24
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended February Commission File No. 1-
3, 1996 10892
HAROLD'S STORES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1308796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
765 Asp Norman, Oklahoma 73069 (405) 329-4045
(Address of principal executive (Registrant's
offices) telephone number,
(Zip Code) including area
code)
Securities registered pursuant to
Section 12(b) of the Act : Name of each
exchange
Title of each class on which registered
Common Stock, $0.01 Par Value 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 to be filed by Section 13 or 15 (d ) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X . No .
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K [
]
At March 29, 1996 the aggregate market value of the
Registrant's Common Stock held by non-affiliates was
$37,006,271 based on a value of $16.25 per share, the
closing price of Common Stock as quoted by the American
Stock Exchange on that date.
On March 29, 1996 the registrant had 4,961,977 shares of
Common Stock outstanding.
DOCUMENT INCORPORATED BY REFERENCE:
Information required by Part III of Form 10-K is
incorporated by reference from the Registrant's definitive
proxy statement for its 1996 Annual Meeting of
Shareholders.
Harold's Stores, Inc. & Subsidiaries
Index to
Annual Report on Form 10-K
For the Fiscal Year Ended February 3, 1996
Part I. Page
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security
Holders 8
Part II.
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 8
Item 6. Selected Consolidated Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition
and Results of Operations 10
Item 8. Consolidated Financial Statements and
Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on
Accounting
and Consolidated Financial Disclosure 27
Part III.
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners
and Management 27
Item 13. Certain Relationships and Related Transactions 27
Part IV.
Item 14. Exhibits, Consolidated Financial Statement
Schedule and Reports on Form 8-K 27
Signatures 28
PART I.
ITEM 1. BUSINESS
General
Harold's Stores, Inc. ("Harold's" or the "Company"), and
its subsidiaries originally founded in 1948, own and operate a
chain of ladies' and men's specialty apparel stores at 29
locations in Oklahoma(5), Texas(10), Arizona(1), North
Carolina(1), Alabama(1), Georgia(2), Maryland(1),
Mississippi(1), Missouri(2), Nebraska(1), Tennessee(2),
Louisiana(1), Kentucky(1), and a direct response catalog.
The Company specializes in offering high quality,
classically inspired, yet updated, men's and ladies' apparel
positioned for an upscale, quality-conscious consumer, with the
strongest appeal to the 20 to 50 year-old group. The decor of
the stores is an eclectic mix of antiques, designed fixtures,
visual props and unique items designed to set an interesting
stage for the presentation of the Company's products.
The Company's predecessor was formed under Delaware law in
June, 1987, consolidating into one corporation the ownership
interests of several affiliated corporations through which the
Company's business had been conducted. Effective June 30,
1994, the Company reincorporated under Oklahoma law.
The Company's 29 locations consist of eleven full-line
men's and ladies' apparel stores, eight full-line ladies'
apparel and Old School Clothing product line men's sportswear
stores, eight ladies' only apparel stores and two company
outlet stores. In addition to the stores the Company has a
direct mail order catalog business. During fiscal 1996, the
Company opened four new stores. (The number of open stores has
been restated to reflect the operational consolidation of the
stand alone Old School Clothing Company into the 50 Penn Place
Store in Oklahoma City).
Fiscal Years
The Company operates on a 52-53 week fiscal year which
ends on the Saturday closest to January 31. References herein
to fiscal 1997, fiscal 1996, fiscal 1995 and fiscal 1994 refer
to the fiscal years ended February 1, 1997, February 3, 1996,
January 28, 1995 and January 29, 1994, respectively.
Retail Merchandising
The Company's merchandise mix in ladies' apparel
includes coordinated sportswear, dresses, coats, outerwear,
shoes and accessories, in updated classic styles. A
significant feature of the Company's marketing strategy is the
development of original exclusive and semi-exclusive items. The
Company estimates that approximately 90% of its ladies' apparel
sales are attributable to the Company's product development and
private label programs. During fiscal 1996, ladies' apparel
accounts for approximately 80% of annual sales and men's
apparel approximately 20% of sales.
The men's apparel stores' product line includes tailored
clothing, suits, sportcoats, furnishings, sportswear, and
shoes. The style is what is known in the apparel trade as
"updated traditional," classic styling with a contemporary
influence. The young executive and college markets account for
a substantial portion of the Company's men's store sales. The
men's stores feature branded lines of industry leaders,
including Polo, Corbin, Alden, and Kenneth Gordon. The
Company's private label apparel accounts for more than 80% of
total men's sales.
The private label "Old School" merchandise features
sportswear oriented, mostly casual clothing. This includes pre-
washed denim, khaki, twills, corduroy, and poplin trousers,
sportswear tops and accessories. Other categories of
merchandise include sweaters, woven fabric shirts, knit shirts,
outerwear, and footwear.
The Company's stores generally are open seven days per
week and evenings. In addition to its credit card, the Company
accepts VISA, Mastercard and American Express.
Over the past two years, the Company has expanded its
chain of retail stores from 21 to 29 stores. The Company's
locations range in size from 2,100 square feet to 14,240 square
feet and average approximately 5,000 square feet.
Product Development and Private Label Program
The Company believes that its product development programs
enable it to offer exclusive and semi-exclusive items not
available in competing stores or catalogs. More than 85% of
sales is merchandise of the Company's controlled design,
demonstrating the Company's commitment to a unique product mix.
An important component of the Company's product
development programs is market research of styles and fabrics.
The Company's buyers shop European and domestic markets for
emerging fashion trends, for new vendors, and for garment
designs, paintings and samples. Through sophisticated computer
technologies, the product development staff creates new
designs. In addition, the Company is associated with
independent buying offices in New York and Florence which
assist the Company in its negotiations with mills and vendors.
The Company's merchandise consists of (i) items developed
by the Company and manufactured exclusively for it, (ii) items
developed by the Company and manufactured on a semi-exclusive
basis for the Company, and (iii) vendor-developed, non-
exclusive items to which the Company's private labels are
affixed.
The Company's product development programs allow it to
participate directly in the design and manufacturing of an
exclusive product without investing in costly manufacturing
equipment.
The Company's product development programs enable it to
offer new styles often before similar merchandise is available
at other specialty or department stores or catalogs. The
Company imports a significant portion of its private label
merchandise directly from the United Kingdom, Italy, and
through domestic importers from the Far East. All categories
of Company merchandise manufactured in foreign countries are
subject to import regulations. Any event causing a sudden
disruption of imports, including the imposition of additional
import restrictions, could have a material adverse effect on
the Company's operations. Substantially all of the Company's
purchases from the Far East, including Hong Kong, are priced in
U.S. dollars. However, its European purchases are denominated
in local currency and, therefore, are subject to fluctuating
currency exchange rates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-
Results of Operations".
Creating products is a global effort. Three or four times
a year, a team of merchandisers travels to Europe to source
inspirations for new styles. In countries like Italy, France,
and England, the team collects hundreds of antique tapestries,
vintage fabric swatches, oil and watercolor paintings and
ancient wallpaper remnants to use for the creation of new
prints and patterns. The merchandisers also have ongoing
contact with several art studios in Europe. Artists hand paint
intricate patterns and prints exclusively for the Company. The
merchandisers also take hundreds of photographs in popular
fashion meccas such as Paris and Milan. The photographs help
them spot emerging trends among the fashion forward Europeans.
The Company merchandisers then sift through the mountain
of material, analyzing fashion directions and selecting the
very best pieces to convert into prints and patterns for the
next season. Using the new patterns the team then "specs" out
various styles - detailing a garment's cut, fit, fabric, color
and trim. An advanced textile CAD (computer aided design)
system makes designing new pieces much easier by providing
color "proofs" which allow the Company to correct inaccuracies
in a design before a working sample is made. This process
reduces costs and contributes to the inherent value of each
item. After the specs have been finalized, the piece goods -
materials for making the product - are ordered from domestic
and international fabric mills. The finished fabric is then
shipped to manufacturers who cut, sew and trim the completed
design.
The Company also relies on European craftsmanship for its
extensive selection of Italian leather goods. Shoes, belts,
handbags, wallets and other leather products are co-designed by
the Company's merchandisers and Italian leather artisans. The
leather workers produce products to the Company's
specifications. These Italian goods are marketed under a
variety of Company owned labels, and are featured in all of
Harold's retail locations and in its catalogs.
Due to the Company's product development programs, a
substantial portion of the Company's merchandise purchases are
concentrated among a small number of vendors. During fiscal
1995, the Company entered into a new arrangement with its
largest apparel vendor, CMT Enterprises, Inc. Previously, CMT
sold finished goods to the Company. Under the new arrangement,
CMT acts as the Company's agent in the purchase of raw
materials (i.e. fabrics, linings, buttons, etc.) and supervises
the manufacturing process of the Company's merchandise with
manufacturing contractors. As a result, the Company now
purchases these raw materials directly from suppliers and pays
for the manufacturing process as costs are incurred. CMT
receives a commission based on actual cost of the finished
goods. The Company believes that fewer vendor relationships
advance the Company's product development objectives of
increasing control over the design and manufacturing processes,
permitting the Company to control the quality and cost of the
Company's inventory purchases. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-
Results of Operations".
In the event of the termination of the relationship with
CMT Enterprises, Inc., or other of the Company's principal
vendors, management believes that in most instances more than
one new vendor would be required to replace the loss of that
vendor. Although management believes that replacement vendors
could be located if any buying relationship is terminated,
until replacement vendors are located, the operating results of
the Company could be materially adversely affected.
Catalog Publication and Order Fulfillment
In 1989, the Company recast its image-oriented direct mail
efforts by launching a pilot program to determine the potential
profitability of a direct response Harold's catalog. The
Company added an in-house design and production facility to its
advertising/marketing department, and established a full-time
fulfillment center at its corporate headquarters to process,
pack and ship orders.
In March 1990, using an in-house data base, the Company
mailed its first direct response catalog to over 100,000
addresses. The catalog has become an increasingly important
marketing tool. During fiscal 1996, the Company used its
proprietary mailing list and a variety of rental lists to mail
six issues with an average of 48 pages, and an aggregate
circulation of approximately 6.5 million (including abridged
issues). The catalogs are designed and produced in-house with
photography, prepress and printing services being outsourced.
On-line computerized inventory systems and order processing
programs offer control of the response and shipping times.
Orders are processed daily and inventory adjustments are
managed accordingly.
In addition to its potential future profitability, the
Company believes its catalog program stimulates synergism with
its existing retail locations. Additionally, the Company
believes the catalog program offers a strategic advantage in
expanding into new markets. Before new stores are opened, the
Company secures detailed databases in specific geographical
areas, and mails its catalogs to a targeted consumer base.
This process introduces Harold's to potential customers in each
market. Responses are measured and analyzed to help formulate
positioning strategies and scout potential new locations. By
the time a store opens, the catalog has helped create a demand
for the Company's products where very little may have
previously existed.
For fiscal 1996, mail order sales represented
approximately 10% of the Company's sales. The Company plans to
continue increasing its catalog circulation by nurturing the
growth of its own data base and investigating new list sources.
The Company also plans to expand its catalog fulfillment
facilities and management information systems in the near
future.
Carousel Printing
The Company has a screen printing facility which operates
under the name, "Carousel Printing". This facility does custom
printing primarily on t-shirts for the Company's stores, local
charity events, schools, and organizations. In addition, it
produces a line of printed t-shirts which Carousel Printing
sells to other retailers at wholesale. The combined revenues
from Company store sales and outside wholesale sales were less
than two percent of sales for fiscal 1996.
Merchandise Inventory, Replenishment and Distribution
The specialty retail apparel business fluctuates according
to changes in customer preferences dictated by fashion and
season. These fluctuations especially affect the inventory
owned by apparel retailers, since merchandise usually must be
ordered well in advance of the season and sometimes before
fashion trends are evidenced by customer purchases. The
Company's policy of carrying basic merchandise items in full
assortments of sizes and colors requires it to carry a
significant amount of inventory. The Company must enter into
contracts for the purchase and manufacture of private label
apparel well in advance of the peak seasons. As a result, the
Company is vulnerable to demand and pricing shifts and to
errors in selection and timing of merchandise purchases. Also,
non-delivery or late delivery by any one of the Company's
principal vendors could adversely affect the Company's
operations.
The Company reviews its inventory level in order to
identify slow-moving merchandise and broken assortments (items
no longer in stock in a sufficient range of styles, colors and
sizes) and may use markdowns to clear this merchandise.
Markdowns also may be used if inventory exceeds customer
demand for reasons of style, seasonal adaptation, changes in
customer preference or if it is determined that the inventory
in stock will not sell at its currently marked price. Such
markdowns may have an adverse impact on earnings, depending on
their extent and the amount of inventory affected. The Company
utilizes its two outlets to dispose of slow moving merchandise.
In addition, slow moving merchandise is cleared through its
three regional off-site annual discount sales which are
promoted under the name "Harold's Warehouse Sale".
