPORATION, a Delaware corporation, having its principal office at One
Theall Road, Rye, New York ______ (hereinafter referred to as "TENANT").
WHEREAS, Landlord is the owner of those certain premises more fully
described in Paragraph 1.01 hereof; and
WHEREAS, Tenant desires to lease such premises from Landlord;
NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter contained, Landlord and Tenant agree as follows:
ARTICLE I
GRANT AND TERM
SECTION 1.01. LEASED PREMISES. In consideration of the rents,
covenants, and agreements on the part of Tenant to be paid and performed,
Landlord leases to Tenant, and Tenant leases from Landlord, a single tenant two
story 65,000 square foot building located on a parcel of approximately seven
(7) acres, and presently known as One Theall Road, Rye, New York (herein called
the "OFFICE BUILDING" or "PREMISES").
The Premises are leased subject to encumbrances, covenants, easements,
restrictions, rights-of-way, utility rights and easements, and all other
matters of record whether presently existing or hereafter granted which may
affect the Premises, provided that none of them adversely affects the continued
use of the Office Building for the purposes described in this Lease.
SECTION 1.02. USE OF ADDITIONAL AREAS. The use and occupation by
Tenant of the Premises shall include the use of the common areas, employees'
parking areas, service areas, service roads, loading facilities, sidewalks and
customer car parking areas, and other facilities subject however to the terms
and conditions of this Lease.
SECTION 1.03. COMMENCEMENT OF TERM. The term of this Lease and
Tenant's obligation to pay rent shall commence on January 31, 2005.
<PAGE>
2
SECTION 1.04. LENGTH OF TERM. The term of this Lease shall be for five
(5) years and no (0) months following the commencement date with the term
commencing at 12:01 o'clock A.M. on such commencement date and terminating at
11:59 o'clock P.M. on the last day of the term.
ARTICLE II
RENT; OPERATING EXPENSES
SECTION 2.01. RENT. The fixed annual base rent during the term of this
Lease shall be payable by Tenant in equal monthly installments on or before the
first day of each month in advance, at the office of Landlord or its designated
agent, or at such other place designated in writing by Landlord, without any
prior demand therefor, and without any deduction or set-off whatsoever, and
shall be $[95% OF THE THEN MARKET RENT] annually ($_____________ per month).
SECTION 2.02. OPERATING EXPENSES. (a) The fixed annual base rent shall
be net to Landlord (except for structural repairs which shall be Landlord's
obligation) so that this Lease shall yield, net to Landlord, the fixed annual
base rent specified in Section 2.01 (it being acknowledged that such amount
shall be adjusted during the renewal term) and all impositions, insurance
premiums, utility charges, maintenance, repair and replacement expenses, all
expenses relating to compliance with laws, and all other costs, fees, charges,
expenses, reimbursements and obligations of every kind and nature whatsoever
relating to the Premises (except for structural repairs which shall be
Landlord's obligation) or payable by Tenant under this Lease shall be paid or
discharged by Tenant (all of the foregoing items, together with any other sums
to be paid by Tenant under this Lease, being sometimes hereinafter collectively
referred to as "OPERATING EXPENSES" or "ADDITIONAL RENT"). The term "Operating
Expenses" or "Additional Rent" shall include, but not be limited to the
following types of expenses:
(i) All costs and expenses relating to the repair and maintenance
of the HVAC systems and the elevator, landscaping, snow removal,
grounds security, common area electric, common area water, building
engineer, porter/matron, cleaning supplies, cleaning contract, window
cleaning, insurance, trash removal, general repairs and maintenance
(e.g. fire protection, repairs (excluding structural repairs) to the
building and plumbing, exterminator, plants, etc.) and miscellaneous
expenses (e.g. office supplies, petty cash, telephone, beepers, etc.);
(ii) All real estate taxes, special assessments, water rates and
charges, sewer rates and charges, including any sum or sums payable
for present or future sewer or water capacity, street lighting, excise
levies, licenses, permits, inspection fees, other governmental charges
and all other charges or burdens of whatsoever kind and nature
incurred in the use, occupancy, ownership, operation, leasing or
possession of the Premises, without particularizing by any known name
or by whatever name hereafter
<PAGE>
3
called, and whether any of the foregoing be general or special,
ordinary or extraordinary, foreseen or unforeseen (all of which are
sometimes herein referred to as "IMPOSITIONS"), that may have been or
may be assessed, levied, confirmed, imposed upon, or become a lien on
the Premises, or any portion thereof, or any appurtenance thereto,
rents or income therefrom, and any easements or rights that may now or
hereafter be appurtenant or appertain to the use of the Premises; and
(iii) any capital levy, gross receipts tax or other tax on the
rents received by Landlord from the Premises, or a franchise tax,
assessment, levy or charge measured by rents; provided, however, that
nothing contained herein shall require Tenant to pay any municipal,
state or federal net income or excess profits taxes assessed against
Landlord, or any municipal, state or federal, estate, succession,
inheritance or transfer taxes of Landlord, or corporation franchise
taxes imposed upon the Landlord.
Operating Expenses shall not include depreciation on the Office
Building or on equipment used therein, loan payments, executive salaries, real
estate broker's commissions or capital improvements.
(b) Tenant shall furnish to Landlord, at least two (2) days prior to
the date upon which any Imposition would become delinquent without penalty,
official receipts of the appropriate taxing authority or other appropriate
proof satisfactory to Landlord, evidencing payment thereof or that such payment
has been transmitted by Tenant by a copy of the uncancelled check and the
payment stub, provided, however, that official receipts or other proof need not
be provided for utility bills and other similar items received in connection
with the day-to-day operation of the Premises, except to the extent that the
bills or items can become a lien against the Premises.
(c) If Tenant fails to pay or discharge any item of Additional Rent,
Landlord, following reasonable notice to Tenant, may, but shall not be
obligated to, pay the same, and in that event Tenant shall immediately
reimburse Landlord therefor and pay the amount due as Additional Rent, and
shall indemnify, defend and save Landlord harmless from and against all
Impositions, insurance premiums, utility charges, maintenance, repair and
replacement expenses, all expenses relating to compliance with laws, and all
other costs, fees, charges, expenses, reimbursements and obligations of every
kind and nature whatsoever relating to the Premises (except such items that
relate to structural repairs) that constitute Additional Rent. In addition,
Landlord shall be entitled to charge Tenant a management fee of 1.5% of the
Operating Expenses paid by Landlord with respect to any such Operating Expenses
paid by Landlord.
SECTION 2.03. DELINQUENT RENT PAYMENT. All payments of fixed annual
base rent and Additional Rent shall be payable without previous demand therefor
and without any right of set-off or deduction whatsoever, and in case of
nonpayment of any item of Additional Rent by Tenant when the same is due,
Landlord shall have, in additional to all its other rights and remedies, all of
the rights and remedies available to Landlord under the provisions of this
Lease or by law or in equity in the case of nonpayment of rent. The performance
and observance by Tenant of all
<PAGE>
4
the terms, covenants, conditions and agreements to be performed or observed by
Tenant hereunder shall be performed and observed by Tenant at Tenant's sole
cost and expense.
If Tenant shall fail to pay, within thirty (30) days from the date
when due, any rent, Additional Rent, amounts or any other charges payable
hereunder, such unpaid amounts shall bear interest from the date due to the
date of payment at the rate of eighteen (18%) percent per annum.
ARTICLE III
CONDUCT OF BUSINESS BY TENANT
SECTION 3.01. USE OF PREMISES. The Premises shall be used and occupied
by Tenant for general office use only and for no other purposes whatsoever
without obtaining the prior written consent of Landlord.
SECTION 3.02. SUITABILITY. This Lease shall be subject to all
applicable zoning ordinances and to any municipal, county and state laws and
regulations governing and regulating the use of the Premises.
SECTION 3.03. USES PROHIBITED. Tenant shall not use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purposes, nor shall Tenant cause, maintain or permit any nuisance in, on or
about the Premises. Tenant shall not commit or allow to be committed any waste
in or upon the Premises. Without limiting the generality of the foregoing,
nothing shall be prepared or manufactured in the premises which might emit an
odor outside the Office Building, or cause an objectionable noise or vibration
in the Office Building. Tenant further agrees not to connect any apparatus,
machinery or device to the electric wires or water or other pipes in the
premises except as set forth in Article VI hereof, except that Tenant may
install the usual office machines and equipment, such as computers, printers,
communication facilities and similar equipment.
SECTION 3.04. GOVERNMENTAL REGULATIONS. Tenant shall, at Tenant's sole
cost and expense, comply with all of the requirements, statutes, and ordinances
of all county, municipal, state, federal and other governmental authorities
having jurisdiction, now in force or which may hereafter be in force,
pertaining to the Premises except those relating to structural matters.
SECTION 3.05. ADVERTISING, SIGNS. Tenant shall not affix or maintain
upon the glass panes and supports of the windows, (or within 24 inches of any
window), doors and the exterior walls of the Premises, any signs, advertising,
placards, names, insignia, trademarks, descriptive material or any other such
like items except such as shall have first received the written approval of
Landlord (which shall not be unreasonably withheld) as to size, type, color,
location, copy, nature and display qualities. Tenant shall not affix any sign
to the roof of the Office Building.
<PAGE>
5
Upon receipt of appropriate municipal approvals and subject to the consent of
Landlord, Tenant shall be permitted to erect an exterior sign as described on
attached EXHIBIT A.
SECTION 3.06. HAZARDOUS SUBSTANCES.
(a) Tenant, at its sole cost and expense, shall at all times and in
all respects comply with all federal, state and local laws, ordinances and
regulations ("HAZARDOUS MATERIALS LAWS") relating to the industrial hygiene,
environmental protection or the use, analysis, generation, manufacture,
storage, presence, disposal or transportation of any oil, flammable explosives,
asbestos, urea formaldehyde, radioactive materials or waste, or other
hazardous, toxic, contaminated or polluting materials, substances or wastes,
including without limitation any "hazardous substances," "hazardous wastes,"
"hazardous materials" or "toxic substances" under any Hazardous Materials Laws
(collectively, "HAZARDOUS MATERIALS").
(b) Tenant, at its sole cost and expense, shall procure, maintain in
effect and comply with all conditions of any and all permits, licenses and
other governmental and regulatory approvals required for Tenant's use of the
Premises, including, without limitation, discharge of appropriately treated
materials or waste into or through any sanitary sewer system serving the
Premises. Except as discharged into the sanitary sewer in strict accordance and
conformity with all applicable Hazardous Materials Laws, Tenant shall cause any
and all Hazardous Materials to be removed from the Premises and transported
solely by duly licensed haulers to duly licensed facilities for final disposal
of Hazardous Materials. Tenant shall in all respects, handle, treat, deal with
and manage any and all Hazardous Materials in, on, under or about the Premises
in complete conformity with all applicable Hazardous Materials Laws and prudent
industry practices regarding the management of Hazardous Materials. All
reporting obligations imposed by Hazardous Materials Laws are solely the
responsibility of Tenant. Upon expiration or earlier termination of this Lease,
Tenant shall cause all Hazardous Materials to be removed from the Premises and
transported for use, storage or disposal in accordance with and in complete
compliance with all applicable Hazardous Materials Laws. Tenant shall not take
any remedial action in response to the presence of any Hazardous Materials in,
on, about or under the Premises or enter into any settlement agreement, consent
decree or other compromise with respect to any claims relating to any Hazardous
Materials in any way connected with the Premises without first notifying
Landlord of Tenant's intention to do so and affording Landlord ample
opportunity to appear, intervene or otherwise appropriately assert and protect
Landlord's interest with respect thereto. In addition, at Landlord's request,
Tenant shall remove all tanks or fixtures which contain or contained or are
contaminated with Hazardous Materials either (A) upon the termination of this
Lease, or (B) immediately, if any such tank or fixture is not operated or
maintained in accordance with applicable Hazardous Materials Laws.
