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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED AUGUST 3, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For The Transition Period From _____ To _____
COMMISSION FILE NUMBER: 1-10767
VALUE CITY DEPARTMENT STORES, INC.
(Exact name of registrant as specified in its charter)
OHIO NO. 31-1322832
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3241 WESTERVILLE ROAD, COLUMBUS, OHIO 43224
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 471-4722
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Shares, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least 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. [ X ]
Aggregate market value of voting stock held by non-affiliates of the registrant,
9,128,913 Common Shares, based on the $12.625 closing sale price on October 29,
1996, was $115,252,527.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 31,715,745 Common Shares were
outstanding at October 29, 1996.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
FORM
10-K
REPORT
ITEM NO. PAGE
-------- ----
PART I
<S> <C> <C>
1. Business............................................................................................3
2. Properties.........................................................................................14
3. Legal Proceedings..................................................................................14
4.. Submission of Matters to a Vote of Security Holders................................................14
PART II
5. Market for the Registrant's Common Equity and Related Stockholders Matters.........................15
6. Selected Financial Data............................................................................16
7. Management's Discussion and Analysis of Financial Condition and Results of Operations..............17
8. Financial Statements and Supplementary Data........................................................22
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............22
PART III
10. Directors and Executive Officers of the Registrant.................................................23
11. Executive Compensation.............................................................................27
12. Security Ownership of Certain Beneficial Owners and Management.....................................31
13. Certain Relationships and Related Transactions.....................................................32
PART IV
14. Exhibits, Financial Statements and Reports on Form 8-K.............................................37
Signatures..................................................................................................38
SCHEDULES
TABLE OF CONTENTS TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants..........................................................................F-1
Consolidated Balance Sheets................................................................................F-2
Consolidated Statements of Income..........................................................................F-3
Consolidated Statements of Shareholders' Equity............................................................F-4
Consolidated Statements of Cash Flows......................................................................F-5
Notes to the Consolidated Financial Statements.............................................................F-6
SCHEDULE
II - Valuation and Qualifying Accounts.....................................................................S-1
Index to Exhibits..........................................................................................E-1
</TABLE>
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PART I
ITEM 1 BUSINESS.
ORGANIZATION
Value City Department Stores, Inc. ("VCDS") was incorporated on March
15, 1985 and was inactive until June 18, 1991 when it sold 8,025,000 Common
Shares in a public offering and issued 22,500,000 Common Shares to Schottenstein
Stores Corporation ("SSC") in exchange for substantially all of the net assets
of the Value City Department Store Division of SSC (the "Division"). In
connection with the acquisition of the Division, VCDS entered into a number of
agreements with SSC. These agreements are described in Item 13 of this annual
report on Form 10-K.
On September 18, 1992, VCDS acquired all of the outstanding stock of GB
Stores, Inc., a Pennsylvania corporation, from GB Stores, a Pennsylvania limited
partnership ("GB Partnership") in exchange for the issuance by VCDS to GB
Partnership of 1,312,500 Common Shares of VCDS (the "GB Acquisition"). GB
Partnership is an affiliate of SSC. The GB Acquisition was accounted for as a
combination of entities under common control in a manner similar to a pooling of
interests, and accordingly, the financial data for VCDS included herein for all
periods have been restated to include the financial position and results of
operations of the combined entities.
The Company also operates the apparel, housewares and domestics
departments in two department stores in New Jersey pursuant to a license
agreement with The Valley Fair Corporation ("Valley Fair"), a subsidiary of SSC.
Two of the Company's department stores operated as partnerships owned
by the Company and the manager of the respective stores through July and
October 1995. During fiscal 1996 the Company bought the 25% minority interest
in the partnership stores for approximately $1,328,000 which was the net book
value of the minority interests in those partnerships.
VCDS and its wholly owned subsidiaries are herein referred to
collectively as the "Company".
GENERAL
The Company operates a chain of 91 department stores, and one store
opened in October 1996, located in Ohio and 14 other midwestern and eastern
states, principally under the name "Value City." For over 79 years, the
Company's strategy has been to provide exceptional value by offering a broad
selection of name brand merchandise at prices substantially below conventional
retail prices. The stores carry men's, women's and children's apparel,
housewares, giftware, home furnishings, toys, sporting goods, jewelry, shoes and
health and beauty aids, with apparel comprising over 60% of total sales. The
Company operates large stores, averaging 85,000 square feet, which allow it to
offer over 90,000 different items of
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merchandise similar to the items found in department, specialty and discount
stores.
For four of the past six fiscal years, the Company experienced
comparable store net sales growth. The Company's management believes that the
historical increases resulted from the Company's ability to offer better value
to its customers than its competitors.
The Company's pricing strategy is supported by its ability to purchase
large quantities of goods in a variety of special buying opportunities. For many
years, the Company has also had a reputation in the marketplace as a leading
purchaser of buy-outs and manufacturers' closeouts.
BUSINESS STRATEGY
The Company's strategy, to provide name brand merchandise at prices
substantially below conventional retail prices, is reflected in its name "Value
City" and the Company's motto "Better Living for Less." Management believes that
Value City's large stores, which facilitate its full-line merchandise offering
and range of brands, provide a competitive advantage and differentiate the
Company from other off-price retailers. The principal elements of the business
strategy are discussed below.
MERCHANDISING
Selection
Value City is a full-line, off-price retailer carrying men's, women's
and children's apparel, housewares, giftware, home furnishings, toys, sporting
goods, jewelry, shoes and health and beauty aids. Off-price retailing, as
distinguished from traditional full-price retailing and discount or off-brand
merchandise, is characterized by the purchase of primarily high quality
brand-name merchandise, at prices below normal cost to retailers. A portion of
the cost savings is then passed on to customers through lower prices. The
Company strives to offer customers one-stop-shopping in terms of categories of
merchandise carried. The large physical size of the Company's stores facilitates
the offering of a wide range of merchandise categories with broad, deep
selections of
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goods within each category. The stores carry over 90,000 different items of
merchandise similar to the items found in department, specialty and discount
stores.
To improve store profitability and meet the changing needs of its
customers, the Company continuously refines its merchandise mix eliminating less
productive departments such as tools and uniforms and introducing new
merchandise categories. For example, the Company introduced casual lifestyle
apparel departments and a gourmet food department in fiscal 1995, and expanded
these departments in fiscal 1996. Also, to help provide the Company with a
reliable source of predominantly fashion merchandise, the Company has begun a
private label program in certain apparel categories.
The following table sets forth relative contributions of each major
merchandise category to total sales.
<TABLE>
<CAPTION>
Percentage of Aggregate Sales Volume
Fiscal Years Ended
------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Apparel and Ready-to-Wear - Includes Men's, Women's
and Children's outerwear, suits, dresses, sportswear,
sleepwear, underwear and accessories........................ 62.2% 61.5% 62.5%
Hard goods and Home Furnishings - Includes domestics,
jewelry, housewares, giftware, small appliances, toys
and sporting goods.......................................... 23.3 24.0 24.0
Licensed Departments - includes shoes, health and beauty
and other incidental departments............................ 14.5 14.5 13.5
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Customers are attracted to the Company's stores because of continuous
new offerings of value-priced merchandise acquired in special purchases. At the
same time, the Company maintains a broad and consistent range of goods in the
stores, purchases continuing lines of merchandise and offers some private label
goods to ensure constant availability of certain basic categories of merchandise
as well as current fashion trends.
Generally, it is the Company's policy not to carry over merchandise
from season to season once it is offered for sale in the stores. Rather, the
Company monitors sales of merchandise and reduces prices until the merchandise
is sold. As a result of this policy, the Company generally does not have a
significant amount of carry-over goods.
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Value Pricing
The Company offers quality brand name merchandise at prices typically
50% to 70% below prices charged by department stores for similar items and at
prices comparable to or lower than prices charged by other off-price retailers.
The Company can offer exceptional values because its buyers purchase merchandise
directly from manufacturers and other vendors at prices substantially below
those generally paid by conventional retailers. See "Supplier Relationships and
Purchasing." This allows the Company to pass on the savings directly to its
customers, while still maintaining favorable profit margins.
Well known designer labels, brand names and original retailer names are
prominently displayed throughout the stores. Many items carry labels and/or
original price tags showing brand names identifiable with major designers,
manufacturers and retail stores, as well as tags showing original retail or
"nationally advertised" prices. In some cases suppliers may require removal of
labels or original retail price tags as a condition to a special purchase
arrangement. See "Supplier Relationships and Purchasing".
Licensed Departments
All store departments are operated by the Company except for the health
and beauty aids, shoe and certain other incidental departments. These
departments are licensed to others, including affiliated parties, for a
percentage of net sales, generally ranging from 5% to 11%, for initial periods
of up to 15 years with, in some instances, an option to renew. In addition, the
Company receives a fee from some licensees for general and administrative
expenses. The aggregate annual license fees received by the Company from all
licensees for the fiscal year ended August 3, 1996 was approximately
$15,263,000.
Licensees supply their own merchandise and generally supply their own
store fixtures but in most instances utilize the Company's associates to operate
their departments. The licensees reimburse the Company for all costs associated
with such associates. Licensees operate their departments under the general
supervision of the Company and are required to abide by the policies of the
Company with regard to pricing, quality of merchandise, refunds and store hours.
Licensed departments complement the operations of the stores and are considered
an integral part of the Company's store operations.
SSC owns 50% of the outstanding stock of the licensee that operates the
shoe departments in all of the stores, and owns a controlling interest in the
licensee that operates health and beauty aids departments in the Company's
stores. This common ownership interest facilitates the uniformity of
merchandising strategy in the stores, including the overall emphasis on values
resulting from special purchase opportunities.
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SUPPLIER RELATIONSHIPS AND PURCHASING
An important factor in the Company's growth has been its many years of
experience in purchasing merchandise directly from manufacturers and other
vendors at prices substantially below those generally paid by conventional
retailers. The Company believes that over the years its buyers have established
excellent relationships with suppliers and that the Company has established a
reputation for its willingness and ability to purchase entire lots of
merchandise and to make prompt payment. The Company continuously seeks to find
and negotiate special purchase opportunities. As a result of the Company's
relationships, experience and reputation for prompt payment, many suppliers
offer special purchase opportunities to the Company prior to attempting to
dispose of merchandise through other channels. Many manufacturers of brand name
merchandise are reluctant to sell merchandise for resale at discounted prices
through their normal channels of distribution or to retailers which may be
considered to be competitors in their regular distribution channels. By selling
such merchandise through its own retail stores, the Company is able to assure
its suppliers that the merchandise will be sold without disturbing the
suppliers' regular channels of distribution. Although the Company cannot
quantify the amount by which the prices it pays for its special purchases are
lower, if any, than the prices paid by its competitors for similar purchases,
the Company believes that such special purchases are made at prices sufficiently
favorable to enable it to offer merchandise to its customers at prices that are
significantly lower than those prices offered by many of its competitors.
The Company purchases merchandise from more than 3,600 suppliers, none
of which accounted for a material percentage of the Company's purchases during
the past fiscal year. The Company does not maintain any long-term or exclusive
commitments to purchase merchandise from any one supplier. The Company regularly
purchases overstocked or overproduced items from manufacturers and other
retailers, including end-of-season, out-of-season and end-of-run merchandise and
manufacturers' slight irregulars. From time to time, the Company also purchases
all or substantially all of the inventories of financially distressed retailers
and makes other special purchases. The Company has recently begun to contract
with overseas sources for the manufacture of apparel items under the Company's
own brand names. Also the Company has begun to more aggressively seek
advantageous buying opportunities overseas, particularly in non-apparel
categories.
The Company's distribution facilities are designed to enable it to
prioritize the processing of merchandise on short notice and to deliver
merchandise to the stores within days of its receipt. This allows the Company's
buyers to purchase merchandise very late in the season, when prices are more
favorable, and still deliver the merchandise to the stores before the end of the
season. At the same time, the Company has devoted a separate warehouse to out-of
season goods. This merchandise is held until the most opportune time to offer it
in the Company's stores, which in most cases is the next season. This ability to
purchase and quickly distribute or hold merchandise in substantial
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quantities has enabled the Company to offer high-quality merchandise to
customers at prices significantly below usual retail prices while maintaining
favorable profit margins. The Company believes that this ability distinguishes
it from the typical discount or off-price retailer and provides it with a
competitive advantage in making purchases as favorable opportunities arise.
The relatively large size of the Company's stores provides Value City
with the flexibility to purchase full lots of merchandise that may not be
available to other off-price retailers with smaller stores requiring more
targeted purchases. Value City is also able to buy and economically distribute
short lots of merchandise. Although there is growing competition for the kinds
of special purchases that the Company seeks, the Company believes that, because
of the factors discussed above, it will be able to obtain sufficient supplies of
desirable merchandise at favorable prices in the future.
DISTRIBUTION
The Company pursues a centralized distribution strategy with eight
distribution centers, all located in Columbus, Ohio. The aggregate area of the
centers is approximately 1,700,000 square feet, however, use of multi-tier
processing levels in some of the distribution centers substantially increases
their operating capacity. The distribution centers are organized by merchandise
type, with warehouses for hanging apparel, flat apparel, housewares, domestics,
toys and sporting goods, and overflow and buyout merchandise. The Company also
maintains a "packaway" warehouse facility where out-of-season merchandise
acquired at favorable prices is held for future sale. The Company's network of
warehouses enable it to make opportunistic purchases including late season,
priority delivery and end-of-season purchases.
The Company uses up-to-date material handling equipment in its
warehouses, including new mechanized conveyor systems to separate and collate
shipments to the stores. The Company's distribution facilities are designed to
allow priority delivery of late season purchases and fast-moving merchandise
to have it in the stores quickly to take full advantage of the remaining
selling season. The Company continues to focus on improving inventory turns by
implementing changes such as expediting the delivery of merchandise from the
store receiving area to the selling floor by distributing goods on hangers.
The Company believes that the existing distribution centers, with certain
modifications and additional equipment, will support store expansion for the
foreseeable future.
Goods are centrally received from suppliers and transmitted to their
respective warehouses and then, upon shipment to the stores, merchandise is
consolidated to ensure full-truck loads to minimize shipping costs. The
Company leases its fleet of road tractors and owns the majority of its semi-rig
trailers. The Company's fleet makes the majority of all deliveries from its
warehouses to the stores.
ADVERTISING AND PROMOTION
The Company commits substantial resources to advertising and believes
that its aggressive
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marketing strategy is one of the keys to its success. The Company advertises
frequently in print, including newspaper circulars and flyers, and on local
television and radio. The promotional strategy is carefully planned and budgeted
to include not only seasonal promotions, but also weekly storewide sales events
highlighting recent buy-outs and other specially purchased brand name
merchandise designed to maximize customer interest. In some cases a supplier may
prohibit the advertising or non-store promotion of its brand name. See "Supplier
Relationships and Purchasing" The Company's advertising strategy has recently
become more institutional to stimulate Company awareness and emphasize special
purchases to attract customers to the stores while reinforcing the Value City
motto, "Better Living for Less".
STORES
Store Location and Design
The Company's department stores average approximately 85,000 square
feet, with approximately 70% of the total area of each store representing
selling space. New stores are targeted to be over 90,000 square feet. The
Company's stores are generally laid out on a single level, with central traffic
aisles providing access to major departments. Each department strives to display
and stock large quantities and assortments of merchandise, giving the store a
very full appearance. Many of the Company's stores have an attractive pavilion
entrance that gives the customer a panoramic view of the entire store. The
stores are generally open from 9:30 am until 9:30 pm Monday through Saturday and
11:00 am until 6:00 pm on Sunday. All of the stores, with the exception of a
recently purchased site opening in spring 1997, are located in leased or
subleased facilities.
Management has recently begun to implement several initiatives to
enhance the appearance of its stores and offer a more convenient and pleasurable
shopping experience for its customers. These initiatives include: increasing the
number of secondary aisles in the stores to improve the flow of traffic
throughout the stores; changing the fixtures and improving the use of existing
space such as columns and empty walls to display more merchandise; and,
color-coding the departments and improving the in-store signage to make it
easier for customers to identify department locations and find merchandise.
Management believes that customers are attracted to the Company's
stores principally by the wide assortment of quality items at substantial
savings and that its stores are destination stores. They do not rely on
traffic created by the presence of other stores in their vicinity but instead
successfully generate their own traffic. Of the 91 stores open as of October
1996, 18 are free-standing and 73 are in shopping centers, 20 of which are
enclosed malls in which they serve as an anchor. All of the Company's stores are
located in suburban areas, near large residential neighborhoods and away from
downtown commercial centers.
Store Operations
The Company is committed to offering customers a convenient,
pleasurable shopping
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experience and a high level of customer satisfaction. A training program is
utilized to assure that every associate maintains the highest level of
professionalism and places customer service at the forefront. The Company's
stores are designed for self-service shopping, although sales personnel are
available to help customers locate merchandise and to assist in the selection
and fitting of apparel. In all stores, a customer service desk is conveniently
located generally adjacent to the central check-out area. The Company prides
itself on ease of checkout and has invested in point of sale scanning systems
which expedite the checkout process by providing automated check and credit
approval and price lookup. Sales associates are trained to create a
"customer-friendly" environment. The Company accepts all major credit cards, and
also provides a private label credit card program in all markets. Private label
and other credit card sales are nonrecourse to the Company, with the servicing
agent assuming all of the credit risk. The Company offers a convenient layaway
program and maintains a liberal return policy.
The Company's stores are organized into separate geographic regions,
each with a regional manager. Regional managers are headquartered in their
region and spend the majority of their time in their stores to ensure
adherence to the Company's merchandising, operational and personnel standards.
The typical staff for a Value City store consists of a store manager, a number
of assistant store and department managers, and full and part-time hourly
associates. Each store manager reports directly to one of the regional managers,
and each of the regional managers reports to the Vice President of Operations.
The Company's store managers function both as administrators and
merchants. All managers are responsible on a day-to-day basis for maintenance of
displays and inventories in all departments, for the overall condition of their
stores, for customer relations, personnel hiring and scheduling, and for all
other operational matters arising in the stores. Each store manager is
compensated, in part, based on the performance of his or her store. The
Company's store managers are an important source of information concerning local
market conditions, trends and customer preferences.
The Company prefers to fill management positions through promotion of
existing associates. A store management training program is maintained to
develop the management skills of associates and to provide a source of
management personnel for future store expansion.
Expansion
The Company has increased its store base from 53 stores at the start of
fiscal 1992 to 86 stores at the end of fiscal 1996. The Company has expanded
both by leasing newly constructed locations and by acquiring existing locations
from other retailers. The Company recently entered several major new markets,
including Chicago, Detroit and St. Louis in fiscal 1995 and Atlanta and
Charlotte in fiscal 1996, and will open two stores each in the New Jersey and
Chicago areas and one store each in the Washington, D.C. and Memphis areas
during the first quarter of fiscal 1997. In addition, the Company has entered
into four arrangements for new stores which are scheduled to be opened later in
fiscal 1997. Management believes that the Company's strong financial position
will enable it to take advantage of real estate opportunities that may develop.
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Expansion continues to be a central element of the Company's business
strategy. Management plans to open new stores in both existing and adjacent
markets. The Company pursues an opportunistic site selection strategy,
considering store sites that, among other factors, meet the Company's criteria
with respect to size, configuration, demographics and lease terms. The Company
seeks to cluster stores in targeted metropolitan areas to enhance name
recognition, share advertising costs and achieve economies of scale in
management and distribution.
The table below sets forth certain information relating to the
Company's stores during the last five fiscal years:
<TABLE>
<CAPTION>
Fiscal Year
-----------
1992 1993 1994 1995 1996(4)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning of Year(1)........... 53 56 74 75 79
Opened(2).................... 3 18 3 6 7
Closed(3).................... 0 0 2 2 0
-- -- -- -- --
End of Year(1)................. 56 74 75 79 86
== == == == ==
<FN>
(1) Excludes apparel, domestics and housewares departments operated by the
Company in two Valley Fair department stores.
(2) For fiscal 1993, includes the 15 department stores obtained in the GB
Acquisition, the results of operations and financial position of which
are included in the Company's financial statements herein for all
periods.
(3) During 1995, two stores were closed pursuant to their lease
expirations. Two stores acquired in the GB Acquisition were closed
during fiscal 1994 because they were in the same market area as
existing Value City stores. Fiscal 1993 does not include two junior
apparel stores acquired in the GB Acquisition, which were closed in the
same year.
(4) In October 1996, the Company opened its 91st store and has scheduled 5
additional stores to be opened during fiscal 1997.
</TABLE>
In selecting a site for a new store, the Company considers such factors
as population, per capita income, traffic patterns, the visibility of the
prospective store location, parking, the security of the area and the presence
of other compatible stores, especially supermarkets or large drug stores. The
Company attempts to select a location on which there is a suitable existing
structure, generally a one-story building with a relatively open interior, and
alters the structure in accordance with the Company's merchandising concept.
Based upon its past experience, the Company estimates the average cost
of opening a new store to range from approximately $5,000,000 to $6,500,000,
including leasehold improvements, fixtures, inventory and other costs.
Preparation of a store for opening generally takes between eight and 12 weeks.
The Company charges pre-opening expenses to operations ratably over the first
twelve months of store operations. It has been the Company's experience that new
stores generally achieve profitability and contribute to net income following
the first year of operations.
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The Company continually refurbishes its stores by updating the
merchandise displays and in-store signage. The costs of refurbishing on a per
store basis are generally not substantial. On an annual basis, the Company
selects stores to be remodeled, which generally involves more significant
changes to the interior or exterior of the store. The Company maintains its own
architectural design staff, construction crews and carpentry shop to refurbish
and remodel both new and existing store interiors and to build in-store display
tables and racks.
MANAGEMENT INFORMATION AND CONTROL SYSTEMS.
The Company believes that a high level of automation is essential to
maintaining and improving its competitive position. The Company relies upon
computerized data systems to provide information at all levels, including
warehouse ordering, store billing, inventory control and automated accounting.
The Company utilizes two IBM AS/400 computer systems to help meet its growing
needs.
The Company utilizes point of sale ("POS") registers with full scanning
capabilities insuring speed and accuracy at customer check-outs and facilitating
inventory restocking. Since layaways represent an important part of the
business, an automated system to capture and control layaways is integrated into
the POS system.