The Company currently operates a 22,000 square foot
distribution facility in Norman, Oklahoma. All of the
Company's merchandise, over three million units projected for
fiscal 1997, will route through the distribution center from
various manufacturers. Each item is examined, sorted, tagged
and boxed for shipment to the Company's 29 stores, warehouse
and catalog operation. This process is done in a substantially
paperless environment, utilizing computers, bar codes and
scanners.
A 64,000 square foot expansion of the existing
distribution center is scheduled for completion during the
summer of 1996. When the expansion is completed, the facility
will have the capability of processing merchandise for 128
stores.
Future Expansion
The Company believes that continued success will be
achieved by expanding the ladies' apparel stores and men's "Old
School Clothing Company" operations, as well as maintaining
sales at existing stores and increasing the circulation of the
Company's direct response catalog.
In fiscal 1997, the Company plans to open six new stores,
all of which will feature ladies' full-line merchandise. Four
of the proposed new stores will also include full-line men's
merchandise and two will include the "Old School Clothing
Company" product line. Future expansion beyond fiscal 1997
should be a similar mix of stores, including plans to open
additional outlets.
Seasonal Business
The Company's business follows a seasonal pattern, peaking
twice a year during the late summer (August through early
September) and holiday (Thanksgiving through Christmas)
periods. During fiscal 1996, approximately 57% of the
Company's sales occurred during the third and fourth quarters.
Competition
The Company's business is highly competitive. The
Company's stores compete with national and local department
stores, specialty and discount store chains, catalogers and
independent retail stores which offer similar lines of
specialty apparel. Many of these competitors have
significantly larger sales volumes and assets than the Company.
Depth of selection in sizes and colors and styles of
merchandise, merchandise procurement and pricing, ability to
anticipate fashion trends and customer preferences, inventory
control, reputation, quality of private-label merchandise,
store design and location, advertising and customer service are
all important factors in competing successfully in the retail
industry. Given the large number of companies in the retail
industry, the Company cannot estimate the number of its
competitors or its relative competitive position.
In addition, the success of the Company's operations
depends upon a number of factors relating to economic
conditions and general consumer spending. If current economic
conditions worsen and consumer spending is restricted, the
Company's growth and profitability would be negatively
impacted.
Customer Credit
The Company's stores accept its credit card, VISA,
Mastercard, and the American Express cards. The Company's
catalog operation accepts VISA, Mastercard and the Company's
credit card. The Company maintains a credit department in its
service center for customer service, credit authorizations,
credit investigation, billing and collections. As of February
3, 1996, the allowance for bad debts from Company credit card
sales was approximately 1.3% of these sales for fiscal 1996.
Advertising
The Company maintains an in-house advertising department.
This department has won numerous Addy awards at the local,
district and national levels. The advertising department staff
produces in-house print advertising for daily and weekly
newspapers and other print media, and designs the Company's
mail order catalogs and other direct mail pieces. In addition,
the advertising department is responsible for quarterly and
annual reports to the Company's stockholders, sales training
materials, internal marketing materials, and all corporate
identity materials.
Trademarks, Service Marks, and Copyrights
The trademarks and service marks for "Harold's", "Old
School Clothing Company", and several other trademarks either
have been registered, or have trademark applications pending,
with the United States Patent and Trademark Office and with the
registries of various foreign countries. The Company files
U.S. copyright registration on the original design and artwork
purchased or developed by the Company.
The Company's Houston store bears the name "Harold Powell"
rather than "Harold's" to avoid confusion with an existing
local men's apparel store which operates in Houston under the
name "Harold's" with prior usage in this market predating the
Company's federal registration.
Employees
On March 29, 1996 the Company had approximately 1,080
full-time and part-time employees. Additionally, the Company
hires temporary employees during the peak late summer and
holiday seasons. None of the Company's employees belongs to
any labor union and the Company believes it has good relations
with its employees.
ITEM 2. PROPERTIES
Store Leases
The Company believes rent attributable to store leases is a
key factor in determining the sales volume at which a store can
be profitably operated. Among current store leases, one store
lease has fixed rent with no percentage rent; all other store
leases provide for a base rent with percentage rent payable
above specified minimum sales. One lease has percentage rent
only. All stores except six operated at sales volumes for
fiscal 1996 above the breakpoint (the sales volume below which
only minimum rent is payable). Based on the Company's current
level of sales per square foot, the Company believes that some
of the risk from any decline in future sales volume in these
stores is reduced because a corresponding decline in occupancy
expense would occur.
The Company believes its sales per square foot is higher
than industry averages. The Company's average sales per square
foot for stores opened for the entire fiscal year were $628 and
$599 for fiscal 1996 and fiscal 1995, respectively, on a 52
week basis.
During fiscal 1996, the Company entered into new leases for
stores in St. Louis, Missouri; Louisville, Kentucky; Hillsboro,
Texas; Baton Rouge, Louisiana; Houston, Texas; Leawood, Kansas
and Greenville, South Carolina. Management believes the terms
of these leases are comparable with other similar national
retailers in these locations. Fixed rent (minimum rent under
terms of lease) in current leases ranges from $6 per square
foot to $41 per square foot over the terms of the leases.
Fixed rent has continued to increase based on new store leases
as illustrated in the increase in base rent. The following
table sets forth the fixed and variable components of the
Company's rent expense for the fiscal years indicated:
1996 1995 1994
Base rent $2,222,000 1,791,000 1,461,000
Additional amounts
computed as 1,112,000 922,000 666,000
a percentage of
sales
Total $3,334,000 2,713,000 2,127,000
In addition to the minimum and percentage rents referred to
above, many of the Company's leases require the payment of
property taxes, common area maintenance charges and other
ancillary charges.
Corporate Headquarters and Catalog Fulfillment Center
The Company owns a 20,000 square foot building used for the
Company's executive offices and its data processing,
accounting, credit and marketing departments. In addition, the
Company's catalog phone center and catalog fulfillment
operations are located in space previously used for central
merchandise receiving and distribution.
Merchandise Buying Office and Distribution Center
The Company leases a 10,000 square foot building used
primarily as a men's and ladies' buying office in Dallas, Texas
(the "Dallas Buying Office") and a 22,000 square foot warehouse
distribution center facility located in Norman, Oklahoma. The
distribution center is equipped with automated systems for
receiving, processing and distributing merchandise.
Substantially all merchandise is shipped from vendors directly
to the distribution center, where it is received, inspected and
ticketed for inventory control. The merchandise is then
shipped by company trucks or common carrier to the stores.
The lessor of the Dallas Buying Office and the distribution
center is a limited partnership whose partners include,
Rebecca Powell Casey, Michael T. Casey, H. Rainey Powell and
Lisa Powell Hunt, all of whom are stockholders and directors of
the Company. The term of the buying office lease is sixteen
years commencing April 1, 1996, with annual rent payments of
$158,000 plus insurance, utilities and property taxes until
April, 2000, at which time the annual rent will be $180,000,
plus insurance, utilities and property taxes, increasing $2,500
each year thereafter until expiration of the lease. The term
of the distribution center lease is ten years commencing
December 1, 1992, with annual rent payments of $64,000 plus
insurance, utilities and property taxes.
The Company has an option to purchase the distribution
center for a purchase price equal to the greater of the
adjusted cost basis of the lessor at the time of closing or 90%
of appraised value, exercisable through the fifth year of the
lease. At the end of the third lease year on November 30,
1995, the lessor's adjusted cost of the distribution center was
approximately $798,000.
ITEM 3. LEGAL PROCEEDINGS
On July 8, 1993, the Company and one of its principal
vendors filed a lawsuit in the United States District Court for
the Western District of Oklahoma against Dillard Department
Stores, Inc. alleging Dillard sold garments at its retail
outlets that were unauthorized copies of copyrighted designs
owned jointly by the Company and its vendor. On May 17, 1994,
the Court entered judgment for the Company and its vendor for
approximately $440,000, including attorney's fees and costs.
Both parties have appealed the judgment. There can be no
assurance that the Company will ultimately prevail on appeal.
The Company believes that the outcome of the lawsuit will not
have a material impact on the Company's operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
At March 29, 1996, there were 595 record holders of the
Company's common stock, ("Common Stock"). The Company's Common
Stock is listed on the American Stock Exchange under the symbol
"HLD". The table below presents the range of the high and low
sales prices, for the periods indicated. The price per share
information contained in the following table is restated to
reflect a 5% stock dividend paid to holders of Common Stock on
January 19, 1996, and a 10% stock dividend paid to holders of
Common Stock on December 30, 1994.
Quarterly Common Stock Price Ranges
Fiscal Year 1996
Period High Low
1st Quarter $10.60 $9.40
2nd Quarter $10.60 $9.52
3rd Quarter $10.36 $9.17
4th Quarter $11.79 $9.40
Fiscal Year 1995
Period High Low
1st Quarter $8.66 6.39
2nd Quarter $12.34 8.01
3rd Quarter $10.71 7.58
4th Quarter $10.17 8.66
Dividend Policy
The Company has never paid cash dividends on its Common
Stock and presently intends to retain all earnings for the
operation and expansion of its business for the foreseeable
future. Any future determination as to the payment of cash
dividends will depend on the Company's earnings, capital
requirements, financial condition and other factors as the
Board of Directors deem relevant.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information
(not covered by the independent auditors' report) should be
read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the
consolidated financial statements and the notes thereto.
Fiscal Year
(In thousands, except
per share data)
1996 1995 1994 1993 1992
Operating Data:
Stores open at end of 29 25 21 18 15
period (1)
Sales $94,264 75,795 60,940 49,27 40,553
9
Percentage increase 24.4% 24.4% 23.7% 21.5% 6.8%
Gross profit on sales $34,433 26,407 20,349 16,30 12,990
3
Percentage of sales 36.5% 34.8% 33.4% 33.1% 32.0%
Earnings before income $4,645 3,539 1,875 1,148
taxes 2,783
Percentage of sales 4.9% 4.7% 4.5% 3.8% 2.8%
Net earnings $2,787 2,088 1,052 647
1,612
Percentage of sales 3.0% 2.8% 2.6% 2.1% 1.6%
Earnings per common $ .56 .42
share (2) .35 .25 .15
Balance Sheet Data:
Working capital $21,829 12,524 12,540 9,985 8,732
Total assets $42,609 34,661 26,441 21,94 20,085
7
Long-term debt(3) $ 594 1,177 -
9,540 669
Stockholders' equity $25,299 22,260 19,996 15,36 14,302
6
Net book value per $ 4.51 3.61 3.36
share(4) 5.10 4.07
(1) The number of stores open at the end of the period
have been restated to reflect the consolidation of the stand
alone "Old School Clothing Company" into the 50 Penn Place
Store in Oklahoma City. This presentation more appropriately
represents the treatment of the Old School product line within
the full-line stores.
(2) Net earnings per common share are based on the
weighted average number of common shares outstanding during
each period restated for the five percent stock dividend in
fiscal 1996 and the ten percent stock dividends in fiscal 1995,
fiscal 1994, and fiscal 1993.
(3) In fiscal 1996, the Company renewed its line of
credit to be payable at a fixed maturity rather than on demand
which required the loan to be reclassified as long-term debt.
(4) Net book value per share is based on the number of
common shares outstanding at the end of each fiscal year
restated for the five percent stock dividend in fiscal 1996 and
the ten percent stock dividends in fiscal 1995, fiscal 1994 and
fiscal 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table reflects items in the Company's
statement of earnings as a percentage of sales for the periods
indicated:
Fiscal Year
1996 1995 1994
Sales 100.0% 100.0% 100.0%
Cost of goods sold (63.5) (65.2) (66.6)
Selling, general and (20.5) (19.7) (19.8)
administrative expenses
Advertising expense (8.3) (7.8) (6.5)
Depreciation and amortization (2.3) (2.3) (2.3)
Interest expense (0.5) (0.3) (0.3)
Earnings before income taxes 4.9 4.7 4.5
Provision for income taxes (1.9) (1.9) (1.9)
Net earnings 3.0% 2.8% 2.6%
The following table reflects the sources of the increases
in Company sales for the periods indicated:
Fiscal Year
1996 1995 1994
Store sales (000's) $84,880 68,901 55,504
Catalog sales (000's) 9,384 6,894 5,436
Sales (000's) $94,264 75,795 60,940
Total sales growth 24.4% 24.4% 23.7%
Growth in comparable store sales 8.7% 10.7% 7.4%
(52-53 week basis)
Growth in catalog sales 36.1% 26.8% 68.6%
Store locations:
Existing stores beginning of 25 21 18
period
New stores opened during period 4 4 3
Total stores at end of 29 25 21
period
The opening of new stores, the expansion of existing
stores, as well as the increase in comparable store sales and
the growth in catalog sales, contributed to total sales growth
for fiscal years 1996, 1995, and 1994.