(c) Tenant shall immediately notify Landlord of (i) any enforcement,
clean-up, removal or other governmental or regulatory action instituted,
completed or threatened pursuant to any Hazardous Materials Laws; (ii) any
claim made or threatened by any person against Landlord, or the Premises,
relating to damage, contribution, cost recovery, compensation, loss or injury
<PAGE>
6
resulting from or claimed to result from any Hazardous Materials; and (iii) any
reports made to any environmental agency arising out of or in connection with
any Hazardous Materials in, on or about the Premises or with respect to any
Hazardous Materials removed from the Premises, including, any complaints,
notices, warnings, reports or asserted violations in connection therewith.
Tenant shall also provide Landlord, as promptly as possible and in any event
within ten days after Tenant receives the same, with copies of all claims,
reports, complaints, notices, warnings or asserted violations relating in any
way to the Premises or Tenant's use thereof. Upon request of Landlord (to
enable Landlord to defend itself from any claim or charge related to any
Hazardous Materials Law), Tenant shall promptly deliver to Landlord copies of
hazardous waste manifests reflecting the legal and proper disposal of all
Hazardous Materials removed from the Premises by Tenant or under Tenant's
direction or supervision. All such manifests shall list the Tenant or its agent
as a responsible party and in no way shall attribute responsibility for any
Hazardous Materials to Landlord.
(d) Tenant shall indemnify, defend (with counsel reasonably acceptable
to Landlord), protect and hold Landlord and each of Landlord's officers,
directors, partners, employees, agents, attorneys, successors and assigns free
and harmless from and against any and all claims, liabilities, damages, costs,
penalties, forfeitures, losses or expenses (including reasonable attorneys'
fees) for death or injury to any person or damage to any property whatsoever
(including water tables and atmosphere) arising or resulting in whole or in
part, directly or indirectly, from the presence or discharge of Hazardous
Materials in, on, under, upon or from the Premises or from the transportation
or disposal of Hazardous Materials to or from the Premises. Tenant's
obligations hereunder shall include, without limitation, and whether
foreseeable or unforeseeable, all costs of any required or necessary repairs,
clean-up or detoxification or decontamination of the Premises, and the presence
and implementation of any closure, remedial action or other required plans in
connection therewith, and shall survive the expiration of or early termination
of the term of this Lease. For purposes of the indemnity provided herein, any
acts or omissions of Tenant or its employees, agents, customers, sub-lessees,
assignees, contractors or sub-contractors (whether or not they are negligent,
intentional, wilful or unlawful) shall be strictly attributable to Tenant.
Notwithstanding the foregoing, Tenant shall not be liable by reason of the
gross negligence or wilful misconduct of Landlord or its officers, employees or
agents.
(e) If a governmental authority institutes an enforcement action
against Tenant or the Premises for the clean-up or removal of any Hazardous
Materials, Landlord shall have the right to require Tenant to undertake and
submit to Landlord an environmental audit from an environmental company
reasonably acceptable to Landlord, which audit shall evidence Tenant's
compliance with this provision. Landlord may, at its expense, commission an
environmental audit of the Premises at any time after prior notice to Tenant.
(f) Notwithstanding anything contained in this Section 3.06, Tenant
shall have no liability in respect of any Hazardous Material in, on, under or
about the Premises prior to date which Tenant came into possession pursuant to
that certain Sublease dated as of January 30, 1998, by and between CVS New
York, Inc. and Lillian Vernon Corporation.
<PAGE>
7
ARTICLE IV
INSURANCE
SECTION 4.01. TENANT'S INSURANCE OBLIGATIONS. Tenant, at its sole cost
and expense, shall obtain and continuously maintain in full force and effect
the following insurance coverage:
(a) Policies of insurance covering the Office Building and Tenant's
improvements, additions, alterations, furniture, fixtures, equipment and
personal property against (i) loss or damage by fire; (ii) loss or damage from
all other risks or hazards now or hereafter embraced by an "Extended Coverage
Endorsement", including, but not limited to, windstorm, hail, explosion,
vandalism, riot and civil commotion, damage from vehicles, smoke damage, water
damage and debris removal; (iii) loss for flood if the Premises are in a
designated flood or flood insurance area; (iv) loss from so-called explosion,
collapse and underground hazards; and (v) loss or damage from all other risks
or hazards of a similar or dissimilar nature that are now or may hereafter be
customarily insured against with respect to improvements similar in
construction, design, general location, use and occupancy to the Office
Building. Such policies shall also contain an "Ordinance or Law" endorsement.
At all times, the insurance coverage shall be in an amount equal to one hundred
percent (100%) of the then "Full Replacement Cost" of the Office Building.
"Full Replacement Cost" shall be interpreted to mean the cost of replacing the
Office Building without deduction for depreciation or wear and tear, and it
shall include a reasonable sum for architectural, engineering, legal,
administrative and supervisory fees connected with the restoration or
replacement of the Office Building in the event of damage thereto or
destruction thereof. The Insurance policy shall also contain an agreed value
endorsement. If a sprinkler system shall be located in the Office Building,
Tenant shall maintain sprinkler leakage insurance.
(b) Comprehensive general liability insurance (including "hired car"
and "non-owned automobile" coverage) against any loss, liability or damage on,
about or relating to the Premises, or any portion thereof, with limits
initially of not less than Five Million Dollars ($5,000,000.00) combined single
limit, per occurrence and aggregate coverage on an occurrence basis.
(c) Boiler and pressure vessel (including, but not limited to,
pressure pipes, steam pipes and condensation return pipes) insurance, provided
the Office Building contains a boiler or other pressure vessel or pressure
pipes.
(d) Rental value insurance in the amount of one year of fixed annual
base rent and one year of Additional Rent at the respective rates of fixed
annual base rent and Additional Rent payable by Tenant. Rental value insurance
shall be increased at any time that the fixed annual base rent or Additional
Rent payable by Tenant increases.
(e) Any other insurance in amounts that may from time to time
reasonably be required by Landlord, against other insurable hazards that at the
time are commonly insured against in the
<PAGE>
8
case of premises, buildings or improvements similar in construction, design,
general location, use and occupancy to those on or appurtenant to the Premises.
The insurance set forth in this Section shall be maintained by Tenant
at not less than the limits set forth herein and reasonably required to be
increased from time to time by Landlord in writing, whereupon Tenant shall
obtain and maintain thereafter insurance in the amount required by Landlord.
SECTION 4.02. INSURANCE PROVISIONS.
All policies of insurance required by Section 4.01 shall be maintained
with a reputable and financially sound insurance company acceptable to Landlord
authorized to issue insurance in the state in which the Premises are located,
shall name Landlord (except as to Tenant's furniture, fixtures and personal
property) and, at the request of Landlord, any mortgagee of Landlord as named
insureds and shall provide that the proceeds thereof shall be payable to
Landlord and Tenant, as co-trustees. If Landlord so requests, insurance
proceeds shall also be payable to any contract purchaser of the Premises and
the holder of any mortgage now or hereafter becoming a lien on the fee of the
Premises, or any portion thereof, as the interest of purchaser or holder
appears pursuant to a standard named insured or mortgagee clause. Tenant shall
not, on Tenant's own initiative or pursuant to request or requirement of any
third party, take out separate insurance concurrent in form or contributing in
the event of loss with that required in Section 4.01, unless Landlord is named
therein as a named insured with loss payable as provided in this Article.
Tenant shall immediately notify Landlord whenever any separate insurance is
taken out and shall deliver to Landlord copies of the insurance policy
certified by the insurer.
Each policy required under this Article shall have attached thereto
(a) an endorsement that the policy shall not be canceled or materially changed
without at least 30 days' prior written notice to Landlord, and (b) an
endorsement to the effect that the insurance as to the interest of Landlord
shall not be invalidated by any act or neglect of Landlord or Tenant. Tenant
shall deliver to Landlord a certified copy of each current insurance policy. A
new certificate of insurance in a form reasonably acceptable to Landlord shall
be delivered to Landlord not less than 20 days prior to the expiration of the
then current policy term.
SECTION 4.03. WAIVER OF SUBROGATION.
Tenant shall cause to be inserted in the policy or policies of
insurance required by this Article a so-called "Waiver of Subrogation Clause"
as to Landlord, except to the extent that the policies specifically name
Landlord and any mortgagee of Landlord as additional insureds. Tenant hereby
waives, releases and discharges Landlord, its agents and employees from all
claims whatsoever arising out of any loss, claim, expense or damage to or
destruction to the Premises, Tenant's furniture, fixtures, equipment or
personal property and all items covered or coverable by insurance required
under this Article notwithstanding that the loss, claim, expense or damage
<PAGE>
9
may have been caused by Landlord, its agents or employees and Tenant agrees to
look only to the insurance coverage in the event of any loss.
SECTION 4.04. BLANKET INSURANCE COVERAGE.
Nothing in this Article shall prevent Tenant from taking out insurance
of the kind and in the amount provided for under the preceding sections of this
Article under a blanket insurance policy or policies that may cover other
properties owned or operated by Tenant as well as the Premises; provided,
however, that any policy of blanket insurance of the kind provided for shall
(a) specify therein the amounts thereof exclusively allocated to the Premises
or Tenant shall furnish Landlord and the holder of any fee mortgage with a
written statement from the insurers under the policies specifying the amounts
of the total insurance exclusively allocated to the Premises, and (b) not
contain any clause that would result in the insured thereunder being required
to carry any insurance with respect to the property covered thereby in an
amount not less than any specific percentage of the Full Replacement Cost of
the property in order to prevent the insured therein named from becoming a
co-insurer of any loss with the insurer under the policy; and further provided,
however, that the policies of blanket insurance shall, with respect to the
Premises, contain the various provisions required of an insurance policy by the
foregoing provisions of this Article. Tenant shall deliver to Landlord
certificates of blanket insurance policies reasonably satisfactory to Landlord.
SECTION 4.05. EXEMPTION OF LANDLORD AND MANAGEMENT COMPANY FROM
LIABILITY.