ASSOCIATES
At September 6, 1996, the Company had approximately 12,700 associates.
Some of these associates are covered by collective bargaining agreements with
the following unions:
- - The United Food and Commercial Workers Union Local #1540 covering
approximately 70 associates in the Ottawa, Illinois store. This contract expires
in February 1997.
- - The United Food and Commercial Workers Union Local #880 covering approximately
400 associates in three Cleveland, Ohio stores. This contract expires in
March 1998.
- - The United Food and Commercial Workers Union Locals #23 and #27 covering
approximately 500 associates in seven stores in Pennsylvania and Maryland. These
contracts expire in May 1997, July 1997 and February 1998.
- - The United Food and Commercial Workers Union Local #23 covering approximately
160 associates in two stores in Erie, Pennsylvania. This contract expires in
March 1999.
Group hospitalization, surgical, medical, vision, dental, disability
and life insurance benefits and a 401(k) plan are provided to full-time
non-union associates. The Company is a co-sponsor with SSC in these plans. The
Company also sponsors an associate stock purchase plan.
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The Company believes that in general it has satisfactory relations with
all of its associates.
COMPETITION
The retail industry is highly competitive. The Company generally
competes with a variety of conventional and discount retail stores, including
national, regional and local independent department and specialty stores, as
well as with catalog operations, factory outlet stores and other off-price
stores. In recent years, the Company has encountered increased competition from
department stores which have become more focused on promotional markdowns to
increase sales.
In the discount or off-price retailing segment, the Company
differentiates itself through its store format and the breadth of its product
offering. The Company's large departmentalized stores differ from most other
off-price retailers that tend to operate substantially smaller stores focusing
predominantly on either hard or soft goods. The Company's large stores
facilitate its full-line merchandise offering and broad range of brands and
products. Management believes that the Company's retail concept is unique.
In addition, because the Company purchases much of its inventory
opportunistically, the Company competes for merchandise with other national and
regional off-price apparel and discount outlets. Many of the Company's
competitors handle identical or similar lines of merchandise and have comparable
locations, and some have greater financial resources than the Company.
Competitive factors important to the Company's customers include
fashion, value, merchandise selection, name brand recognition and, to a lesser
degree, store location. The Company competes primarily on the basis of value,
merchandise quality and selection. Management believes the Company's competitive
advantages include its reputation in the marketplace for being able to purchase
and promptly pay for entire lots of merchandise, together with its ability to
either quickly distribute or hold the merchandise for sale at the most opportune
time, as well as its full-line merchandise offering and range of name brands.
SERVICE MARKS, TRADEMARKS AND TRADENAMES
The service mark "Value City" has been registered by SSC in the U.S.
Patent and Trademark Office. The Company's four department stores in Columbus
operate under the tradename "Schottenstein's," which has been registered by the
Company in the state of Ohio. The Company is entitled to use such names for the
sole purpose of operating department stores on an exclusive basis pursuant to a
perpetual, royalty-free license from SSC. SSC also operates a chain of furniture
stores under the name "Value City Furniture." The Company has also registered in
the U.S. Patent and Trademark Office various trademarks used in its private
label program. The Company is not aware of any conflicting use or infringement
by any third party with respect to any of the above names and marks.
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ITEM 2. PROPERTIES.
Of the Company's 86 department stores operating as of August 3, 1996,
24 are located in Ohio, 18 in Pennsylvania, seven in Indiana, six each in
Maryland and Michigan, four each in Kentucky, Illinois and West Virginia, three
each in Delaware, Georgia, and Virginia, two in New Jersey and one each in
Missouri and North Carolina.
In August 1996, the Company opened four new stores, two in New Jersey
and two in Illinois. In October 1996 the Company opened a store in Memphis,
Tennessee. In addition, the Company has entered into arrangements for five
additional new store locations to be opened during fiscal 1997. Of these five
locations, two are in Pennsylvania, and one each in Illinois, Maryland and New
Jersey.
The Company maintains buying offices in Columbus, Ohio, Boston,
Massachusetts and Los Angeles, California. The Company operates eight
warehouse/distribution complexes located in Columbus and occasionally utilizes
temporary warehouse space. The Company's executive offices occupy approximately
45,000 square feet in the building which also serves as one of the Company's
apparel distribution centers.
The Company owns one store location. The remaining stores and all of
the warehouse facilities are leased or subleased. The Company leases or
subleases 32 department stores and all of its permanent warehouse and office
facilities from SSC or entities affiliated with SSC. See "Item 13." The
remaining 63 department stores are leased from unrelated entities. Most of the
store leases provide for an annual rent based upon a percentage of gross sales,
with a specified minimum rent.
The Company's office, warehouse and distribution facilities are
adequate for its current needs and the Company believes that such facilities,
with certain modifications and additional equipment will be adequate for its
foreseeable future demands.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings that are
incidental to the conduct of its business. In the opinion of management, the
amount of any liability with respect to these proceedings will not be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The following table sets forth the high and low sales prices of the Common
Shares as reported on the NYSE Composite Tape during the periods indicated. As
of October 15, 1996, there were 676 shareholders of record.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal 1995:
First Quarter ........................... $ 15 5/8 $ 11 1/8
Second Quarter .............................. 12 1/4 8
Third Quarter ............................... 9 7
Fourth Quarter .............................. 8 5/8 7 1/2
Fiscal 1996:
First Quarter ........................... $ 9 $ 6
Second Quarter .............................. 7 5/8 5 3/4
Third Quarter ............................... 10 1/8 6
Fourth Quarter .............................. 13 9 1/2
</TABLE>
The Company has paid no dividends and presently anticipates that all of its
future earnings will be retained for the development of its business and does
not anticipate paying cash dividends on its Common Shares during fiscal 1997.
The payment of any future dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, general financial condition of the Company and
general business conditions.
15
<PAGE> 16
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA.(1)
(in thousands, except per share and per square foot amounts and ratios)
Fiscal Year 1996(8) 1995 1994 1993(8) 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales(2) $954,308 $871,949 $864,855 $842,199 $798,187
Operating Profit $36,213 $24,209 $62,237 $57,067 $44,929
Net Income (3) $21,718 $13,819 $38,936 $40,252 $26,679
Earnings per Share (4) $0.68 $0.43 $1.21 $1.25 $0.83
Total Assets $437,010 $361,887 $358,606 $356,718 $292,065
Working Capital $160,837 $154,112 $164,140 $139,928 $88,868
Current Ratio 2.20 2.48 2.59 2.08 1.67
Long-term Obligations $46,942 $20,853 $31,650 $42,396 $12,952
Number of Stores (5) 86 79 75 74 71
Sales per Selling sq. ft(6) $221 $220 $229 $222 $217
Comp Store Sales Change(7) (0.1)% (3.8)% 2.9% 0.2% 5.7%
<FN>
(1) On September 18, 1992, the Company acquired all of the outstanding
stock of GB Stores, Inc. from a partnership affiliated with
Schottenstein Stores Corporation ("GB Partnership") in exchange for
1,312,500 of the Company's common shares (the "GB Acquisition"). As a
result of the acquisition, the Company acquired all of the net
operating assets of the Gee Bee Department Store Division (the " GB
Division") of GB Partnership. The transaction was accounted for in a
manner similar to a pooling of interest, and accordingly, the financial
statements for all periods presented include the financial position and
result of operations of the combined entities.
(2) Excludes sales of licensed departments.
(3) Fiscal 1992 is adjusted for income taxes as if the GB Division had been
subject to taxes on a separate company basis.
(4) Fiscal 1994 includes a tax benefit of $0.07 per share due primarily to
the elimination of deferred tax allowances. Fiscal 1993 net income and
earnings per share includes the benefit from a change in tax status of
the GB Division of $7.2 million or $0.22, respectively. Prior to 1993,
earnings per share were calculated on a pro forma basis to give effect
to the GB Acquisition.
(5) Includes all stores operating at the end of the fiscal year, excluding
apparel, domestic and housewares departments operated by the Company in
two affiliated department stores.
(6) Excludes stores not operated during the entire year and licensed
departments.
(7) Comparable store sales change excludes licensed departments. A store is
considered to be comparable in its second full fiscal year of
operation. For fiscal 1996 and 1993, comparable store sales are
computed using like 52-week periods.
(8) Fiscal years 1996 and 1993 include 53 weeks; all other years contain 52
weeks.
</TABLE>
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net sales increased from $871.9 million to $954.3 million, an increase
of $82.4 million, or 9.4%. During fiscal 1996, the Company changed its fiscal
year end to the Saturday closest to July 31 to conform to the National Retail
Federation's suggested retail calendar. This resulted in fiscal 1996 having
fifty-three, rather than fifty-two weeks. Sales for the additional week
aggregated $16.8 million. New stores contributed an increase in sales of $54.2
million and stores opened during the prior fiscal year contributed $22.5
million. These increases were partially offset by $10.2 million for two stores
closed in fiscal 1995. Comparable store sales for the fifty-two week period
decreased $0.9 million, or 0.1%. In determining comparable store sales growth,
only stores open for like 52-week periods are included.
Gross profit increased from $324.6 million to $354.8 million, an
increase of $30.2 million or 9.3%. Expressed as a percentage of sales, gross
profit remained constant at 37.2%.
Selling, general and administrative expenses ("SG&A") increased $20.1
million, or 6.3%, from $317.0 to $337.1 million, but decreased as a percentage
of sales from 36.4% to 35.3%. New stores contributed an increase in expenses
of $17.0 million, and stores opened during the prior fiscal year contributed
$6.6 million. These increases were partially offset by $3.0 million for two
stores closed in fiscal 1995. All other expenses as a group decreased by $0.5
million. New store SG&A, as a percentage of sales, is slightly higher than that
of comparable stores, due primarily to pre-opening expenses and the result of
aggressive advertising to develop name recognition in new markets. This increase
in SG&A percentage was more than offset by the savings achieved in comparable
store SG&A, as a percentage of sales, and by the leveraging effect of increased
sales volume on administrative, warehousing and distribution costs.
Based upon its experience, the Company estimates the average cost of
opening a new store to range from approximately $5.0 million to $6.5 million,
including leasehold improvements, fixtures, inventory and other costs.
Preparations of a store for opening generally take between eight and 12 weeks.
The Company charges pre-opening expenses to operations ratably over the first
twelve months of store operations. It has been the Company's experience that new
stores generally achieve profitability and contribute to net income after the
first year of operations. Seven stores opened less than twelve months had a
pre-tax operating loss of $0.2 million for this year, including $2.2 million of
pre-opening amortization. Six stores opened less than twelve months during
fiscal 1995 had pre-tax net operating losses of $3.0 million in 1995, including
$2.1 million of pre-opening amortization. The 1995 stores have not yet
completed a full second year of operation, however based on their results from
operations for fiscal year 1996, it is expected that they will contribute to
net income in fiscal year 1997.
17
<PAGE> 18
License fees from affiliates increased from $14.0 million to $15.2
million and remained constant as a percentage of sales at 1.6%.
Operating profit increased from $24.2 million to $36.2 million, an
increase of $12.0 million or 49.6%, and increased as a percentage of sales from
2.8% to 3.8% as a result of the above factors.
Amortization of excess net assets over cost decreased from $1.5 million
to $1.4 million as a result of a write-off in the prior year associated with a
store closing.
Interest expense, net of interest income, decreased from $1.9 million
to $1.3 million due to lower outstanding borrowings and increased interest
income in the current year.
Minority interest in partnerships decreased from $232,000 to $41,000 as
a result of the Company purchasing the 25% minority interest in two partnerships
for approximately $1,328,000 representing the net book value of the minority
interests in those partnerships.
Income before income taxes increased from $23.5 million to $36.3
million, an increase of $12.8 million or 54.4%, and increased as a percentage of
sales from 2.7% to 3.8%.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Net sales increased from $864.9 million to $871.9 million, an increase
of $7.0 million, or 0.8%. New store sales aggregated $47.8 million, partially
offset by $9.7 million of non-comparable store sales, including two stores which
closed during the year, and a comparable store sales decrease of 3.8% or $31.1
million. In determining comparable store sales growth, only stores open during
both full fiscal periods are included.
Gross profit decreased from $329.2 million to $324.6 million, a
decrease of $4.6 million or 1.4%. Expressed as a percentage of sales, gross
profit decreased from 38.1% to 37.2% due primarily to increased markdowns.
Selling, general and administrative expenses increased $34.5 million,
or 12.2%, from $282.5 million to $317.0 million and increased as a percentage of
sales from 32.7% to 36.4%. New stores contributed an increase of $16.6
million. Comparable store expenses, primarily advertising and salaries and
related benefit costs, increased by $3.8 million. Distribution costs increased
$9.2 million due primarily to the start-up of a new distribution facility. The
balance, or $4.9 million, was due to an increase in general administrative
expenses. These increases were disproportionate to the relatively weak increase
in sales volume and therefore had a deleveraging effect on these expenses
expressed as a percentage of sales.
License fees from affiliates increased from $12.5 million to $14.0
million and increased as a percentage of sales from 1.4% to 1.6% primarily as a
result of increased shoe licensee sales.
18
<PAGE> 19
During the year ended July 29, 1995, the Company recognized $0.4
million of net expenses for certain employee termination benefits and other exit
costs related to closing two stores pursuant to their lease expirations. Net
operating losses through the closing date for these stores, exclusive of this
restructuring charge, were approximately $0.6 million.
Operating profit decreased from $62.2 million to $24.2 million, a
decrease of $38.0 million or 61.1%, and decreased as a percentage of sales from
7.2% to 2.8% as a result of the above factors.
Amortization of excess net assets over cost was approximately $1.5
million in 1995 and 1994.
Interest expense, net of interest income, decreased from $2.4 million
to $1.9 million due to lower outstanding borrowings offset in part by reduced
interest income in the current year.
Income before income taxes decreased from $60.7 million to $23.5
million, a decrease of $37.2 million or 61.3%, and decreased as a percentage of
sales from 7.0% to 2.7%.
SEASONALITY
The Company's business is affected by the pattern of seasonality common
to most retail businesses. Historically, the majority of its sales and operating
profit have been generated during the first six months of its fiscal year, which
includes the back-to-school and Christmas selling seasons.
FISCAL YEAR
During 1996, the Company changed its fiscal year from the last Saturday
in July to the Saturday closest to July 31 to conform to the National Retail
Federation's suggested retail calendar. As a result, fiscal year 1996 has 53
weeks.
INCOME TAXES
Income taxes are computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". The
effective tax rate for the year ended August 3, 1996 was 39.9% before being
increased by 0.2% for permanent differences and other items for a total tax rate
of 40.1%. The effective tax rate for the year ended July 29, 1995 was 39.0%
before being increased by 2.2% for changes to prior year tax estimates, for a
total tax rate of 41.2%.
ADOPTION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") periodically issues
Statements on Financial Accounting Standards, some of which require
implementation by a date falling within or after the close of the Company's
fiscal year.
19
<PAGE> 20
Statement of Financial Accounting Standard No.121 ("SFAS 121") -
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and SFAS 123 - "Accounting for Stock-Based Compensation" are
effective for fiscal year 1997. The adoption of SFAS 121 is not expected to have
a significant impact on the results of operations or financial condition of the
Company. The Company will adopt the new disclosure requirements of SFAS 123 in
1997.
INFLATION
The results of operations and financial condition are presented based
upon historical cost. While it is difficult to accurately measure the impact of
inflation because of the nature of the estimates required, management believes
that the effect of inflation, if any, on the results of operations and financial
condition has been minor.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $160.8 million and $154.1 million at August 3,
1996 and July 29, 1995, respectively. Current ratios at those dates were 2.20
and 2.48, respectively.
Net cash provided from operating activities totaled $21.4 million,
$28.5 million and $41.3 million for fiscal years 1996, 1995 and 1994,
respectively. Net income, adjusted for depreciation and amortization, provided
$45.6 million of operating cash flow for fiscal year 1996. This was partially
offset by $19.2 million representing an increase in inventories net of an
increase in accounts payable of $22.6 million.
During fiscal year 1995, net income, adjusted for depreciation and
amortization, provided $33.2 million of operating cash which was partially
offset by reductions in accounts payable of $11.5 million and an increase in
prepaid and other current assets of $8.2 million.
Net cash used for capital expenditures and other assets totaled $47.7
million, $29.7 million and $21.2 million for fiscal years 1996, 1995 and 1994,
respectively.
During 1996, capital expenditures for new stores aggregated $31.8
million, including $4.1 million for the purchase of a building for a spring 1997
opening. This was an opportunistic purchase and is the first such investment in
real estate that the Company has undertaken. Other capital expenditures include
$6.5 million for capital improvements in existing stores, $0.9 million for
energy management systems, $4.4 million for renovations in existing warehouses,
$0.2 million for transportation equipment and $1.6 million for M.I.S. equipment
upgrades. Capital expenditures were offset by $0.1 million of proceeds from the
sale of property and equipment. Other investing activities include cash outlays
of $2.0 million under a note receivable agreement to facilitate the acquisition
of a store lease and $0.4 million primarily for new store lease acquisition
costs. Capital expenditures for 1997 are estimated at $48.5 million which
includes expenditures for eleven new store openings.
20
<PAGE> 21
At August 3, 1996, the Company had a $75.0 million credit facility with
its bank bearing interest at or below the prime lending rate depending on
certain borrowing elections made by the Company. At August 3, 1996 the prime
rate was 8.25%, borrowings aggregated $33.0 million, $21.5 million of letters of
credit were issued and outstanding for merchandise purchases and $20.5 million
was available under the facility. During October 1996, the Company's credit
facility was increased by $15.0 million to $90.0 million with no changes in
terms or fees. The Company is in the process of completing a private placement
for $50.0 million of senior unsecured notes. The Company has obtained
commitments from investors for this private placement. The proceeds will be used
to repay demand notes payable. Accordingly, such demand notes are classified as
long-term obligations at August 3, 1996. The senior unsecured notes require
principal payments of $2,143,000 in December 1997 and 1998 and payments of
$9,143,000 annually beginning December 1, 1999 through December 1, 2003 and bear
interest at an average rate of 7.22% per annum. The Company believes that the
cash generated by its operations, along with the available proceeds from the
credit facility and other sources of financing will be sufficient to meet its
future obligations including capital expenditures.
On December 21, 1994, the Board of Directors authorized the purchase of
up to $5.0 million of the Company's common shares through December 31, 1995.
Pursuant to this plan, the Company acquired 368,600 shares at an average price
of $7.67 per share for a total of $2.8 million.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company cautions that any forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) contained in
this Report, the Form 10-K or made by management of the Company involve risks
and uncertainties, and are subject to change based on various important factors.
The following factors, among others, in some cases have affected and in the
future could affect the Company's financial performance and actual results and
could cause actual results for 1997 and beyond to differ materially from those
expressed or implied in any such forward-looking statements: changes in consumer
spending patterns, consumer preferences and overall economic conditions, the
impact of competition and pricing, changes in weather patterns, changes in
existing or potential duties, tariffs or quotas, paper and printing costs,
availability of suitable store locations at appropriate terms and ability to
hire and train associates.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and financial statement schedules of the
Company and the Report of Independent Accountants thereon are filed pursuant to
this Item 8 and are included in this report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
22
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jay L. Schottenstein 42 Chairman of the Company, Chief Executive Officer and Director
Saul Schottenstein 74 Vice Chairman of the Company and Director
George A. Iacono 55 President, General Merchandise Manager and Director
Donald R. Andrus 52 Senior Vice President and Chief Operating Officer
Robert M. Wysinski 48 Senior Vice President, Chief Financial Officer,
Treasurer, Secretary and Director
Denis G. Fredrick 52 Vice President - Management Information Systems
Richard J. Giordano 53 Vice President - Distribution Apparel
Mark Heitin 44 Vice President - Merchandise Planning and Allocation
Herbert E. Minkin 56 Vice President - Human Resources
Dennis O'Malley 52 Vice President - Merchandise Control
Daniel P. Reilly 51 Vice President - Distribution and Transportation Services
Myrna Reiss 46 Vice President - Advertising
Robert Tavenner 53 Vice President - Loss Prevention
Garry L. Thibodeau 55 Vice President - Operations
Richard L. Walters 44 Vice President - Controller, Chief Accounting Officer, Assistant
Treasurer and Assistant Secretary
Geraldine Schottenstein 63 Director
Jon P. Diamond 39 Director
Richard Gurian 78 Director
Dr. Norman Lamm 68 Director
Robert L. Shook 58 Director
</TABLE>
Jay L. Schottenstein has been Chairman of the Company, American Eagle
Outfitters, Inc. and SSC since March 1992 and Chief Executive Officer of the
Company since April 1991. Mr. Schottenstein served as Vice Chairman of the
Company from April 1991 to March 1992. Vice Chairman of SSC from 1986 until
March 1992, and a director of SSC since 1982(1). He served SSC as President of
the Furniture Division from 1985 through June 1993 and in various other
executive capacities since 1976.
Saul Schottenstein has been Vice Chairman of the Company since April
1991. Mr. Schottenstein has served as President of SSC since 1984, and a
director of SSC since 1982 and served SSC and its predecessors in various
executive capacities since 1946(1).
George A. Iacono has been President and General Merchandise Manager of
the Company since April 1991. He served as President of SSC's Department Store
Division (the "Division"), the predecessor of the Company, since May 1989,
served as Senior Vice President - Merchandising of the Division since November
1985, and upon joining the Division in May 1984, served as Senior Vice President
- - General Merchandise Manager and Vice President - Ladies Apparel. Before
joining SSC, Mr. Iacono served as Vice President/General Merchandise Manager
and held other merchandising
23
<PAGE> 24
positions with Marshalls, Inc. since 1976.
Donald R. Andrus was appointed Senior Vice President and Chief
Operating Officer of the Company upon joining the Company in September 1995.
Prior to that time, Mr. Andrus was a prior Chairman and Chief Operating Officer
of Foley's, a division of May Department Stores. Mr. Andrus also held various
other senior management positions for certain divisions of the May Co.
Robert M. Wysinski has been Senior Vice President, Chief Financial
Officer, Treasurer and Secretary of the Company since April 1991 and served as
Vice President of SSC from June 1987 until June 1991, and as Treasurer of SSC
from June 1986 until June 1991. Prior to that time, he served as Assistant
Secretary and Assistant Treasurer and in a variety of positions in the finance
area since joining SSC in 1973.