New stores opened during fiscal 1996 included a 4,221
square foot men's and ladies' store in St. Louis, Missouri
opened in March 1995 (first quarter); a 4,292 square foot
ladies' and "Old School" store opened in Louisville, Kentucky
in September 1995 (third quarter); a 5,200 square foot full-
line men's and ladies' store opened in Baton Rouge, Louisiana
in November 1995 (third quarter); and Harold's second outlet
center, a 5,160 square foot store in Hillsboro, Texas in
December 1995 (fourth quarter).
New stores opened during fiscal year 1995 included a 4,000
square foot ladies' and "Old School" store in Charlotte, North
Carolina opened in July 1994 (second quarter); a 3,300 square
foot ladies' store opened in Austin, Texas in September 1994
(third quarter); a 5,500 square foot full-line men's and
ladies' store opened in Plano, Texas in October 1994 (third
quarter); and a 5,000 square foot ladies' and "Old School"
store opened in Phoenix, Arizona in November 1994 (fourth
quarter).
Significant increases in mail order catalog sales are the
direct result of the Company's expansion of this segment of the
business. Since the 1989 test market of Harold's first
catalog, the Company has expanded its regular catalog to
include six seasonal issues each year. For fiscal 1996, the
Company's catalog averaged 48 pages per issue with an aggregate
mailing (including abridged issues) of approximately 6.5
million catalogs.
The Company's gross margin increased for fiscal 1996
compared to fiscal 1995 and fiscal 1994. This increase is the
result of reduced markdowns in fiscal 1996 related to increased
store sales. Any increase in net earnings as a percentage of
sales will be the result of increasing sales while controlling
selling, general and administrative expenses and improvement in
gross profit on sales.
Selling, general and administrative expenses continue to
increase. Catalog production cost increased 38% and 51% in
fiscal years 1996 and 1995, respectively. These increases in
costs were due to the expansion of catalog operations. In
fiscal 1997, the Company plans to decrease the rate of sales
growth in the catalog division resulting in a decrease in
catalog expenses as a percentage of sales. Additionally, an
increase of approximately 29% in sales salaries is associated
with the Company's efforts to improve the quality of customer
service in all stores. The Company anticipates a leveling of
this expense category as a percentage of sales. Management
anticipates that selling, general and administrative expenses
will continue to increase as a result of the Company's
expansion plans to open six new stores in fiscal 1997 compared
to four new stores in fiscal 1996.
The average balance on total outstanding debt was
$7,633,000 in fiscal 1996 compared to $3,668,000 for fiscal
1995. Average interest rates on the Company's line of credit
were higher in fiscal 1996, resulting in an increase in the
Company's cost of borrowed capital. As the Company's growth
continues, cash flow may require additional borrowed funds
which may cause an increase in interest expense.
The Company's purchases denominated in foreign currency
are of a short term nature. The Company does not hedge these
foreign currency transactions and it has not been adversely
affected in the past. The Company has no assurances that the
impact in the future may not be material.
The Company's income tax rate of 42% in fiscal 1994 and
41% in fiscal 1995, decreased to 40% in fiscal 1996. This
decreased tax rate is attributable to the Company's estimation
of higher tax rates on temporary differences in fiscal 1994 and
fiscal 1995 compared to the tax rates currently estimated.
Capital Expenditures, Capital Resources and Liquidity
Cash Flows From Operating Activities. For fiscal 1996,
net cash provided by operating activities was $709,000 as
compared to $569,000 for fiscal 1995. The significant increase
in cash flows from operating activities is partially
attributable to the difference in timing of cash disbursements
as reflected in an increase in accounts payable of $242,000 for
fiscal 1996, as compared to an increase in accounts payable of
$1,326,000 for fiscal 1995. In addition, the difference in
cash flows from operating activities between the two fiscal
periods is partially due to an increase of $3,800,000 in the
Company's merchandise inventories for fiscal 1996, as compared
to fiscal 1995, during which inventories increased by
$5,200,000, as a result of the change in the relationship with
CMT Enterprises, Inc. (see "Liquidity"). Management expects
the dollar amount of its merchandise inventories will continue
to increase as it expands its product development and private
label merchandise and expands its chain of retail stores and
catalog operations, with related increases in trade accounts
receivable and accounts payable. Period-to-period differences
in timing of inventory purchases and deliveries will affect
comparability of cash flows from operating activities.
In addition, the increased net earnings from fiscal 1996
and fiscal 1995, of $2,787,000 and $2,088,000, respectively,
resulted in an increase in accrued expenses of $642,000 as
compared to $656,000 for fiscal 1996 and 1995, respectively.
Cash Flows From Investing Activities. For fiscal 1996 net
cash used in investing activities was $4,857,000 as compared to
$3,952,000 for fiscal 1995. Capital expenditures totaled
$5,159,000 for fiscal 1996 and $3,994,000 for fiscal 1995 and
were invested in the new stores and in remodeling and equipment
expenditures in existing operations.
Cash Flows From Financing Activities. During fiscal 1996,
the Company made periodic borrowings under its revolving credit
facility (see "Liquidity") to finance its inventory purchases,
store expansion, remodeling and equipment purchases for the
fiscal year.
The Company has available a long-term line of credit with
its bank,(see "Liquidity"). This line had an average balance
of $7,000,000 and $2,961,000 for the fiscal years 1996 and
1995, respectively. During fiscal 1996, this line of credit
had a high balance of $10,337,000 and a $9,021,000 balance as
of February 3, 1996. The balance at March 29, 1996, was
$9,817,000.
Liquidity. The Company considers the following as
measures of liquidity and capital resources as of the dates
indicated (dollars in thousands).
Fiscal Year
1996 1995 1994
Working capital $21,829 12,524 12,540
Current ratio 3.89:1 2.08:1 3.23:1
Ratio of working capital .51:1 .36:1 .47:1
to total assets
Ratio of long-term debt
(including current 38:1 .25:1 .11:1
maturities) to
stockholders' equity
In fiscal 1996, the Company renewed its line of credit to
be payable at a fixed maturity rather than on demand. As a
result the loan was reclassified as long-term debt rather than
as a current liability.
As a result of the change in fiscal 1995 in the
relationship with CMT Enterprises, Inc., the Company was
required to increase its borrowings approximately $5,200,000 to
finance the purchase of raw materials and manufacturing of
finished goods. Previously, CMT sold finished goods to the
Company. Under the new arrangement, CMT acts as the Company's
agent in the purchase of raw materials (i.e. fabrics, linings,
buttons, etc.) and supervises the manufacturing process of the
Company's merchandise with manufacturing contractors.
Increases in inventory because of the Company's expansion have
required increased borrowings under the Company's credit line.
The Company's primary needs for liquidity are to finance
its inventories and revolving charge accounts and to invest in
new stores, remodeling, fixtures and equipment.
Management believes cash flow from operations and its
existing banking arrangements should be sufficient to meet its
operating needs and capital expenditures through fiscal 1997.
The Company's capital expenditures budget for fiscal 1997 is
approximately $3,700,000. Subsequent to February 3, 1996, the
Company increased the above line of credit to $15,000,000.
Additionally, a $3,000,000 line of credit was obtained from a
separate banking institution for the purpose of issuing letters
of credit.
Seasonality
The Company's business is subject to seasonal influences,
with the major portion of sales realized during the fall season
(third and fourth quarters) of each fiscal year, which includes
the back-to-school and the holiday selling seasons. In light
of this pattern, selling, general and administrative expenses
were typically higher as a percentage of sales during the
spring seasons (first and second quarters) of each fiscal year.
Inflation
Inflation affects the costs incurred by the Company in its
purchase of merchandise and in certain components of its
selling, general and administrative expenses. The Company
attempts to offset the effects of inflation through price
increases and control of expenses, although the Company's
ability to increase prices is limited by competitive factors in
its markets. Inflation has had no meaningful effect on sales,
or net earnings of the Company.
Impact of Pending Accounting Announcements
In March 1995, the Financial Accounting Standards Board
issued Statement 121, "Accounting for the Impairment of Long-
Lived Assets to be Disposed of" (Statement 121). Statement 121
is required to be adopted for fiscal years beginning after
December 15, 1995. Statement 121 establishes accounting
standards for impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of.
In October 1995, the Financial Accounting Standards Board
issued Statement 123, "Accounting for Stock-Based Compensation"
(Statement 123). Statement 123 is required to be adopted for
fiscal years beginning after December 15, 1995. Statement 123
establishes financial accounting and reporting standards for
stock-based employee compensation plans.
Management believes that the adoption of Statements 121
and 123 will not have a significant impact on the financial
condition or the results of operations of the Company.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report 14
Consolidated Financial Statements:
Consolidated Balance Sheets
February 3, 1996, and January 28, 1995 15
Consolidated Statements of Earnings
53 Weeks Ended February 3, 1996, 52 Weeks Ended
January 28, 1995, and January 29, 1994 17
Consolidated Statements of Stockholders' Equity
53 Weeks Ended February 3, 1996, 52 Weeks Ended
January 28, 1995, and January 29, 1994 18
Consolidated Statements of Cash Flows
53 Weeks Ended February 3, 1996, 52 Weeks Ended
January 28, 1995, and January 29, 1994 19
Notes to Consolidated Financial Statements 20
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Harold's Stores, Inc.:
We have audited the accompanying consolidated balance
sheets of Harold's Stores, Inc. and subsidiaries (the Company)
as of February 3, 1996 and January 28, 1995, and the related
consolidated statements of earnings, stockholders' equity, and
cash flows for the 53 week period ended February 3, 1996, and
the 52 week periods ended January 28, 1995 and January 29,
1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated 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 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Harold's Stores, Inc. and subsidiaries as
of February 3, 1996, and January 28, 1995, and the results of
their operations and their cash flows for the 53 week period
ended February 3, 1996, and the 52 week periods ended January
28, 1995, and January 29, 1994, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK
LLP
Oklahoma City, Oklahoma
March 29, 1996
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
February January
3, 1996 28, 1995
Current assets:
Cash and cash equivalents $ 109
2
Trade accounts receivable, less
allowance 4,687 4,238
for doubtful accounts of $200 and
$175, respectively
Other accounts receivable 568 671
Merchandise inventories 21,647 17,847
Prepaid expenses 1,759 646
Deferred income taxes 710 622
Total current assets 29,373 24,133
Property and equipment, at cost 18,999 15,186
Less accumulated depreciation and (6,097) (4,955)
amortization
Net property and equipment 12,902 10,231
Other assets 334 297
Total assets $42,609 34,661
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands Except Share Data)
February 3, January 28,
1996 1995
Current liabilities:
Current maturities of long-term debt $ 75 4,977
Accounts payable 4,396 4,154
Redeemable gift certificates 672 509
Accrued bonuses and payroll expenses 1,624 1,129
Accrued rent expense 241 257
Income taxes payable 536 583
Total current liabilities 7,544 11,609
Long-term debt, net of current maturities 9,540 594
Deferred income taxes 226 198
Commitments and contingent liabilities (notes
8 and 10)
Stockholders' equity:
Preferred stock of $.01 par value
Authorized 1,000,000 shares; none issued - -
Common stock of $.01 par value
Authorized 7,500,000 shares; issued and
outstanding 4,958,181 in 1996, 50 47
4,698,174 in 1995
Additional paid-in capital 20,572 17,491
Retained earnings 4,677 4,722
Total stockholders' equity 25,299 22,260
Total liabilities and stockholders' equity $ 42,609 34,661
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands Except Share Data)
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
February 3, January 28, January 29,
1996 1995 1994
Sales $94,264 75,795 60,940
Costs and expenses:
Cost of goods sold
(including occupancy and
central buying expenses, 59,831 49,388 40,591
exclusive of items shown
separately below)
Selling, general and 19,344 14,972 12,072
administrative expenses
Advertising expense 7,807 5,912 3,968
Depreciation and 2,185 1,710 1,409
amortization
Interest expense 452 274
117
89,619 72,256
58,157
Earnings before income taxes 4,645 3,539 2,783
Provision for income taxes 1,858 1,451
1,171
Net earnings $ 2,787 2,088
1,612
Earnings per common share $ .56 .42
.35
Weighted average number of
common shares 5,000,033 4,923,951 4,598,846
outstanding
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
February January January
3, 1996 28, 1995 29, 1994
Common stock:
Balance, beginning of year $ 47 43 33
Stock dividend (5 percent) in
1996 of 235,868 shares, and (10
percent), 426,970 shares in 3 4 4
1995, and 386,549 shares in
1994
Stock bonuses, 1,301 shares in
1996, 645 shares in 1995, and - - 1
1,315 shares in 1994
Employee Stock Purchase Plan
22,838 shares in 1996, and - - -
17,712 shares in 1995
Sale of 516,000 shares - - 5
Balance, end of year $ 50 47 43
Additional paid-in capital:
Balance, beginning of year $17,491 13,047 6,945
Stock dividend (5 percent) in
1996 and (10 percent) in 1995 2,827 4,265 3,090
and 1994
Stock bonuses 13 6 8
Sale of 516,000 shares, net of
issuance cost of $474,000 - - 3,004
Employee stock purchase plan 241 173 -
Balance, end of year $ 20,572 17,491 13,047
Retained earnings:
Balance, beginning of year $4,722 6,906 8,388
Net earnings 2,787 2,088 1,612
Stock dividend (5 percent) in
1996 and (10 percent ) (2,832) (4,272) (3,094)
in 1995 and 1994
Balance, end of year $ 4,677 4,722 6,906
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
February 3, January 28, January 29,
1996 1995 1994
Cash flows from operating
activities:
Net earnings $2,787 $ 2,088 1,612
Adjustments to reconcile net
earnings to net cash
provided by (used in)
operating activities:
Depreciation and amortization 2,185 1,710 1,409
Loss (gain) on sale of assets 1 (4) (6)
Shares issued under employee 255 179 9
incentive plans
Changes in assets and
liabilities:
Increase in trade and other (346) (419) (999)
accounts receivable
Increase in merchandise (3,800) (5,200) (1,891)
inventories
Increase in income taxes - 9 37
receivable
Deferred income taxes (60) (95) 29
(benefits)
Decrease (increase) in other (37) 2 (222)
assets
Increase in prepaid expenses (1,113) (266) (35)
Increase (decrease) in 242 1,326 (393)
accounts payable
Increase (decrease) in income (47) 583 --
taxes payable
Increase (decrease) in accrued 642 656 (59)
expenses
Net cash provided by (used in) 709 569 (509)
operating activities
Cash flows from investing
activities:
Acquisition of property and (5,159) (3,994) (2,909)
equipment
Proceeds from disposal of 302 42 105
property and equipment
Net cash used in investing (4,857) (3,952) (2,804)
activities
Cash flows from financing
activities:
Advances on debt 32,652 26,357 18,325
Payments of debt (28,608) (23,005) (18,065)
Proceeds of common stock - - 3,009
offering
Payments of fractional shares (3) (3) -
issued with stock dividend
Net cash provided by financing 4,041 3,349 3,269
activities
Net decrease in cash and cash (107) (34) (44)
equivalents
Cash and cash equivalents at 109 143 187
beginning of year
Cash and cash equivalents at end $ 2 109 143
of year
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Income taxes $ 1,965 954 1,025
Interest $ 452 291 139
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 3, 1996, January 28, 1995, and January 29, 1994
1. Summary of Significant Accounting Policies
Nature of Entity
Harold's Stores, Inc. an Oklahoma corporation (the
Company), operates a chain of "updated traditional", classic
styled ladies' and men's specialty apparel stores. The Company
offers its merchandise in 29 stores primarily across the South
and Southwest, with 10 stores located in Texas, and through its
mail order catalog. The product development and private label
programs provide an exclusive selection of upscale merchandise
to the consumer. In addition, the in-house advertising and
catalog production capabilities create opportunities for
vertical integration.