Neither Landlord, its agents nor its designated management company
shall be liable for injury to Tenant's business for loss of income therefrom or
for injury or damage which may be sustained by the person or property of
Tenant, its employees, invitees, customers, agents or contractors, or any other
person in or about the Premises caused by or resulting from fire, explosion,
falling plaster, steam, electricity, gas, dampness, water or rain which may
leak or flow from or into any part of the Premises from the roof, street or sub
surface condition or from any other place, or from the breakage, leakage,
obstruction or other defects of the pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or by any other cause of
whatsoever nature, whether said damage or injury results from conditions
arising upon the Premises or from other sources or places, and regardless of
whether the cause of such damage or injury or the means of repairing same is
inaccessible to Tenant. Neither Landlord, its agents nor its designated
management company shall be liable for any damage caused by other persons in
the Premises, occupants of adjacent property of the Office Building, or the
public, or caused by operations in construction of any private, public or
quasi-public work. Landlord shall not be liable for any latent defect in the
Premises unless such latent defect is covered by a guarantee from Landlord's
contractor(s) in which case Landlord's liability shall not exceed that of the
contractor(s). Nothing herein shall relieve Landlord of its obligation to make
structural repairs.
SECTION 4.06. COVENANT TO HOLD HARMLESS. Tenant covenants, to the
extent permitted by applicable law, to indemnify Landlord, its partners,
representatives, agents and employees, and
<PAGE>
10
save them harmless from and against any and all claims, actions, damages,
liability and expense including the attorney's fees of counsel designated by
Tenant and approved by Landlord, in connection with all losses, including loss
of life, personal injury and/or damage to property (except for loss or damage
caused solely by the negligence of Landlord or its agents or representatives),
arising from or out of any occurrence in, upon or at the Premises or the
occupancy or use by Tenant of the Premises or any part thereof, or arising from
or out of Tenant's failure to comply with any provision of this Lease or
occasioned wholly or in part by any act or omission of Tenant, its agents,
contractors, suppliers, employees, servants, customers or licensees. In case
Landlord or any other party so indemnified shall, without fault, be made a
party to any litigation commenced by or against Tenant, then Tenant shall
protect and hold them harmless and shall pay all costs, expenses and reasonable
attorney's fees incurred or paid by them in connection with such litigation.
ARTICLE V
[INTENTIONALLY DELETED]
ARTICLE VI
UTILITIES
Tenant shall pay, when due, all charges of whatsoever kind and nature
for utilities furnished to the Premises during the term of this Lease,
including, without limitation, all charges for water, sewer, heat, gas, light,
garbage, electricity, telephone, steam, power or other public or private
utility services. Landlord shall direct the appropriate utility companies to
bill said utilities directly to Tenant.
Landlord shall not be liable for failure to furnish any of the
foregoing services when such failure is caused by accident or conditions beyond
the control of Landlord, or by repairs, labor disturbances, labor disputes of
any character; nor shall Landlord be liable for loss of or injury to property
however occurring through or in connection with or incidental to the furnishing
of any of the foregoing, nor shall such failure relieve Tenant from its duty to
pay the full amount of rent herein reserved, or constitute or be construed as a
constructive or other eviction of Tenant.
Tenant will not use any device or apparatus in the Office Building
which will require electric current in excess of the Office Building's capacity
unless Tenant arranges for such increased capacity at its sole cost and
expense.
<PAGE>
11
ARTICLE VII
PARKING AND COMMON USE AREAS AND FACILITIES
Landlord will provide on-site parking for a minimum of 200 cars for
Tenant's use. However, in the event any governmental authority having
jurisdiction over the Premises requires additional parking, pursuant to any
zoning law or ordinance, Landlord shall provide Tenant with the additional
on-site parking in accordance with said law or ordinance.
All automobile parking areas, driveways, entrances and exits thereto,
shown on the Site Plan attached hereto as EXHIBIT B and other facilities
furnished by Landlord in or near the Office Building, including employee
parking areas, loading docks, if any, sidewalks and ramps, landscaped areas,
and other areas and improvements shall at all times be subject to the exclusive
control and management of Tenant. Tenant, at its sole expense, will operate and
maintain the common facilities referred to above in such manner as Landlord, in
its reasonable discretion, shall determine from time to time, provided that
Tenant's use of the same shall not be materially affected.
ARTICLE VIII
FIXTURES, ALTERATIONS AND IMPROVEMENTS
SECTION 8.01. TENANT'S RIGHT TO MAKE ALTERATIONS. Landlord agrees that
Tenant may, at its own expense and after giving Landlord or its designated
agent at least thirty (30) days notice in writing of its intention to do so,
from time to time during the term hereof make alterations, additions and
changes in and to the interior of the Premises (except those of a structural
nature) as it may find necessary or convenient for its purposes, provided that
the value of the Premises is not thereby diminished, and provided, however,
that no alterations, additions or changes costing in excess of Two Hundred
Thousand Dollars ($200,000.00) may be made without first procuring the approval
in writing of Landlord, which approval shall not be unreasonably withheld. In
addition, no alterations, additions or changes shall be made to the exterior
walls or roof of the Premises, nor shall Tenant erect any mezzanine or increase
the size of same if one be initially constructed, without the prior written
approval of Landlord. In no event shall Tenant make or cause to be made any
penetration through the roof of the Premises. Tenant shall be directly
responsible for any and all damages resulting from any violation of the
provisions of this Article. All alterations, additions, improvements or changes
to be made to the Premises which require the approval of Landlord shall be
under the supervision of a competent architect or competent licensed structural
engineer and made in accordance with plans and specifications with respect
thereto, approved in writing by Landlord before the commencement of the work.
Tenant shall carefully select all contractors and other entities utilized to
make alterations to the Premises in order to insure labor harmony. All work
done with respect to alterations, additions and changes must be done in a good
and workmanlike manner and diligently prosecuted to completion to the end that
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12
the Premises shall at all times be a complete unit except during the period of
work. Any such changes, alterations and improvements shall be performed and
done strictly in accordance with the laws and ordinances relating thereto. In
performing the work of any such alterations, additions or changes, Tenant shall
have the work performed in a manner which will not obstruct the access to the
Property. Tenant may remove any alterations, improvements and changes made by
Tenant pursuant to this section upon the termination of this Lease, provided
Tenant repairs all damage caused by such removal. All improvements not removed
by Tenant shall become a part of the Premises. Upon the termination of the
Lease, Tenant shall, at Landlord's request by written notice to Tenant given
not less than 30 days prior to the date of termination, at Tenant's sole cost
and expense, remove any such alterations and improvements and repair all damage
caused by such removal.
In the event that Tenant shall make any permitted alterations,
additions or improvements to the Premises under the terms and provisions of
Section 8.01, Tenant agrees to carry such insurance as required by Article IV
covering any such alteration, addition or improvement, it being expressly
understood and agreed that none of such alterations, additions or improvements
shall be insured by Landlord under such insurance (if any) as Landlord may
carry upon the Office Building.
SECTION 8.02. MECHANICS' LIEN. Tenant agrees that it will pay or cause
to be paid all costs for work done by it or caused to be done by it on the
Premises, and Tenant will keep the Premises free and clear of all mechanics'
liens and other liens on account of work done for Tenant or persons claiming
under it. Tenant agrees to and shall indemnify, defend and save the Landlord
free and harmless against liability, loss, damage, costs, attorneys' fees and
all other expenses on account of claims of lien of laborers or materialmen or
others for work performed or materials or supplies furnished for Tenant or
persons claiming under it.
If Tenant shall desire to contest any claim or lien, it shall furnish
to Landlord or the appropriate court adequate security of the value or in the
amount of the claim, plus estimated costs and interest, or a bond of a
responsible corporate surety in such amount conditioned on the discharge of the
lien. If a final judgment establishing the validity or existence of a lien for
any amount is entered, Tenant shall pay and satisfy the same at once.
If Tenant shall be in default in paying any charge for which a
mechanics' lien claim and suit to foreclose the lien have been filed, and shall
not have given Landlord or the appropriate court security to protect the
property and Landlord against such claim of lien, Landlord may (but shall not
be required to) pay the said claim and any costs, and the amount so paid,
together with reasonable attorneys' fees incurred in connection therewith,
shall be immediately due and owing from Tenant to Landlord, and Tenant shall
pay the same to Landlord with interest at the maximum lawful rate from the
date(s) of Landlord's payment(s).
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13
Should any claims of lien be filed against the Premises or any action
affecting the title to such property be commenced, the party receiving notice
of such lien or action shall forthwith give the other party written notice
thereof.
Landlord or its representatives shall have the right to go upon and
inspect the Premises at all reasonable times after three (3) days written
notice to Tenant and Tenant shall, before the commencement of any work which
might result in any such lien, give to Landlord written notice of its intention
to do so pursuant to Section 8.01.
SECTION 8.03. FIXTURES AND PERSONAL PROPERTY. Any trade fixtures,
signs and other personal property of Tenant not permanently affixed to the
Premises shall remain the property of Tenant and Landlord agrees that Tenant
shall have the right, at any time, and from time to time, to remove its trade
fixtures and other personal property which it may have stored or installed in
the Premises. Nothing contained in this Article shall be deemed or construed to
permit or allow Tenant to remove so much of such personal property of
comparable or better quality, as to render the Premises unsuitable for
conducting the type of business specified herein. Tenant at its expense shall
immediately repair any damage occasioned to the Premises by reason of the
removal of any such trade fixtures and other personal property, and upon the
last day of the lease term or a date of earlier termination of this Lease,
shall leave the Premises in a neat and broom clean condition, free of debris,
normal wear and tear excepted.
All improvements to the Premises made by Tenant, including but not
limited to light fixtures, floor coverings and non-movable partitions, but
excluding trade fixtures, shall become the property of Landlord upon expiration
or earlier termination of this Lease; provided, however, that if Landlord
requires such improvements to be removed in accordance with Section 8.01,
Tenant shall, at its sole cost and expense, remove such improvements.
Tenant shall be responsible for and pay before delinquency all taxes,
assessments, license fees and public charges levied, assessed or imposed upon
its business operations, as well as upon its trade fixtures, leasehold
improvements, any leasehold interest, merchandise and other personal property
in, on or upon the Premises.
SECTION 8.04. INTENTIONALLY DELETED.
ARTICLE IX
MAINTENANCE OF PREMISES
SECTION 9.01. MAINTENANCE. Tenant will throughout the full term of the
Lease, at Tenant's sole cost and expense, keep and maintain the Office Building
and common areas in good order and repair, and shall make and perform all
routine maintenance thereof and all necessary repairs thereto, interior and
exterior, ordinary and extraordinary, foreseen and unforeseen of
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14
whatsoever kind and nature in accordance with the standards of first-class
office buildings in the vicinity of the Office Building, except that Tenant
shall not be required to make any structural repairs which shall be Landlord's
responsibility throughout the full term of the Lease. Tenant, at its sole cost
and expense, shall keep the Premises safe for human occupancy and use, shall
take good care of, repair and maintain in good order and repair all driveways,
pathways, roadways, sidewalks, curbs, spur tracts, parking areas, loading
areas, landscaped areas, entrances and passageways, shall promptly remove all
accumulated snow, ice and debris from any and all driveways, pathways,
roadways, sidewalks, curbs, spur tracks, parking areas, loading areas,
landscaped areas, entrances and passageways, and shall keep all portions of the
Premises, including areas appurtenant thereto, in a clean and orderly condition
free of snow, ice, dirt, rubbish, debris and unlawful obstructions.