Denis G. Fredrick became Vice President - Management Information
Systems in December 1989. Prior to that time, Mr. Fredrick served as Director of
Management Information Systems since joining SSC in December 1988. Prior to
joining SSC, Mr. Fredrick served as Vice President - Management Information
Systems of Talbots, Inc., a women's specialty retailer and catalog chain owned
by General Mills Corporation.
Richard J. Giordano became Vice President - Distribution Apparel in
November 1994. Prior to joining the Company, Mr. Giordano served as Director of
Distribution Services for Marshalls Inc., from 1975 to 1994.
Mark Heitin joined the Company in April 1996 as Vice President -
Merchandise Planning and Allocation. Previously he was Vice President of
Merchandise Planning for American Eagle Outfitters for approximately two years.
Prior to that he held various merchandising positions during an 18 year tenure
with Marshalls Inc., including Vice President of Planning and Allocation.
Herbert E. Minkin was appointed Vice President - Human Resources of SSC
in August 1985 and had served as Personnel Director of the Division since 1973.
Dennis O'Malley joined the Company in March of 1995 as Vice President -
Merchandise Control. Prior to that time Mr. O'Malley served in a variety of
capacities, including Vice President of Store Planning, Vice President of
Merchandise Control and Controller, for Marshalls, Inc.
Daniel P. Reilly joined the Company in April 1995 as Vice President of
Distribution and Transportation Services. Prior to joining the Company, Mr.
Reilly served as Vice President of Distribution and Transportation Services for
Consolidated Stores Inc., an off-price retailer, from September 1989 to April
1995. Prior to that, Mr. Reilly also served as a General Manager of Distribution
for Marshalls Inc., an off-price retailer, since 1976.
24
<PAGE> 25
Myrna Reiss joined the Company in August 1996 as Vice President -
Advertising. Prior to that, Ms. Reiss served as Vice President Creative and
Visual Advertising for Filene's Basement, an off-price retailer. Her tenure
there was from 1985 to 1996. Ms. Reiss' experience preceding that includes
various positions in Advertising at divisions of Allied, Macy's and Federated
Department Stores.
Robert Tavenner became Vice President - Loss Prevention in November
1989. He served as Director of Loss Prevention since joining SSC in November
1988. Prior to joining SSC, Mr. Tavenner served as Vice President of Loss
Prevention and Internal Audit for Gold Circle Stores, Inc., a division of
Federated Stores, Inc., since 1978.
Garry L. Thibodeau was appointed Vice President - Operations in June
1987, having served as Regional Manager since joining the Division in 1985. Mr.
Thibodeau served as Regional Merchandise Manager and District Manager of
Marshalls, Inc. From 1980 until 1985.
Richard L. Walters became Vice President of the Company in April 1992,
Assistant Secretary of the Company in June 1991, Assistant Treasurer of the
Division in August 1990 and Controller of the Division in June 1986. Prior to
that time, Mr. Walters served as Accounting manager for the Division since
September 1985 and in a variety of other accounting positions since joining SSC
in 1979.
Geraldine Schottenstein has been a Director of the Company and SSC
since April 1992. She has served as a volunteer and board member for a variety
of charitable and community organizations for more than the past five years.
Jon P. Diamond has been Executive Vice President and Chief Operating
Officer of Safe Auto Insurance Company, a property and casualty insurance
company, since March 1993. Mr. Diamond served as Vice President of SSC from
March 1987 to March 1993 and served SSC in various management positions
since 1983(1).
Richard Gurian has been President of Richard Gurian Consultants, Inc.,
formerly Venture Horizons, Inc., since 1980.
Dr. Norman Lamm has been President of Yeshiva University, New York, New
York, since 1976.
Robert L. Shook has been an author of business-related books since
1978.
- ----------
(1) SSC is a controlling shareholder of the Company. For information with
respect to the beneficial ownership of the voting stock of SSC by
nominees for election to the Board of the Company and beneficial
ownership of Common Shares of the Company by such persons and officers
of the Company, see Item 12. "Security Ownership of Certain Beneficial
Owners and Management." Geraldine Schottenstein is the mother of Jay L.
Schottenstein, the sister-in-law of Saul Schottenstein and the
mother-in-law of Jon P. Diamond
25
<PAGE> 26
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who are beneficial owners of more than
ten percent of the Company's Common Stock ("reporting persons") to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Reporting persons are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms filed
by them. Based on its review of the copies of Section 16(a) forms received by
it, the Company believes that, during fiscal year 1996, all filing requirements
applicable to reporting persons were complied with.
Jay L. Schottenstein and Saul Schottenstein are directors of the Valley
Fair Corporation and American Eagle Outfitters, Inc., each of which is a company
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
INFORMATION CONCERNING BOARD OF DIRECTORS
During the fiscal year ended August 3, 1996, the Board met twice
and acted by unanimous written consent three times.
The Board has standing Audit and Stock Option Committees.
The members of the Audit Committee are Richard Gurian, Dr. Norman Lamm
and Robert L. Shook. Its function is to recommend to the Board a firm of
accountants to serve as the Company's auditors and to review with the
independent auditors and the appropriate corporate officers matters relating to
corporate financial reporting and accounting procedures and policies, adequacy
of financial, accounting and operating controls, and the scope of the audit. The
Audit Committee met four times in fiscal 1996. Dr. Norman Lamm participated in
all but one of the meetings.
The members of the Stock Option Committee are Richard Gurian, Dr.
Norman Lamm and Robert L. Shook. Its function is to recommend to the Board the
number and terms of any stock options to be granted under the Company's stock
option plan. The committee met seven times in fiscal 1996.
26
<PAGE> 27
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Company's Chief Executive Officer and to each of the Company's other four most
highly compensated executive officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION ----------------------
------------------- RESTRICTED
NAME AND FISCAL STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS AWARDS(2) SARs(#)(3) COMPENSATION(4)
- ------------------ ---- --------- ----- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jay L. Schottenstein(5) 1996 $250,000 None None None ---
Chairman and Chief 1995 $250,000 None None 150,000 ---
Executive Officer 1994 $250,000 None None 30,000 ---
George A. Iacono(6) 1996 $350,000 $300,000 None None $10,216
President and General 1995 $350,000 $325,000 None 39,000 $11,833
Merchandise Manager 1994 $300,000 $275,000 None None $10,219
Saul Schottenstein 1996 $250,000 None None None ---
Vice Chairman 1995 $250,000 None None 45,000 ---
1994 $250,000 None None 5,000 ---
Robert M. Wysinski 1996 $226,667 $85,000 None None $7,996
Senior Vice President, 1995 $226,667 $49,583 None 32,000 $9,058
Secretary and Chief 1994 $215,000 $71,500 None None $8,450
Finanical Officer
Donald R. Andrus(7) 1996 $393,750 $50,000 None None $70,516
Senior Vice President 1995 N/A N/A N/A N/A N/A
Chief Operating Officer 1994 N/A N/A N/A N/A N/A
<FN>
- ----------
(1) Includes amounts deferred by the executive officer pursuant to SSC's
Associates Profit Sharing and 401(k) Plan (the "401(k) Plan"), which
was adopted effective as of August 1, 1989, and in which associates of
the Company are eligible to participate. The 401(k) Plan is a prototype
defined contribution plan that qualifies for favorable tax treatment
under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986,
as amended. The 401(k) Plan permits eligible associates of the Company
to contribute a percentage of their pre-tax wages to the plan and the
Company will match the contributions up to a maximum of 3% of covered
wages. The Company also may contribute up to an additional 1.5% of
covered wages as a profit sharing contribution.
(2) The number and value (in thousands of dollars) of aggregate restricted
stock holdings of each of the named executives on August 3, 1996 was:
Mr. Jay Schottenstein, None; Mr. Iacono, 132,336 shares ($1,323); Mr.
Saul Schottenstein, None; Mr. Wysinski, 20,587 shares ($206) and Mr.
Andrus, None. The value of the restricted stock is determined by
multiplying the total shares held by each named executive by the
closing price on the New York Stock Exchange on August 3, 1996
($10.00).
</TABLE>
27
<PAGE> 28
(3) The number of options granted in fiscal 1995 includes options granted
in prior years which were repriced during fiscal 1995.
(4) Represents amounts contributed by the Company to the 401(k) Plan,
including both matching contributions and any profit-sharing
contributions, and the value of Company paid life insurance. The amount
of 401(k) Plan contributions for fiscal 1996 was: Mr. Jay
Schottenstein, None; Mr. Iacono, $3,750; Mr. Saul Schottenstein, None;
Mr. Wysinski, $3,750; and, Mr. Andrus, None. The balance for Mr. Iacono
and Mr. Wysinski represents the value of Company paid life insurance.
The balance for Mr. Andrus represents relocation reimbursements of
$25,535, tax reimbursements of $28,976 and the remainder for auto and
insurance allowances.
(5) Jay L. Schottenstein is also Chairman of SSC and American Eagle
Outfitters, Inc. He does not devote his full business time to the
business of the Company.
(6) George A. Iacono has entered into an employment agreement with the
Company for a term ending June 4, 1997. The agreement provides for an
annual salary of $250,000, through June 4, 1992 increasing to $300,000
thereafter, together with a bonus in the discretion of the Chairman.
The agreement also provides for a severance payment equal to $15,625
per month for the remaining term of the agreement in the event that the
Company terminates Mr. Iacono's employment, with or without cause. Mr.
Iacono's base was increased to $350,000 in fiscal 1995.
(7) Mr. Andrus joined the Company on September 18, 1995 and entered into an
employment agreement with the Company for a term ending on September
18, 1997. The agreement provides for an annual salary of $450,000,
annual car allowance of $16,000 and annual stock options for 10,000
shares at the completion of each year of employment. Minimum
guaranteed bonuses are $160,000 in the first year and $125,000 in the
second year.
28
<PAGE> 29
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
None of the executive officers named in the Summary Compensation Table
exercised options during the 1996 fiscal year. The following table provides
certain information on the number and value of stock options held by the
executive officers named in the Summary Compensation Table at August 3, 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES VALUE AT FISCAL YEAR END (#) FISCAL YEAR END ($) (1)
ACQUIRED ON REALIZED ---------------------- -----------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------ ---------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jay L. Schottenstein --- --- 72,000 78,000 $139,700 $151,300
George A. Iacono --- --- 19,800 19,200 $38,400 $37,250
Saul Schottenstein --- --- 34,000 11,000 $66,000 $21,350
Robert M. Wysinski --- --- 16,400 15,600 $31,800 $30,250
Don Andrus --- --- --- --- --- ---
<FN>
(1) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the
per share option exercise price and the per share fair market value at
year end of $10.00. An option is in-the-money if the fair market value
of the underlying shares exceeds the exercise price of the option.
</TABLE>
29
<PAGE> 30
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Jay L. Schottenstein, Saul Schottenstein and George A. Iacono each of
whom is an executive officer of the Company, are also members of the Company's
Board of Directors. As stated, the Company's Chairman, Jay L. Schottenstein,
with the input of its President, George A. Iacono, determined the annual salary
and bonus compensation of the officers of the Company, other than the
Chairman's, and such determination was not formally considered and ratified by
the Board of Directors. Jay L. Schottenstein is also Chairman and Chief
Executive Officer of SSC. For information regarding the relationships
between the Company and SSC, see "Relationship With SSC And Its Affiliates".
The Stock Option Committee administers and grants options under the
Company's 1991 Stock Option Plan. The Stock Option Committee consists of Messrs.
Gurian, Lamm and Shook. None of the members of the Committee are present or
former officers of the Company or are themselves or have affiliates that are
parties to agreements with the Company.
COMPENSATION OF DIRECTORS
Directors who are not employees are paid $2,000 for each Board and
Committee meeting attended, with a minimum annual compensation of $8,000, and
are automatically granted options each quarter to purchase 1,000 Common Shares
of the Company pursuant to the Non-employee Director Stock Option Plan described
below. Directors who are also employees of the Company do not receive additional
compensation for serving as directors.
The Company's Non-employee Director Stock Option Plan as amended and
subject to shareholder approval (the "Non-employee Director Plan") provides
for the issuance of options to purchase up to 130,000 Common Shares of the
Company, subject to adjustment for stock splits and other changes in the
Company's capitalization. Under the Non-employee Director Plan, one option to
purchase 1,000 Common Shares is automatically granted to each non-employee
director on the first NYSE trading day in each calendar quarter. The exercise
price for each option is the fair market value of the Common Shares on the
date of grant. The exercise price must be paid either in cash, with previously
acquired Common Shares of the Company, the optionholder's promissory note or
any combination of the foregoing, provided, however, use of consideration
other than cash requires the consent of the Board. All of the options under
the Non-employee Director Plan become exercisable one year after the date of
grant and remain exercisable for a period of ten years from the date of grant,
subject to earlier termination after termination of the optionholder's service
as a director of the Company. The options are transferable by the holder
either (i) if transferred without consideration to immediate family members or
entities they control, or (ii) if the transfer is approved by the Board.
30
<PAGE> 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
OWNERSHIP OF COMMON SHARES
The following table sets forth, as of October 29, 1996, certain
information with regard to the beneficial ownership of the Company's Common
Shares by each holder of 5% of such shares, each director individually and all
officers and directors as a group.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Outstanding Shares (2)
- ---------------- ------------------------ ----------------------
<S> <C> <C>
Jon P. Diamond (3) 21,700 *
George A. Iacono (4) 153,936 *
Richard Gurian 9,300 *
Dr. Norman Lamm 11,300 *
Geraldine Schottenstein (5)(6)(7) 39,000 *
Jay L. Schottenstein (5)(6)(7) 124,736 *
Saul Schottenstein (5)(6) 59,000 *
Robert L. Shook 17,000 *
Robert M. Wysinski (4) 38,387 *
All directors and officers as a group
(20 persons)(4)(5)(6) 668,453 2.1%
Schottenstein Stores Corporation (6) 20,568,334 64.9%
- --------------
<FN>
* Represents less than 1% of outstanding Common Shares, net of Treasury Shares.
(1) Except as otherwise noted, the persons named in this table have sole
power to vote and dispose of the shares listed and includes the number of
Common Shares, if any, as to which the named person has the right to
acquire beneficial ownership upon the exercise of stock options
exercisable within 60 days of October 29, 1996.
(2) The percent is based upon the 31,715,745 Common Shares outstanding, net
of Treasury Shares at October 29, 1996.
(3) Includes 2,000 shares held by Mr. Diamond's wife.
(4) Includes 132,336 shares for Mr. Iacono, 20,587 shares for Mr. Wysinski
and 197,552 shares for all directors and executive officers as a group,
which are owned subject to a risk of forfeiture on termination of
employment with vesting over a period of years pursuant to the terms of
Restricted Stock Agreements with the Company.
(5) Does not include the 20,568,334 Common Shares owned by SSC of 1800 Moler
Road, Columbus, Ohio 43207. Jay L. Schottenstein is the Chairman and
Chief Executive Officer of SSC. Jay L. Schottenstein, Saul Schottenstein
and Geraldine Schottenstein are members of the Board of Directors of
SSC. See "Ownership of SSC," below.
(6) Does not include 359,445 Common Shares owned by El-An Foundation, a
private charitable foundation, and 1,312,500 Common Shares owned by GB
Stores, a Pennsylvania limited partnership. Combined, the shares owned by
El-An Foundation and GB Stores represent 5.3% of the Company's
outstanding Common Shares. SSC owns a 96% limited partnership interest in
GB Stores and its corporate general partner is an affiliate of SSC. The
sole members, trustees and officers of the El-An Foundation are Saul
Schottenstein and Jay Schottenstein.
(7) Includes 30,000 shares as to which Geraldine Schottenstein and Jay L.
Schottenstein share voting and investment power as trustees of a trust
which owns the shares. Geraldine Schottenstein is also a beneficiary
of the trust.
</TABLE>
31
<PAGE> 32
OWNERSHIP OF SSC
The following table indicates the shares of SSC common stock beneficially
owned by each nominee for election to the Board of Directors of the Company and
by all directors and officers of the Company as a group, as of October 29,
1996:
<TABLE>
<CAPTION>
SHARES OF SSC PERCENT
COMMON STOCK OF CLASS
------------ --------
<S> <C> <C>
Jay L. Schottenstein (1) 299.32766 78.4%
Geraldine Schottenstein (2) 27.41707 7.2%
Jon P. Diamond (3) 27.41707 7.2%
Directors and officers as a group 354.1619 92.8%
- -----------------
<FN>
(1) Represents sole voting and investment power over 299.32766 shares held in
irrevocable trusts for family members as to which Jay L. Schottenstein is
trustee and as to which shares Mr. Schottenstein may be deemed to be the
beneficial owner.
(2) Represents sole voting and investment power over 27.41707 shares held by
Geraldine Schottenstein as trustee of an irrevocable trust for family
members as to which shares Geraldine Schottenstein may be deemed to be
the beneficial owner.
(3) Represents sole voting and investment power over 27.41707 shares held by
Susan Schottenstein Diamond, the wife of Jon Diamond, as trustee of an
irrevocable trust for family members, as to which shares Mr. Diamond may
be deemed to be the beneficial owner.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RELATIONSHIP WITH SSC AND ITS AFFILIATES
Prior to the completion of its initial public offering on June 18,
1991, the Company was operated as the Department Store Division of SSC. On that
date, SSC transferred substantially all of the net assets of the Division to the
Company in exchange for 22,500,000 Common Shares of the Company. At October 29,
1996, SSC owned 64.9% of the Company's outstanding Common Shares. So long as SSC
owns more than 50% of the Company's voting shares, it will continue to have the
power acting alone to approve any action requiring a vote of the majority of the
voting shares of the Company and to elect all of the Company's directors. For
information with respect to the beneficial ownership of the voting stock of SSC
by nominees for election to the Board of the Company and beneficial ownership of
Common Shares of the Company by such persons and officers of the Company, see
"Item 12. Security Ownership of Certain Beneficial Owners and Management."
REAL ESTATE LEASES AND SUBLEASES
The Company leases or subleases from SSC or affiliates of SSC thirty
two store locations and all of its warehouse and office facilities.
32
<PAGE> 33
Generally, the agreements require the Company to pay for insurance, taxes,
common area maintenance and other costs associated with the properties on a
"triple net" basis for freestanding locations, and on a pro rata share basis for
locations that are part of a larger parcel.
SSC leases to the Company 14 store locations and two warehouse/office
locations and a fixture shop under the terms of two Master Lease Agreements. The
Master Store Lease, as amended, provides for certain base rentals which
approximate $1.93 per square foot and the Master Warehouse Lease, as amended,
provides for specified rent which approximates $1.10 per square foot. Beginning
in fiscal 1992, the Master Store Lease also provides for the payment of
percentage rent by the Company equal to 3% of the amount by which total sales,
including sales of licensees ("Total Sales"), for all of the 14 stores exceed
the Total Sales for such stores in fiscal 1991. For fiscal 1996, the Company
recorded expense to SSC, including contingent rent, of $3,308,983 pursuant to
the Master Store Lease and $662,416 pursuant to the Master Warehouse Lease.
SSC subleases to the Company three store locations that are owned by
affiliates of SSC under a Master Sublease. The Master Sublease provides for an
annual base rent of $1.148 per square foot. Beginning in fiscal 1992, the Master
Sublease also provides for the payment of percentage rent by the Company equal
to 3% of the amount by which Total Sales for all of the three stores exceed the
aggregate Total Sales for such stores in fiscal 1991. For fiscal 1996 the
Company recorded expense to SSC, including contingent rent, of $640,439 pursuant
to the Master Sublease.
Both Master Leases have a term of five years which began in June 1991,
and are renewable thereafter, by individual location, at the option of the
Company, for five additional renewal terms of five years each. The Company
exercised the first renewal to extend both Master Leases during fiscal 1996.
This extension causes both Master Leases to expire on July 31, 2001 with four
five-year renewal terms remaining for each leased location. The Master Sublease
provides for an initial five-year term which began in June 1991 and is renewable
for generally at least five additional renewal terms of five years each, by
individual locations, at the option of the Company. The Company has exercised
renewals for each store under the Master Sublease to cause the Master Sublease
terms to expire between May 31, 2001 and September 30, 2002 resulting in four
five-year renewal terms remaining. Each renewal term in the aforementioned
leases and subleases will be on the same terms as the initial term, except for
rent. For fiscal 1997 through 2001, the Master Store Lease and Master Sublease
provide for a minimum percentage rent of $1.00 per square foot. For each
succeeding five-year renewal term, the minimum percentage rent will increase by
$0.50 per square foot. In no event, commencing fiscal 1997, shall total rent be
less than 2% of Total Sales. The Master Warehouse Lease provides for additional
rent of $0.85 per square foot for fiscal years 1997 through 2001 and an
additional $0.30 per square foot for each succeeding five-year renewal term.
The Company also leases or subleases six warehouse facilities and a
trailer yard from SSC or affiliates of SSC. The warehouse facilities consist of
approximately 1,258,000 square feet for rents of $1.50 to $4.03 per square foot
with lease control ranging from 2001 through 2012. Generally, the lease renewal
terms are at the same terms and conditions as the original term except rent
which increases by $0.25 to $0.50 per square foot for the renewal terms. During
fiscal 1996, the Company closed three temporary warehouses consisting of
approximately 120,000 square feet. The Company also leases, from an affiliate of
SSC, a trailer yard of approximately 19 acres with lease control through April
2009 having rents that range from $25,000 to $30,000 per year during the
period of lease control.
33
<PAGE> 34
During fiscal 1996, the Company recorded expenses in the aggregate to SSC
and affiliates of SSC of $4,010,378 pursuant to these leases and assignments.
Additionally, the Company leases nine store locations from SSC or
affiliates of SSC, two of which were opened in fiscal 1996. Generally, the
leases provide for percentage rent equal to 2% of Total Sales in excess of a
specified sales level or base rent with base rents ranging from $2.25 to $6.00
per square foot for the initial term and provide lease control ranging from 2001
through 2036. Generally, the renewal terms are at the same terms and conditions
as the original term except rent which may increase for the renewal terms.
During fiscal 1996, the Company recorded expenses in the aggregate to SSC and
affiliates of SSC of $4,678,083 pursuant to these leases.