Basis of Presentation
The consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are wholly
owned. All significant intercompany accounts and transactions
have been eliminated.
Definition of Fiscal Year
The Company has a 52-53 week fiscal year which ends on the
Saturday closest to January 31. Fiscal years 1996, 1995 and
1994 ended February 3, 1996, January 28, 1995, and January 29,
1994, respectively.
Accounts Receivable and Finance Charges
Trade accounts receivable primarily represent the
Company's credit card receivables from customers. These
customers are primarily residents of Oklahoma and Texas.
Finance charges on these revolving receivables are imposed at
various annual rates in accordance with the state laws in which
the Company operates, and are recognized in income when billed
to the customers. Minimum monthly payments are required
generally equal to ten percent of the outstanding balance. The
average liquidation rate at February 3, 1996, was approximately
4 months. Finance charge revenue is netted against selling,
general and administrative expenses and was approximately
$705,000, $578,000, and $480,000, in fiscal 1996, fiscal 1995,
and fiscal 1994, respectively.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or
market using the retail method of accounting. Inventories of
raw materials are valued at the lower of cost or market, and
approximate $5,600,000 and $3,600,000 in fiscal 1996, and
fiscal 1995, respectively.
Depreciation, Amortization, and Maintenance and Repairs
Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the
life of the respective leases or the expected life of the
improvements. The following are the estimated useful lives
used to compute depreciation and amortization:
Buildings 30 years
Leasehold improvements 5-10 years
Furniture and equipment 4-7 years
Maintenance and repairs are charged directly to expense as
incurred, while betterments and renewals are generally
capitalized in the property accounts. When an item is retired
or otherwise disposed of, the cost and applicable accumulated
depreciation are removed from the respective accounts and the
resulting gain or loss is recognized.
Preopening Expenses and Catalog Costs
Costs associated with the opening of new stores are
expensed during the first full month of operations. The costs
are carried as prepaid expenses prior to the store opening.
Such costs included approximately $535,000 at February 3, 1996,
and $67,000 at January 28, 1995.
The Company expenses all non-direct advertising as
incurred and defers the direct costs of producing its mail
order catalogs. These costs are amortized over the estimated
sales period of the catalogs, generally three to four months.
At February 3, 1996 and January 28, 1995 approximately $257,000
and $220,000 of deferred catalog costs are included in other
assets, respectively. The Company incurred approximately
$7,807,000, $5,912,000, and $3,968,000 in advertising expenses
of which approximately $4,818,000, $3,678,000, and $2,157,000
were related to the mail order catalogs during fiscal years
1996, 1995 and 1994 respectively.
Income Taxes
Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that
includes the enactment date.
Net Earnings Per Common Share
Net earnings per common share are based upon the weighted
average number of common shares outstanding during the periods
restated for the five percent stock dividend in fiscal 1996,
and the ten percent stock dividends in fiscal 1995, and fiscal
1994 and includes common stock equivalents of 53,181 in fiscal
1996.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amount
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain comparative prior year amounts in the consolidated
financial statements have been reclassified to conform with the
current year presentation.
2. Fair Value of Financial Instruments
The recorded amounts for cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses
approximate fair value because of the short maturity of these
financial instruments. The Company's debt is at a variable
interest rate; therefore, book value approximates fair value.
3. Property and Equipment
Property and equipment at February 3, 1996 and January 28,
1995 consisted of the following (in thousands):
1996 1995
Land $ 665 $ 590
Buildings 2,796 1,987
Leasehold 4,934 4,310
improvements
Furniture and 10,604 8,299
equipment
$18,999 $15,186
4. Note Payable and Long-term Debt
Borrowings under short-term agreements were as follows (in
thousands):
1996 1995 1994
Balance at end of fiscal year $ 4,902 1,475
-
Weighted average interest rate at - 8.5% 6.0%
end of fiscal year
Maximum balance outstanding during $7,558 5,928 2,950
the year
Average balance outstanding during $5,552 2,961 1,051
the year
Weighted average interest rate 8.6% 7.4% 6.1%
during the year
Average outstanding balances in the above table are based on
the number of days outstanding. Weighted average interest
rates are the result of dividing the related interest expense
by average borrowings outstanding.
Long-term debt at February 3, 1996, and January 28, 1995
consisted of the following (in thousands):
1996 1995
Borrowings under line of credit,
bearing interest at a variable
rate (7.8% at February 3, 1996) $9,021 -
payable monthly, principal
due June 30, 1997.
Note payable to bank, secured by
building and land with net book
value of $335 at February 3, 1996,
bearing interest at a variable
rate, (8.0% at February 3, 1996), 594 669
due in monthly installments of
principal of $6 plus accrued
interest, with final payment due
September 2002.
Total long-term debt 9,615 669
Less current maturities of long- 75 75
term debt
Long-term debt, net of current $9,540 594
maturities
The annual maturities of the above long-term debt as of February
3, 1996 are as follows (in thousands):
Fiscal year
ending
1997 $ 75
1998 9,096
1999 75
2000 75
2001 75
2002 and 219
subsequent
Total $ 9,615
During fiscal 1995, the Company's line of credit was
classified as short-term. On August 22, 1995, the line of credit
available was renewed with a two-year maturity and increased to a
$12,000,000 credit facility. Subsequent to February 3, 1996, the
Company increased the above line of credit to $15,000,000.
Additionally, a $3,000,000 line of credit was obtained from a
separate banking institution for the purpose of issuing letters
of credit.
5. Income Taxes
Income tax expense (benefit) for the years ended February 3,
1996, January 28, 1995, and January 29, 1994, consisted of the
following (in thousands):
1996 1995 1994
Curre
nt:
$1,569 1,265
Feder 925
al
349 281 217
State
1,918 1,546 1,142
Defer
red:
(50) (79) 23
Feder
al
(10) (16)
State 6
(60) (95) 29
$1,858 1,451 1,171
Total
Income tax expense differs from the normal tax rate as
follows :
1996 1995 1994
Statutory tax rate 34% 34% 34%
Increase in income taxes
caused by:
State income taxes 6 6 6
Other, net - 1 2
Effective tax rate 40% 41% 42%
The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and
deferred
tax liabilities at February 3, 1996 and January 28, 1995 are
presented below (in thousands):
1996 1995
Deferred tax assets - current:
Allowance for doubtful $ 85 74
accounts
Merchandise inventories 534 528
Deferred compensation 91 20
$ 710 622
Deferred tax liability -
noncurrent:
Property and equipment $ 226 198
The net deferred tax asset relates solely to future
deductible temporary differences and there is no valuation
allowance. Management believes that it is more likely than not
that the Company will fully realize the gross deferred tax
assets; however, there can be no assurances that the Company will
generate the necessary adjusted taxable income in any future
periods.
6. Stockholders' Equity and Stock Options
The Company has authorized 1,000,000 shares of preferred
stock, par value $.01 per share. This preferred stock may be
issued in one or more series and the terms and rights of such
stock will be determined by the Board of Directors. No
preferred shares were issued and outstanding at either February
3, 1996, or January 28, 1995.
The Company has reserved 1,000,000 shares of its common
stock for issuance to key employees under its current stock
option and equity incentive plan which was adopted in April
1993 and amended June 1995. The plan has a term of ten years.
The Board of Directors may grant incentive or non-qualified
stock options, restricted stock, stock appreciation rights and
other stock-based and cash awards under the provisions of the
plan. The exercise price of incentive stock options is the
fair market value of the stock at the date of the grant, plus
ten percent if the employee possesses more than ten percent of
the total combined voting power of all classes of the Company's
stock. Options granted may have a term of up to ten years,
except that incentive stock options granted to stockholders who
have more than ten percent of the Company's voting stock at the
time of the grant may have a term of up to five years. Any
unexercised portion of the options will automatically and
without notice terminate upon the applicable anniversary of the
issuance date or termination of employment. The following
table summarizes the stock option activity for the periods
indicated:
Shares Range of
Exercise Prices
Options outstanding, fiscal 33,033 $6.30
1993
Granted - -
Exercised - -
Terminated (3,809) 6.30
Options outstanding, fiscal 29,224 6.30
1994
Granted 303,074 8.42-9.29
Exercised -
Terminated (21,484) 6.30-9.29
Options outstanding, fiscal 310,814 6.30-9.29
1995
Granted 33,075 10.48
Exercised (304) 10.48
Terminated (12,309) 6.30-9.29
Options outstanding, fiscal 331,276 6.30-10.48
1996
Options exercisable, fiscal 141,736 6.30-10.48
1996
The number of shares and exercise prices have been
restated to reflect the five percent stock dividend in fiscal
1996, and the ten percent stock dividends in fiscal 1995,
fiscal 1994, and fiscal 1993.
Additionally, as of February 3, 1996, restricted stock
awards for up to $32,700 in market value of common stock were
outstanding under the plan. These awards may be exercised over
the remaining four-year vesting period in equal annual
installments at the fair market value of common stock on such
installment vesting date. After giving effect to the
outstanding and exercised awards, and based upon the price of
common stock on February 3, 1996, the Company may award 666,027
shares or options under the plan.
7. Retirement and Benefit Plans
The Company has a profit sharing retirement plan with a
401(k) provision that allows participants to contribute up to
15 percent of their compensation before income taxes. Eligible
participants are employees at least 21 years of age with one
year of service. The Company's Board of Directors will
designate annually the amount of the profit sharing
contribution as well as the percentage of participants'
compensation that it will match as 401(k) contributions. For
the years ended February 3, 1996, January 28, 1995, and January
29, 1994, the Company contributed approximately $81,000,
$43,000, and $24,000, respectively, to the 401(k) plan.