At the expiration of the Lease, Tenant shall surrender the Premises in
good condition, reasonable wear and tear and damage by casualty excepted, and
shall surrender all keys for the Premises to Landlord or its designated agent
at the place then fixed for the payment of rent and shall inform Landlord or
its designated agent of all combinations on locks, safes and vaults, if any, in
the Premises. Tenant may remove all of its trade fixtures, alterations and
improvements, including vaults, from the Premises at the expiration of the
lease term; provided, however, that in the event that Landlord requires the
removal of such items, Tenant shall remove such items. Before surrendering the
Premises, Tenant shall repair any damage caused by removal of said trade
fixtures, alterations and improvements, such repairs to be performed in a good
and workmanlike manner, and shall broom clean the Premises thoroughly. Tenant's
obligation to observe or perform this covenant shall survive the expiration or
other termination of this Lease.
The voluntary or other surrender of this Lease by Tenant, or mutual
cancellation thereof, shall not work a merger but shall, at the option of the
Landlord, terminate any or all existing subleases or subtenancies or operate as
an assignment to Landlord of any or all such subleases or subtenancies.
SECTION 9.02. INTENTIONALLY DELETED.
ARTICLE X
DAMAGE AND DESTRUCTION
SECTION 10.01. NOTICE BY TENANT. Tenant shall give prompt notice to
Landlord in case of fire or accidents in the Premises or of defects therein or
in any fixtures or equipment. However, such notices, or any occurrence giving
rise thereto, shall not impose any duty on Landlord except as otherwise
expressly provided herein.
SECTION 10.02. DESTRUCTION OF THE PREMISES. In the event that the
Premises are damaged by fire or other perils covered by fire and extended
coverage insurance, for which damage the cost
<PAGE>
15
of repair is less than thirty-three and one-third percent (33-1/3%) of the cost
of replacement of the Premises and is less than the amount of fixed annual base
rent remaining due hereunder for the balance of the term hereof including any
renewal period for which Tenant has exercised its option or for which Tenant
commits to exercise its option prior to the time set forth in Section 19.14
hereof, the damage shall be promptly repaired by Landlord at Landlord's
expense, provided Landlord shall not be obligated to expend for such repair an
amount in excess of the insurance proceeds recovered as a result of such damage
and provided to Landlord for such repair, and in no event shall Landlord be
required to repair or replace Tenant's stock in trade, files, documents,
fixtures, improvements, furnishings, and/or equipment. In the event of any
damage to the Premises, and if Landlord is not required to repair as
hereinabove provided, Landlord may elect whether to repair or rebuild the
Premises, or to terminate this Lease effective as of the date of damage, upon
giving notice of such election in writing to Tenant within forty-five (45) days
after the occurrence of the event causing damage.
SECTION 10.03. ABATEMENT OF RENT. If damage to the Premises or
repairing or rebuilding of the Premises after such damage shall render the
Premises untenantable in whole or in part, and Landlord shall repair such
damage pursuant to the provisions of this Article X, then a proportionate
abatement of the fixed monthly rent and Additional Rent shall be allowed from
the date when such damage occurs until the date Landlord completes its repairs
but only to the extent the same is covered by rent interruption insurance, and
paid to Landlord. The proportionate abatement shall be computed on the basis of
the relation which the area of space rendered untenantable bears to the total
area of the Premises prior to such damage. If Landlord is required or elects to
repair the Premises as herein provided, Tenant shall promptly repair or replace
its improvements, fixtures, furniture, furnishings and equipment, and if Tenant
has closed, Tenant shall promptly reopen for business after completion of all
such repairs and replacements.
ARTICLE XI
EMINENT DOMAIN
In the event the entire Premises shall be appropriated or taken under
the power of eminent domain by any public or quasi-public authority, this Lease
shall terminate and expire as of the date of such taking and the Tenant shall
thereupon be released from any liability thereafter accruing hereunder.
In the event more than twenty-five (25%) percent of the total square
footage of floor area of the Premises is taken under the power of eminent
domain by any public or quasi-public authority, or if by reason of any
appropriation or taking, regardless of the amount so taken, the remainder of
the Premises is not one undivided parcel of property, either Landlord or Tenant
shall have the right to terminate this Lease as of the date Tenant is required
to vacate a portion of the Premises upon giving notice in writing of such
election within thirty (30) days after receipt by Tenant from Landlord of
written notice that said Premises have been so appropriated or taken.
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16
In the event of such termination, both Landlord and Tenant shall thereupon be
released from any liability thereafter accruing hereunder. Landlord agrees
immediately after learning of any appropriation or taking to give to Tenant
notice in writing thereof. If both Landlord and Tenant elect not to so
terminate this Lease, Tenant shall remain in possession of the portion of the
Premises which shall not have been appropriated or taken as herein provided.
If this Lease is terminated in either manner hereinabove provided,
Landlord shall be entitled to the entire award or compensation in such
proceedings, but the rent and other charges for the last month of Tenant's
occupancy shall be prorated and Landlord agrees to refund to Tenant any rent or
other charges paid in advance. Tenant's right to receive compensation or
damages for its fixtures and personal property shall not be affected in any
manner hereby.
In the event that this Lease is not terminated in any manner as
provided above, then Landlord agrees at Landlord's cost and expense as soon as
reasonably possible to restore the Premises to a complete unit of as like
quality and character as possible, in view of the taking, as existed prior to
such appropriation or taking (except for Tenant's leasehold improvements); and
thereafter the fixed annual base rent and Additional Rent and other expenses
paid by Tenant shall be reduced on the basis of the relation which the area of
space remaining bears to the total area of the Premises prior to such taking.
Landlord shall be entitled to receive the total award or compensation in such
proceedings, except as to Tenant's leasehold improvements.
For the purposes of this Article XI, a voluntary sale or conveyance in
lieu of condemnation, but under threat of condemnation, shall be deemed an
appropriation or taking under the power of eminent domain. In any such event,
Landlord shall provide Tenant with documentation evidencing such threat of
condemnation.
ARTICLE XII
DEFAULT
SECTION 12.01. DEFAULT OF TENANT. The occurrence of any of the
following shall constitute a material default and breach of this Lease by
Tenant:
(a) Any failure by Tenant to pay the rent within ten (10) days
after the due date thereof, or to pay any other monetary sums required
to be paid hereunder (including, without limitation, any items which
constitute Operating Expenses) on the due date thereof;
(b) The abandonment or vacation of the Premises by Tenant for a
period of more than thirty (30) days;
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17
(c) A failure by Tenant to observe and perform any other
provisions of this Lease to be observed or performed by Tenant, where
such failure continues for thirty (30) days after written notice
thereof by Landlord to Tenant; provided, however, that Tenant shall
not be deemed to be in default if the nature of such failure is such
that the same cannot reasonably be cured within such thirty (30) day
period and Tenant shall within such period commence such cure and
thereafter diligently prosecute the same to completion.
SECTION 12.02. REMEDIES OF LANDLORD. In the event of any such material
default and breach by Tenant, Landlord may at any time thereafter, with or
without notice and demand and without limiting Landlord in the exercise of any
right or remedy at law or in equity which Landlord may have by reason of such
default or breach:
(a) Maintain this Lease in full force and effect and recover the
rent and other monetary charges as they become due, without
terminating Tenant's right of possession, irrespective of whether
Tenant shall have abandoned the Premises. In the event Landlord elects
not to terminate the Lease, Landlord shall have the right to attempt
to re-let the Premises at such rent and upon such conditions and for
such a term, and to do all acts necessary to maintain or preserve the
Premises, as Landlord deems reasonable and necessary without being
deemed to have elected to terminate the Lease including removal of all
persons and property from the Premises; such property may be removed
and stored in a public warehouse or elsewhere at the cost of, and for
the account of, Tenant. In the event such re-letting occurs, this
Lease shall terminate automatically upon the new tenant's taking
possession of the Premises, and Landlord shall be entitled to recover
from Tenant all damages incurred by reason of Tenant's default, as
more fully set forth below. Notwithstanding that Landlord fails to
elect to terminate the Lease initially, Landlord at any time during
the term of this Lease may elect to terminate this Lease by virtue of
such previous uncured default by Tenant.
(b) Terminate Tenant's right to possession by any lawful means,
in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred
by Landlord by reason of Tenant's default including without limitation
thereof, the following: (i) the worth at the time of award of any
unpaid rent which has been earned at the time of such termination;
plus (ii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after termination exceeds the
amount of such rental loss that is proved could be reasonably avoided;
plus (iii) that portion of any real estate brokerage commission paid
in advance by Landlord attributable to any period of time for which
Tenant fails to occupy the Premises as a result of the termination of
this Lease; plus (iv) such other amounts in addition to or in lieu of
the foregoing as may be permitted from time to time by applicable
state law, including but not limited to reasonable attorneys' fees.
Upon any such re-entry, Landlord shall have the right to make any
reasonable repairs, alterations or modifications to the Premises,
which Landlord in its sole discretion deems reasonable and necessary.
As used above, the
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18
"WORTH AT THE TIME OF AWARD" shall be computed by discounting such
amounts at the discount rate of the U.S. Federal Reserve Bank at the
time of award plus one (1%) percent. The term "RENT", as used in this
Article XII, shall mean the rent to be paid pursuant to Article II
together with all other monetary sums required to be paid by Tenant
pursuant to the terms of this Lease.
Notwithstanding anything contained in this Lease to the contrary,
Landlord shall give Tenant ten (10) days written notice prior to
terminating Tenant's right to possession for non-payment of rent.
(c) Collect as an additional item of damages the cost of repairs,
alterations, redecorating, lease commissions and Landlord's other
expenses incurred in reletting the Premises to a new tenant.
(d) Enter the Premises and remove therefrom all persons and
property. Such property may be stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant, and may be
sold by Landlord by public or private sale, without notice to or
demand upon Tenant, if said property is stored for thirty (30) days or
more and Tenant has not paid the entire cost of storage.
SECTION 12.03. LATE CHARGES. Tenant hereby acknowledges that the late
payment by Tenant to Landlord of rent and any and all other sums due hereunder
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult to ascertain. Such costs include,
but are not limited to, processing and accounting charges and late charges
which may be imposed on Landlord by the terms of any mortgage or trust deed
covering the Premises. Accordingly, if any installment of rent or any other sum
due from Tenant shall not be received by Landlord or Landlord's designee within
ten (10) days after such amount shall be due, Tenant shall pay to Landlord a
late charge equal to four (4%) percent of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of late payment by Tenant. Acceptance
of such late charge by Landlord shall in no event constitute a waiver of
Tenant's obligation to make timely payments, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder.