During fiscal 1996, the Company leased one additional store from an
affiliate of SSC. The lease expires January 31, 2007 and provides for percentage
rent equal to 2% of Total Sales subject to a minimum rent of $4.75 per square
foot with six additional renewal options of five years each. For fiscal 1996,
the Company recorded expenses to this affiliate of $125,522 for this lease.
In addition to the foregoing, SSC subleases one store location to the
Company under an agreement that provides for the payment of additional rent to
SSC in order for SSC to recover the costs of the initial acquisition of the
leasehold interest. The sublease has an initial term expiring in fiscal 2000 and
provides for rent in the amount of 2% of Total Sales, with a minimum rent equal
to $2.00 per square foot and provides five additional five-year renewal terms.
During fiscal 1996, the Company recorded expenses in the aggregate to SSC of
$210,457 pursuant to this sublease.
Effective August 1995, SSC acquired one of the Company's unrelated
party store leases. The lease term expires April 30, 2002, has a base rent of
$1.53 per square foot and provides for one additional renewal term of ten years
under the same terms and conditions as the current lease term. For fiscal 1996,
the Company recorded expenses to SSC of $195,162 for this lease.
Effective January 1, 1996, the Company subleased from SSC a lease
previously assigned to the Company by SSC to enable SSC to recover the costs of
remodeling the demised premises. The Company's sublease expires December 31,
2007 and provides for percentage rent equal to 2% of Total Sales in excess of a
minimum base rent of $4.50 per square foot with three additional renewal terms
of five years each. For fiscal 1996, the Company recorded expenses to SSC of
$211,570 for this sublease.
The Company has entered into leases for one additional store location
from SSC and one additional store location from an affiliate of SSC which are to
open in fiscal 1997. These leases provide for percentage rent equal to 2% of
Total Sales in excess of a specified sales level or base rent with base rents
ranging from $5.50 to $7.00 per square foot for the initial term and provide
lease renewal terms of three five-year terms and four five-year terms,
respectively. Generally, the renewal terms are at the same terms and conditions
as the original term except rent which may increase for the renewal terms.
SSC operates a chain of furniture stores, four of which operate in
separate space subleased from the Company at four of its store locations. Each
of these furniture store subleases (the "Furniture Subleases") are for a term
concurrent with the respective lease between the Company and
34
<PAGE> 35
a third party landlord. Each Furniture Sublease provides for the payment by SSC
of base rent and other charges in amounts at least equal to its pro rata share
based on square footage and its pro rata share of any percentage rent based on
its gross sales. Effective January 1, 1996, one of these Furniture Subleases was
terminated, and as a result the furniture store now subleases directly from
SSC. For fiscal 1996, SSC paid to the Company an aggregate of $960,517
pursuant to these Furniture Subleases.
LICENSE AGREEMENTS WITH AFFILIATES
The Company operates as licensee the apparel, housewares and domestic
departments in two department stores operated by The Valley Fair Corporation
("Valley Fair") in New Jersey. SSC controls Valley Fair by virtue of certain
common officers and directors and its ownership of 78.2% of the outstanding
stock of Valley Fair and the ownership by an affiliate of 14.8% of such stock,
the balance of which stock is publicly owned. The Company pays Valley Fair a
license fee of 7.3% of the net sales of the departments for occupancy and 3.7%
of net sales for advertising, against an annual aggregate minimum of $733,000
for both stores. The Company uses employees of Valley Fair to operate the
departments and reimburses Valley Fair for all costs associated with such
employees. The aggregate license fees, including advertising, paid by the
Company to Valley Fair during fiscal 1996 were $2,568,181.
Valley Fair's wholly owned subsidiary, L.F. Widmann, Inc. ("Widmann"),
has entered into a license agreement to operate the health and beauty aids
departments in the Company's stores. The license agreement, as amended, expires
in June of 1997. Widmann pays annual license fees to the Company based on 5.0%
of net sales. Widmann is required to reimburse the Company 2% of its sales for
advertising and 2.9% of its sales for administrative expenses. The license
fees paid by Widmann to the Company during fiscal 1996 were $1,941,879
SSC owns 50% of the stock of Shonac Corporation ("Shonac"), and the
remaining 50% is owned by certain members of the management of Shonac and their
families. The Company has license agreements with Shonac for the operation of
the shoe departments in all of the Company's stores. The agreements expire in
the year 2004. Under the terms of the agreements as amended, Shonac pays a
license fee to the Company in an amount approximating 11% of its net sales in
the Company's stores. Shonac is required to reimburse the Company 0.9% of its
sales for administrative expenses. Shonac is also required to reimburse the
Company 10% of the Company's aggregate costs for advertising expenses. The
aggregate license fees paid by Shonac to the Company for fiscal 1996 were
$13,219,936.
MERCHANDISE TRANSACTIONS WITH AFFILIATES
The Company from time to time purchases merchandise from affiliates of
SSC. Some of such affiliates manufacture, import and wholesale apparel as their
principal business. The members of the Company's merchandising staff use these
sources and make their purchasing decisions in the same manner as with
unaffiliated sources. Any merchandise purchased from such sources is on terms at
least as favorable to the Company as could be obtained in an arm's-length
transaction with an unaffiliated third party, and in certain instances, the
Company is given terms preferential to those available to unaffiliated
customers. Total purchases by the Company
35
<PAGE> 36
from SSC and affiliates for fiscal 1996 were $6,620,539, representing 1.0% of
the Company's total purchases during the fiscal year.
Certain affiliates of SSC from time to time purchase merchandise from
the Company, in some instances on a regular basis. Such purchases are generally
made from merchandise in the Company's warehouse inventory at prices equal to
the Company's cost plus a handling fee of up to 11.0%. Steinbach's Inc., an S
Corp owned by affiliates of SSC, purchased $304,170 of merchandise from the
Company during fiscal 1996. Steinbach's operated 29 department stores on the
East Coast until its operations were sold to a third party in January 1996.
SERVICES AGREEMENTS
The Company shares with SSC and its affiliates certain incidental
support personnel and services for the purpose of achieving economies of scale
and cost savings. These shared services include certain architectural, legal,
advertising, buying and administrative services. The Company and SSC have
entered into a Corporate Services Agreement that sets forth the terms for
payment of the costs of these shared services. The Company believes that it is
able to obtain such services at a cost which is equal to or below the cost of
providing such services by itself or obtaining such services from unaffiliated
third parties. For fiscal 1996, the Company paid SSC or its affiliates
$1,362,026 for such services and the Company was reimbursed $180,458 by SSC and
its affiliates for such services. The Corporate Services Agreement also provides
for participation by the Company in the self-insurance program maintained by SSC
on the same basis as previous participation by the Division. Under that program,
the Company is self-insured for purposes of personal injury and property damage,
motor vehicle and Ohio workers' compensation claims up to various specified
amounts, and for casualty losses up to $100,000. Claims and losses in excess of
the specified amounts are covered by stop-loss or excess liability policies
maintained by SSC, which include the Company as a named insured. SSC maintains
reserves and pays claims for self-insured amounts under the program and will
continue to do so with respect to the Company's participation in the program.
SSC charges its divisions, affiliates and the Company premiums based, among
other factors, on loss experience, and its actual payroll and related costs
for administering the program. For fiscal 1996, the Company paid SSC
$5,629,667 for participation in the program.
36
<PAGE> 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
14(a)(1) FINANCIAL STATEMENTS
The documents listed below are filed as part of this Form 10-K and
begin on Page F-1:
<TABLE>
<CAPTION>
Page in
Form
----
10-K
- ----
<S> <C>
Report of Independent Accountants F - 1
Consolidated Balance Sheets at August 3, 1996 and July 29, 1995 F - 2
Consolidated Statements of Income for the years ended August 3,
1996, July 29, 1995, and July 30, 1994 F - 3
Consolidated Statements of Shareholders' Equity for the years ended
August 3, 1996, July 29, 1995, and July 30, 1994 F - 4
Consolidated Statements of Cash Flows for the years ended August 3,
1996, July 29, 1995, and July 30, 1994 F - 5
Notes to the Consolidated Financial Statements F - 6
14(a)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
The schedule listed below is filed as part of this Form 10-K and begin
on Page S-1:
Schedule II. Valuation and Qualifying Accounts and Reserves S-1
</TABLE>
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the required
information is included in the financial statements or the notes
thereto.
14(a)(3) EXHIBITS:
See Index to Exhibits which begins on Page E-1.
14(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended August 3, 1996.
37
<PAGE> 38
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.
VALUE CITY DEPARTMENT STORES, INC.
Date: October 31, 1996 By: *
--------------------------
(Jay L. Schottenstein, Chairman)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* Chairman of the 10/31/96
- --------------------------- Board of Directors
(Jay L. Schottenstein) (Principal Executive Officer)
* Vice Chairman of the 10/31/96
- --------------------------- Board of Directors
(Saul Schottenstein) Director
* President, General Merchandise 10/31/96
- --------------------------- Manager and Director
(George A. Iacono)
/s/ Robert M. Wysinski Senior Vice President, Secretary 10/31/96
- --------------------------- and Treasurer (Principal
(Robert M. Wysinski) Financial Officer)
Director
* Controller, Assistant Treasurer 10/31/96
- --------------------------- and Assistant Secretary (Principal
(Richard L. Walters) Accounting Officer)
* Director 10/31/96
- ---------------------------
(Geraldine Schottenstein)
* Director 10/31/96
- ---------------------------
(Jon P. Diamond)
* Director 10/31/96
- ---------------------------
(Norman Lamm)
* Director 10/31/96
- ---------------------------
(Richard Gurian)
* Director 10/31/96
- ---------------------------
(Robert L. Shook)
<FN>
*By:/s/ Robert M. Wysinski
----------------------
Robert M. Wysinski
(Attorney-in-Fact)
</TABLE>
38
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Value City
Department Stores, Inc.:
We have audited the consolidated financial statements and
financial statement schedule of Value City Department Stores, Inc. (a majority
owned subsidiary of Schottenstein Stores Corporation), its partnerships and its
wholly owned subsidiaries (the Company) as listed in Item 14(a) of this Form
10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Value City Department Stores, Inc., its partnerships and its wholly owned
subsidiaries as of August 3, 1996 and July 29, 1995 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended August 3, 1996 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
Coopers & Lybrand L.L.P.
Columbus, Ohio
October 28, 1996
F - 1
<PAGE> 40
CONSOLIDATED BALANCE SHEETS
at August 3, 1996 and July 29, 1995
(in thousands, except share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $10,484 $17,374
Accounts receivable, net 4,525 3,422
Receivables from affiliates 769 1,240
Inventories 261,370 219,476
Prepaids and other 8,569 9,583
Deferred income taxes 8,928 6,844
-------- --------
TOTAL CURRENT ASSETS 294,645 257,939
PROPERTY AND EQUIPMENT, AT COST:
Furniture, fixtures and equipment 129,081 115,281
Leasehold improvements 78,217 55,470
Building 4,100 -
Capital leases 8,973 2,607
-------- --------
220,371 173,358
Accumulated depreciation and amortization (87,610) (76,837)
-------- --------
Property and equipment, net 132,761 96,521
NOTES RECEIVABLE - NON-CURRENT 2,613 653
OTHER ASSETS 6,991 6,774
-------- --------
TOTAL ASSETS $437,010 $361,887
======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $70,711 $49,605
Accounts payable to affiliates 7,402 5,862
Accrued expenses:
Compensation 9,056 8,879
Taxes 12,216 9,629
Other 23,587 19,056
Current maturities of long-term obligations 10,836 10,796
-------- --------
TOTAL CURRENT LIABILITIES 133,808 103,827
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 46,942 20,853
DEFERRED INCOME TAXES 3,888 2,926
MINORITY INTEREST IN PARTNERSHIPS - 1,363
EXCESS NET ASSETS OVER COST OF ACQUIRED BUSINESS 927 2,317
SHAREHOLDERS' EQUITY:
Common shares, without par value;
80,000,000 authorized; issued, including
Treasury shares, 32,058,745 shares
and 32,050,745 shares, respectively 109,450 109,385
Contributed capital 9,688 9,704
Retained earnings 135,504 113,786
Less deferred compensation expense, net (368) (1,043)
Treasury shares, at cost, 368,600 shares and
148,900 shares, respectively (2,829) (1,231)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 251,445 230,601
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $437,010 $361,887
======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 2
<PAGE> 41
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
for the years ended August 3, 1996, July 29, 1995 and July 30, 1994
(in thousands, except per share amounts)
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
53 Weeks 52 Weeks 52 Weeks
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales, excluding sales of licensed departments $954,308 $871,949 $864,855
Cost of sales (599,460) (547,377) (535,705)
-------- -------- --------
Gross profit 354,848 324,572 329,150
Selling, general and administrative expenses (337,097) (317,000) (282,527)
License fees from affiliates 15,162 13,958 12,504
Other operating income 3,300 3,093 3,110
Restructuring charges - (414) -
-------- -------- -------
Operating profit 36,213 24,209 62,237
Amortization of excess net assets over cost 1,390 1,451 1,511
Interest expense, net (1,328) (1,921) (2,439)
Other income (expense), net 33 (15) (263)
-------- -------- -------
Income before income taxes and minority interest 36,308 23,724 61,046
Minority interest in partnerships (41) (232) (318)
-------- -------- -------
Income before income taxes 36,267 23,492 60,728
Provision for income taxes (14,549) (9,673) (21,792)
-------- -------- -------
Net income $21,718 $13,819 $38,936
======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
Earnings per share $0.68 $0.43 $1.21
======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 3
<PAGE> 42
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
for the years ended August 3, 1996, July 29, 1995 and July 30, 1994
(in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Shares
----------------
Common Deferred
Common Shares Common Contributed Retained Compensation Treasury
Shares in Treasury Shares Capital Earnings Expense Shares Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1993 32,033 $109,215 $9,737 $61,031 $(2,464) $177,519
Net income 38,936 38,936
Exercise of stock options 16 139 28 167
Tax benefit realized on
vested restricted shares 46 46
Amortization of deferred
compensation expense 710 710
----------------------------------------------------------------------------------------------------------
BALANCE, JULY 30, 1994 32,049 109,354 9,811 99,967 (1,754) 217,378
Net income 13,819 13,819
Exercise of stock options 2 31 7 38
Tax liability incurred on
vested restricted shares (114) (114)
Repurchase of common shares 149 $(1,231) (1,231)
Amortization of deferred
compensation expense 711 711
----------------------------------------------------------------------------------------------------------
BALANCE, JULY 29, 1995 32,051 149 109,385 9,704 113,786 (1,043) (1,231) 230,601
Net income 21,718 21,718
Exercise of stock options 8 65 7 72
Tax liability incurred on
vested restricted shares (23) (23)
Repurchase of common shares 220 (1,598) (1,598)
Amortization of deferred
compensation expense 675 675
----------------------------------------------------------------------------------------------------------
BALANCE, AUGUST 3, 1996 32,059 369 $109,450 $9,688 $135,504 $(368) $(2,829) $251,445
====================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 4
<PAGE> 43
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended August 3, 1996, July 29, 1995 and July 30, 1994
(in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1996 1995 1994
53 Weeks 52 Weeks 52 Weeks
- -----------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 21,718 $ 13,819 $ 38,936
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 23,903 19,341 16,666
Amortization of excess net assets over cost (1,390) (1,451) (1,511)
Minority interest in partnerships 41 232 318
Deferred income taxes (1,122) 4,130 2,616
(Gain) loss on disposal of property and equipment (33) 15 365
Restructuring charge -- 414 --
Change in working capital, assets
and liabilities:
Receivables (632) (961) 1,432
Inventories (41,894) 1,030 796
Prepaids and other (3,045) (8,201) (1,911)
Accounts payable 22,646 (11,452) (13,172)
Income taxes payable -- -- (720)
Accrued expenses 1,234 11,594 (2,498)
-------- -------- --------
Net cash provided by operating activities 21,426 28,510 41,317
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (45,407) (28,592) (21,450)
Proceeds from sale of property and equipment 65 27 277
Notes receivable - non-current (1,960) (653) --
Other assets (376) (457) --
-------- -------- --------
Net cash used in investing activities (47,678) (29,675) (21,173)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of common shares 65 31 139
Net borrowings under
line-of-credit agreements 33,000 -- --
Principal payments of long-term obligations (10,777) (10,702) (20,708)
Purchase of treasury shares (1,598) (1,231) --
Distributions to partners in minority
partnerships, net (1,328) (225) (183)
-------- -------- --------
Net cash provided by (used in)financing
activities 19,362 (12,127) (20,752)
-------- -------- --------
Net decrease in cash and equivalents (6,890) (13,292) (608)
Cash and equivalents, beginning of year 17,374 30,666 31,274
-------- -------- --------
Cash and equivalents, end of year $ 10,484 $ 17,374 $ 30,666
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
<PAGE> 44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
1. BUSINESS OPERATIONS AND BASIS OF PRESENTATION:
The accompanying consolidated financial statements include the accounts of Value
City Department Stores, Inc. ("VCDS") and its wholly owned subsidiaries and for
fiscal 1995 and 1994, two partnerships. These entities are herein referred to
collectively as the "Company". The Company operates a chain of full-line
off-price department stores, principally under the name "Value City". As of
August 3, 1996 a total of 86 stores were open, located principally in Ohio (24
stores) and Pennsylvania (18 stores). The remaining stores are dispersed among
12 other states in the Midwest and Eastern sections of the country.
To facilitate comparisons with the current year, certain amounts in prior years'
financial statements have been reclassified to conform to the current year
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR:
During 1996, the Company changed its fiscal year from the last Saturday in July
to the Saturday closest to July 31 to conform to the National Retail
Federation's suggested retail calendar. As a result, fiscal year 1996 has 53
weeks. Reference herein to the years ended July 29, 1995 and July 30, 1994
include 52 weeks.
CONSOLIDATION:
The consolidated financial statements include the accounts of the Company,
including 75% owned partnerships in fiscal years 1995 and 1994, after
elimination of material intercompany accounts and transactions. During 1996 the
Company bought the 25% minority interests for approximately $1,328,000 which
represented the net book value of the minority interests in those partnerships.
CASH EQUIVALENTS:
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents included overnight
repurchase agreements of $1,432,000, $4,278,000 and $13,344,000 at August 3,
1996, July 29, 1995 and July 30, 1994, respectively.
INVENTORIES:
Merchandise inventories are stated at the lower of cost or market using the
retail method.
PRE-OPENING EXPENSES:
Pre-opening expenses are charged to operations ratably over the first twelve
months of a new store's operations. Pre-opening costs expensed were $4,059,000,
$2,064,000 and $1,751,000 for fiscal years 1996, 1995 and 1994, respectively.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation and amortization are
recognized principally on the straight-line method in amounts adequate to
amortize costs over the estimated useful lives of the respective assets.
Leasehold improvements are amortized over the shorter of their useful lives or
lease term. The estimated useful lives by class of asset are:
Buildings 39 years
Furniture, fixtures and equipment 5 to 10
years
Leasehold improvements 10 to 20 years
Repairs and maintenance are charged to expense as incurred; renewals and
betterments which significantly extend the useful lives of existing property and
equipment are capitalized. The cost of assets sold or retired and the related
accumulated depreciation or amortization are removed from the related accounts
with any resulting gain or loss included in net income.
NOTES RECEIVABLE:
To facilitate acquisitions of two store leases, the Company advanced funds to
two third party landlords in exchange for notes receivable bearing interest at
various levels above the bank prime lending rate with maturities from two to
seven years. The notes are collateralized by the properties under lease.
F - 6
<PAGE> 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
REVENUE RECOGNITION:
Layaway sales are recorded on the deposit method, whereby the sale is recognized
once the customer has paid for the merchandise in full.
ADVERTISING EXPENSE:
The cost of advertising is expensed as incurred. During fiscal years 1996, 1995
and 1994, advertising expense was $36,020,000, $34,129,000 and $28,851,000,
respectively.
EXCESS NET ASSETS OVER ACQUISITION COST OF
ACQUIRED BUSINESS:
The excess of net assets over acquisition cost of acquired business is being
amortized over seven years and will be fully amortized in the third quarter of
fiscal 1997.
In fiscal year 1995, the Company wrote off $262,000 related to the closing of a
former GB store.
RESTRUCTURING CHARGES
During fiscal year 1995, the Company recognized $414,000 of net expenses for
certain employee termination benefits and other exit costs related to closing
two stores pursuant to their lease expirations. Net charges to the reserve for
such items aggregated $300,000 in 1995 and $114,000 in 1996. The operating
losses to close these stores, exclusive of the restructuring charge, aggregated
approximately $600,000 during the year ended July 29,1995.
EARNINGS PER SHARE:
Earnings per share are computed by dividing net income by the weighted average
number of common shares outstanding, including the effect of dilutive stock
options.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") periodically issues
Statements on Financial Accounting Standards ("SFAS"), some of which require
implementation by a date falling within or after the close of the Company's
fiscal year.
Financial Accounting Standard No. 121 ("SFAS 121") - "Accounting for the
impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and
Financial Accounting Standard No. 123 ("SFAS 123") - "Accounting for Stock-Based
Compensation" are effective for fiscal year 1997. The adoption of SFAS 121 is
not expected to have a significant impact on the results of operations or
financial condition of the Company. The Company will adopt the new disclosure
requirements of SFAS 123 in 1997.
3. RELATED PARTY TRANSACTIONS
The Company purchases merchandise from and sells merchandise to affiliates of
Schottenstein Stores Corporation ("SSC"), direct owner of approximately 65% of
the Company's common shares. Sales of merchandise from the Company's warehouses
generally are at cost plus handling charges. The Company also purchases certain
directly shipped merchandise on behalf of affiliates of SSC. Such merchandise is
billed by the Company to affiliates at cost plus delivery charges. The related
party transactions are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Purchases of merchandise
from affiliates $ 6,621 $4,446 $719
Merchandise sold to
affiliates, including
handling charges 354 1,348 50
Merchandise purchased
on behalf of and shipped
directly to affiliates, at
cost plus delivery charges 46 - -
- ----------------------------------------------------------------------
</TABLE>
Not included in the preceding table are
F - 7
<PAGE> 46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-----------------------------------------------
purchases made through SSC's Importing Division which charges the Company its
cost plus an administrative charge.