The Company has reserved 200,000 shares of common stock
for employees under its stock purchase plan which covers all
employees who meet minimum age and service requirements. The
Company's Board of Directors will determine from time to time
the amount of any matching contribution as well as the
percentage of participants' compensation that it will match as
purchase contributions. The purchase price of shares covered
under the plan is fair market value as of the date of purchase
in the case of newly issued shares and the actual price paid in
the case of open market purchases. The plan was implemented in
January 1994 and there was no matching contribution in fiscal
year 1994. For the years ended February 3, 1996, and January
28, 1995 the Company's matching contributions were
approximately $48,000 and $35,000, and approximately 23,000 and
18,000 shares were issued, respectively.
8. Related Party Transactions
Rent on the Norman, Oklahoma store and certain related
facilities is paid to parties related to the Company's
Chairman. The store lease terms in 1996, 1995, and 1994
provided for payment of percentage rent equal to four percent
of sales plus certain ancillary costs. During the years ended
February 3, 1996, January 28, 1995, and January 29, 1994, the
total of such rent for the store and certain related facilities
was approximately $140,000, $133,000, and $136,000,
respectively.
The Company leases certain office space and a distribution
center facility from a limited partnership whose partners are
stockholders and directors of the Company. The term of the
office space lease is sixteen years commencing April 1, 1996,
with annual rent payments of $158,000 plus insurance,
utilities, and property taxes until April, 2000, at which time
the rent will be $180,000 plus insurance, utilities and
property taxes, increasing $2,500 per year until expiration of
the lease. The term of the distribution center lease is ten
(10) years commencing December 1, 1992. Rent payments are
approximately $64,000 per year payable in monthly installments
plus utilities, insurance, and property taxes.
The Company has an option to purchase the distribution
center for a purchase price equal to the greater of the
adjusted cost basis of the lessor at the time of closing or 90%
of appraised value, exercisable through the fifth year of the
lease. At the end of the third lease year on November 30, 1995,
the lessor's adjusted cost of the distribution center was
approximately $798,000.
See note 11 for information concerning the employment
contracts with the Company's Chairman of the Board, Chief
Executive Officer and President.
9. Facility Leases
The Company conducts substantially all of its retail
operations from leased store premises under leases that will
expire within the next ten years. Several of such leases
contain renewal options exercisable at the option of the
Company. In addition to minimum rental payments, certain
leases provide for payment of taxes, maintenance, and
percentage rentals based upon sales in excess of stipulated
amounts.
Minimum rental commitments for store and distribution
premises and office space (excluding renewal options) under
noncancelable operating leases having a term of more than one
year as of February 3, 1996, were as follows (in thousands):
Fiscal year ending:
1997 $ 2,827
1998 2,851
1999 2,523
2000 2,491
2001 2,314
2002 and subsequent 9,815
Total $ 22,821
Total rental expense for the years ended February 3, 1996,
January 28, 1995, and January 29, 1994, was as follows (in
thousands):
1996 1995 1994
Base rent $2,222 1,791 1,461
Additional amounts
computed 1,112 922 666
as percentage of
sales
Total $3,334 2,713 2,127
10. Business Concentrations
During fiscal 1996 and 1995, more than 90% and 80%
respectively, of the ladies' apparel sales were attributable to
the Company's product development and private label programs.
The breakdown of total sales between ladies' and men's apparel
was approximately 80% and 20% for fiscal 1996, and 78% and 22%
for fiscal 1995, respectively.
The product development programs result in a substantial
portion of the Company's purchases of raw materials being
concentrated among a small group of vendors, of which some are
located outside of the United States. CMT Enterprises, Inc. acts
as the Company's agent in the purchase of the raw materials,
including fabrics, linings, buttons, etc., and supervises the
manufacturing process of the Company's merchandise with
manufacturing contractors. In the event of the termination of
the CMT relationship or other of the Company's vendors,
management believes that in most instances more than one new
vendor would be required to replace the loss of a principal
vendor. Although management believes that replacement vendors
could be located, if any buying relationship is terminated and
until replacement vendors are located, the operating results of
the Company could be materially adversely affected.
The Company's sales are directly impacted by regional and
local economics and consumer confidence. The amount of
disposable income available to consumers, as well as their
perception of the current and future direction of the economy,
impact their level of purchases. The consumer demand for the
Company's apparel fluctuates according to changes in customer
preferences dictated by fashion and season. In addition, the
Company's sales are subject to seasonal influences, with the
major portion of sales being realized during the fall season,
which includes the back-to-school and the holiday selling
seasons. Such fluctuations could affect sales and the valuation
of inventory, since the merchandise is placed in the production
process, or ordered, well in advance of the season and sometimes
before fashion trends are evidenced by consumer purchases.
11. Commitments and Contingent Liabilities
The Company issues letters of credit which are used
principally in overseas buying, cooperative buying programs,
and for other contract purchases. At February 3, 1996, the
Company had outstanding, pursuant to such facility,
approximately $225,000 in letters of credit to secure orders of
merchandise from various domestic and international vendors.
Subsequent to year-end the Company renegotiated the line of
credit as discussed in Note 4.
The Company currently has an employment agreement with the
Chairman of the Board which continues until January 31, 1998.
Pursuant to this agreement, dated January 31, 1993, he is paid
an annual salary of $180,000 plus an annual performance bonus
and deferred annual compensation of $25,000. Subject to
certain terms, at the end of the agreement, the Chairman's
employment will be converted to that of a part-time consultant
for a period of ten years at an annual salary of $50,000.
The Company also has employment agreements with the Chief
Executive Officer and the President which terminate on January
31, 1998. The Chief Executive Officer's agreement, dated
January 31, 1993, and amended January 31, 1995, provides for
annual compensation of $220,000 plus an annual performance
bonus. The President's agreement, dated January 31, 1993 and
amended January 31, 1995, provides for annual compensation of
$160,000 plus an annual performance bonus. Neither of these
contracts provides for deferred compensation or part-time
consultant positions after the termination dates of such
contracts.
The Company is involved in various claims, administrative
agency proceedings and litigation arising out of the normal
conduct of its business. Although the ultimate outcome of such
litigation cannot be predicted, the management of the Company,
after discussions with counsel, believes that resulting
liability, if any, will not have a material effect upon the
Company's financial position or results of operations.
12. Quarterly Financial Data (Unaudited - in thousands, except
per share data)
Summarized quarterly financial results are as follows:
First Second Third Fourth
53 Weeks Ended
February 3, 1996
Sales $21,31 19,069 25,415 28,464
6
Gross profit on 7,448 7,251 9,245 10,489
sales
Net earnings 486 508 796 997
Net earnings per .10 .10 .16 .20
common share
52 Weeks Ended
January 28, 1995
Sales $16,75 15,415 21,031 22,596
3
Gross profit on 5,656 5,403 7,494 7,854
sales
Net earnings 222 449 632 785
Net earnings per .04 .09 .13 .16
common share
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND CONSOLIDATED FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to
directors and executive officers of the Company is incorporated
by reference to the registrant's definitive proxy statement for
its 1996 annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by
reference to the registrant's definitive proxy statement for
its 1996 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by
reference to the registrant's definitive proxy statement for
its 1996 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by
reference to the registrant's definitive proxy statement for
its 1996 annual meeting of stockholders.
PART IV.
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements. See Index to
Consolidated Financial Statements on page 13.
(2) Consolidated Financial Statement Schedule. The
following financial statement schedule for the 53 Weeks ended
February 3, 1996, and 52 Weeks ended January 28, 1995, and
January 29, 1994 is included in this report after the
signature page:
Independent Auditors' Report on Consolidated Financial
Statement Schedule
31
Schedule II - Valuation Account 32
(3) Exhibits. Copies of the following documents are
exhibits to this report: (see Index to Exhibits on page 33.
Certain of the exhibits to this filing contain schedules
which have been omitted in accordance with applicable
regulations. The Company undertakes to furnish supplementarily
a copy of any omitted schedule to the SEC upon request.
(b) Reports on Form 8-K: There were no reports on Form 8-K
for the quarter ended February 3, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d)
of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HAROLD'S STORES, INC.
By:/s/H. Rainey Powell, Date: April 29, 1996
H. Rainey Powell, President
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 shown, and on
the dates indicated.
Signature Title Date
/s/ Harold G. Powell Chairman of the Board
and Director April 29, 1996
Harold G. Powell
/s/Rebecca P. Casey Chief Executive Officer
and Director April 29, 1996
Rebecca P. Casey
/s/H. Rainey Powell President, Chief
Financial Officer April 29, 1996
H. Rainey Powell and Director
/s/Lisa P. Hunt Director
April 29, 1996
Lisa P. Hunt
/s/Kenneth C. Row Executive Vice
President and Director April 29, 1996
Kenneth C. Row
/s/Linda L. Daugherty Vice President and
Controller April 29, 1996
Linda L. Daugherty (Chief Accounting
Officer)
/s/Michael T. Casey Director
April 29, 1996
Michael T. Casey
/s/Gary C. Rawlinson Director
April 29, 1996
Gary C. Rawlinson
/s/William F. Weitzel Director
April 29, 1996
William F. Weitzel
/s/James R. Agar Director
April 29, 1996
James R. Agar
/s/W. Howard Lester Director
April 29, 1996
W. Howard Lester owar
/s/Robert Brooks Cullum, Jr. Director
April 29 , 1996
Robert Brooks Cullum, Jr. owar
INDEPENDENT AUDITORS' REPORT ON CONSOLIDATED FINANCIAL
STATEMENT SCHEDULE
The Board of Directors and Stockholders
Harold's Stores, Inc.:
Under date of March 29, 1996, we reported on the consolidated
balance sheets of Harold's Stores, Inc. and subsidiaries as of
February 3, 1996, and January 28, 1995 and the related
consolidated statements of earnings, stockholders' equity and
cash flows for the 53 week period ended February 3, 1996, and
the 52 week periods ended January 28, 1995, and January 29,
1994, which are included in the annual report on Form 10-K for
the 53 week period ended February 3, 1996. In connection with
our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated
financial statement schedule listed in Item 14(a)(2) of Form 10-
K. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility
is to express an opinion on this consolidated financial
statement schedule based on our audits.
In our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Oklahoma City, Oklahoma
March 29, 1996
Schedule II
HAROLD'S STORES, INC. AND SUBSIDIARIES
VALUATION ACCOUNT
(In Thousands)
Addit Additi
Balanc ions- ons- Deduct Balanc
e at Charg Recove ions- e at
Description Beginn ed to ries Write- End of
ing of Expen of off of Period
Period se Accoun Accoun
ts ts
Writte
n Off
53 Weeks ended
February 3, 1996:
Allowance for $175 109 34 118 200
doubtful
receivables
52 Weeks ended
January 28, 1995:
Allowance for $175 61 34 95 175
doubtful
receivables
52 Weeks ended
January 29, 1994:
Allowance for $175 81 15 96 175
doubtful
receivables
INDEX TO EXHIBITS
No. Description Pag
e
3.1 Certificate of Incorporation of Registrant (Incorporated by
Reference to Exhibit 3.1 to Form 8-B Registration Statements, N/A
Registration No. 1-10892).
3.2 By-laws of Registrant (Incorporated by Reference to Exhibit 3.2
to Form 8-B Registration Statement, Registration No. 1-10892). N/A
4.1 Specimen Certificate for Common Stock (Incorporated by
Reference to Exhibit 4.1 to Form S-1 Registration Statements, N/A
Registration No. 33-15753).
9.1 Stockholders' Agreement Among Certain Stockholders of
Registrant dated August 20, 1987 (Incorporated by Reference to N/A
Exhibit 9.1 to Form S-1 Registration Statement, Registration
No. 33-15753).
10. Lease Agreement dated May 1, 1987 by and between Harold's of
1 Norman, Inc. and Powell Properties, Inc. (Incorporated by N/A
Reference to Exhibit 10.1 to Form S-1 Registration Statement,
Registration No. 33-15753).
10. Lease Agreement dated May 1, 1987 by and between Harold's of
2 Norman, Inc. and Ruby K. Powell (Incorporated by Reference to N/A
Exhibit 10.2 to Form S-1 Registration Statement, Registration
No. 33-15753).
10. Lease Agreement dated October 31, 1985 by and between Harold's
3 Men's Apparel, Inc. predecessor to Harold's of Norman, Inc. and
Highland Park Shopping Village (Incorporated by Reference to
Exhibit 10.9 to Form S-1 Registration Statement, Registration N/A
No. 33-15753) and Amendment to Lease dated June 15, 1988.
(Incorporated by Reference to Exhibit 10.8 to Form 10-K for the
year ended January 31, 1989).
10. Lease Agreement dated November 1, 1990, by and between Harold's
4 Stores, Inc. and Michael T. Casey, Trustee (329 Partners-I
Limited Partnership). (Incorporated by Reference to Exhibit N/A
10.29 to Form 10-K for the year ended February 2, 1991).
10. Amended and Restated Lease Agreement dated April 1, 1996, by
5 and between Harold's Stores, Inc. and 329 Partners-II Limited 33
Partnership. ( Dallas Buying Office).