SECTION 12.04. BANKRUPTCY OR INSOLVENCY OF TENANT. Except as
specifically provided in this Section 12.04, the occurrence of any of the
following shall constitute a material default and breach of this Lease by
Tenant: the making by Tenant of any general assignment or general arrangement
for the benefit of creditors; the filing by or against Tenant of a petition to
have Tenant adjudged a bankrupt or of a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
the appointment of a trustee or receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other
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19
judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure is not
discharged within (30) days.
SECTION 12.04a. TENANT'S INTEREST NOT TRANSFERABLE. Neither Tenant's
interest in this Lease, nor any estate hereby created in Tenant nor any
interest herein or therein, shall pass to any trustee or receiver or assignee
for the benefit of creditors or otherwise by operation of law except as may
specifically be provided pursuant to the Federal Bankruptcy Code.
SECTION 12.04b. TERMINATION. In the event the interest or estate
created in Tenant hereby shall be taken in execution or by other process of
law, or Tenant shall be adjudicated insolvent or bankrupt pursuant to the
provisions of any State Act or the Federal Bankruptcy Code or if Tenant is
adjudicated insolvent by a Court of competent jurisdiction other than the
United States Bankruptcy Court, if a receiver or trustee of the property of
Tenant shall be appointed by reason of the insolvency or inability of Tenant to
pay its debts, or if any assignment shall be made of the property of Tenant for
the benefit of Creditors, then and in any such events, this Lease and all
rights, but not the duties or obligations, of Tenant hereunder, at the option
of Landlord, shall automatically cease and terminate with the same force and
effect as though the date of such event were the date originally set forth
herein and fixed for the expiration of the term, and Tenant shall vacate and
surrender the Premises but shall remain liable as herein provided.
SECTION 12.04c. TENANT'S OBLIGATION TO AVOID CREDITOR'S PROCEEDINGS.
Tenant shall not cause or give cause for the appointment of a trustee or
receiver of the assets of Tenant and shall not make any assignment for the
benefit of creditors, or become or be adjudicated insolvent. The allowance of
any petition under insolvency law except under the Federal Bankruptcy Code or
the appointment of a trustee or receiver of Tenant or of the assets of Tenant,
shall be conclusive evidence that Tenant caused, or gave cause therefor, unless
such allowance of the petition, or the appointment of a trustee or receiver, is
vacated within thirty (30) days after such allowance or appointment. Any act
described in this Section shall be deemed a material breach of tenant's
obligations hereunder, and this Lease shall thereupon automatically terminate.
Landlord does, in addition, reserve any and all other remedies provided in this
Lease or in law.
SECTION 12.04d. RIGHT AND OBLIGATIONS UNDER THE FEDERAL BANKRUPTCY
CODE. (i) Upon the filing of a petition by or against Tenant under the Federal
Bankruptcy Code, Tenant, as debtor and as debtor in possession, and any trustee
who may be appointed agree as follows: (a) to perform each and every obligation
of Tenant under this Lease including, but not limited to, conforming to the
manner of operation of the business as provided in Section 3.01 of this Lease
until such time as this Lease is either rejected or assumed by order of the
United States Bankruptcy Court; (b) to pay monthly in advance on the first day
of each month as reasonable compensation for use and occupancy of the Premises
an amount equal to fixed base rent and other charges otherwise due pursuant to
this Lease; (c) to reject or assume this Lease within sixty (60) days of the
filing of such petition under Chapter 7 of the Federal Bankruptcy Code or
within one hundred twenty (120) days (or such shorter term as Landlord, in its
sole discretion, may deem reasonable so long as notice of such period is given)
of the filing of a petition under any other
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20
Chapter; for purposes of this Section 12.04d., it shall be conclusively
presumed that the time periods set forth herein constitute a reasonable period
of time within which to determine whether to reject or assume this Lease, and
it shall be the burden of Tenant or the trustees to overcome this presumption;
(d) to give Landlord at least forty-five (45) days prior written notice of any
proceedings relating to any assumption of this Lease; (e) to give at least
thirty (30) days prior written notice of any abandonment of the Premises; such
abandonment to be deemed a rejection of this Lease; (f) to do all other things
of benefit to Landlord or otherwise required under the Federal Bankruptcy Code;
(g) to be deemed to have rejected this Lease in the event of the failure to
comply with any of the above; (h) to have consented to the entry of an order by
an appropriate United States Bankruptcy Court providing all of the above
waiving notice, and hearing of the entry of same.
(ii) No default under this Lease by Tenant, either prior to or
subsequent to the filing of such a petition, shall be deemed to have been
waived unless expressly done so in writing by Landlord.
(iii) Included within and in addition to any other conditions or
obligations imposed upon Tenant or its successor in the event of assumption
and/or assignment are the following: (a) the cure of any monetary defaults and
the reimbursement of pecuniary loss within not more than thirty (30) days of
assumption and/or assignment; and (b) the deposit of any additional sum equal
to three (3) months' rental to be held as security deposit concurrently with
assumption and/or assignment; and (c) the use of the Premises as set forth in
Section 3.01 of this Lease, and (d) demonstration in writing by the reorganized
debtor or assignee of such debtor in possession or of Tenant's trustee that it
has sufficient background, including but not limited to financial ability, to
operate a business out of the Premises in the manner contemplated in this Lease
and to meet all other reasonable criteria of Landlord as did Tenant upon
execution of this Lease; and (e) the prior written consent of any mortgagee to
which this Lease has been assigned as collateral security; and (f) the
Premises, at all times, shall remain an office building and no physical changes
of any kind shall be made to the Premises unless in compliance with the
applicable provisions of this Lease.
SECTION 12.04e. SEVERABILITY. The invalidity of any term or provision,
or any part thereof, of this Section 12.04, as determined by a court of
competent jurisdiction, shall in no way affect the validity and/or
enforceability of any other term or provision, or any part thereof, of this
Section 12.04.
SECTION 12.05. DEFAULT BY LANDLORD. Landlord shall not be in default
unless Landlord fails to perform obligations required of Landlord within a
reasonable time, but in no event later than thirty (30) days after written
notice by Tenant to Landlord and to Landlord's designated agent and to the
holder of any first deed of trust covering the Premises whose name and address
shall have theretofore been furnished to Tenant in writing, specifying wherein
Landlord has failed to perform such obligations; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
required for performance, then Landlord shall not be in default if
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21
Landlord commences performance within said thirty (30) day period and
thereafter diligently prosecutes the same to completion.
SECTION 12.06. INTENTIONALLY DELETED.
ARTICLE XIII
ASSIGNMENT AND SUBLETTING
Tenant shall not transfer, assign, sublet, change ownership, mortgage
or hypothecate this Lease or Tenant's interest in and to the Premises, or any
part thereof, prior to occupancy, or, any time thereafter without first
procuring the written consent of Landlord. Any such attempt to transfer,
assign, sublet, change ownership, mortgage or hypothecate this lease without
Landlord's prior written consent shall be void and confer no rights upon any
third person. Landlord shall not unreasonably withhold or delay consent to an
assignment of this Lease or to subletting of the demised Premises subsequent to
occupancy, provided that any such assignment or subletting shall be made solely
upon the following terms and conditions:
(a) Tenant shall provide Landlord for Landlord's approval at
least forty-five (45) days prior to any proposed sublease or
assignment, written notice of such proposed assignment, containing the
name and address of the proposed sublessee or assignee, adequate
information as to its reputation and financial condition, which
financial condition shall be at least equivalent to that of Tenant,
and the intended use of the Premises, and a copy of the proposed
sublease or assignment. No assignment or sublease shall become
effective unless and until Landlord shall have reviewed and approved
the information set forth in such notice and issued its written
approval to the sublease or assignment, which approval shall not be
unreasonably withheld or delayed.
(b) Landlord shall have also the option, exercisable by written
notice within thirty (30) days after receipt of the notice from
Tenant, to terminate this Lease effective as of a date specified by
Landlord in such notice, which date shall be not later than thirty
(30) days after the date of Landlord's notice. In the event that
Landlord shall elect to so terminate this Lease, Tenant shall have the
right, for a period of seven (7) days from the date of Landlord's
termination notice, to withdraw its proposed sublease or assignment
and this Lease Agreement shall continue in full force and effect.
(c) [Intentionally Deleted]
(d) Each transfer, assignment, subletting, mortgage or
hypothecation shall be by an instrument in writing in a form
reasonably satisfactory to Landlord and shall be executed by the
transferor, assignor, sublessee, hypothecator or mortgagor and the
transferee, assignee, sublessee or mortgagee in each instance as the
case may be. Each transferee, assignee, sublessee or mortgagee shall
agree in writing to assume and be bound
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22
by and to perform the terms, covenants and conditions of this Lease to
be performed by Tenant including the payment of all amounts due or to
become due under this Lease directly to Landlord. No such assignment
or sublet shall relieve Tenant of any obligations under this Lease. In
the event Landlord shall review, at Tenant's request, a proposed
assignment, transfer, subletting, mortgage or hypothecation, Tenant
shall pay to Landlord a reasonable sum (which Landlord approximates to
be $1,500.00) for the time and expense incurred by Landlord or its
agent in connection with the transaction. In addition, Tenant shall
reimburse Landlord for Landlord's reasonable attorneys' fees incurred
in conjunction with processing and the documentation of any such
transaction.
Notwithstanding anything to the contrary contained in this Lease,
Tenant shall have the right, upon forty-five (45) days prior written
notice to Landlord, to assign this Lease or sublet the Premises to a
corporation which:
(i) is Tenant's parent organization;
(ii) is a wholly-owned subsidiary of Tenant; or
(iii) is a wholly-owned subsidiary of Tenant's parent
organization.
Any transfer pursuant to (i), (ii) or (iii) above shall be
subject to the following conditions:
(a) Tenant shall remain fully liable during the unexpired
term of this Lease;
(b) Any such assignment, sublease, or transfer shall be
subject to all of the terms, covenants and conditions of this
Lease and such assignee, sublessee or transferee shall expressly
assume for the benefit of Landlord the obligations of Tenant
under the Lease by a document reasonably satisfactory to
Landlord; and
(c) Tenant shall reimburse Landlord for Landlord's
reasonable attorneys' fees incurred in conjunction with the
processing and documentation of any such assignment or transfer
as above provided.
ARTICLE XIV
ESTOPPEL CERTIFICATE, ATTORNMENT, AND SUBORDINATION
SECTION 14.01. ESTOPPEL CERTIFICATE. Tenant and Landlord shall at any
time and from time to time upon not less than thirty (30) days prior request,
execute, acknowledge and deliver to the other party or to any mortgagee a
statement in writing certifying the date of commencement of
<PAGE>
23
this Lease, that the Lease is unmodified and in full force and effect (or if
there have been modifications to this Lease, that it is in full force and
effect as modified and stating the date of modifications), the dates to which
the rent and other charges have been paid and there are no defenses or offsets
to this Lease (or stating those claimed).