The Company has license agreements with L.F. Widmann, Inc. (Widmann) and Shonac
Corporation (Shonac), both related parties as a result of significant ownership
of such entities by SSC. The license agreement with Widmann for the operation of
health and beauty departments in certain of the Company's stores expires in
1997. The license agreement with Shonac is for operation of shoe departments in
all of the Company's stores and expires in 2004. Both license agreements provide
for fees based on percentages of sales, as defined. License fees earned are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Widmann $1,942 $2,339 $2,315
Shonac 13,220 11,619 10,189
- --------------------------------------------------------
</TABLE>
The Company also leases certain store and warehouse locations owned by SSC as
described in Note 4.
Accounts receivable from and payable to affiliates principally result from
commercial transactions with entities owned or controlled by SSC or intercompany
transactions with SSC.
The Company shares certain personnel, administrative and service costs with SSC
and its affiliates. The costs of providing these services are allocated among
the Company, SSC and its affiliates without a premium. The allocated amounts are
not significant. SSC does not charge the Company for general corporate
management services. In the opinion of the Company and SSC management, the
aforementioned charges are reasonable.
The Company participates in SSC's self insurance program for general liability,
casualty loss and Ohio workers' compensation. The Company expensed $6,696,000,
$6,832,000 and $5,330,000 in fiscal years 1996, 1995 and 1994, respectively, for
such coverage.
During 1996, the Company paid $1,120,000 to a private charitable foundation
controlled by the Schottenstein family.
4. LEASES:
The Company operates stores and warehouses under various arrangements with
related and unrelated parties. Such leases expire through 2016 and in most cases
provide for renewal options. Generally, the Company is required to pay real
estate taxes, maintenance, insurance and contingent rentals based on sales in
excess of specified levels.
The Company has entered into several leasing agreements with SSC and affiliates.
Under two Master Lease Agreements, as amended, the Company leases 14 store
locations and three other facilities owned by SSC for an annual base rental of
$2,980,000 and contingent rents based on aggregate sales in excess of specified
sales levels for the store locations. The Company leased or subleased from SSC
or affiliates of SSC 16 store locations, six warehouse facilities and a parcel
of land for specified base rentals, plus contingent rents based on sales in
excess of specified sales levels for the store locations. During fiscal 1996,
the Company terminated one warehouse lease assigned by SSC and the agreements on
two warehouses leased or subleased from affiliates of SSC. These three
facilities were considered temporary warehouse space and aggregated less than
120,000 square feet. Leases and subleases with related parties are for initial
periods generally ranging from five to twenty years, provide for renewal options
and require the Company to pay real estate taxes, maintenance and insurance.
The Company has a capital lease agreement for transportation equipment that
expires in 1997. During fiscal 1996, the Company entered into two additional
capital lease agreements that expire in 2018 and 2037 for two new store
locations. Capital leases are amortized over the terms of the related leases.
The accumulated amortization for the capital leases was $2,172,000 and
$1,651,000 at August 3, 1996 and July 29, 1995, respectively.
Future minimum lease payments required under the aforementioned leases,
exclusive of real estate taxes, insurance and maintenance costs, at August 3,
1996 are as follows:
F - 8
<PAGE> 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-----------------------------------------------
<TABLE>
<CAPTION>
Operating Leases
----------------
Fiscal Related
Year Capital Unrelated Party
Ending Leases Party Leases Leases Total
- ----------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
1997 $1,009 $14,972 $14,332 $30,313
1998 379 14,094 13,014 27,487
1999 337 13,183 13,024 26,544
2000 338 11,477 12,942 24,757
2001 337 10,349 12,966 23,652
Future Years 9,380 51,397 50,109 110,886
- -----------------------------------------------------------
</TABLE>
Total minimum
lease payments 11,780
Less amount
representing
interest (7,242)
------
Present value
of minimum
lease payments 4,538
Less current
portion (656)
------
$3,882
======
The Company operates apparel, houseware and domestic departments in two stores
owned by a related party under a license agreement and pays a license fee of 11%
of sales against an aggregate minimum license fee of $733,000 per annum.
Two-thirds of this fee is charged to rent expense and the remainder is charged
to advertising expense.
<TABLE>
<CAPTION>
The composition of rental expense is:
1996 1995 1994
- -----------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Minimum rentals:
Unrelated parties $13,222 $11,625 $10,205
Related parties 11,400 9,156 7,733
Contingent rentals:
Unrelated parties 2,288 2,580 2,962
Related parties 1,757 1,594 1,750
------- ------- -------
Total $28,667 $24,955 $22,650
======= ======= =======
</TABLE>
5. LONG-TERM OBLIGATIONS AND NOTES PAYABLE:
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
(in thousands)
<S> <C> <C>
Senior notes $20,000 $30,000
Demand note payable
subsequently refinanced 33,000 -
Capital lease obligations 4,538 1,215
Other 240 434
------- -------
57,778 31,649
Less current maturities (10,836) (10,796)
------- -------
$46,942 $20,853
======= =======
- ------------------------------------------------------------
</TABLE>
The senior notes require principal payments of $10.0 million annually on October
1, 1996 and 1997 and bear interest at a fixed rate of 5.73% per annum.
The Company is in the process of completing a private placement for $50.0
million of senior unsecured notes. The Company has obtained commitments from
investors for this private placement. The proceeds will be used to repay demand
notes payable. Accordingly, such demand notes are classified as long-term
obligations at August 3, 1996. The senior unsecured notes require principal
payments of $2,143,000 in December 1997 and 1998 and payments of $9,143,000
annually beginning December 1999 through December 2003 and bear interest at an
average fixed rate of 7.2% per annum.
The terms of the senior notes and the senior unsecured notes require the Company
to comply with certain restrictive covenants, maintain minimum income and net
worth levels and meet certain financial ratio tests during the terms of the
debt. The most restrictive of these covenants is that the Company's consolidated
funded debt (as defined in the debt agreements) may not exceed 50% of
consolidated total capitalization (as defined). At August 3, 1996, the Company
was in compliance with the required covenants.
Other long-term obligations represent an Industrial Revenue Bond with interest
related to the prime rate and is payable through November 1997.
The book value of notes payable and long-term debt approximates fair value.
Aggregate maturities of long-term obligations excluding capital leases at August
3, 1996 are:
<TABLE>
<CAPTION>
Fiscal Year
Ending (in thousands)
- --------------------------------------------------------
<S> <C>
1997 $10,180
1998 12,203
1999 2,143
2000 9,143
2001 9,143
Future years 10,428
-------
$53,240
=======
</TABLE>
At August 3, 1996, the Company had available from its bank a $75.0 million
credit facility. All borrowings under the credit facility bear interest at or
below the prime lending rate depending on certain borrowing elections made
F - 9
<PAGE> 48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-----------------------------------------------
by the Company. At August 3, 1996, direct borrowings aggregated $33.0 million,
$21.5 million of letters of credit were issued and outstanding for merchandise
purchases and $20.5 million was available under the facility. During October
1996, the Company's credit facility was increased by $15.0 million to $90.0
million with no changes in terms or fees. The weighted average interest rate on
short-term borrowings during fiscal years 1996 and 1995 was 7.30% and 7.90%,
respectively.
6. BENEFIT PLANS:
The Company participates in the SSC sponsored 401(k) savings plan (the "401(k)
Plan"). Full-time employees who have attained twenty-one years of age and have
completed one year of service can contribute up to fifteen percent of their
salaries to the 401(k) Plan on a pre-tax basis, subject to IRS limitations. The
Company will match up to three percent of participants' eligible compensation.
Additionally, the Company contributes a discretionary profit sharing amount to
the 401(k) Plan each year. The Company incurred costs associated with the 401(k)
Plan of $3,197,000, $2,971,000 and $2,687,000 for fiscal years 1996, 1995 and
1994, respectively. Certain employees of the Company are covered by
union-sponsored, collectively bargained, multi-employer pension plans, the costs
of which are not material to the consolidated financial statements.
During 1992, the Company implemented an Associate Stock Purchase Plan.
Eligibility requirements are similar to the 401(k) Plan. Eligible employees can
purchase common shares of the Company through payroll deductions. The Company
will match 15% of employee investments up to a maximum investment level. Plan
costs to the Company for fiscal years 1996, 1995 and 1994 were not material to
the consolidated financial statements.
7. SHAREHOLDERS' EQUITY:
During fiscal year 1993, the Company issued common shares to certain key
employees pursuant to its 1992 Bonus Stock Plan (the "1992 Plan"). The 1992 Plan
consists of a one time grant of restricted shares issued pursuant to a form of
restricted stock agreement between the Company and the employee. As a result,
the Company recorded the market value of the shares at the date of grant of
$2,100,000 as deferred compensation expense. The agreements condition the
vesting of the shares upon continued employment with the Company with such
restriction expiring as to 20% of the shares on each of the five anniversary
dates of the grant. Deferred compensation is charged to income on a
straight-line basis over the period during which the restrictions lapse.
Also during fiscal year 1993, the Company adopted a Non-employee Director Stock
Option Plan (the" Non-employee Director Plan") which provides for the issuance
of options to purchase up to 50,000 common shares. Prior to March 30, 1995, one
option to purchase 2,000 common shares was automatically granted to each
non-employee director on the first New York Stock Exchange ("NYSE") trading day
in each calendar year for five years beginning in fiscal year 1993. An
amendment, effective March 30, 1995, increased the grant to one option to
purchase 1,000 common shares on the first NYSE trading day in each calendar
quarter. The exercise price for each option is the fair market value of the
common shares on the date of grant. All options become exercisable one year
after the grant date and remain exercisable for a period of ten years from the
grant date, subject to continuation of the optionholder's service as a director
of the Company.
The Company adopted the 1991 Stock Option Plan which provides for the grant of
options to purchase up to 1,800,000 common shares. Such options are exercisable
20% per year on a cumulative basis and remain exercisable for a period of ten
years from the date of grant.
On March 30, 1995, The Stock Options Committee ("the Committee") of the Board of
Directors determined that the outstanding options which had been granted
previously at exercise prices of $9.75 and higher would no longer provide
sufficient incentives as a result of the decline in market price of the
Company's common shares. Accordingly, the Committee authorized the "repricing"
of the originally issued options by canceling the outstanding options and
granting the same number of new options. The new options were priced at $8.06,
which, in accordance with the formula in the stock option plan, was determined
by
F - 10
<PAGE> 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-----------------------------------------------
averaging the low of $7.88 and the high of $8.25, the trading prices of the
Company's common shares on March 30, 1995.
The following is a summary of stock option activity since July 31, 1993:
<TABLE>
<CAPTION>
Option Price Out- Exer- Available
per share standing cisable for grant
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance At
July 31, 1993* $9.75-$18.63 788,920 154,568 64,000
Granted* 13.69-15.31 63,500 (63,500)
Exercised 9.75 (15,500)
Canceled (42,350) 42,350
Increase
available
shares 300,000
- ---------------------------------------------------------------
Balance At
July 30, 1994 9.75-18.63 794,570 291,362 342,850
Granted* 7.31-8.13 589,200 (589,200)
Exercised 9.75 (2,000)
Canceled (40,250) 40,250
Increase
available
shares 600,000
- ----------------------------------------------------------------
Balance At
July 29, 1995 7.31-8.13 1,341,520 438,876 393,900
Granted 5.87-10.44 362,500 (362,500)
Exercised 8.06-8.13 (8,000)
Canceled (140,700) 140,700
- ----------------------------------------------------------------
Balance At
August 3, 1996 $8.06-$10.44 1,555,320 678,900 172,100
========= ======= =======
<FN>
* "Repriced" at $8.06 on March 30, 1995
- ----------------------------------------------------------------
</TABLE>
On December 21, 1994, the Board of Directors authorized the purchase of up to
$5,000,000 of the Company's common shares. As of July 29, 1995, the Company had
acquired 148,900 shares at an average price of $8.27 per share for a total cost
of $1,231,000. Pursuant to this plan, the Company acquired a total of 368,600
shares at an average price of $7.67 per share for a total of $2,829,000.
8. COMMITMENTS AND CONTINGENCIES:
The Company is involved in various legal proceedings that are incidental to the
conduct of its business. In the opinion of management, the amount of any
liability with respect to these proceedings will not be material.
9. INCOME TAXES:
Income taxes are computed in accordance with SFAS No. 109, "Accounting for
Income Taxes".
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $11,315 $5,272 $17,247
State and local 2,588 1,014 4,042
------- ------ -------
13,903 6,286 21,289
Deferred:
Federal 474 2,865 1,447
State and local 172 522 (944)
------- ------ -------
646 3,387 503
------- ------ -------
Income tax expense $14,549 $9,673 $21,792
======= ====== =======
- ----------------------------------------------------------
</TABLE>
The provision (benefit) for deferred income taxes includes the following
amounts.
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Type of temporary differences
Basis differences
in inventory $(279) $70 $44
Store closing reserve 21 45 1,334
Depreciation 526 394 301
Amortization of excess
net assets over cost 572 612 645
Change in valuation
allowance - - (1,588)
Other (194) 2,266 (233)
---- ------ ------
$646 $3,387 $503
==== ====== ======
- -----------------------------------------------------------
</TABLE>
A reconciliation of the expected income taxes based upon the statutory federal
rate and the effective rate for the years ended August 3, 1996, July 29, 1995
and July 30, 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Income tax expense at
federal statutory rate $12,693 $8,222 $21,255
Targeted jobs credit - (495) (455)
State and local taxes, net 1,794 1,344 3,279
Change in valuation
allowance - - (1,588)
Change in estimates - 508 -
Effect of tax law
changes as applied to prior
year - - (629)
Other 62 94 (70)
------- ------ -------
$14,549 $9,673 $21,792
======= ====== =======
- --------------------------------------------------------------
</TABLE>
F - 11
<PAGE> 50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-----------------------------------------------
The components of the net deferred tax asset as of August 3, 1996 and July 29,
1995 are:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------
(in thousands)
Deferred Tax Assets:
<S> <C> <C>
Basis differences in inventory $7,237 $6,055
Basis differences in fixed assets 2,467 1,440
Accrued expenses 1,616 810
Other state and local taxes 1,652 1,401
Excess net assets over cost of
acquired business 382 1,088
Deferred compensation 270 284
Other 1,617 938
------- ------
15,241 12,016
Deferred Tax Liabilities:
Depreciation (7,322) (6,098)
Prepaid expenses (838) (1,573)
Other (2,041) (427)
------- ------
(10,201) (8,098)
------- ------
Total net $5,040 $3,918
======= ======
- ----------------------------------------------------------
</TABLE>
The net deferred tax assets are recorded on the Company's consolidated balance
sheet as of August 3, 1996 and July 29, 1995 as follows:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------
(in thousands)
<S> <C> <C>
Current deferred tax assets $8,928 $6,844
Non-current deferred tax liability (3,888) (2,926)
------ ------
Net deferred tax assets $5,040 $3,918
====== ======
- ----------------------------------------------------------
</TABLE>
F - 12
<PAGE> 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-----------------------------------------------
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------------------
(in thousands, except per share amounts)
FISCAL YEAR ENDED AUGUST 3, 1996
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
10/28/95 2/3/96(1) 5/4/96 8/3/96
(13 weeks) (14 weeks) (13 weeks) (13 weeks)
----------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 217,790 $ 296,390 $ 207,620 $ 232,508
Cost of Sales (134,740) (184,833) (131,437) (148,450)
--------- --------- --------- ---------
Gross Profit 83,050 111,557 76,183 84,058
Selling, general and
administrative expenses (83,376) (89,523) (79,434) (84,764)
License fees and other
operating income 4,657 4,832 4,340 4,633
--------- --------- --------- ---------
Operating profit 4,331 26,866 1,089 3,927
Interest expense, net (446) (204) 13 (691)
Amortization of excess
net assets over cost 348 347 348 347
Other income, (expense) 40 3 4 (14)
--------- --------- --------- ---------
Income before minority interest 4,273 27,012 1,454 3,569
Minority Interest (41) -- -- --
--------- --------- --------- ---------
Income before income taxes 4,232 27,012 1,454 3,569
Provision for income
taxes (1,730) (10,841) (556) (1,422)
--------- --------- --------- ---------
Net income $ 2,502 $ 16,171 $ 898 $ 2,147
========= ========= ========= =========
Earnings per share $ 0.08 $ 0.51 $ 0.03 $ 0.07
========= ========= ========= =========
</TABLE>
FISCAL YEAR ENDED JULY 29, 1995
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
10/29/94 1/28/95(1) 4/29/95 7/29/95
(13 weeks) (13 weeks) (13 weeks) (13 weeks)
----------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 201,254 $ 275,677 $ 183,375 $ 211,643
Cost of Sales (124,220) (170,396) (115,154) (137,607)
--------- --------- --------- ---------
Gross Profit 77,034 105,281 68,221 74,036
Selling, general and
administrative expenses (72,732) (82,781) (77,261) (84,226)
License fees and other
operating income 4,357 4,163 3,950 4,167
--------- --------- --------- ---------
Operating profit 8,659 26,663 (5,090) (6,023)
Interest expense, net (402) (231) (679) (609)
Amortization of excess
net assets over cost 378 377 348 348
Other income, (expense) -- 3 -- (18)
--------- --------- --------- ---------
Income before minority interest 8,635 26,812 (5,421) (6,302)
Minority Interest (60) (187) 4 11
--------- --------- --------- ---------
Income before income taxes 8,575 26,625 (5,417) (6,291)
(Provision) Benefit for
income taxes (3,456) (10,705) 2,225 2,263
--------- --------- --------- ---------
Net income $ 5,119 $ 15,920 $ (3,192) $ (4,028)
========= ========= ========= =========
Earnings per share $ 0.16 $ 0.50 $ (0.10) $ (0.13)
========= ========= ========= =========
<FN>
(1) The results of operations for the quarters ended 2/3/96 and 1/28/95
include reductions of $4.4 million and $4.8 million, respectively, to
cost of sales representing the annual book to physical adjustment for
the physical inventory completed in the respective quarters.
</TABLE>
F - 13
<PAGE> 52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-----------------------------------------------
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 2,255 $ 2,409 $ 3,039
======= ======= =======
Income taxes $ 8,972 $ 8,493 $20,287
======= ======= =======
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1996, the Company entered into lease agreements for rent at two new store
locations that qualified for treatment as capital leases. Non-cash amounts of
$3,906,000 were capitalized as part of property and equipment and long-term
obligations in relation to these leases.
Liabilities of $5,992,000 were capitalized as property and equipment for real
estate improvements and construction at new stores as of August 3, 1996.
F - 14
<PAGE> 53
VALUE CITY DEPARTMENT STORES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
Balance at Charge to Balance at
Beginning Costs and End
Description Of Period Expenses Deductions (1) Of Period
- ----------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Allowance deducted
from asset to which
it applies:
Allowance for
doubtful accounts:
Year ended
July 30, 1994 $1,122 $377 $507 $992
Year ended
July 29, 1995 992 467 986 473
Year ended
August 3, 1996 473 294 276 491
Valuation allowance
against deferred taxes:
Year ended
July 30, 1994 1,606 (1,606) (2) 0 0
Year ended
July 29, 1995 0 0 0 0
Year ended
August 3, 1996 0 0 0 0
<FN>
(1) The deductions in Column D are amounts written off against the respective
reserve.
(2) Represents the elimination of a valuation allowance for state and local taxes.
</TABLE>
S - 1
<PAGE> 54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
VALUE CITY DEPARTMENT STORES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - Concluded
(dollars in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
Balance at Charge to Balance at
Beginning Costs and End
Description Of Period Expenses Deductions (1) Of Period
- ----------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Reserves
Store Closing
Reserve:
Year ended
July 30, 1994 $1,900 $0 $1,900 $0
Year ended
July 29, 1995 0 414 299 115
Year ended
August 3, 1996 115 (21) 94 0
<FN>
(1) The deductions in Column D are amounts written off against the respective
reserve.
</TABLE>
S - 2
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Exhibit
Index
No. Description Page No.
--- ----------- --------
<S> <C> <C>
3.1 First Amended and Restated Articles Previously filed as Exhibit 3.2 to Registration
of Incorporation of the Company. Statement on Form S-1 (file no. 33-40214)
filed April 29, 1991, and incorporated herein
by reference.
3.2 Code of Regulations of the Previously filed as Exhibit 3.3 to Registration
Company. Statement on Form S-1 (file no. 33-40214)
filed April 29, 1991, and incorporated herein
by reference.
10.1.1 Corporate Services Agreement, dated Previously filed on Exhibit 10.1.1 to Form
October 12, 1994, between the Company 10-Q (file no. 1-10767) filed December 12,
and Schottenstein Stores Corporation. 1994, and incorporated herein by reference.
10.1.2 Corporate Services Agreement, dated Previously filed as Exhibit 10.1.2 to
September 27, 1995 between Form 10-K (file no. 1-10767) filed
the Company and SSC. October 27, 1995, and incorporated
herein by reference.
10.1.3 Corporate Services Agreement, dated
October 1996 between the Company
and SSC.
10.2 License Agreement, dated June 5, 1991, Previously filed as Exhibit 10.2 to
between the Company and SSC Amendment No. 1 to Form S-1
re Service Marks. Registration Statement (file no. 33-40214)
filed June 6, 1991, and incorporated herein
by reference.
10.3 License Agreement, dated July 1989, Previously filed as Exhibit 10.3 to
between the Company, by assignment Form S-1 Registration Statement ( file no.
from SSC, and Shonac Corporation 33-40214) filed April 29, 1991, and
re shoe departments. incorporated herein by reference.
10.3.1 Amendments dated November 9, 1993 Previously filed as Exhibit 10.3.1 to
to License Agreement dated in July Form 10-K (file no. 1-10767) filed
1989, between the Company and Shonac October 26, 1994, and incorporated
Corporation re shoe departments. herein by reference.
</TABLE>
E - 1
<PAGE> 56
<TABLE>
<S> <C> <C>
10.3.2 Amendment dated 1995, to Previously filed as Exhibit 10.3.2 to
License Agreement dated in July 1989, Form 10-Q (file no. 1-10767) filed
between the Company and Shonac December 12, 1995, and incorporated
Corporation re shoe departments. herein by reference.
10.4 License Agreement, dated July 1, 1987, Previously filed as Exhibit 10.4 to
as amended, between the Company, by Form S-1 Registration Statement (file no
assignment from SSC, and L.F. Widmann, 33-40214) filed April 29, 1991, and
Inc. re health and beauty aids departments. incorporated herein by reference.