10. Lease Agreement dated October 4, 1991, by and between Harold's
6 Stores, Inc. and 329 Partners-II Limited Partnership. (East
Lindsey Warehouse facility, Norman, Oklahoma). (Incorporated by N/A
Reference to Exhibit 10.22 to Form 10-K for the year ended
February 1, 1992).
10. Employment and Deferred Compensation Agreement dated January
7 31, 1993 between Registrant and Harold G. Powell (Incorporated N/A
by Reference to Exhibit 10.21 to Form 10-K for the year ended
January 30, 1993).*
10. Employment Agreement dated January 31, 1993 between Registrant
8 and Rebecca Powell Casey (Incorporated by Reference to Exhibit N/A
10.22 to Form 10-K for the year ended January 30, 1993).*
10. Employment Agreement dated January 31, 1993 between Registrant
9 and H. Rainey Powell (Incorporated by Reference to Exhibit N/A
10.23 to Form 10-K for the year ended January 30, 1993).*
10. Form of Indemnification Agreement between Registrant and
10 members of its Board of Directors (Incorporated by Reference to N/A
Exhibit 10.19 to Form S-1 Registration Statements, Registration
No. 33-15753).
22. Subsidiaries of the Registrant (Incorporated by Reference to
1 Exhibit 22.1 to Form 8-B Registration Statements, Registration N/A
No. 1-10892).
23. Consent of KPMG Peat Marwick LLP to Incorporation of financial
1 statements in the Registrant's Form S-8 Registration Statement 32
(No. 33-68604).
* Constitutes a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this
report.
INDEPENDENT AUDITORS' CONSENT Exhibit 23.1
The Board of Directors and Stockholders
Harold's Stores, Inc.
We consent to incorporation by reference in the
registration statement (No. 33-68604) on Form S-8 of Harold's
Stores, Inc. of our reports dated March 29, 1996, relating to
the consolidated balance sheets of Harold's Stores, Inc.
subsidiaries as of February 3, 1996, and January 28, 1995 the
related consolidated statements of earnings, stockholders'
equity, cash flows and the related consolidated financial
statement schedule for the 53 week period ended February 3,
1996, and the 52 week periods ended January 28, 1995, and
January 29, 1994, which reports appear in the February 3,
1996, annual report on Form 10-K of Harold's Stores, Inc.
KPMG PEAT MARWICK, LLP
Oklahoma City, Oklahoma
April 29, 1996
16
138047.RAWLINSG
AMENDED AND RESTATED
LEASE AGREEMENT
THIS AMENDED AND RESTATED LEASE AGREEMENT is made and
entered into this day of ,
1996, by and between 329 PARTNERS-II LIMITED PARTNERSHIP, an
Oklahoma Limited Partnership, hereinafter called "Landlord," and
HAROLD'S STORES, INC., hereinafter called "Tenant," which amends
and restates in full that certain Lease Agreement of November 1,
1990, between Landlord's predecessor in interest and Tenant in
regard to the Premises.
ARTICLE I
PREMISES
1.1 Agreement to Lease. In consideration of the rents,
covenants and agreements hereinafter reserved and contained on
the part of Tenant to be observed and performed, the Landlord
demises and leases to the Tenant, and Tenant rents from Landlord,
the following described real property situated in Dallas County,
Texas, described on Exhibit A (the "Premises").
ARTICLE II
TERM
2.1 Term of Lease. The term of this lease shall be for
sixteen (16) years, beginning on April 1, 1996 (the "Commencement
Date"), and terminating on March 31, 2012 (the "Expiration
Date"), unless sooner terminated as herein provided.
ARTICLE III
RENT
3.1 Base Rent. Tenant shall pay Landlord as base rent
("Base Rent") for the Premises annually, without setoff or
deduction, and without any prior demand therefor, the following:
April 1, 1996 to March 31, 2000 - $158,000.00
April 1, 2000 to March 31, 2001 - $180,000.00
April 1, 2001 to March 31, 2002 - $182,500.00
April 1, 2002 to March 31, 2003 - $185,000.00
April 1, 2003 to March 31, 2004 - $187,500.00
April 1, 2004 to March 31, 2005 - $190,000.00
April 1, 2005 to March 31, 2006 - $192,500.00
April 1, 2006 to March 31, 2007 - $195,000.00
April 1, 2007 to March 31, 2008 - $197,500.00
April 1, 2008 to March 31, 2009 - $200,000.00
April 1, 2009 to March 31, 2010 - $202,500.00
April 1, 2010 to March 31, 2011 - $205,000.00
April 1, 2011 to March 31, 2012 - $207,500.00
which said sums shall be payable in advance in equal monthly
installments on the first day of each and every month during the
lease term, the first of such monthly installments to be due and
payable on the Commencement Date.
3.2 Late Charges. If Tenant fails to make any
installment of Base Rent, or any other sum due Landlord
hereunder, within ten (10) days after such amount is due, then
the Landlord may make or assess a late charge of five percent
(5%) of the amount of each delinquent payment. Any assessment of
late charges by Landlord shall be considered for all purposes as
Additional Rent under the terms of this Lease, and shall be added
to and payable with the next maturing monthly rental installment
following such assessment. Assessment by Landlord of a late
charge as herein provided shall be without prejudice to any
remedies provided by law or under the provisions hereof. No
assessment, payment or acceptance of a late charge shall operate
as a waiver or estoppel of the right of Landlord to declare a
default hereunder, or to pursue any default remedies provided by
this Lease or by law. Such late charge shall be earned from the
day after the due date to the date paid.
ARTICLE IV
CONDITION OF PREMISES
4.1 Tenant's Acceptance of Premises. Neither Landlord
nor Landlord's agents have made any representations with respect
to the Premises or the land upon which it is erected, except as
expressly set forth herein, and no rights, easements or licenses
are acquired by Tenant by implication or otherwise, except as
expressly set forth in the provisions of this agreement. The
taking of possession of the Premises by Tenant shall be
conclusive evidence that Tenant accepts the Premises and that the
Premises were in good condition at the time possession was taken.
In no event shall Landlord be liable for any defects in the
Premises or for any limitation on its use. Landlord shall not be
responsible for any latent defect in the Premises, and the rent
hereunder shall in no case be withheld or diminished on account
of any defect in the Premises, any change in the condition
thereof, any damage occurring thereto, or the existence with
respect thereto of any violations of laws or regulations of any
governmental authority.
4.2 Landlord's Title. Landlord is leasing the Premises
and has the right to enter into this Lease, and the Premises are
accepted by Tenant subject to, and Tenant agrees to abide by, all
and singular, the easements, restrictions, covenants,
reservations, mineral reservations and other matters affecting
title to the Premises.
ARTICLE V
ALTERATIONS, ADDITIONS AND IMPROVEMENTS
5.1 Improvements by Tenant. Tenant shall not make or
allow to be made any alterations or physical additions in or to
the Premises without first having the written consent of
Landlord. At such time as Tenant requests such consent of
Landlord, Tenant shall submit plans and specifications for such
alterations or additions, and comply with any and all reasonable
requirements of Landlord. Subject to the Landlord's lien, Tenant
may remove "removable trade fixtures," provided (1) any such
removal is made prior to the termination of this agreement; (2)
Tenant is not in default of any of the obligations or covenants
hereunder; and (3) such removal may be effected without damages
to the Premises, and Tenant promptly repairs all damage caused by
such removal at its sole expense. All trade fixtures,
merchandise, equipment and signs of every description which are
not removable or not removed in accordance with the preceding,
and any alterations or additions to the Premises shall become the
property of Landlord, and shall remain upon and be surrendered
with the Premises as part thereof at the termination of this
Lease. Tenant hereby waives all rights to any payment or
compensation therefor. Removable trade fixtures shall include
signs, tables, chairs, desks, wall brackets, shelves, mirrors and
business machines (provided same are not permanently attached),
but shall not include ducts, conduits, wiring, pipes, paneling,
wall covering or floor covering or permanently attached fixtures
which cannot be removed without damage to the Premises. Upon
termination of this agreement, Tenant will, at its sole cost and
expense, if requested by Landlord, remove any and all
alterations, additions, fixtures, equipment and property
installed by Tenant in the Premises and restore the Premises to
the condition thereof at the time of tender of possession of the
Premises, ordinary wear and tear excepted.
5.2 Signs. Tenant will not place or suffer to be
placed or maintained on any exterior door, wall or window of the
Premises any sign, awning or canopy, or advertising matter, or
other thing of any kind, and will not place or maintain any
decoration, lettering or advertising matter on the glass of any
window or door of the Premises without first obtaining Landlord's
written approval and consent. Tenant further agrees to maintain
such sign, awning, canopy, decoration, lettering, advertising
matter or other thing as may be approved in good condition and
repair at all times. Tenant, upon vacation of the Premises or
the removal or alteration of its sign, for any reason, shall be
responsible for the repair, painting and/or replacement of the
building surface where the sign is attached.
ARTICLE VI
REPAIR AND MAINTENANCE
6.1 Tenant's Maintenance. Tenant shall at all times
keep the Premises (including maintenance of exterior entrances,
all glass and show window moldings) and all plate glass,
partitions, doors, fixtures, plumbing, electrical, and the
heating and air conditioning systems, in good order, condition
and repair (including repair of damage from burglary or attempted
burglary of the Premises and reasonably periodic painting and
maintenance of the air conditioning system as required by
Landlord). Tenant shall be responsible for all utility repairs
in ducts, conduits, pipes and wiring located in, under and above
the Premises. Tenant's maintenance responsibilities shall also
include maintenance of the parking lot, and Tenant shall keep the
sidewalks and parking areas adjoining the Premises free from
rubbish, dirt, garbage, snow and ice.
6.2 Landlord's Option to Make Tenant Repairs. If
Tenant refuses or neglects to repair the Premises within thirty
(30) days after receipt of Landlord's written demand, Landlord
may make such repairs without liability to Tenant for any loss or
damage that may accrue to Tenant's merchandise, fixtures or other
property, or to Tenant's business by reason thereof, and upon
completion thereof, Tenant shall pay Landlord's cost for making
such repairs, plus twenty percent (20%) for overhead, upon
presentation of bills therefor, as Additional Rent.
6.3 Landlord's Maintenance. Landlord shall keep the
roof, exterior walls, foundations and building structure of the
Premises in a good state of repair; provided, however, if
Landlord is required to make repairs to structural portions by
reason of Tenant's negligent act or omission to act, Landlord
shall add the cost of such repairs, plus twenty percent (20%) for
overhead, to the rent which shall thereafter become due.
6.4 Waste and Surrender. Tenant shall not commit or
allow any waste or damage to be committed on any portion of the
Premises, and upon expiration or sooner termination of the term
hereof, Tenant agrees to deliver up the Premises to Landlord in
the condition set out above, ordinary wear and tear excepted, and
Landlord shall have the right to re-enter and resume possession
of the Premises.
6.5 Surrender of Key. At the expiration of the tenancy
hereby created, Tenant shall surrender all keys for the Premises
to Landlord at the place then fixed for the payment of rent, and
shall inform Landlord of all combinations on locks, safes and
vaults, if any, in the Premises. Tenant shall not change locks
on the Premises without the prior written consent of the
Landlord.
ARTICLE VII
UTILITIES
7.1 Tenant Pays All Bills. Tenant shall pay all bills
for water, gas, electricity, fuel, light, heat and power
furnished to or used by Tenant on or about the Premises, and all
disposal or sewage service charges for the Premises, and all
telephone bills and other bills incurred by Tenant. Landlord
shall have no responsibility for such payments.
ARTICLE VIII
TAXES
8.1Tenant's Responsibility. Tenant shall pay, in
addition to the rent specified above, all real estate taxes and
special assessments levied upon the Premises by any state, city,
school district or federal governmental authority. The payment
for real estate taxes should be made to Landlord on or before
December 15 of each year during the lease term, commencing
December 15, 1996. For the final year of the lease term, the
amount of the taxes shall be prorated. All other taxes shall be
paid directly to the taxing authority on or before their due
date.
ARTICLE IX
INSURANCE AND INDEMNITY
9.1 Tenant's Liability Insurance Requirements. During
the entire lease term, the Tenant shall, at its own expense,
maintain adequate liability insurance with a reputable insurance
company or companies, with minimum amounts of $1,000,000.00
combined single limit for personal injuries and property damage,
to indemnify both Landlord and Tenant against any such claims,
demands, losses, damages, liabilities and expenses. Landlord
shall be named as an additional insured, and shall be furnished
with a certificate of such insurance, which shall bear an
endorsement that the same shall not be cancelled except upon not
less than thirty (30) days prior written notice to Landlord.