SECTION 14.02. TRANSFER BY LANDLORD. In the event of any transfers of
interest hereunder by Landlord whether by sale, foreclosure, exercise of a
power of sale under a mortgage or otherwise, Tenant shall attorn to such
transferee of Landlord and recognize such transferee as Landlord under this
Lease. In the event of such a transfer of Landlord's interest hereunder, then
from and after the effective date of such transfer, Landlord shall be released
and discharged from any and all obligations under this Lease except those
already accrued.
SECTION 14.03. SUBORDINATION. Upon the request of the Landlord, Tenant
will subordinate its rights hereunder to the lien of any mortgages, deed(s) of
trust or the lien resulting from any other method of financing or refinancing,
now or hereafter in force against the land and buildings of which the Premises
are a part or upon any buildings hereafter placed upon the land of which the
Premises are a part, and to all advances made or hereafter to be made upon the
security thereof provided that the lender and Tenant execute a subordination
and non-disturbance agreement upon terms reasonably acceptable to such lender
and Tenant. Upon the request of any such lender, Tenant will attorn as Tenant
under this Lease to such lender
ARTICLE XV
ACCESS BY LANDLORD
SECTION 15.01. RIGHT OF ENTRY. Landlord and Landlord's agent shall
have the right to enter the Premises at all reasonable times upon written
notice to Tenant, to examine the same, and to show them to prospective
purchasers of the Office Building, and to make such repairs, alterations,
improvements or additions as Landlord may deem necessary or desirable, and
Landlord shall be allowed to take all material into and upon said Premises that
may be required therefor without the same constituting an eviction of Tenant in
whole or in part, and the rent shall in no way abate while said repairs,
alterations, improvement, or additions are being made, by reason of loss or
interruption of business of Tenant or otherwise, provided such repairs,
alterations, improvements or additions are promptly made and Landlord shall
take any and all steps reasonably necessary so as not to interfere with the
normal business operations of Tenant. During the twelve (12) months prior to
the expiration of the term of this Lease or any renewal term, Landlord may
exhibit the Premises to prospective tenants or purchasers, and place upon the
Premises the usual notice "For Lease" or "For Sale" which notices Tenant shall
permit to remain thereon without molestation. Nothing herein contained,
however, shall be deemed or construed to impose upon Landlord any obligation,
responsibility or liability whatsoever, for the care, maintenance or repair of
the Office Building or any part thereof, except as otherwise herein
specifically provided.
<PAGE>
24
SECTION 15.02. EXCAVATION. If an excavation shall be made upon land
adjacent to or under the 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 Premises for the purpose of doing such work as
Landlord shall reasonably deem necessary to preserve the Premises, or the
plumbing in and/or under the Office Building from injury or damage, and to
support the same by proper foundations, without any claim for damages or
indemnification against Landlord or diminution or abatement of rent, provided
no damage is caused to the Premises or injury to Tenant, and provided the
rentable space is not materially reduced.
ARTICLE XVI
QUIET ENJOYMENT
Upon payment by the Tenant of the rents herein provided, and upon the
observance and performance of all the covenants, terms, and conditions on
Tenant's part to be observed and performed, Tenant shall peaceably and quietly
hold and enjoy the Premises for the term hereby demised subject to the terms
and conditions of this Lease.
ARTICLE XVII
[INTENTIONALLY DELETED]
ARTICLE XVIII
HOLDING OVER, SUCCESSORS
SECTION 18.01. HOLDING OVER. Tenant hereby waives, for Tenant and all
those claiming under it, all rights now or hereafter existing to redeem the
Premises after termination of Tenant's right of occupancy, by order or judgment
of any court or by any legal process or writ. If Tenant should continue in
possession of the Premises after the expiration or any sooner termination of
the term hereof, said holding over shall, at the Landlord's option, be
construed to be a tenancy from month to month, and Tenant agrees to pay
Landlord for each day Tenant holds over, rent equal to the daily equivalent of
one hundred and fifty percent (150%) of the total rent and all other charges
which tenant was obligated to pay to Landlord during the twelve (12) months
immediately preceding such termination or expiration, plus all damages
sustained by Landlord by reason of such retention. Such tenancy shall be on the
terms and conditions herein specified, so far as applicable. Nothing contained
herein shall constitute a consent by Landlord to Tenant's continued possession
following the expiration or other termination of this Lease, and nothing
contained in this paragraph shall limit Landlord's rights and remedies as
provided by law or elsewhere in this Lease.
<PAGE>
25
SECTION 18.02. SUCCESSORS. All rights and liabilities herein given to,
or imposed upon, the respective parties hereto shall extend to and bind the
several respective heirs, executors, administrators, successors, and assigns of
the parties. No rights, however, shall inure to the benefit of any assignee of
Tenant unless the assignment to such assignee has been approved by Landlord in
writing as provided in Article XIII hereof.
ARTICLE XIX
MISCELLANEOUS PROVISIONS
SECTION 19.01. BROKERAGE COMMISSION. Landlord has agreed to pay a
brokerage commission to Insignia/Rostenberg-Doern pursuant to the terms of a
separate agreement. Landlord shall indemnify and hold Tenant harmless against
and from any liabilities arising from any claim for brokerage commissions under
such separate agreement including, without limitation, the cost of attorney's
fees in connection therewith.
SECTION 19.02. ENTIRE AGREEMENT. This Lease and the exhibits, and
riders, if any, attached hereto and forming a part hereof, set forth all the
covenants, promises, agreements, conditions and understandings between Landlord
and Tenant concerning the Premises and there are no covenants, promises,
agreements, conditions or understandings between them other than are herein set
forth. No subsequent alteration, amendment, change or addition to this Lease
shall be binding upon Landlord or Tenant unless reduced to writing and signed
by the party to be charged with their performance.
SECTION 19.03. WAIVER. The waiver by Landlord of any breach of any
term, covenant or condition herein contained shall not be deemed to be a waiver
of any subsequent breach of same or of any other term, covenant or condition
herein contained. The subsequent acceptance of rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, other than the failure of Tenant to pay
the particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent. No covenant, term or
condition of this Lease shall be deemed to have been waived by Landlord or
Tenant, unless such waiver be in writing signed by said party.
SECTION 19.04. NO PARTNERSHIP. Landlord shall not by virtue of this
Lease, in any way or for any purpose, be deemed to have become a partner of
Tenant in the conduct of its business, or otherwise, or joint venturer or a
member of a joint enterprise with Tenant, nor is Tenant an agent of Landlord
for any reason whatsoever.
SECTION 19.05. ACCORD AND SATISFACTION. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly rent herein stipulated
shall be deemed to be other than on account of the earliest stipulated rent,
nor shall any endorsement or statement on any check or any
<PAGE>
26
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check as payment without prejudice
to Landlord's right to recover the balance of such rent or pursue any other
remedy in this Lease provided.
SECTION 19.06. CAPTIONS. The captions, section numbers, article
numbers and index appearing in this Lease are inserted only as a matter of
convenience and no way define, limit or construe the scope or intent of such
sections or articles in this Lease.
SECTION 19.07. TENANT DEFINED. The word "TENANT" shall be deemed and
taken to mean each and every person or party mentioned as a Tenant herein, be
the same one or more; and if there shall be more than one Tenant, any notice
required or permitted by the terms of this Lease may be given by or to any one
thereof, and shall have the same force and effect as if given by or to all
thereof. The use of the neuter singular pronoun to refer to Landlord and Tenant
shall be deemed a proper reference even though Landlord or Tenant may be an
individual, a partnership, a corporation, or a group of two or more individuals
or corporations. The necessary grammatical changes required to make the
provisions of this Lease apply in the plural sense where there is more than one
Landlord or Tenant and to either corporations, associations, partnerships, or
individuals, males or females, shall in all instances be assumed as though in
each case fully expressed. If there shall be more than one Tenant occupying the
Premises, all liabilities hereunder shall be joint and several.
SECTION 19.08. CORPORATE AUTHORITY. Each individual executing this
Lease on behalf of Tenant represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation in accordance with
a duly adopted resolution of the Board of Directors of said corporation or in
accordance with the By-laws of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms.
SECTION 19.09. NOTICES. All notices or other communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered, if mailed by United States certified mail, postage prepaid, return
receipt requested, or if sent by overnight courier providing a receipt, to
Landlord and Tenant at the addresses set forth hereinbelow, or at such other
address as the Landlord, or Tenant, shall, from time to time, designate to the
other in writing in accordance with the terms hereof. The date of service of
any notice hereunder shall be the date delivered, if by personal delivery, five
(5) business days after the postmark on the certified mail, if mailed, or the
next business day, if sent by overnight courier, as the case may be.
If to Landlord: New York Investment Limited Partnership
c/o BHF-Bank
55 East 59th Street
New York, New York 10022
Attention: Mr. Daniel Dornier, President
<PAGE>
27
with a copy to:
New York Investment Limited Partnership
c/o Silvius Dornier Verwaltungsgesellschaft mbH
Prinzregentenplatz 11
D-81675 Muenchen
Attention: Dr. B. Engelbrecht
Ms. Inge Danner-Buchholz
with a copy to:
King & Spalding
1185 Avenue of the Americas
New York, New York 10036
Attention: Dr. Wilfried Witthuhn, Esq.
If to Tenant: Lillian Vernon Corporation
One Theall Road
Rye, New York ______
Attention: Larry Blum, Executive Vice President
with a copy to:
Salon, Marrow & Dyckman, LLP
685 Third Avenue
New York, New York 10017
Attention: Joel Salon, Esq.
SECTION 19.10. APPLICABLE LAW. The laws of the State of New York shall
govern the validity, performance and enforcement of this Lease.
SECTION 19.11. PARTIAL INVALIDITY. If any term, covenant or condition
of this Lease or the application thereof to any person or circumstances shall,
to any extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Lease shall be
valid and be enforced to the fullest extent permitted by law.
SECTION 19.12. TIME. Time is of the essence of this Lease and each and
all provisions hereof in which performance is a factor.
SECTION 19.13. INTENTIONALLY DELETED.
<PAGE>
28
SECTION 19.14. RENEWAL. (a) Tenant may at its option, extend the term
of this Lease for one additional term of five (5) years at the annual rent set
forth herein. The annual rent is to be 90% of the then market rent for the
Premises during the renewal term. Landlord shall advise Tenant of the renewal
rent for the Premises upon written request by Tenant which request must be
received at least two (2) months prior to the date by which Tenant is required
to exercise its option. Tenant shall give written notice to Landlord of its
intention to extend at least twelve (12) months prior to the end of the Lease
term, and thereupon the term of this Lease shall be so extended without any
further action by either party.
Landlord and Tenant shall mutually agree as to what the then market
rent shall be. In the event of a dispute between Landlord and Tenant as to the
then market rent for the Premises, Landlord shall submit its figure and Tenant
shall submit its figure to an independent arbitrator, (who is mutually
acceptable to the Landlord and Tenant, and if Landlord and Tenant are unable,
within 15 days, to agree on an independent arbitrator, then such arbitrator
shall be appointed by the American Arbitration Association) who shall select
either the Landlord's figure or Tenant's figure. The cost of arbitration shall
be equally shared by the parties and the decision of the arbitrator shall be
final and binding upon the parties hereto.