10.4.1 Amendment dated June 23, 1993 to Previously filed as Exhibit 10.4.1 to
License Agreement, dated July 1, 1987, Form 10-K (file no. 1-10767) filed
as amended, between the Company, by October 26, 1993, and incorporated
assignment from SSC, and L.F. Widmann, herein by reference.
Inc. re health and beauty aids departments.
10.4.2 Amendment dated September 2, 1993 to Previously filed as Exhibit 10.3.1 to
License Agreement dated July 1, 1987, as Form 10-K (file no. 1-10767) filed
amended, between the Company, by October 26, 1994, and incorporated
assignment from SSC, and L.F. Widmann, herein by reference.
Inc. re health and beauty aids departments.
10.4.3 Amendment dated December 5, 1995 to Previously filed as Exhibit 10.4.3 to
License Agreement dated July 1, 1987, as Form 10-Q (file no. 1-10767) filed
as amended, between the Company by December 12, 1995, and incorporated
assignment from SSC, and herein by reference.
L.F. Widmann, Inc. re health and
beauty aids department.
10.4.4 Letter Agreement dated May 1, 1996,
between the Company and L.F. Widmann,
Inc. extending the license agreement dated
July 1, 1987 to June 30, 1997.
10.6 Employment Agreement, dated April 26, Previously filed as Exhibit 10.6 to
1991, between George Iacono and Form S-1 Registration Statement (file no.
the Company. 33-40214) filed April 29, 1991, and
incorporated herein by reference.
10.7 Form of Indemnification Agreement, Previously filed as Exhibit 10.7 to
dated 1991, between the Company Amendment No. 1 to Form S-1
and its directors and executive officers. Registration Statement (file no. 33-40214)
filed June 6, 1991, and incorporated herein
by reference.
</TABLE>
E - 2
<PAGE> 57
<TABLE>
<S> <C> <C>
10.8 Form of Company's 1991 Stock Previously filed as Exhibit 10.8 to
Option Plan. Amendment No. 1 to Form S-1
Registration Statement (file no. 33-40214)
filed June 6, 1991, and incorporated herein
by reference.
10.9 Master Store Lease, dated April 25, 1991, Previously filed as Exhibit 10.9 to
between the Company, as lessee, and SSC, Form S-1 Registration Statement (file no.
as lessor, re fourteen stores. 33-40214) filed April 29, 1991, and
incorporated herein by reference.
10.9.1 First Amendment to Master Store Lease, Previously filed as Exhibit 10.9.1 to
dated February 1991, between the Form S-1 Registration Statement (file no.
Company, as lessee, and SSC, 33-47252) filed April 16, 1992, and
as lessor, re fourteen stores. incorporated herein by reference.
10.9.2 Lease Modification Agreement to Master Previously filed as Exhibit 10.9.2 to
Store Lease, dated June 5, 1995, between Form 10-K (file no. 1-10767) filed
the Company, as lessee, and SSC, October 27, 1995, and incorporated
as lessor, re Beckley, West Virginia. herein by reference.
10.9.3 Exercise of the first five-year renewal Previously filed as Exhibi 10.9.3 to
option commencing August 1, 1996 Form 10-Q (file no. 1-10767) filed
under Master Store Lease, dated March 19, 1996, and incorporated
June 5, 1995, as amended, between herein by reference.
the Company, as lessee, and SSC, as
lessor, re fourteen stores.
10.10 Master Warehouse Lease, dated April 25, Previously filed as Exhibit 10.10 to
1991, between the Company, as lessee, Form S-1 Registration Statement (file no.
and SSC, as lessor, re three warehouses, 33-40214) filed April 29, 1991, and
office, and shop locations. incorporated herein by reference.
10.10.1 First Amendment to Master Warehouse Previously filed as Exhibit 10.10.1 to
Lease, dated February 1992, between the Form S-1 Registration Statement (file no.
Company, as lessee, and SSC, as lessor, re 33-47252) filed April 16, 1992, and
three warehouse, office, and shop. incorporated herein by reference.
locations.
10.10.2 Second Amendment to Master Warehouse Previously filed as Exhibit 10.10.2 to
Lease, dated June 1993, between the Form 10-K (file no.1-10767) filed
Company, as lessee, and SSC, as lessor, re October 26, 1993, and incorporated
three warehouse, office, and shop herein by reference.
locations.
</TABLE>
E - 3
<PAGE> 58
<TABLE>
<S> <C> <C>
10.10.3 Exercise of the first five-year renewal Previously filed as Exhibit 10.10.3 to
option commencing August 1, 1996 Form 10-Q (filed no. 1-10767) filed
under Master Store Lease, dated March 19, 1996, and incorporated
April 25, 1991, as amended, between herein by reference.
the Company, as lessee and SSC, as
lessor, re three warehouse
locations.
10.11 Master Sublease, dated April 25, 1991, Previously filed as Exhibit 10.11 to
between the Company, as sublessee, and Form S-1 Registration Statement (file no.
SSC, as sublessor, re three stores. 33-40214) filed April 29, 1991, and
incorporated herein by reference.
10.12 Sublease, dated April 25, 1991, between Previously filed as Exhibit 10.12 to
the Company, as sublessor, and SSC, as Form S-1 Registration Statement (file no.
sublessee, re one warehouse, with 33-40214) filed April 29, 1991 and
underlying Lease, dated July 15, 1981, incorporated herein by reference.
between SSC, as lessee, and J.A.L. Realty
Co., an affiliate of SSC, as lessor.
10.12.1 Exercise of five-year renewal option Previously filed as Exhibit 10.12.1 to
commencing July 16, 1996 under Form 10-Q (file no. 1-10767) filed
Sublease, dated April 25, 1991 between March 19, 1996, and incorporated
the Company, as sublessee, and SSC, as herein by reference.
sublessor, re 3681 Westerville
Road warehouse.
10.13 Lease, dated July 7, 1987, between the Previously filed as Exhibit 10.13 to
Company, by assignment from SSC, as Amendment No. 1 to Form S-1
lessee, and Schottenstein Trustees, an Registration Statement (file no.
affiliate of SSC, as lessor, re one store. 33-40214) filed June 6, 1991, and
incorporated herein by reference.
10.14.1 Lease, dated June 28, 1989, between Previously filed as Exhibit 10.14.1 to
the Company, by assignment from SSC, Form S-1 Registration Statement (file no.
as lessor, re one warehouse. 33-40214) filed April 29, 1991, and
incorporated herein by reference.
10.14.2 Lease, dated October 27, 1989, between Previously filed as Exhibit 10.14.2 to
the Company, by assignment from SSC, Form S-1 Registration Statement (file no.
as lessee, and Southeast Industrial 33-40214) filed April 29, 1991, and
Park Realty Company, an affiliate of incorporated herein by reference.
SSC, as lessor, re one warehouse.
</TABLE>
E - 4
<PAGE> 59
<TABLE>
<S> <C> <C>
10.14.3 Lease, dated March 7, 1989, between Previously filed as Exhibit 10.14.3 to
the Company, by assignment from SSC, Form S-1 Registration Statement (file no.
as lessee, and Southeast Industrial Park 33-40214) filed April 29, 1991, and
Realty Company, an affiliate of SSC, incorporated herein by reference.
as lessor, re one warehouse.
10.15.1 Sublease, dated April 25, 1991, between Previously filed as Exhibit 10.15.1 to
the Company, as sublessor, and SSC, as Form S-1 Registration Statement (file no.
sublessee, re Baltimore, MD (Eastpoint) 33-40214) filed April 29, 1991, and
furniture store location. incorporated herein by reference.
10.15.2 Sublease, dated April 25, 1991, between Previously filed as Exhibit 10.15.2 to
the Company, as sublessor, and SSC, as Form S-1 Registration Statement (file no.
sublessee, re Baltimore, MD (Westview) 33-40214) filed April 29, 1991, and
furniture store location. incorporated herein by reference.
10.15.3 Sublease, dated April 25, 1991, between Previously filed as Exhibit 10.15.3 to
the Company, as sublessor, and SSC, as Form S-1 Registration Statement (file no.
sublessee, re Lansing, MI furniture 33-40214) filed April 29, 1991, and
store location. incorporated herein by reference.
10.15.4 Sublease, dated April 25, 1991, between Previously filed as Exhibit 10.15.4 to
the Company, as sublessor, and SSC, as Form S-1 Registration Statement (file no.
sublessee, re Louisville, KY (Preston 33-40214) filed April 29, 1991, and
Highway) furniture store location. incorporated herein by reference.
10.16 Form of Assignment and Assumption Previously filed as Exhibit 10.16 to
Agreement between the Company, as Form S-1 Registration Statement (file no.
assignee, and SSC, as assignor, re 33-40214) filed April 29, 1991, and
separate assignments of leases incorporated herein by reference.
for 31 stores.
10.17 Form of Restricted Stock Agreement, Previously filed as Exhibit 10.17 to
dated 1991, among SSC, the Amendment No. 1 to Form S-1
Company and certain officers. Registration Statement (file no. 33-40214)
filed June 6, 1991, and incorporated herein
by reference.
10.18 License Agreements, dated April 13, Previously filed as Exhibit 10.18 to
1984, as amended, between the Company, Form S-1 Registration Statement (file no.
by assignment from SSC, and the Valley 33-40214) filed April 29, 1991, and
Fair Corporation for licensed apparel incorporated herein by reference.
departments operated by the Company.
</TABLE>
E - 5
<PAGE> 60
<TABLE>
<S> <C> <C>
10.19 Lease Agreement, dated as of July 1, Previously filed as Exhibit 10.19 to
1988, between SSC as sublessor and the Form 10-K (file no.1-10767) filed
Company as sublessee, by assignment October 24, 1991, and incorporated
dated April 25, 1991, re Benwood, W.Va. herein by reference.
store location.
10.20 Lease, dated July 2, 1991, between the Previously filed as Exhibit 10.20 to
Company as lessee and Allied Company/ Form 10-K (file no.1-10767) filed
Saul Schottenstein Realty Company October 24, 1991, and incorporated
as lessor re Springfield, Ohio store. herein by reference.
10.20.1 Exercise of the first five-year renewal Previously filed as Exhibit 10.20.1 to
option commencing November 1, 1996 Form 10-Q (file no. 1-10767) filed
under Lease dated July 2, 1991 March 19, 1996, and incorporated
between the Company, as lessee, and herein by reference.
Allied Company/Saul Schottenstein
Realty Company, as lessor, re
Springfield, Ohio store.
10.27 Form of Restricted Stock Agreement, Previously filed as Exhibit 10.27 to
dated 1992, between the Company Amendment No. 1 to Form S-1 Registration
and certain employees Statement (file no. 33-47252) filed April 27,
1992, and incorporated herein by reference.
10.28 The Company's Non-employee Director Previously filed as Exhibit 10.28 to
Stock Option Plan Form 10-K (file no.1-10767) filed
October 22, 1992, and incorporated
herein by reference.
10.29 Lease, dated September 1, 1992, between Previously filed as Exhibit 10.29 to
the Company, as lessee, and SSC, as Form 10-K (file no.1-10767) filed
lessor, re South Bend, IN store. October 22, 1992, and incorporated
herein by reference.
10.30 Lease, dated January 27, 1992, between Previously filed as Exhibit 10.30 to
the Company, as lessee, and J.A.L. Realty Form 10-K (file no.1-10767) filed
Company, as lessor, as amended on July October 22, 1992, and incorporated
29, 1992, re 3080 Alum Creek warehouse. herein by reference.
10.30.1 Exercise of the first five-year renewal Previously filed as Exhibit 10.30.1 to
option commencing February 1, 1997 Form 10-Q (file no. 1-10767) filed
under lease, dated January 27, 1992, March 19, 1996, and incorporated
as amended, between the Company, as herein by reference.
lessee, and J.A.L. Realty Company, as
lessor, re 3080 Alum Creek warehouse.
</TABLE>
E - 6
<PAGE> 61
<TABLE>
<S> <C> <C>
10.31 Lease, dated July 29, 1992, between the Previously filed as Exhibit 10.31 to
Company, as lessee, and J.A.L. Realty Form 10-K (file no.1-10767) filed
Company, as lessor, re 3232 Alum Creek October 22, 1992, and incorporated
warehouse. herein by reference.
10.32 License Agreements, dated as of June 1, Previously filed as Exhibit 10.32 to
1992, between the Company, as licensee, Form 10-K (file no.1-10767) filed
and Valley Fair, as licensor, re Linen October 22, 1992, and incorporated
Depts. herein by reference.
10.32.1 Letter Agreement, dated December 18, Previously filed as Exhibit 10.32.1 to
1995, extending License Agreements, Form 10-Q (file no. 1-10767) filed
dated as of June 1, 1992 and as of March 19, 1996, and incorporated
January 12, 1994, between the Company, herein by reference.
as licensee, and Valley Fair Corporation,
as licensor, re Apparel and Linen
Departments and Housewares
Departments, respectively.
10.33 Lease, dated October 26, 1993 between Previously filed as Exhibit 10.33 to
the Company, as lessee, and J.A.L. Realty Form 10-Q (file no. 1-10767) filed
Company, as lessor. re 2560 Valuway, March 14, 1994, and incorporated
Columbus, OH 43224. herein by reference.
10.33.1 Lease Modification Agreement dated Previously filed as Exhibit 10.33.1
to June 16, 1995 to Lease, dated October Form 10-K (file no.1-10767) filed
26, 1993, between the Company, as October 27, 1995, and incorporated
lessee, and J.A.L. Realty Company, herein by reference.
as lessor, re 2560 Valuway, Columbus,
Ohio 43224.
10.34 License Agreement dated as of January Previously filed as Exhibit 10.34 to
12, 1994 between the Company, as Form 10-K (file no. 1-10767) filed
licensee, and Valley Fair Corporation, October 26, 1994, and incorporated
as licensor, re Housewares Depts. herein by reference.
10.35 Ground lease, dated April 15, 1994, Previously filed as Exhibit 10.35 to
between the Company, as lessee, and Form 10-K (file no 1-10767) filed
J.A.L. Realty Company, as lessor, re October 26, 1994, and incorporated
19 acres. herein by reference.
10.36 Agreement of Lease dated September 1, Previously filed as Exhibit 10.36 to Form 10-Q
1994, between Company, as tenant, and (file no. 1-10767) filed December 12, 1994,
Jubilee Limited Partnership, as landlord, and incorporated herein by reference.
re Carol Stream, IL store.
</TABLE>
E - 7
<PAGE> 62
<TABLE>
<S> <C> <C>
10.37 Agreement of Lease, dated March 1, 1994, Previously filed as Exhibit 10.37 to Form 10-Q
between the Company, as tenant, and (file no. 1-10767) filed December 12, 1994,
Jubilee Limited Partnership, as landlord, and incorporated herein by reference.
re Hobart, IN store.
10.38 Agreement of Lease, date February 10, Previously filed as Exhibit 10.38 to Form 10-Q
1995, between the Company, as tenant, (file no. 1-10767) filed March 14, 1995 and
and Jubilee Limited Partnership, as incorporated herein by reference.
landlord, re Gurnee Mills, IL store.
10.39 Agreement of Lease, dated January 13, Previously filed as Exhibit 10.39 to Form 10-Q
1995, between the Company, as tenant, (file no. 1-10767) filed March 14, 1995 and
and Westland Partners, as landlord, re incorporated herein by reference.
Westland, MI store
10.40 Agreement of Lease, dated January 31, Previously filed as Exhibit 10.40 to Form 10-Q
1995, between the Company, as tenant, (file no. 1-10767) filed March 14, 1995 and
and Taylor Partners, as landlord, re incorporated herein by reference.
Taylor, MI store.
10.41 Sublease, dated December 28, 1994, Previously filed as Exhibit 10.41 to Form 10-Q
between the Company, as subtenant, and (file no. 1-10767) filed March 14, 1995 and
Shonac Corporation, as sublandlord, re incorporated herein by reference.
Alum Creek Drive warehouse space.
10.42 Employment Agreement, dated Previously filed as Exhibit 10.42 to
September 11, 1995, between the Form 10-K (file no. 1-10767) filed
Company and Donald R. Andrus. October 27, 1995, and incorporated
herein by reference.
10.43 Analysis sheet for Lease re Ft. Wayne, Previously filed as Exhibit 10.43 to
Indiana acquired by SSC pursuant to Form 10-K (file no. 1-10767) filed
Assignment and Assumption Agreement October 27, 1995, and incorporated
dated July 21, 1995. herein by reference.
10.44 Merchandise Royalty Agreement, dated Previously filed as Exhibit 10.44 to
July 15, 1995, between American Eagle Form 10-Q (file no. 1-10767) filed
Outfitters, Inc., and the Company December 12, 1995, and incorporated
re American Eagle merchandise sold herein by reference.
to Value City Department Stores, Inc.
</TABLE>
E - 8
<PAGE> 63
<TABLE>
<S> <C> <C>
10.45 Agreement of Lease, dated April 10, 1995, Previously filed as Exhibit 10.45 to
between the Company as tenant, and Form 10-Q (file no. 1-10767) filed
Independence Limited Liability Company, December 12, 1995, and incorporated
as landlord, re Charlotte, North Carolina herein by reference.
Store.
10.46 Sublease and Occupancy Agreement, Previously filed as Exhibit 10.46 to
dated December 15, 1995, between the Form 10-Q (file no. 1-10767) filed
Company, SSC and SSC dba Value City March 19, 1996, and incorporated
Furniture, re Louisville, Kentucky herein by reference.
(Preston Highway) store.
10.47 Agreement of Lease, dated March 13, Previously filed as Exhibit 10.47 to
1996, between the Company as tenant, Form 10-Q (file no. 1-10767) filed
and Jubilee Limited Partnership, as March 19, 1996, and incorporated
landlord, re Saginaw, Michigan herein by reference.
store.
10.48 Asset Purchase Agreement, dated as of Previously filed as Exhibit 10.48 to
April 24, 1996, between the Company, Form 10-Q (file no. 1-10767) filed
as buyer and Steinbach Stores, Inc., a June 18, 1996 and incorporated
subsidiary of SSC, as seller, re the herein by reference.
Seaview, Shore Mall, Paramus and
Manalapan, NJ Stores.
10.49 Agreement of lease, dated 1996
between the Company, as tenant,
and SSC, as landlord, re the Melrose
Park, IL store.
10.50 Agreement of Lease, dated October 4,
1996, between the Company, as tenant,
and Hickory Ridge Pavilion, Ltd., as
landlord, re the Memphis, TN store.
11 Statement Regarding Computation of
Net Income Per Share.
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
E - 9
<PAGE> 1
CORPORATE SERVICES AGREEMENT
This Agreement is made this 16th day of October, 1996, by and between Value
City Department Stores, Inc. ("VCS") and Schottenstein Stores Corporation
("SSC"). All sections of the previous Agreement dated September 27, 1995 are
replaced by this Agreement.
1. RECITALS.
A. Pursuant to an agreement dated June, 1991 (the "Exchange
Agreement"), SSC has agreed to transfer to VCS substantially all of the
business, properties and assets formerly constituting the Department Store
Division of SSC (the "Department Store Division"), and the employees of the
Department Store Division will become employees of VCS.
B. Prior to the transfer of the business, properties and assets of the
Department Store Division to VCS, employees of the Department Store Division
have provided services to other divisions of SSC, and employees of other
divisions of SSC provided services to the Department Store Division.
C. VCS and SSC desire to provide for the continued sharing of services
as set forth in this Agreement.
2. EXECUTIVE COMPENSATION. Certain executives work for VCS and SSC and are
paid by SSC. VCS shall reimburse SSC for a percentage of the executives'
salaries. That percentage will be based on the number of hours the executive
spends on VCS business versus the executive's total hours worked, such payments
to be made in monthly installments.
3. INTERNAL LEGAL ADVICE. The in-house legal staff of SSC shall be
available to VCS for consultation and advice and for the performance of such
legal services as VCS shall reasonably request. VCS shall pay to SSC a
percentage of the payroll and related costs of such legal services equal to the
percentage of time the professional staff spends on VCS legal work versus total
professional staff hours available, such payments to be made in monthly
installments.
4. PENSION AND BENEFIT PLAN ADMINISTRATION. The Department Store Division
has provided administrative services, and VCS will continue to provide
administrative services, with respect to the SSC Benefit Plans (as defined in
the Exchange Agreement). SSC shall pay VCS for such services during each fiscal
year a percentage of the payroll and related cost to VCS of such services equal
to the percentage of the total number of participants in such plans represented
by the number of employees of SSC who are participants in such plans at the end
of the preceding fiscal year, such payment to be made in monthly installments.
5. INSURANCE AND RISK MANAGEMENT. SSC has maintained and shall continue to
maintain liability insurance coverage (through policies of insurance and the
establishment of appropriate reserves) equivalent to "first dollar" coverage
with respect to personal injury, property damage and other claims of third
parties and with respect to self-insured workers' compensation claims (the
"Insurance Program"). SSC shall continue to maintain and administer and to make
available the Insurance Program for the benefit and coverage of VCS. For
continued coverage under the Insurance Program, VCS shall pay to SSC an annual
fee calculated on the same basis as the calculation of the cost of participation
by the Department Store Division in the Insurance Program, to wit: the fee for
liability coverage shall be a rate, expressed in dollars, per $1,000 of
projected annual sales, based upon the estimated cost of claims, claims
administration,
<PAGE> 2
reserves to cover self-insured claims and premiums charged by insurance carriers
for coverage beyond the self-insured amount. The fee shall be subject to
adjustment on the basis of loss experience. The fee for workers' compensation
coverage shall be a rate, expressed in dollars, per $100 of payroll, based upon
projected payroll and projected expenses for compensation, medical bills paid,
excess coverage, employer's liability coverage, claims administrator's fees,
legal fees and administrative costs, adjusted on the basis of actual payroll,
experienced costs, and required reserves at the end of each year.
SSC will also administer other coverages; e.g., automobile, property
insurance, boiler & machinery, and crime coverages for which VCS will pay
premiums, administrative fees and other charges which SSC may be required to
pay. SSC will provide Safety Consultant services as necessary to VCS which are
included as administrative fees, except for outside consultation services
engaged specifically.