Tenant shall also, at its own expense, maintain, during the lease
term, insurance covering its furniture, fixtures, equipment, all
leasehold improvements, and merchandise in an amount equal to not
less than one hundred percent (100%) of the full replacement
value thereof, and insuring against fire and all risk perils
coverage as provided by a standard all risk coverage endorsement,
and the plate glass and all other glass which is the
responsibility of the Tenant in the event of breakage from any
cause. Tenant shall provide Landlord with copies of the policies
of insurance or certificates thereof. If Tenant fails to
maintain such insurance, Landlord may maintain the same on behalf
of Tenant. Any premiums paid by Landlord shall be deemed
Additional Rent and shall be due on the payment date of the next
installment of Base Rent hereunder.
9.2 Tenant's Fire and Extended Coverage Insurance.
During the entire lease term, the Tenant shall, at its own
expense, maintain a fire and extended coverage insurance policy
on the Premises, in an amount and with endorsements required by
Landlord's first mortgage lender; provided, however, if there be
no first mortgage lender, the coverage shall, at a minimum,
insure all structures and improvements for not less than eighty
percent (80%) of the full insurable replacement cost value
thereof, and shall contain such other endorsements as Landlord
may from time to time require.
9.3 Indemnity. Tenant agrees to indemnify Landlord and
save Landlord harmless from and against any and all claims,
actions, damages, liability and expense in connection with loss
of life, personal injury and/or damage to property 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,
if occasioned wholly or in part by any act or omission of Tenant,
Tenant's agents, contractors, employees, servants, lessees or
concessionaires. In case Landlord shall, without fault on
Landlord's part, be made a party to any litigation commenced by
or against Tenant, then Tenant shall protect and hold Landlord
harmless, and shall pay all costs, expenses and reasonable
attorney's fees incurred or paid by Landlord in connection with
such litigation.
9.4 Waiver of Subrogation. As long as their respective
insurers so permit, Landlord and Tenant hereby mutually waive
their respective rights of recovery against each other for any
loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective
parties. Each party shall apply to their insurers to obtain such
waivers. Each party shall obtain any special endorsements, if
required by their insurer to evidence compliance with the
aforementioned waiver.
ARTICLE X
CASUALTY LOSS
10.1 Damage to Premises. If the Premises shall be
damaged by fire, the elements, unavoidable accident or other
casualty, but are not thereby rendered untenantable in whole or
in part, Landlord shall, at Landlord's expense, cause such damage
to be repaired, and the rent shall not be abated. If by reason
of such occurrence, the Premises shall be rendered untenantable
only in part, Landlord shall, at Landlord's expense, cause the
damage to be repaired, and the Base Rent meanwhile shall be
abated proportionately as to the portion of the Premises rendered
untenantable. If the Premises shall be rendered wholly
untenantable by reason of such occurrence, the Landlord shall, at
Landlord's expense, cause such damage to be repaired, and the
Base Rent meanwhile shall abate until the Premises have been
restored and rendered tenantable, or Landlord may, at Landlord's
election, terminate this Lease and the tenancy hereby created by
giving to Tenant, within the sixty (60) days following the date
of said occurrence, written notice of Landlord's election to do
so, and in the event of such termination, rent shall be adjusted
as of such date.
ARTICLE XI
SUBORDINATION
11.1 Subordination. This Lease shall be subordinate to
any mortgage that is now or may hereafter be placed upon the
Premises, and to any and all advances to be made thereunder, and
to the interest thereon, and to all renewals, replacements and
extensions thereof. Tenant shall, upon written demand by
Landlord, execute and deliver such instruments as may be required
at any time and from time to time to subordinate the rights and
interests of Tenant under this Lease to the lien of any mortgage
placed upon the Premises, or upon the real property of which the
Premises are a part at any time and from time to time, whether
before or after the commencement of this Lease or during the term
thereof.
ARTICLE XII
ASSIGNMENT OR SUBLETTING
12.1 Prohibitions. Tenant will not assign this Lease,
in whole or in part, nor sublet all or any part of the Premises,
without the prior written consent of Landlord in each instance,
which consent shall not be unreasonably withheld. The consent of
Landlord to any assignment or subletting shall not constitute a
waiver of the necessity for such consent to any subsequent
assignment or subletting. Tenant shall not mortgage, pledge or
otherwise encumber its interest in this Lease or the Premises
without the prior written consent of Landlord. If this Lease be
assigned, or if the Premises or any part thereof be sublet or
occupied by anybody other than Tenant, Landlord may collect rent
from the assignee, subtenant or occupant, and apply the net
amount collected to the rent herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a
waiver of this covenant, or the acceptance of the assignee,
subtenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant
herein contained. Notwithstanding any assignment or sublease,
Tenant shall remain fully liable on this Lease, and shall not be
released from performing any of the terms, covenants and
conditions of this Lease.
12.2 Landlord's Right to Transfer. Landlord shall have
the right to transfer and assign, in whole or in part, Landlord's
rights hereunder and in the Premises. In the event of the sale,
assignment or transfer by Landlord of Landlord's interest in the
Premises, Landlord shall thereupon be released or discharged from
all covenants and obligations of Landlord, and Tenant agrees to
look solely to such successor in interest of Landlord for
performance of such obligations. All covenants and obligations
of the Landlord shall run with the land and be binding upon each
new owner or successor of the Premises during their period of
ownership.
ARTICLE XIII
CONDEMNATION
13.1 Award of Damages. If the whole or any part of the
Premises shall be taken for any public or quasi-public purpose by
any lawful power or authority by the exercise of the right of
condemnation or eminent domain, Landlord shall be entitled to and
shall receive all awards that may be made in any such proceeding
for the Premises, and Tenant hereby assigns and transfers to
Landlord any and all such awards.
13.2 Taking of All of Premises. If such proceedings
shall result in taking of the whole or substantially all of the
Premises, this Lease shall terminate from the date of such
taking, and all rent and other sums or charges provided herein to
be paid by Tenant shall be apportioned and paid to the date of
such taking. If less than substantially all of the Premises
shall be taken in such proceedings, this Lease shall terminate
only as to the portion of the Premises so taken, and this Lease
shall continue for the balance of its term as to the part of the
Premises remaining. In the event of a partial taking, the Base
Rent to be paid by Tenant after such taking shall be reduced pro
rata in proportion to which the space so taken bears to the
entire space in the Premises originally demised.
13.3 Taking of Less Than All of Premises. If less than
substantially all of the Premises shall be taken, Landlord shall
repair the remaining portion of the Premises so as to restore
same as a building complete in itself, but Landlord shall not be
obligated to expend thereon more than the sum allowed to Landlord
in such condemnation proceeding for damage to the Premises, less
expenses incurred by Landlord for such proceeding.
Notwithstanding the foregoing, if the expense of such restoration
would be greater than the sum allowed Landlord, less expenses in
the condemnation proceeding, then Landlord shall have the option,
for a period of thirty (30) days after such partial payment,
within which to terminate this Lease.
13.4 Tenant's Damages. Although all damages in the
event of any condemnation are to belong to Landlord, whether such
damages are awarded as compensation for diminution in value of
the leasehold or to the fee of the Premises, Tenant shall have
the right to claim and recover from the condemning authority, but
not from Landlord, such compensation as may be separately awarded
or recoverable by Tenant in Tenant's own right on account of any
and all damages to Tenant's business by reason of the
condemnation and for or on account of any cost or loss to which
Tenant might be put in removing Tenant's merchandise, furniture,
fixtures, leasehold improvements and equipment.
ARTICLE XIV
ACCESS AND EASEMENTS
14.1 Access. Landlord or Landlord's agents shall have
the right to enter the Premises at all times to examine the same,
and to show them to prospective purchasers or tenants of the
Premises, 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 the
Premises that may be required therefor, without the same
constituting an eviction of Tenant in whole or in part, and the
rent reserved shall in no way abate while said repairs,
alterations, improvements or additions are being made, by reason
of loss or interruption of business of Tenant, or otherwise.
During the six (6) months prior to the expiration of the term of
this Lease, Landlord may exhibit the Premises to prospective
tenants or purchasers, and place upon the Premises the usual
notices "For Lease" or "For Sale," which notices Tenant shall
permit to remain thereon without molestation. If Tenant shall
not be personally present to open and permit an entry into the
Premises, at any time, when for any reason an entry therein shall
be deemed necessary or permissible, Landlord or Landlord's agents
may enter the same by a master key, or may forcibly enter the
same, without rendering Landlord or such agents liable therefor,
and without in any manner affecting the obligations and covenants
of this lease. 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 Premises, or any part thereof, except as
otherwise herein specifically provided.
14.2 Structural Repairs. If an excavation or
construction shall be made upon land adjacent to the Premises, or
shall be authorized to be made, Tenant grants to the person
causing or authorized to cause such excavation or construction,
license to enter upon the Premises for the purpose of doing such
work as Landlord shall deem necessary to preserve the wall or the
building of which the Premises form a part 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.
ARTICLE XV
TENANT'S PROPERTY
15.1 Tenant's Personal Property Taxes. Tenant shall be
responsible for and shall pay before delinquency all municipal,
county or state taxes assessed during the term of this Lease
against any leasehold interest or personal property of any kind,
owned by or placed in, upon or about the Premises by the Tenant.
15.2 Responsibility of Landlord. Landlord shall not be
liable for any damage to property of Tenant or of others located
on the Premises, nor for the loss of or damage to any property of
Tenant or of others by theft or otherwise. Landlord shall not be
liable for any injury or damage to persons or property resulting
from fire, explosion, falling plaster, steam, gas, electricity,
water, rain or snow, or leaks from any part of the Premises, 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. Landlord shall not
be liable for any such damage caused by occupants of adjacent
property, or the public, or caused by operations in construction
of any private, public or quasi-public work. All property of
Tenant kept or stored on the Premises shall be so kept or stored
at the risk of Tenant only, and Tenant shall hold Landlord
harmless from any claims arising out of damage to the same,
including subrogation claims by Tenant's insurance carrier,
unless such damage shall be caused by the willful act or gross
negligence of Landlord.
ARTICLE XVI
USE OF PREMISES
16.1 Tenant's Usage. The Premises are to be used and
occupied by Tenant solely for the purposes of a commercial
office, continuously during the term of this agreement. Tenant
shall not occupy or use, or permit any portion of the Premises to
be occupied or used for any business or purpose which, in
Landlord's opinion, is unlawful, disreputable or deemed to be
extra hazardous on account of fire, or permit anything to be done
which would in any way increase the rate of fire insurance
coverage on the Premises and/or its contents.
16.2 Compliance with Laws, Covenants and Regulations.
Tenant shall at all times comply with all laws, ordinances,
orders, rules and regulations of governmental agencies having
jurisdiction of the Premises, and of all restrictive covenants
relating to the use, condition or occupancy of the Premises. In
the event such laws mandate alterations to the Premises, Tenant
agrees to promptly make such alterations at its sole cost and
expense.
16.3 Concessionaires. Tenant shall not permit any
business to be operated in or from the Premises by any
concessionaire or licensee without prior written consent of
Landlord.
ARTICLE XVII
PEACEFUL ENJOYMENT
17.1 Covenant of Landlord. Tenant shall, and may
peacefully have, hold and enjoy the Premises, subject to the
other terms hereof, providing Tenant pays the rentals herein
recited and performs Tenant's covenants and agreements herein
contained. Tenant's quiet enjoyment shall be subject, however,
to the terms of this Lease, to dispossession by reason of
superior title in mortgagees and to all easements, restrictions
of record and governmental laws and ordinances. Should Tenant be
dispossessed from the Premises by reason of mortgagee's superior
title, the payment of rental shall cease from and after date, and
all rent that Tenant may have prepaid, or any sum constituting
deposits, shall be returned to Tenant, but Tenant shall not be
entitled to receive from Landlord any damages suffered by Tenant
as a result of such dispossession. It is understood and agreed
that this covenant and any and all covenants of Landlord
contained in this agreement shall be binding on Landlord and
Landlord's successors only with respect to breaches occurring
during Landlord's respective ownerships of Landlord's interest
hereunder.
ARTICLE XVIII
DEFAULT AND REMEDIES
18.1 Tenant's Default. Any of the following, if not
cured by Tenant within ten (10) days after written notice to
Tenant of their occurrence, shall constitute events of default on
the part of Tenant:
A. Failure of Tenant to pay Base Rent, Additional Rent,
or any other rent or other payment when due;
B. Failure of Tenant to comply with any covenant or
obligation of Tenant hereunder;
C. Abandonment or vacation of the Premises by Tenant;
D. The filing of a voluntary or involuntary petition in
bankruptcy by or against Tenant, or any guarantor
hereof, under the National Bankruptcy Act, or should
Tenant, or any guarantor, make an assignment for the
benefit of their creditors, or should a trustee,
receiver or liquidator of Tenant, or any guarantor
hereof, of Tenant's or any guarantor's property
hereof, be appointed, or should any governmental
authority institute any proceeding for the
dissolution of Tenant, or any guarantor hereof, or
should Tenant's interest hereunder pass by operation
of law or otherwise;
E. Failure to provide estoppel certificates as
requested by Landlord.