(b) Any such option granted to Tenant shall be personal to Tenant and
may not be exercised or assigned, voluntarily or involuntarily, except upon
assignment or sublet of this Lease in strict conformance with the provisions of
Article XIII.
(c) Tenant shall have no right to exercise an option, notwithstanding
anything contained herein to the contrary, (i) during the time during which
Tenant has received notice of default pursuant to any provision of this Lease
and continuing until the default is cured, or (ii) during the period of time
any amounts past due to Landlord hereunder remain outstanding beyond any
applicable grace period and continuing until such amounts are paid in full, or
(iii) in the event Landlord has given Tenant three (3) or more notices of
default for nonpayment of rent and where late charges become payable under the
provisions of this Lease during the twelve (12) month period prior to the time
Tenant intends to exercise the option. Nothing contained herein, shall affect
Landlord's right to terminate this Lease at any time following a default when
Landlord is otherwise entitled to do so, it being expressly understood that
Tenant shall have no right to exercise such option if the Lease is so
terminated.
SECTION 19.15. INTENTIONALLY DELETED.
SECTION 19.16. RECORDING. Tenant shall not record this Lease or any
memorandum thereof without the prior written consent of Landlord.
SECTION 19.17. CUMULATIVE REMEDIES. No remedy or election hereunder
shall be deemed exclusive but shall, wherever possible, be cumulative with all
other remedies at law or in equity.
<PAGE>
29
SECTION 19.18. ATTORNEYS' FEES. If suit is brought by either party
against the other arising out of or based upon any provision of this Lease
and/or the tenancy created hereby, the losing party shall pay to the prevailing
party all costs of such suit including, but not limited to, appraiser's and
other expert witness fees and all attorneys' fees incurred.
SECTION 19.19. NECESSARY ACTS. All parties hereto shall do all acts
and execute all documents necessary, convenient or desirable to effect all
provisions of this Lease.
SECTION 19.20. EFFECTIVENESS OF LEASE. This Lease shall not become
effective until a copy executed by Landlord is delivered to Tenant. No employee
or agent of Landlord or any person with whom Tenant may have negotiated this
Lease has any authority to modify the terms hereof or to make any agreements,
representations, or promises unless the same are contained herein or added
hereto in writing.
SECTION 19.21. NO REPRESENTATIONS. There are no representations or
warranties whatsoever between the parties other than as set forth herein or in
the exhibits, rider or other amendment hereto, any reliance with respect to
representations is solely upon the representations and agreements contained
therein.
SECTION 19.22. INTERPRETATION OF LANGUAGE. This Lease and any
amendments, exhibits or rider thereto shall not be construed either for or
against Landlord or Tenant by reason of the same having been drafted by one or
the other party.
SECTION 19.23. INTENTIONALLY DELETED.
SECTION 19.24. INTENTIONALLY DELETED.
SECTION 19.25. INTENTIONALLY DELETED.
<PAGE>
30
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first above written.
LANDLORD: TENANT:
NEW YORK INVESTMENT LILLIAN VERNON CORPORATION
LIMITED PARTNERSHIP
By:
--------------------------------
By: Silvius Rye, Inc. Name:
---------------------------
Title:
--------------------------
By:
-----------------------------
Name: Daniel Dornier
Title: President
Attest:
Secretary
--------------------------
<PAGE>
EXHIBIT A
PERMITTED SIGN
The Permitted Sign shall have the same dimension and be placed in the
same location as the "Melville" sign which is described on the attached page.
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PICTURE]
<PAGE>
EXHIBIT B
SITE PLAN
[SEE ATTACHED]
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PICTURE]
<PAGE>
[EXECUTION COPY]
February 26, 1998
CVS New York, Inc.
One CVS Drive
Woonsocket, Rhode Island 02895
Ladies and Gentlemen:
With reference to that certain Lease dated as of April 7, 1988 (the
"Lease") by and between NEW YORK INVESTMENT LIMITED PARTNERSHIP, a Delaware
limited partnership, as successor-in-interest to URBCO, Inc. n/k/a CM Property
Management ("LANDLORD") and CVS NEW YORK, INC. formerly known as Melville
Corporation, a New York corporation ("TENANT"), this letter shall confirm that
the parties shall continue to follow the procedures which have been observed in
the past as follows:
(1) DEFINITIONS: All capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Lease.
(2) OPERATING EXPENSES: Tenant shall directly pay on behalf of
Landlord all Operating Expenses as defined in Section 2.02 of the
Lease. Within five (5) days of Landlord's written request therefor,
Tenant shall furnish Landlord with proof reasonably satisfactory to
Landlord evidencing the payment of Operating Expenses. If Tenant fails
to pay or discharge any item of Operating Expenses, Landlord,
following reasonable notice to Tenant, may, but shall be obligated to,
pay the same, and in that event Tenant shall immediately reimburse
Landlord therefor and pay the amount due as Additional Rent, and shall
indemnify, defend and save Landlord harmless from and against all
costs, fees, charges, expenses, reimbursements and obligations of
every kind and nature whatsoever relating to the Premises that
constitute Operating Expenses. In addition, Landlord shall be entitled
to charge Tenant a management fee of 1.5% of the Operating Expenses
paid by Landlord.
All payments of fixed minimum annual base rent and Additional Rent
shall be payable without previous demand therefor and without any
rights of set-off or deduction whatsoever, and in case of nonpayment
of any item of Additional Rent by Tenant when the same is due,
Landlord shall have, in additional to all its other rights and
remedies, all of the rights and remedies to Landlord under the
provisions of this Lease or by law or in equity in the case of
nonpayment of rent. The performance and observance by Tenant of all
the terms, covenants, conditions and agreements to be performed or
observed by Tenant hereunder shall be performed and observed by Tenant
at Tenant's sole cost and expense.
<PAGE>
2
If Tenant shall fail to pay, within thirty (30) days from the
date when due, any fixed minimum annual lease rent, Additional Rent,
amounts or any other charges payable hereunder, such unpaid amounts
shall bear interest from the date due to the date of payment at the
rate of eighteen (18%) percent per annum.
(3) INSURANCE: In addition to any other insurance required to be
maintained by Tenant under the Lease, Tenant shall, at its sole cost
and expense, continue to obtain and maintain all insurance required to
be obtained and maintained by Landlord under the Lease whether such
insurance is for Landlord's benefit or not, including without
limitation, the fire and extended coverage insurance required to be
maintained by Landlord pursuant to Section 10.02 with respect to the
Office Building.
All policies of insurance required hereunder shall be maintained
with an insurance company having the rating set forth in Section 4.01
of the Lease and authorized to issue insurance in the state in which
the Premises are located, shall name Landlord and, at the request of
Landlord, any mortgagee of Landlord as additional insureds and shall
provide that the proceeds thereof shall by payable to Landlord and
Tenant, as co-trustees, as their interest may appear. If Landlord so
requests, insurance proceeds shall also be payable to any contract
purchaser of the Premises and the holder of any mortgage now or
hereafter becoming a lien on the fee of the Premises, or any portion
thereof, as the interest of purchaser or holder appears pursuant to a
standard additional insured or mortgagee clause. Tenant shall not, on
Tenant's own initiative or pursuant to request or requirement of any
third party, take out separate insurance concurrent in form or
contributing in the event of loss with that required hereunder, unless
Landlord is named therein as a additional insured with loss payable as
provided herein. Tenant shall immediately notify Landlord whenever any
separate insurance is taken out and shall deliver to Landlord copies
of the insurance policy certified by the insurer.
Each policy required hereunder shall have attached-thereto (a) an
endorsement that the policy shall not be canceled or materially
changed without at least 30 days' prior written notice to Landlord,
and (b) an endorsement to the effect that the insurance as to the
interest of Landlord shall not be invalidated by any act or neglect of
Landlord or Tenant. Tenant shall deliver to Landlord a copy of the
certificate of insurance for each such current insurance policy. A new
certificate of insurance in a form reasonably acceptable to Landlord
shall be delivered to Landlord not less than 20 days prior to the
expiration of the then current policy term. Tenant shall also cause to
be inserted in such policy or policies a "Waiver of Subrogation
Clause" as to Landlord and Tenant.
(4) MAINTENANCE OF PREMISES: Tenant will throughout the term of
the Lease, at Tenant's sole cost and expense, keep and maintain the
Office Building and common areas in good order and repair, and shall
make and perform all routine maintenance thereof and all necessary
repairs thereto, interior and exterior in accordance with the
standards of first-class office buildings in the vicinity of the
Office Building, except that Tenant shall
<PAGE>
3
not be required to make any structural alterations or repairs. Tenant,
at its sole cost and expense, shall keep the Premises safe for human
occupancy and use, shall take good care of, repair and maintain in
good order and repair all driveways, pathways, roadways, sidewalks,
curbs, parking areas, loading areas, landscaped areas, entrances and
passageways, shall promptly remove all accumulated snow, ice and
debris from any and all driveways, pathways, roadways, sidewalks,
curbs, spur tracks, parking areas, loading areas, landscape areas,
entrances and passageways, and shall keep all portions of the
Premises, including areas appurtenant thereto, in a clean and orderly
condition free of snow, ice, dirt, rubbish, debris and unlawful
obstructions.
(5) RENEWAL OPTION: Tenant shall have no right to extend the term of
the Lease pursuant to Section 19.14 thereof and Tenant hereby
relinquishes the renewal option granted thereunder; provided, however,
that such renewal option shall be reinstated if Lillian Vernon
Corporation elects not to or fails to validly exercise its option to
enter into a direct lease with Landlord pursuant to that certain
Consent to Subletting and Option for a Direct Lease dated as of
February 26, 1998, by and among Landlord, Tenant and Lillian Vernon
Corporation. Landlord shall give Tenant written notice of the
reinstatement of the option within ten (10) days after Landlord's
determination that an event which results in the reinstatement of the
options has occurred together with a statement of the fixed minimum
annual base rent which will be payable during the initial five (5)
year renewal term. Any exercise of the reinstated option shall be
subject to and be on the same terms and conditions contained in
Section 19.14 with respect to the renewal option which is being
relinquished except that the fair market rent on which the fixed
minimum annual base rent during the initial five (5) year renewal term
is based shall be determined solely by Landlord and Tenant shall have
thirty (30) days from the receipt of notice in the foregoing sentence
to exercise the reinstated option.
Please indicate your agreement to the Lease modification set forth
above by signing below and returning a countersigned original of this letter to
me.
Very truly yours,
NEW YORK INVESTMENT LIMITED
PARTNERSHIP
By: Silvius Rye, Inc.
a general partner
By /s/ Daniel Dornier
---------------------------
Name: Daniel Dornier
Title: President
<PAGE>
4
AGREED AND ACCEPTED
this __ day of February, 1998
CVS NEW YORK, INC.
By /s/ Zenon P. Lankowski
--------------------------------
Name: Zenon P. Lankowski
Title: Secretary
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF REGISTRANT
Lillian Vernon International, Ltd.