6. STORE PLANNING, DESIGN AND CONSTRUCTION. VCS will provide, upon
request from SSC, store planning, design and construction services. SSC shall
reimburse VCS for the payroll and related cost of VCS employees providing such
services on the basis of the number of hours spent by such employees or projects
performed by such employees during each fiscal year and the cost to VCS of
materials supplied.
Periodically SSC Construction Division, upon request from VCS,
will coordinate construction projects for VCS. VCS will reimburse SSC an amount
equal to 2% of the general contractors original contract cost plus 2% of the
costs from Hanover Signs to cover payroll and other expenses of the SSC
Construction Division related to VCS's projects. SSC travel expenditures
specifically for VCS projects will also be reimbursed if properly identified.
7. ADVERTISING. SSC shall make available to VCS, upon request, the
person or persons employed by SSC as announcers or in other aspects of the
production of radio and television commercials. VCS and SSC shall share equally
the total payroll and related cost of the SSC employees available to provide
such services.
8. CREDIT UNION ADMINISTRATION. SSC has provided and intends to
continue to make available to its employees the Schottenstein Associates'
Federal Credit Union (the "Credit Union"). The Credit Union has been available
to employees of the Department Store Division, and VCS and SSC intend that the
Credit Union shall continue to be available to employees of VCS. The Department
Store Division has provided, and VCS shall continue to provide administrative
services in connection with the operation of the Credit Union, including the
keeping of membership lists, the processing of loan applications, and the making
and servicing of loans. SSC shall pay VCS for such services that percentage of
the payroll cost to VCS of VCS employees providing such services equal to the
percentage of the total number of VCS and SSC employees who are members of the
Credit Union represented by the total number of employees of SSC who are members
of the Credit Union at the end of the preceding fiscal year, such payment to be
made in monthly installments.
9. SAFETY INSPECTION AND MAINTENANCE. Employees of SSC will perform
safety and fire protection inspections and related maintenance of stores
operated by VCS. VCS shall reimburse SSC for the payroll and related costs of
SSC employees engaged to perform such inspections and maintenance on the basis
of the number of hours spent by such employees or projects performed by such
employees during each fiscal year. Charges are to be made monthly.
- 2 -
<PAGE> 3
10. IMPORTING - SSC handles all of the paperwork related to VCS
importing of merchandise to insure all import regulations are followed and
proper duties are paid. For these services, SSC charges VCS 1% of the first cost
of the imported merchandise.
11. BUYING - SSC for VCS. One buyer employed by SSC has provided buying
services for the Department Store Division, and shall continue to be available
to provide such services for VCS. Purchases by this buyer shall be made for the
account of VCS, and VCS shall pay to SSC a charge equal to $5,500 per month for
all purchases made by this buyer for VCS. All purchases made by this buyer shall
be subject to the approval of VCS.
12. ADDITIONAL SERVICES; DISCONTINUATION OF SERVICES. The parties
recognize that circumstances may change during the course of their relationship,
that the provision of services not contemplated by this Agreement for either
party by the other may prove to be desirable and beneficial, and that services
contemplated by this Agreement may no longer be required. The parties therefore
agree that, should additional services be desired, they will negotiate in good
faith with each other the nature of those services and the payment to be made
therefor, to the end that the provision of such services by the party providing
them shall not be unduly burdensome and the payment to be made for such services
shall not be unfair to the party receiving them. Should services provided
pursuant to this Agreement be determined to be unnecessary or undesirable, the
parties, by mutual agreement, may discontinue them by appropriate amendment to
this Agreement. Should additional services be deemed desirable, the parties
shall likewise amend this Agreement to specify such services and the payment to
be made therefor.
13. ANNUAL REVIEW. The services performed by SSC for VCS and by VCS for
SSC pursuant to this Agreement and the cost thereof shall be subject to review
not later than 90 days following the end of each fiscal year of VCS by the
members of the Audit committee of the Board of Directors of VCS. This Agreement
may be terminated by VCS if the members of the Audit Committee shall find its
operation to be unduly burdensome or to result in disproportionate expense to
VCS.
14. EFFECTIVE DATE. This Agreement is effective as of the beginning
of the fiscal year.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers, thereunto duly authorized, as of the date first
above written.
SCHOTTENSTEIN STORES CORPORATION
By:
------------------------------
VALUE CITY DEPARTMENT STORES, INC.
By:
------------------------------
* Changed since last update
- 3 -
<PAGE> 1
Exhibit 10.4.4
May 1, 1996
Mr. Erwin W. Lehr, President
L.F. Widmann, Inc.
P.O. Box 149
Lock Haven, PA 17745
Dear Mr. Lehr,
This letter agreement shall serve to extend for a period of one year, the
License Agreement dated July 1, 1987 by and between Schottenstein Stores
Corporation (Licensor) and L.F. Widmann, Inc. (Licensee) which was subsequently
assigned by Schottenstein Stores Corporation to Value City Department stores,
Inc.. The termination date for all locations will be June 30, 1997. All other
terms and conditions will remain the same.
Please indicate your acceptance of this extension by signing below.
Value City Department Stores, Inc.
- ----------------------------
Robert M. Wysinski
Sr. Vice President/CFO
L.F. Widmann, Inc.
- ----------------------------
Erwin W. Lehr
President
<PAGE> 1
AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE made as of _____________ 1996, between Schottenstein
Stores Corporation. a(n) Delaware corporation (the "Landlord"), and Value City
Department Stores, Inc., an Ohio corporation (the "Tenant").
1. BASIC LEASE PROVISIONS AND PREMISES.
(a) Basic Lease Provisions.
(i) Name of Shopping Center: Melrose Park
(ii) Leasable Area of Premises: 84,212 square feet
(iii) Gross Floor Area of Shopping Center: 84,212 square feet
(iv) Primary Lease Term: fifteen (15) years
(v) Annual Fixed Rent: _____ years
1-5 $463,166.00
6-10 $484,219.00
11-15 $505,272.00
(vi) Monthly Installment of Fixed Rent:
1-5 $38,597.17
6-10 $40,351.58
11-15 $42,106.00
(vii) Renewal Lease Term: three (3) five year renewals
(viii) Annual Fixed Rent During Renewal Term:
16-20 $526,325.00
21-25 $547,378.00
26-30 $568,431.00
(xi) Monthly Installment of Fixed Rent During Renewal
16-20 $43,860.42
21-25 $45,614.83
26-30 $47,369.25
(b) Landlord hereby leases to Tenant, and Tenant hereby rents from
Landlord, the premises containing approximately 84,212 square feet and
approximately 12.42 acres and outlined on the site plan attached to this Lease
as Exhibit "A" and made a part hereof (the "Site Plan"), together with all
improvements now or to be constructed thereon, and all easements, rights,
privileges and interests appurtenant thereto (collectively referred to as the
"Premises or the Center"). Landlord represents and warrants to Tenant that the
Premises and Center are substantially shown on the Site Plan, including all
rights of access, ingress and egress, at the point shown on the Site Plan, in,
to, from and over any and all streets, ways or alleys adjoining the Center.
(c) Landlord also grants to Tenant, its customers, employees, licensees,
invitees and subtenants a non-exclusive easement over the 12.42 acres for the
use of all parking areas, driveways, outdoor lighting facilities, sidewalks,
service areas. landscaped areas (including all landscaped areas adjacent to the
Premises), footpaths, corridors and the other areas intended for the
non-exclusive use of the tenants, (collectively referred to as the "(Common
Areas"). Tenant shall also have the right to use, on a non-exclusive
basis with other tenants of the Center, the areas, if any, on real estate
adjacent to the Center and shown on
2
<PAGE> 2
the Site Plan. Landlord covenants, represents and warrants that, during the
Lease term, there shall be reasonably adequate sidewalks, driveways and roadways
for automotive and pedestrian ingress and egress to and from Tenant's Premises
and adjacent public streets and highways.
2. SITE PLAN. The Landlord covenants that the Center is or shall be
developed in accordance with the Site Plan. The Landlord may not modify or
replace the Site Plan without the prior written consent of the Tenant, which
consent shall not be unreasonably withheld or delayed. No such modification or
replacement shall (i) reduce the ratio of parking spaces to gross leasable area
of buildings in the Center shown on the Site Plan, (ii) reduce or rearrange the
parking spaces cross-hatched on the Site Plan, (iii) interfere with truck access
to the loading doors of the Premises, (iv) interfere with customer access to the
Premises or the parking areas closest to the Premises, (v) interfere with the
visibility of the Premises from the roads providing direct access to the Center
or (vi) result in the construction of any buildings in the area designated "No
Build Area" on the Site Plan.
3. TERM.
(a) The construction term (the "Construction Term") of this Lease shall
begin on the Commencement Date and end on the "Rent Commencement Date" (as
hereinafter defined). During the Construction Term, the Tenant shall proceed to
renovate the Premises and to install and construct in the Premises certain
additional improvements, as provided in paragraph 8 hereof.
(c) The initial term (the "Initial Term") of the Lease shall (i)
commence on the date on which the Tenant opens for business in the Premises (the
"Rent Commencement Date") and (ii) end on the last day of the last full Lease
Year. The term "Lease Year" shall mean a period of twelve consecutive calendar
months. The first Lease Year during the term hereof shall commence on the first
day of the first February following the Rent Commencement Date. Each subsequent
Lease Year shall begin on the anniversary of the first Lease Year.
(d) The Tenant shall have three (3) consecutive separate options to
extend the term of this Lease for successive renewal terms of five (5) Lease
Years each. The Tenant may exercise each such renewal option by giving written
notice to the Landlord at least ninety (90) days prior to the end of the then
current term or renewal term; provided, however, that if the Tenant fails to
exercise any renewal term option, the Tenant's rights to exercise the option
shall not expire until thirty (30) days after written notice to the Tenant from
the Landlord of the Tenant's failure to exercise said option.
(e) The Construction Term, Initial Term and any renewal terms are
hereinafter collectively referred to as the "term".
(f) Beginning on the date of this Lease and ending on the Commencement
Date, the Tenant, its employees and agents shall have the right to enter the
Premises or any part thereof at reasonable times during regular business hours
for the purpose of making such inspections as the Tenant may deem reasonably
necessary, provided that (i) such entry does not interfere with the business, if
any, being operated in the Premises, and (ii) the Tenant shall restore the
Premises to substantially the same condition as existed on the date of this
Lease. In consideration of the Tenant's right to inspect the Premises, the
Tenant agrees to indemnify, defend and hold the Landlord harmless from any and
all loss, damage, claims, costs, demands or expenses (including reasonable
attorney's fees and litigation costs) resulting from such entry on the Premises
by the Tenant or its agents.
4. RENT.
(a) During the Initial Term and any renewal term hereof, the Tenant
agrees to pay to the Landlord annual base rent in the amounts and for the
periods set forth below.
3
<PAGE> 3
<TABLE>
<CAPTION>
Annual Rent
-----------
Period Per Sq. Ft. Annual Rent Monthly Rent
<S> <C> <C> <C>
1-5 5.50 $463,166.00 $38,597.17
6-10 6.00 $484,219.00 $40,351.58
11-15 6.25 $505,272.00 $42,106.00
</TABLE>
(b) Such rent shall be payable in advance in equal monthly installments
payable on the first day of each calendar month during the term hereof,
commencing on the first day of the first full calendar month following the Rent
Commencement Date. All payments of rent shall be made to the Landlord at the
address specified in paragraph 35 hereof or as the Landlord otherwise notifies
the Tenant in writing.
(c) If, at any time or times during the term, the Premises are
remeasured and it is determined from such remeasurement that the gross leasable
square footage of the Premises as set forth in paragraph 1 of this Lease is
incorrect, the annual rent shall be adjusted to equal the product of the actual
gross leasable square footage of the Premises multiplied by the applicable
amount of annual rent per square foot as set forth in subparagraph (a) above.
Upon the request of either party, an Addendum to this Lease shall be executed
setting forth the actual gross leasable square footage of the Premises.
(d) Beginning with the first Lease Year, the Tenant shall pay to the
Landlord, in addition to the minimum rental, an annual percentage rent in the
amount, if any, by which the Tenant's "Gross Sales" (as hereinafter defined)
during each Lease Year, multiplied by two percent (2%), exceed the 'Sales Base"
for such Lease Year. The Sales Base for any Lease Year shall equal (i) the base
rent payable for such Lease Year divided by (ii) two (2%) percent. The annual
percentage rent shall be paid by the Tenant to the Landlord within sixty (60)
days after the end of each Lease Year. Each such payment shall be accompanied by
a statement signed by an authorized representative of the Tenant setting forth
the Tenant's Gross Sales for each Lease Year. For purposes of permitting
verification by the Landlord of the Gross Sales reported by the Tenant, the
Landlord shall have the right, upon not less than five (5) days notice to the
Tenant, to audit the Tenant's books and records relating to the Gross Sales for
a period of two (2) years after the end of each Lease Year. If such an audit
reveals that the Tenant has understated its Gross Sales by more than three
percent (3%), the Tenant, in addition to paying the additional percentage rent
due, shall pay the cost of the audit.
"Gross Sales" shall mean the aggregate amount, expressed in dollars, of
all sales of goods, whether made in full or discount prices or for cash or
credit, made in, on, or from the Premises by the Tenant, provided, however, that
the following shall be excluded from Gross Sales: (i) all credit, refunds, and
allowances granted to customers; (ii) all excise taxes, sales taxes, and other
taxes levied or imposed by any governmental authority upon or in connection with
such sales; (iii) bulk sales of goods in connection with the sale of the
Tenant's business; (iv) sales of fixtures, furniture and equipment not made in
the ordinary course of business; (v) sales of cigarettes and other tobacco
products; (vi) discount sales made to employees of the Tenant and the Tenant's
subsidiaries and affiliated corporations, if any; (vii) exchanges of merchandise
between the Tenant's warehouse or other stores and other similar movements of
merchandise; (viii) returns to suppliers; (ix) the proceeds from vending
machines and coin operated telephones and commissions on such proceeds to the
extent such proceeds and commissions are less than five percent (5%) of Gross
Sales exclusive of such proceeds and commissions; (x) uncollectible customer
charges and bad checks; (xi) disallowed amounts and discount payments for credit
card charges; (xii) delivery charges; (xiii) finance charges paid directly to
Tenant (which shall not include credit card fees; (xiv) customer credit
insurance, (xv) extended product warranty fees.
5. TAXES.
(a) "Real Estate Taxes" means all general and special real estate
taxes, special assessments and other ad valorem taxes, rates, levies and
assessments paid upon or with respect to the Premises, or, if the Premises is
not separately assessed for such purposes, the tax parcels comprising the
Center, for a calendar year or portion thereof to any governmental agency or
authority and all taxes specifically imposed in lieu of any such taxes. Nothing
contained in this Lease shall require the Tenant to pay any franchise,
corporate, estate, inheritance, succession, capital levy, business or transfer
tax of the Landlord, or any income, profits, gross receipts or renewal tax.
4
<PAGE> 4
(b) Except as provided in subparagraph (c) below, the Landlord shall
pay, as and when they become due, all Real Estate Taxes payable upon or with
respect to the Center. The Landlord shall pay or cause the payment of all Real
Estate Taxes before any fine, penalty, interest or cost may be added thereto,
become due or be imposed by operation of law for the nonpayment or late payment
thereof. Should the Landlord fail to pay such Real Estate Taxes or any part
thereof, the Tenant shall have the right, at its sole election, after written
notice to the Landlord in accordance with paragraph 35, to cure such failure by
payment of the Real Estate Taxes and any interest and penalties due thereon and
may deduct the cost thereof, plus interest at the rate of ten percent (10%) per
annum (the "Default Rate"), from the next installment(s) of base rent and other
charges due hereunder. In no event shall the Tenant be liable for any discount
forfeited or penalty incurred as a result of late payment by another tenant. The
Landlord shall remain primarily responsible for such payment of Real Estate
Taxes notwithstanding the fact that such payment may be made by a tenant of the
Center or other third party pursuant to an agreement to which the Tenant is not
a party.
(c) The Tenant shall reimburse the Landlord for the Tenant's pro rata
share of the Real Estate Taxes payable upon or with respect to the Center
exclusive of any penalties or late charges within thirty (30) days after the
Tenant's receipt of the Landlord's statement therefor (but not more than forty
five (45) days prior to the due date thereof), accompanied by the tax bill on
which such statement is rendered. The Tenant's pro rata share of the Real Estate
Taxes shall be calculated by multiplying the total tax assessed, net of any
early payment discounts available from the taxing authority at the time the
Tenant's payment is due, by a fraction, the numerator of which is the gross
leasable square footage of the Premises and the denominator of which is the
total gross leasable square footage of all buildings in the Center. Changes in
applicable floor areas in the Premises or in the Center shall result in
corresponding pro rata adjustments. Real Estate Taxes shall be prorated as of
the Rent Commencement Date and the expiration or earlier termination of this
Lease, and, if applicable, the Landlord shall promptly return to the Tenant any
overpayment made by the Tenant.
(d) Landlord shall deliver to Tenant copies of all notices of proposed
increases in Taxes or proposed revaluation of any property that is included in
the calculation of Tenant's proportionate share of Taxes in time to permit
Tenant to contest such proposed increases or revaluation. If the Tenant disputes
the amounts of any Real Estate Taxes, it may contest and defend, and conduct any
necessary proceedings to avoid, such disputed taxes or assessments, and the
Landlord shall cooperate with the Tenant in contesting the validity or amount of
such taxes, including joining in the signing of any protests or pleadings that
the Tenant may deem reasonably advisable to file. Any rebate made on account of
any Real Estate Taxes attributable to the Premises shall belong to, and be paid
to, the Tenant. During any such contest, the Tenant agrees to prevent any public
sale, foreclosure or any divesting thereby of the Landlord's title to the
Premises.
(e) Any special assessments for benefits on or to the Center installed
following the Commencement Date shall be included in Real Estate Taxes.
(Predevelopment and development assessments and impact fees shall not be
included in Real Estate Taxes or in other pro rata charges to Tenant.) Landlord
agrees to elect the longest period available under law for payment of such
assessments. Landlord agrees that such assessments shall be amortized to Tenant
over a term not less than ten (10) years, and that any unamortized assessment
remaining at the end of the Lease term shall be borne by Landlord. If special
assessments are permitted to be paid in installments, and if the payment of such
installments are permitted to be paid over a period in excess of ten (10) years,
then there shall be included in Real Estate Taxes for any fiscal year only the
amount of the installment of such assessment that would result had Landlord
elected to pay such assessment over the maximum number of installments permitted
by law to be paid without interest or penalties. Such installments shall be in
lieu of amortizing. Landlord will not submit improvements to a special
improvements district without Tenant's prior written consent unless such
submission shall not result in any charges to Tenant for such improvements.
6. UTILITIES. The Tenant shall pay all utility charges and deposits
required to establish accounts for gas, heat, light, water, sewer, electricity,
garbage and other utility use services supplied to the Premises during the term
of this Lease. The Premises shall be separately metered by Landlord for such
charges. In the event of any assignment or subletting of a portion of the
Premises by the Tenant then, at the Tenant's option, such assignment or
subletting shall provide that either (i) such portion of the Premises shall be
separately metered for such charges or (ii) the subtenant or assignee shall be
required to pay its pro rata share of such expenses (which pro rata share shall
be the amount of such costs multiplied by a fraction, the numerator of which
shall be the number of gross leasable square feet in that portion of the
Premises that is
5
<PAGE> 5
assigned or sublet, and the denominator of which shall be the gross leasable
square footage of the Premises).
7. USE.
(a) The Tenant shall have the right to use the Premises for any retail
purpose. The Landlord represents and warrants to the Tenant that the Premises
are properly zoned for Tenant's stated use and that the Tenant's use of the
Premises as off-price full line department store does not violate any such use
restrictions. The Tenant shall not permit or suffer the use of the Premises for
any unlawful purpose.
(b) So long as the Tenant is operating from the Premises, the Landlord
shall not lease, or approve or consent to any lease, assignment or sublease of
space in the Center to an off price full line department store.
8. LANDLORD AND TENANT'S WORK. The Landlord agrees to provide, at its
expense, the improvements to the Premises described on Exhibit "D", attached
hereto and made a part hereof (the "Landlord's Work"). The Landlord's Work shall
be deemed "substantially completed" when all of the Landlord's Work has been
completed except for punch list items that do not affect the Tenant's use or the
appearance of the Premises. The Tenant agrees to provide, at its expense, after
the completion of Landlord's Work, the improvements to the Premises described on
Exhibit "E", attached hereto and made a part hereof (the "Tenant's Work"). The
Landlord's Work and the Tenant's Work shall be done in a good and workmanlike
manner and in accordance with plans and specifications approved by the other
party, which approval shall not be unreasonably withheld or delayed, and shall
be in compliance with all applicable building codes, laws, ordinances and
regulations. The plans and specifications delivered for approval to the Tenant
and the Landlord, as applicable, shall be deemed approved if not approved or
otherwise acted upon within fifteen (15) days following receipt of such plans
and specifications. The Landlord and the Tenant shall obtain, at their own
expense, all necessary building permits for their respective work.
9. TENANT ALTERATIONS AND IMPROVEMENTS. The Tenant may, from time to
time, make or cause to be made any interior nonstructural alterations, additions
or improvements to the Premises without the Landlord's consent. The construction
of interior demising walls and interior doors shall be deemed nonstructural. The
Tenant may make interior structural and exterior alterations, additions or
improvements to the Premises only with the Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. Any request to make
such interior structural or external alterations, additions or improvements
shall be deemed approved if not approved or otherwise acted upon within fifteen
(15) days following request for such approval. The Landlord agrees to execute
and deliver upon the Tenant's request any instrument or instruments which may be
required by any public or quasi-public authority for the purpose of obtaining
any license or permit for the making of such alterations or improvements.
10. LANDLORD'S ADDITIONAL COVENANTS.
(a) EXCLUSIVE. To the fullest extent permitted by law and as a
condition of an inducement to Tenant's entering into this Lease, Landlord grants
to Tenant the exclusive right to operate in the Center (and any enlargement or
expansion thereof) an off price full line department store. Any parcel sold
shall require a restriction of deed incorporating the foregoing exclusive.