18.2 Remedies. In addition to any other rights and
remedies provided in this Lease or by applicable law or equity,
on the occurrence of any event of default and after expiration of
any cure period, Landlord will have the following remedies, all
of which may be exercised without any further notice or demand on
Tenant:
(A) Past Due Rent. Landlord may collect from Tenant all
past due rent, including interest thereon at twelve
percent (12%) per annum and late charges, and all
other reasonable damages caused by Tenant's default.
(B) Termination. Landlord may terminate this Lease, in
which event Tenant will immediately surrender the
Premises to Landlord, but if Tenant fails to do so,
Landlord may, without notice and without prejudice
to any other remedy Landlord might have, enter and
take possession of the Premises and remove Tenant,
anyone claiming under Tenant, and any property
therefrom without being subject to any claim for
damages therefor. Tenant shall be obligated to pay
to Landlord all costs reasonably incurred by
Landlord in any such action, including the costs of
taking possession of and repairing any damage to the
Premises, and all other reasonable damages caused by
Tenant's default. After default, this Lease may be
terminated only by written notice from Landlord, and
no other action or inaction by Landlord after
default shall constitute a termination of this
Lease.
(C) Reletting. If Landlord does not terminate this
Lease, then Landlord may, at its option, reenter and
remove any persons or property therein, forcibly if
necessary, without being guilty of trespass and
without the same constituting a termination of this
Lease, and may relet the Premises or any part
thereof for the benefit of Tenant, in which event
Tenant shall pay Landlord all reasonable costs
incurred by Landlord in taking such action,
including, without limitation, the costs of taking
possession of and repairing the Premises, the
reasonable cost of preparing the same for reletting,
attorneys' fees, brokerage commissions, and all
other damages caused by Tenant's default. Tenant
shall remain obligated to Landlord for the
difference between any rent received by Landlord as
a result of such reletting and the rent and other
sums for which Lessee is obligated hereunder. In
the event any such reletting results in payment of
rent thereunder to Landlord in excess of the rent
for which Tenant is obligated hereunder, Landlord
shall be entitled to retain such excess.
18.3 Landlord's Right to Cure. Should Tenant be in
default hereunder, Landlord may cure any such default on behalf
of Tenant, in which event Tenant shall reimburse Landlord for all
sums paid to effect compliance, together with interest at the
rate of eighteen percent (18%) per annum, from and after the date
of such expenditure, which shall be Additional Rent due
hereunder.
18.4 Landlord's Default. If Landlord fails to perform
any of Landlord's covenants hereunder, Landlord shall not be in
default unless: (1) Tenant gives Landlord written notice
thereof, setting forth in reasonable detail the nature and extent
of such failure, and (2) if such failure by Landlord is not cured
or attempted to be cured within thirty (30) days following the
delivery of such notice. If such failure cannot be reasonably
cured within thirty (30) days, the length of such period shall be
extended for a period reasonably required therefor if Landlord
commences curing such failure within the thirty (30) day period
and continues the curing thereof with reasonable diligence and
continuity.
ARTICLE XIX
MISCELLANEOUS PROVISIONS
19.1 Amendment. This agreement may not be altered,
changed or amended, except by instrument in writing, signed by
all parties hereto.
19.2 Non-Waiver. Failure of Landlord to declare any
default immediately upon the occurrence thereof, or delay in
taking any action in connection therewith, or acceptance of
rental after same is due, shall not waive such default, but
Landlord shall have the right to declare any such default at any
time, and to take such action as may be lawful or authorized
hereunder, either at law or in equity.
19.3 Force Majeure. Neither Landlord nor tenant shall
be required to perform any term, condition or covenant in this
Lease so long as such performance is delayed or prevented by
force majeure, which shall mean acts of God, strikes, lock outs,
material or labor shortages, or restrictions by government
authorities and other causes which are not reasonably within the
control of either Landlord or Tenant, and which, by the exercise
of due diligence, Landlord or Tenant would be unable, wholly or
in part, to prevent or overcome. Provided, however, this
provision shall not apply to Tenant's obligation to pay Base Rent
and Additional Rent.
19.4 Interpretation. As used herein, the masculine or
neuter genders shall be deemed to include all genders and
singular, the plural, and vice versa, except where any such
construction would be unreasonable. This Lease shall be
construed under and in accordance with the laws of the State of
Texas, and all obligations of the parties hereunder are
performable in Dallas County, Texas. The paragraph headings are
inserted for convenience only, and shall not in any way vary the
provisions they identify. If any provision of this Lease or any
application thereof shall be invalid, illegal or unenforceable in
any respect, the validity, legality or enforceability of the
remaining provisions hereof and other applications thereof, shall
not in any way be affected or impaired thereby.
19.5 Covenants. All agreements, obligations and
undertakings of the parties shall be deemed to be covenants,
whether or not so denominated.
19.6 Notices. Except as may be otherwise specifically
provided herein, all notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered when
delivered personally, or when deposited with the United States
Postal Service, postage prepaid, registered or certified mail,
return receipt requested, addressed to the parties at the
respective addresses set forth hereunder, or at such other
address as may have been theretofore specified by written notice
delivered in accordance herewith.
19.7 Limitation of Landlord Liability. Any provisions
hereof to the contrary notwithstanding, Tenant hereby agrees that
no personal or partnership liability of any kind or character
whatsoever now attaches or at any time hereafter, under any
condition, shall attach to Landlord for payment of any amounts
payable under this agreement, or for the performance of any
obligations hereunder. The exclusive remedies of Tenant for the
failure of Landlord to perform any of its obligations under this
Lease shall be to proceed against the interest of Landlord in and
to the Premises.
19.8 Attorney's Fees. In the event Tenant defaults in
the performance of any of the terms, covenants, agreements or
conditions contained in this Lease and Landlord places the
enforcement of this Lease, or any part thereof, or the collection
of any rent due, or which may become due hereunder, or recovery
of the possession of the Premises, in the hands of an attorney,
or files suit upon same, Tenant agrees to pay to Landlord a
reasonable attorney's fee which is incurred by Landlord in such
enforcement, collection or recovery of possession.
19.9 Holding Over. In the event of holding over by
Tenant after the expiration or termination of this agreement
without the express written consent of Landlord, the Base Rent
shall be doubled for the entire holdover period. No holding over
by Tenant after the term of this Lease shall operate to extend
this Lease; and in the event of any unauthorized holding over,
Tenant shall indemnify Landlord from and against all claims for
damages by any other tenant to whom Landlord may have leased all
or any portion of the Premises, effective upon the termination of
this Lease. Any holding over with the consent of Landlord in
writing shall thereafter constitute this Lease a lease from month
to month.
19.10 Entire Agreement. This instrument constitutes
the entire agreement of the parties. It supersedes any and all
other agreements, either oral or in writing, between the parties
hereto. Each party to this Lease acknowledges that no
representations, inducements, promises or agreements, oral or
otherwise, have been made by any party or anyone acting on behalf
of any party, which are not embodied herein, and that no other
agreement, statement or promise not contained in this Lease shall
be valid or binding. This Lease may not be modified or amended
by oral agreement, but only by an agreement in writing, signed by
the parties hereto.
19.11 Recording. Except as provided in Section 17.5
hereof, this Lease may not be recorded by either party, but at
the request of either party, Landlord and Tenant shall execute a
short form memorandum of this Lease, which may be recorded for
all purposes.
19.12 Indemnity. Tenant shall indemnify Landlord
against all liabilities, expenses and losses incurred by Landlord
as a result of: (1) failure by Tenant to perform any covenant
required hereunder; (2) any accident, injury or damage which
shall happen in or about the Premises; (3) failure to comply with
any requirement of any governmental authority; and (4) any
mechanic's lien or security agreement filed against the Premises,
any equipment therein, or any materials used in the construction
or alteration of the Premises. Landlord shall not be liable for
injury or damage to any person or property occurring on the
Premises unless caused by or resulting from the gross negligence
of Landlord.
19.13 Estoppel Certificates. At any time and from time
to time within twenty (20) days after Landlord shall request the
same, Tenant will execute, acknowledge and deliver to Landlord or
any party as may be designated by Landlord, a certificate in a
reasonably acceptable form, with respect to the matters required
by such party, and such other matters relating to this Lease or
the status or performance of obligations of the parties hereunder
as may be reasonably requested by Landlord. If Tenant fails to
provide such certificate within twenty (20) days after request by
Landlord, Tenant shall be deemed to have approved the contents of
any such certificate submitted to Tenant by Landlord, and
Landlord is hereby authorized to so certify.
19.14 Binding Effect. This Lease shall be binding upon
and inure to the benefit of the parties hereto, their respective
successors, permitted assigns, heirs and legal representatives,
as the case may be.
EXECUTED as of the day and year first above written.
"LANDLORD" 329
PARTNERS-II LIMITED
PARTNERSHIP, an Oklahoma
Limited Partnership
By: 329 HOLDING LLC, an Oklahoma
Limited Liability Company
By:
_________________________________________
Title: H. Rainey Powell,
Manager
Address: 765 Asp Avenue
Norman, OK 73069
-and-
By:
_________________________________________
Title: Michael T. Casey,
Manager
Address: 4525 McKinney Ave.
Dallas, TX 75205
"TENANT" HAROLD'S
STORES, INC.
By:
_________________________________________
Title:
_________________________________________
Address: P.O. Drawer 2970
Norman, OK 73070-2970
ACKNOWLEDGMENTS
STATE OF OKLAHOMA )
) ss:
COUNTY OF CLEVELAND )
The foregoing instrument was acknowledged before me this
day of , 1996, by H. RAINEY POWELL, Manager of
329 HOLDING LLC, an Oklahoma Limited Liability Company, on behalf
of 329 PARTNERS-II LIMITED PARTNERSHIP, an Oklahoma Limited
Partnership.
Notary Public
My commission expires:
STATE OF OKLAHOMA )
) ss:
COUNTY OF CLEVELAND )
The foregoing instrument was acknowledged before me this
day of , 1996, by MICHAEL T. CASEY, Manager of
329 HOLDING LLC, an Oklahoma Limited Liability Company, on behalf
of 329 PARTNERS-II LIMITED PARTNERSHIP, an Oklahoma Limited
Partnership.
Notary Public
My commission expires:
STATE OF OKLAHOMA )
) ss:
COUNTY OF CLEVELAND )
The foregoing instrument was acknowledged before me this
day of , 1996, by H. RAINEY POWELL, President
of HAROLD'S STORES, INC., an Oklahoma Corporation, on behalf of
said corporation.
Notary Public
My commission expires:
EXHIBIT A
to
LEASE AGREEMENT
LEGAL DESCRIPTION OF PREMISES
The northeasterly 25.0 feet of Lot 4, all of Lot 5, and the
southwesterly 50.0 feet of Lot 6 in Block K/1535 of Cockrell's
Fairland Addition to the City of Dallas, Texas, according to the
plat thereof recorded in Volume 95, Page 624 of the Deed Records
of Dallas County, Teas, and being described more particularly as
follows:
Beginning at a pipe on the northwesterly line of McKinney Avenue,
80.0 feet wide, 175.0 feet S 24 degrees 04' W from its
intersection with the southwesterly line of Knox Street;
Thence S 24 degrees 04" W, along said line of McKinney Avenue, at
50.0 feet passing the southeast corner of Lot 6 and the northeast
corner of Lot 5, at 125.0 feet passing the southeast corner of
Lot 5 and the northeast corner of Lot 4, in all a distance of
150.0 feet to a steel rod for corner;
Thence N 65 degrees 56'W, a distance of 190.0 feet to a steel rod
for corner on the southeasterly line of an Alley, 20.0 feet wide;
Thence N 24 degrees 04' E, along said Alley line, being parallel
with McKinney Avenue, at 25.0 passing the northwest corner of Lot
4 and the southwest corner of Lot 5, at 100.0 feet passing the
northwest corner of Lot 5 and the southwest corner of Lot 6, in
all a distance of 150.0 feet to a steel rod for corner;
Thence S 65 degrees 56' E, parallel with Knox Street, a distance
of 190.0 feet to the place of beginning;
Containing 28,500 square feet of land.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> FEB-03-1996
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 4,887
<ALLOWANCES> 200
<INVENTORY> 21,647
<CURRENT-ASSETS> 29,373
<PP&E> 18,999
<DEPRECIATION> 6,097
<TOTAL-ASSETS> 42,609
<CURRENT-LIABILITIES> 7,544
<BONDS> 9,540
0
0
<COMMON> 4,958
<OTHER-SE> 25,249
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<SALES> 94,264
<TOTAL-REVENUES> 94,264
<CGS> 59,831
<TOTAL-COSTS> 59,831
<OTHER-EXPENSES> 19,344
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<INTEREST-EXPENSE> 452
<INCOME-PRETAX> 4,645
<INCOME-TAX> 1,858
<INCOME-CONTINUING> 2,787
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,787
<EPS-PRIMARY> .56
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</TABLE>