Lillian Vernon Fulfillment Services, Inc.
LVC Retail Corporation
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Lillian Vernon Corporation on Form S-8 (File Nos. 33-18849, 33-37694, 33-71250,
33-71252, 333-36467 and 333-48951) of our report dated April 15, 1998, on our
audits of the consolidated financial statements of Lillian Vernon Corporation
and Subsidiaries as of February 28, 1998 and February 22, 1997, and for each of
the three fiscal years in the period ended February 28, 1998, which report is
included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
May 26, 1998
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<ALLOWANCES> 0
<INVENTORY> 52,892
<CURRENT-ASSETS> 95,841
<PP&E> 68,758
<DEPRECIATION> 29,268
<TOTAL-ASSETS> 158,008
<CURRENT-LIABILITIES> 36,785
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 116,922
<TOTAL-LIABILITY-AND-EQUITY> 158,008
<SALES> 171,309
<TOTAL-REVENUES> 171,309
<CGS> 81,262
<TOTAL-COSTS> 161,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 382
<INCOME-PRETAX> 10,343
<INCOME-TAX> 3,517
<INCOME-CONTINUING> 6,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,826
<EPS-PRIMARY> 0.71<F1>
<EPS-DILUTED> 0.71<F1>
<FN>
<F1>EFFECTIVE FEBRUARY 28, 1998, THE COMPANY ADOPTED SFAS NO. 128, "EARNINGS PER
SHARE," WHICH ESTABLISHES STANDARDS FOR COMPUTING AND PRESENTING EPS. THE EPS
DATA SHOWN ABOVE HAVE BEEN RESTATED AS REQUIRED BY SFAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-23-1997
<CASH> 3,239
<SECURITIES> 0
<RECEIVABLES> 12,115
<ALLOWANCES> 0
<INVENTORY> 52,400
<CURRENT-ASSETS> 89,065
<PP&E> 67,372
<DEPRECIATION> 27,532
<TOTAL-ASSETS> 141,669
<CURRENT-LIABILITIES> 27,656
<BONDS> 635
0
0
<COMMON> 104
<OTHER-SE> 109,032
<TOTAL-LIABILITY-AND-EQUITY> 141,669
<SALES> 65,005
<TOTAL-REVENUES> 65,005
<CGS> 33,685
<TOTAL-COSTS> 69,537
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183
<INCOME-PRETAX> (4,133)
<INCOME-TAX> (1,405)
<INCOME-CONTINUING> (2,728)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,728)
<EPS-PRIMARY> (0.28)<F1>
<EPS-DILUTED> (0.28)<F1>
<FN>
<F1>EFFECTIVE FEBRUARY 28, 1998, THE COMPANY ADOPTED SFAS NO. 128, "EARNINGS PER
SHARE," WHICH ESTABLISHES STANDARDS FOR COMPUTING AND PRESENTING EPS. THE EPS
DATA SHOWN ABOVE HAVE BEEN RESTATED AS REQUIRED BY SFAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> MAY-24-1997
<CASH> 22,979
<SECURITIES> 0
<RECEIVABLES> 10,897
<ALLOWANCES> 0
<INVENTORY> 31,361
<CURRENT-ASSETS> 79,701
<PP&E> 66,757
<DEPRECIATION> 26,819
<TOTAL-ASSETS> 127,880
<CURRENT-LIABILITIES> 11,808
<BONDS> 699
0
0
<COMMON> 104
<OTHER-SE> 111,212
<TOTAL-LIABILITY-AND-EQUITY> 127,880
<SALES> 27,748
<TOTAL-REVENUES> 27,748
<CGS> 14,297
<TOTAL-COSTS> 31,561
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> (3,553)
<INCOME-TAX> (1,208)
<INCOME-CONTINUING> (2,345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,345)
<EPS-PRIMARY> (0.24)<F1>
<EPS-DILUTED> (0.24)<F1>
<FN>
<F1>EFFECTIVE FEBRUARY 28, 1998, THE COMPANY ADOPTED SFAS NO. 128, "EARNINGS PER
SHARE," WHICH ESTABLISHES STANDARDS FOR COMPUTING AND PRESENTING EPS. THE EPS
DATA SHOWN ABOVE HAVE BEEN RESTATED AS REQUIRED BY SFAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-22-1997
<PERIOD-END> FEB-22-1997
<CASH> 22,746
<SECURITIES> 0
<RECEIVABLES> 24,476
<ALLOWANCES> 0
<INVENTORY> 30,480
<CURRENT-ASSETS> 89,688
<PP&E> 66,519
<DEPRECIATION> 26,200
<TOTAL-ASSETS> 138,549
<CURRENT-LIABILITIES> 18,949
<BONDS> 1,394
0
0
<COMMON> 104
<OTHER-SE> 114,222
<TOTAL-LIABILITY-AND-EQUITY> 138,549
<SALES> 240,053
<TOTAL-REVENUES> 240,053
<CGS> 110,374
<TOTAL-COSTS> 231,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 651
<INCOME-PRETAX> 8,112
<INCOME-TAX> 2,758
<INCOME-CONTINUING> 5,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,354
<EPS-PRIMARY> 0.55<F1>
<EPS-DILUTED> 0.55<F1>
<FN>
<F1>EFFECTIVE FEBRUARY 28, 1998, THE COMPANY ADOPTED SFAS NO. 128, "EARNINGS PER
SHARE," WHICH ESTABLISHES STANDARDS FOR COMPUTING AND PRESENTING EPS. THE EPS
DATA SHOWN ABOVE HAVE BEEN RESTATED AS REQUIRED BY SFAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-22-1997
<PERIOD-END> NOV-23-1996
<CASH> 3,443
<SECURITIES> 0
<RECEIVABLES> 32,522
<ALLOWANCES> 0
<INVENTORY> 44,888
<CURRENT-ASSETS> 91,974
<PP&E> 65,775
<DEPRECIATION> 24,928
<TOTAL-ASSETS> 154,391
<CURRENT-LIABILITIES> 36,120
<BONDS> 1,453
0
0
<COMMON> 104
<OTHER-SE> 112,921
<TOTAL-LIABILITY-AND-EQUITY> 154,391
<SALES> 159,626
<TOTAL-REVENUES> 159,626
<CGS> 72,457
<TOTAL-COSTS> 155,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 492
<INCOME-PRETAX> 4,513
<INCOME-TAX> 1,562
<INCOME-CONTINUING> 2,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,951
<EPS-PRIMARY> 0.31<F1>
<EPS-DILUTED> 0.30<F1>
<FN>
<F1>EFFECTIVE FEBRUARY 28, 1998, THE COMPANY ADOPTED SFAS NO. 128, "EARNINGS PER
SHARE," WHICH ESTABLISHES STANDARDS FOR COMPUTING AND PRESENTING EPS. THE EPS
DATA SHOWN ABOVE HAVE BEEN RESTATED AS REQUIRED BY SFAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-22-1997
<PERIOD-END> AUG-24-1996
<CASH> 2,441
<SECURITIES> 0
<RECEIVABLES> 10,778
<ALLOWANCES> 0
<INVENTORY> 48,402
<CURRENT-ASSETS> 89,318
<PP&E> 63,591
<DEPRECIATION> 23,426
<TOTAL-ASSETS> 145,357
<CURRENT-LIABILITIES> 33,513
<BONDS> 2,143
0
0
<COMMON> 104
<OTHER-SE> 105,691
<TOTAL-LIABILITY-AND-EQUITY> 145,357
<SALES> 59,283
<TOTAL-REVENUES> 59,283
<CGS> 30,418
<TOTAL-COSTS> 68,016
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 220
<INCOME-PRETAX> (8,546)
<INCOME-TAX> (2,820)
<INCOME-CONTINUING> (5,726)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,726)
<EPS-PRIMARY> (0.59)<F1>
<EPS-DILUTED> (0.59)<F1>
<FN>
<F1>EFFECTIVE FEBRUARY 28, 1998, THE COMPANY ADOPTED SFAS NO. 128, "EARNINGS PER
SHARE," WHICH ESTABLISHES STANDARDS FOR COMPUTING AND PRESENTING EPS. THE EPS
DATA SHOWN ABOVE HAVE BEEN RESTATED AS REQUIRED BY SFAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-22-1997
<PERIOD-END> MAY-25-1996
<CASH> 15,293
<SECURITIES> 0
<RECEIVABLES> 9,027
<ALLOWANCES> 0
<INVENTORY> 30,689
<CURRENT-ASSETS> 80,098
<PP&E> 60,240
<DEPRECIATION> 22,728
<TOTAL-ASSETS> 126,898
<CURRENT-LIABILITIES> 12,060
<BONDS> 2,197
0
0
<COMMON> 103
<OTHER-SE> 108,705
<TOTAL-LIABILITY-AND-EQUITY> 126,898
<SALES> 26,313
<TOTAL-REVENUES> 26,313
<CGS> 14,048
<TOTAL-COSTS> 31,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116
<INCOME-PRETAX> (5,419)
<INCOME-TAX> (1,788)
<INCOME-CONTINUING> (3,631)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,631)
<EPS-PRIMARY> (0.38)<F1>
<EPS-DILUTED> (0.38)<F1>
<FN>
<F1>EFFECTIVE FEBRUARY 28, 1998, THE COMPANY ADOPTED SFAS NO. 128, "EARNINGS PER
SHARE," WHICH ESTABLISHES STANDARDS FOR COMPUTING AND PRESENTING EPS. THE EPS
DATA SHOWN ABOVE HAVE BEEN RESTATED AS REQUIRED BY SFAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-24-1996
<PERIOD-END> FEB-24-1996
<CASH> 25,771
<SECURITIES> 0
<RECEIVABLES> 21,435
<ALLOWANCES> 0
<INVENTORY> 30,948
<CURRENT-ASSETS> 93,308
<PP&E> 55,751
<DEPRECIATION> 22,127
<TOTAL-ASSETS> 136,385
<CURRENT-LIABILITIES> 16,587
<BONDS> 2,883
0
0
<COMMON> 100
<OTHER-SE> 113,093
<TOTAL-LIABILITY-AND-EQUITY> 136,385
<SALES> 238,192
<TOTAL-REVENUES> 238,192
<CGS> 109,907
<TOTAL-COSTS> 229,550
<OTHER-EXPENSES> 921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 610
<INCOME-PRETAX> 8,425
<INCOME-TAX> 2,696
<INCOME-CONTINUING> 5,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,729
<EPS-PRIMARY> 0.59<F1>
<EPS-DILUTED> 0.57<F1>
<FN>
<F1>EFFECTIVE FEBRUARY 28, 1998, THE COMPANY ADOPTED SFAS NO. 128, "EARNINGS PER
SHARE," WHICH ESTABLISHES STANDARDS FOR COMPUTING AND PRESENTING EPS. THE EPS
DATA SHOWN ABOVE HAVE BEEN RESTATED AS REQUIRED BY SFAS 128.
</FN>
</TABLE>