(b) COVENANT AGAINST CERTAIN USES. To the full extent permitted by law
and as a condition and inducement to Tenant to enter into this Lease, Landlord
agrees that Landlord will not lease, rent, occupy or permit to be occupied any
premises in the Center (and any enlargement or expansion thereof) to be used for
the operation of a bingo parlor, bar, tavern, cocktail lounge, restaurant, adult
book or adult video store (defined for the purposes hereof as a store devoting
ten percent (10%) or more of its floor space to offering books and/or video
materials for sale or for rent which are directed to or restricted to adult
customers due to sexually explicit subject matter or for any other reason making
it inappropriate for general use), automotive maintenance or automotive repair
facility, warehouse, car wash, pawn shop, check cashing service, establishment
selling second hand goods, or flea market, entertainment or recreational
facility (including bowling alley) or training or educational facility; for the
renting, leasing or selling or displaying therefore of any boat, motor vehicle
or trailer; or for industrial purposes. For the purpose hereof, the phrase
"entertainment or recreational facility" shall include, without limitation, a
movie or live theater or cinema, bowling alley, skating
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rink, gym, health spa or studio, dance hall, billiard or pool hall, massage
parlor, health club, game parlor or bingo parlor or video arcade (which shall be
defined as any store containing more than five (5) electronic games). The phrase
"training or educational facility" shall include, without limitation, a beauty
school, barber college, reading room, place of instruction or any other
operation catering primarily to students or trainees, as opposed to customers.
Notwithstanding the foregoing, Landlord may lease any premises in the Center for
use as a restaurant provided that Landlord complies with the restrictions set
forth hereunder in this Section 10(b). Notwithstanding anything to the contrary
contained in this Lease, no part of the Center within four hundred feet (400')
of Tenant's Building shall be used as a restaurant (except that one restaurant,
sit down type, not to exceed 2,500 square feet shall be permitted, provided,
however, any such restaurant use shall not offer liquor, beer or wine for sale).
(c) Landlord further agrees that Tenant shall have the right to approve
any changes in use or other alterations to any building within one hundred (100)
feet of the Premises.
(d) Landlord acknowledges that in the event of a breach or an attempted
or prospective breach hereof by Landlord, Tenant's remedies at law would be
inadequate. Therefore, in any such event, if such breach is not cured within
sixty (60) days after written notice from Tenant to Landlord, Tenant shall be
entitled, at its option and without limitation of any other remedy permitted by
law or equity or by this Lease, to cancel this Lease on thirty (30) days written
notice to Landlord and/or to full and adequate relief by temporary and permanent
injunction; provided that the remedy of lease cancellation shall not be
applicable if the violation of this Section 10 is due to the breach of another
tenant's lease and Landlord is, in Tenant's good faith judgment, diligently
pursuing appropriate legal proceedings to halt the violation.
11. TENANT'S PROPERTY. All equipment, inventory, trade fixtures and
other property owned by the Tenant and located in the Premises shall remain the
personal property of the Tenant and shall be exempt from the claims of the
Landlord or any mortgagee or lienholder of the Landlord without regard to the
means by which they are installed or attached. The Landlord expressly waives any
statutory or common law landlord's lien and any and all rights granted under any
present or future laws to levy or distrain for rent (whether in arrears or in
advance) against the aforesaid property of the Tenant on the Premises and
further agrees to execute any reasonable instruments evidencing such waiver, at
anytime or times hereafter upon the Tenant's request. The Tenant shall have the
right, at any time or from time to time, to remove such trade fixtures or
equipment. If such removal damages any part of the Premises, the Tenant shall
repair such damages. Tenant is expressly authorized to finance, pledge, and
encumber its own trade fixtures, equipment, and inventory for purposes of
financing such trade fixtures, equipment and inventory.
12. SIGNS.
(a) ANNOUNCEMENTS. Landlord agrees, upon execution of this Lease, to
erect, at Landlord's expense, a sign on the Premises. Such sign shall be a
minimum of four feet (4') by eight feet (8') and visible to the public, as set
forth on Exhibit "F" attached hereto and made a part hereof.
(b) PYLON AND BUILDING SIGNS. Landlord shall, at its sole cost and
expense, construct, erect and maintain at the location shown on the Site Plan,
pylon signs upon which Tenant's advertising panel shall be installed, and
thereafter throughout the Term of the Lease, Tenant shall have continuous
representation on the pylon sign(s) and Building sign and any replacement pylon
sign in the same position and size as shown on Exhibit "A". Landlord hereby
approves the color of Tenant's advertising panel. The dimensions and structure
of the pylon sign, as well as the size of Tenant's advertising panel and its
placement in relation to other panels on the pylon signs shall be approved by
Tenant, in accordance with Tenant's sign requirements as identified on Exhibit
"F". Tenant shall have the right to install its standard signs on the exterior
of the Premises, as described on Exhibit "F" attached hereto. Landlord agrees to
provide an adequate building facia for Tenant's signs.
(c) MAINTENANCE. Tenant agrees to maintain said advertising panel and
exterior building signs in a good state of repair, save the Landlord harmless
from maintenance or removal of such signs, provided that at the end of this
Term, the Tenant agrees to remove the same and repair any damages caused
thereby.
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(d) INTERIOR SIGNAGE. Tenant shall also have the right to place signs
or banners in the windows of the Premises, provided same are professionally
done.
(e) REMOVAL. Landlord agrees that at or before the time for surrender
of the Premises to Landlord, said Tenant may remove all the trade fixtures and
signs and all other personal property owned by Tenant in accordance with Section
17 herein.
13. ASSIGNMENT AND SUBLETTING. Tenant shall have the right, without
the consent of the Landlord, (i) to grant licenses and/or concessions with the
Premises, and (ii) to assign this Lease or sublet all or any portion of the
Premises to a parent, subsidiary or affiliate corporation of the Tenant or to a
successor by merger, acquisition or consolidation of the Tenant, its parent or
subsidiary or to a corporation acquiring all or substantially all of the assets
of the Tenant, its parent or subsidiary; provided, however, that Tenant shall
remain fully liable hereunder. Notwithstanding the foregoing, Tenant shall be
released from all further liability hereunder in the event such assignee (i) has
a net worth of at least Ten Million Dollars ($10,000,000.00), and (ii) has
sufficient business experience and a good business reputation.
Tenant shall have the right, without the consent of Landlord, to assign
this Lease or sublet the Premises to any party or entity other than set forth in
the immediately preceding paragraph, so long as (i) such proposed use does not
violate any exclusive in the Center, (ii) such use is consistent with the
general character of the Center, and (iii) the proposed assignee or subtenant
has sufficient business experience and a good business reputation. In all other
cases, Tenant may assign or sublet upon obtaining the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed. Tenant
shall remain liable hereunder unless such assignee or subtenant has a net worth
greater than that of Tenant at the time of such proposed assignment or
subletting.
14. MAINTENANCE.
(a) The Tenant shall maintain at its expense the interior of the
Premises, including the doors and windows therein, in good condition and repair.
The Tenant shall repair defective work performed as part of the Tenant's Work
but shall have no obligation to repair any defective work performed by the
Landlord as part of the Landlord's Work.
(b) Tenant shall have the right to make alterations or additions to the
Premises at its sole cost and expense provided, nevertheless, that any such
alterations or additions shall be of good workmanship and material and shall not
reduce the size and strength of the then existing improvements. Tenant shall not
be required to remove any such additions or alterations or to restore the
Premises to their original condition at the termination of tenancy hereunder.
The Landlord hereby covenants and agrees to join with Tenant in applying for and
securing from any governmental authority having jurisdiction thereof, any
permits or licenses which may be necessary in connection with the making of any
alterations, additions, changes or repairs and the Landlord agrees, upon request
by the Tenant, to execute or join in the execution of any application for such
licenses and permits.
(c) The Landlord hereby assigns to the Tenant all manufacturers' and
other warranties applicable to that portion of the Premises and the equipment
and systems therein that the Tenant is obligated to maintain.
15. COMMON AREA MAINTENANCE.
(a) From and after the Commencement Date, Landlord, at its cost and
expense, shall maintain the Common Areas and the Center clean and in good repair
so that Tenant and its customers, guests, invitees, officers and employees can
use and enjoy the same. The obligation of Landlord pursuant hereto shall
include, but not be limited to, the management and maintenance of the Center and
the pylon structure of Tenant's identification sign (if the same is affixed to a
pylon sign used in common with Landlord or other tenants in the Center, but not
Tenant's advertising panels), regular cleaning of the Common Areas, removal of
trash and debris from the Common Areas, repairing the asphalt and concrete
portions of the Common Areas (including potholes, curbs and sidewalks),
repairing common utility lines and facilities, repairing storm drains, repairing
parking lot lights, maintaining the landscaped portion of the Common Areas
(including regular grass cutting), maintaining floodlights and other necessary
means of illumination sufficient to illuminate the
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Common Areas during twilight and evening hours that Tenant's store is open for
business and in operation, prompt removal of snow and ice on every occasion
where safety of the Common Areas is impeded, employing traffic control personnel
(such as off-duty police personnel), and periodically restriping the parking
area. Landlord covenants that such maintenance and repair shall be planned and
preventative maintenance undertaken in order to maintain the Common Areas in
good usable condition so as to avoid breakdown of maintenance and avoidable
costly repairs. Landlord shall not in any manner change the size, location,
nature, design or use of the Common Areas as shown on the Site Plan without the
prior written consent of Tenant, which shall not be unreasonably withheld unless
the proposed change would involve additional buildings of any kind or reduce the
number of parking spaces, or otherwise materially and adversely affect the
access to or visibility of the Premises, in any of which cases Tenant's approval
may be withheld in its sole discretion.
(b) The Tenant shall reimburse the Landlord for Landlord's "Common
Area Maintenance Costs" (as hereinafter defined).
(c) As used herein, the term "Common Area Maintenance Costs" means all
reasonable costs actually paid by the Landlord for maintaining and repairing the
Common Areas. The following items shall be specifically excluded from Common
Area Maintenance Costs: (i) depreciation on maintenance equipment; (ii) all Real
Estate Taxes; (iii) financing costs, including, but not limited to, any and all
of Landlord's payments for (1) loan principal or interest, together with
expenses, thereto related in connection with such financing or any refinancing
during the term of this Lease, (2) ground lease rent, or (3) similar payments;
(iv) salaries of Landlord's employees or agents contracted through outside
services or employed by Landlord who are not exclusively engaged in the
day-to-day maintenance of the Center; (v) profit or mark-up; (vi) maintenance,
repairs, services or improvements on the buildings or other tenant premises,
except that periodic painting of the exterior of the buildings shall be an
allowable expense; (vii) costs of outside management services; (viii) Merchants
Association costs; (ix) Center advertising, promotions and promotional
materials; (x) remodeling of the Center, or any costs for renovation or
improvement to the Common Areas required as a result of other tenants within the
Center remodeling, adding an addition or renovating; (xi) enforcement costs -
any and all of Landlord's costs to compel full performance under leases with all
prior, existing, and prospective tenants at the Center, including, without
limitation all legal fees, costs and expenses to collect rental arrearages and
recover possession, or legal fees and expenses; (xii) leasing costs - any and
all of Landlord's costs of leasing space in the Center to all prior, existing
and prospective tenants, including, without limitation, consulting and marketing
fees, advertising expenses, brokerage commissions, legal fees, vacancy costs,
rent or other rent concessions, and/or refurbishment or improvement expenses;
(xiii) capital costs - any and all of the Landlord's capital costs,
improvements, alterations, repairs and/or replacements (including redesign and
retrofitting of existing capital improvements) to any part of the Center
including, but not limited to, resurfacing and/or replacement of paving; (xiv)
parking garage facilities - any and all of Landlord's expenses relating to any
parking garage facility or facilities on or about the property or comprising a
part of the Center; (xv) any improvement or construction charge which would
normally be and/or should have been in the original construction of the Center
and any repairs or replacements to the interior or exterior which are required
because of defective or faulty installation, materials, design or other latent
defects; (xvi) utility service and/or service lines (for any utility service)
repair, replacement, addition or maintenance charge except for those utility
service and lines within the Common Areas and are used by all tenants of the
Center; (xvii) any utility charge for usage of the Center if such usage is
charged to Tenant's Premises as a result of separate metering of the service or
services. In addition, any utility usage of the Common Areas which is as a
result of other tenants' extended operating hours shall be excluded, and the
cost of any utility, maintenance, service or repair provided to any other
premises in the Center; (xviii) any Common Areas Maintenance Costs incurred or
required prior to the commencement of this Lease; (xix) maintenance, repair or
replacement of Common Areas which is the result of Landlord's negligence in
performing preventative and/or planned maintenance which increases the costs to
maintain the Common Areas in good usable condition; (xx) off site repairs,
replacements or improvements; (xxi) any costs or expenses incurred by the
Landlord in bringing the Center, or any portion thereof, into compliance with
any applicable federal, state or local statutes, codes, ordinances or rules;
(xxii) reserves for anticipated future expenses; (xxiii) any bad debt loss, rent
loss or reserves for bad debts or rent loss: (xxiv) any cost related to the
operation of Landlord as an entity rather than the operating of the Center
including the cost and formation of the entity, internal accounting, legal
matters, preparation of tax returns, etc.; (xxv) any operating expense incurred
by Landlord with respect to other premises in the Center occupied or occupiable
by other tenants of the Center; and (xxvi) any expense for insured or uninsured
loss. Any allowable replacement of Common Areas which would constitute a
"capital expenditure" shall be
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amortized over the useful life of said replacement and only the annual amortized
portion of said cost shall be included in Tenant's proportionate share of Common
Areas Costs. The Tenant's proportionate share of the Common Area Maintenance
Costs, subject to Section 15(b) above (the "Tenant's Share".) shall be the
amount of such costs multiplied by a fraction, the numerator of which shall be
the gross leasable area of the Premises as set forth in paragraph I hereof and
the denominator of which shall be the gross leasable area of all buildings in
the Center.
CAM charges shall be in addition to a 15% administrative fee
(d) The Tenant shall pay the Tenant's Share to the Landlord in
quarterly payments in arrears. Within thirty (30) days after the end of each
calendar quarter, the Landlord shall give the Tenant a statement in reasonable
detail, together with all applicable invoices and receipts, setting forth the
Common Area Maintenance Costs for such quarter and the Tenant's Share. Subject
to subparagraph 15(b) above, the Tenant shall pay such amount to the Landlord
within thirty (30) days following receipt of such statement.
16. LANDLORD'S MAINTENANCE AND REPAIRS. Landlord agrees that it shall,
at its sole cost and expense, at all times during the term of this Lease:
(a) Keep, repair and maintain in good order and condition (including
replacement, if necessary), the roof (including all components thereof) and the
interior and exterior structural portions of the Premises, including, without
limitation, the exterior walls (painted, cleaned and/or sandblasted, but
excluding plate glass windows, doors, door closure devices, door frames,
molding, locks and hardware); the window frames (but only to the extent repair
thereto is necessitated due to settling of the building or other structural
failure of the building); the foundation, structural parts of the floor; all
structural members; gutters, downspouts; duct work; automated sprinkler supply
line; and, electrical wiring from main circuit breaker panels (excluding the
circuit breaker) to the weatherboard and extending to the public utility power
sources. In addition, Landlord shall be responsible for "replacement" of major
equipment, including air condition and heating equipment, upon said equipment
being deemed unrepairable by a registered engineer selected by Tenant. Should
Landlord elect to renovate or remodel the exterior of said Premises, Landlord
may do so at Landlord's expense provided Tenant has approved the same.
(b) Make any repair or replacements which become necessary as the
consequence (whether with or without any intervening act, negligence, or default
under this Lease of Landlord, its employees, agents, licensees, or contractors)
of a condition Landlord is required to correct, as in the case of damage to the
ceiling which results from a roof leak.
(c) If Landlord fails to perform its maintenance obligations hereunder,
Tenant, after thirty (30) days written notice to Landlord (or upon such notice
as may be reasonable in the event of an emergency or in the event such repairs
are necessary in order to avoid damage to the Tenant's merchandise or
interference with the Tenant's business) may perform such unperformed
maintenance at the cost of the Landlord. Tenant may offset the cost of
performing the Landlord's maintenance obligations against the rent due
hereunder.
(d) In the event it shall become necessary to make any emergency repair
which would otherwise be required to be made by Landlord, Tenant shall use its
best efforts to contact Landlord, and in the event of its inability to do so,
Tenant may proceed forthwith to have the repairs made and pay the cost thereof
and promptly thereafter deliver a bill for such repairs to Landlord. In the
event the bill for such repairs is not paid within thirty (30) days after
Landlord's receipt of such bill, Tenant may deduct all of its costs and expenses
in connection therewith from up to one-half each monthly installment of the
Fixed Rent thereafter becoming due until such sum shall be recovered in full.
17. SURRENDER OF PREMISES. At the expiration of the term, the Tenant
shall surrender the Premises in good condition and repair, ordinary wear and
tear and damage by fire and casualty excepted.
18. INSURANCE.
(a) The Tenant agrees that it will, at all times during the term of
this Lease, keep in full force and effect a policy of general liability
insurance with respect to the Premises and the business operated by the
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Tenant therein in which the limits shall not be less than One Million Dollars
($1,000,000.00) in respect of personal injury and not less than Five Hundred
Thousand Dollars ($500,000.00) in respect of property damage.
(b) The Landlord agrees that it will, at all times during the term of
this Lease, keep in full force and effect a policy of fire and extended coverage
("all-risk" form) insurance, insuring all improvements in the Center and the
Premises on full replacement cost basis, including:
(i) With respect to the Center, extended coverage and vandalism and
malicious endorsement, in an amount not less than the full replacement cost of
the buildings and improvements thereon; and
(ii) Sprinkler leakage insurance with resect to the Center (but not
with respect to Tenant's fixtures, furniture, equipment, stock, or inventory),
in an amount not less than one hundred percent (100%) of said replacement value.
(c) Landlord shall maintain a policy or policies of general
comprehensive public and property damage insurance for damages on account of
injuries to property or person, including, death, sustained by any person or
persons while within said Common Areas (including but not limited to parking lot
and sidewalks) in the amount of Five Million Dollars ($5,000,000.00) combined
single limit protection.
Landlord is to notify Tenant of any changes in the liability policy or
if there is a termination of that policy without replacement. At Tenant's
request, but not more frequently than twice each calendar year, Landlord will
furnish to Tenant evidence of such insurance.
(d) The party obligated to maintain the insurance policies hereunder
shall, within fifteen (15) days after request therefore, deliver to the other
party a certificate of insurance naming the other party as an additional insured
and evidencing that the insurance required hereunder is in full force and
effect. All insurance required hereunder may be carried under blanket policies
maintained by the party required to maintain such insurance.
(e) The Landlord and the Tenant agree that with respect to any loss
which is required to be covered by insurance hereunder, the one carrying or
required to carry such insurance and suffering such loss releases the other of
and from any and all claims with respect to such loss. The Landlord and the
Tenant further agree that their respective insurance policies shall provide for
an appropriate waiver of subrogation reflecting this release.
(f) The net proceeds of the insurance referred to in Section 18(b)
shall be applied to the restoration of the Premises. Any surplus proceeds shall
belong to the Landlord. Landlord agrees to convey any insurance proceeds
received by Landlord to a title company or lender mutually agreed to by the
parties hereto to hold in escrow for rebuilding if Landlord is required to
rebuild.
(g) Tenant shall be named as an additional insured in Landlord's public
liability and property damage insurance policies. Any insurance required to be
maintained by Landlord under this Section 18 may be maintained under a so-called
blanket policy or policies; may contain reasonable deductible provisions
customary for similar properties in the Center locale and consistent with sound
insurance practices; and, the insurance required to be maintained shall include
a clause waiving any right of subrogation against Tenant. Tenant shall pay to
Landlord monthly, as additional rent, Tenant's pro rata share of the premiums
for the insurance described above. Landlord shall charge Tenant for its pro rata
share of the foregoing insurance separately from Common Areas expense charges,
and Landlord shall not add an administrative charge as a part of such insurance
expense.
(h) Landlord represents that the insurance premiums payable by Landlord
for the coverage enumerated herein shall be at rates which are commercially
reasonably, and comparable to the rates paid by other owners of similarly-sized,
first-class shopping centers for similar coverage in the metropolitan area. In
the event Tenant is able to locate an insurance carrier (or carriers) of
comparable quality and expertise as Landlord's carrier which will provide to
Landlord identical coverage at rates which are less than the premium rates
charged by Landlord's insurance carrier, Tenant's Proportionate Share of
insurance premiums shall be
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calculated based upon the rates quoted by Tenant's proposed insurance carrier or
carriers (whether or not Landlord elects to obtain the insurance coverage
required hereunder from such source or sources) which Tenant shall make
available to Landlord.
19. COMPLIANCE WITH GOVERNMENTAL REGULATIONS.
(a) Except as provided in subparagraph (c) below, the Tenant shall, at
its cost and expense, comply with the lawful requirements of all municipal,
state, federal and other applicable governmental authorities arising as a result
of the Tenant's particular use of the Premises; provided, however, that the
Tenant shall have no obligation to make any additions, alterations or
improvements to the Premises required by such governmental authorities if the
cost of such additions, alterations or improvements exceeds $50,000.00 or if
less than two years remain in the term hereof.
(b) Except as provided in subparagraph (c) below, the Landlord shall,
at its sole cost and expense, comply with all other lawful requirements of all
municipal, state, federal or other applicable governmental authorities arising
as a result of or in connection with the use and occupancy of the Premises and
the Common Areas or the failure of the Landlord's Work to comply with such
requirements.
(c) As used in this subparagraph, the Americans with Disabilities Act
("ADA") shall mean the Americans with Disabilities Act of 1990, 42 U.S.C. e1201,
et. seq., and all implementing regulations. The Landlord and the Tenant intend
to comply with the ADA and the parties hereby agree to allocate responsibility
for such compliance as follows:
(i) Except as provided in subsection (ii) below, the Landlord shall
have responsibility to comply with the requirements of the ADA in all Common
Areas and in the Premises. Such compliance responsibility shall include, but
shall not be limited to, the obligation to remove architectural and
communication barriers in the Common Areas and the Premises where such removal
is readily achievable.
(ii) Except as provided in subsection (i) above, the Tenant shall have
responsibility to comply with the requirements of the ADA in the Premises to the
extent that such requirements require the Tenant to make interior nonstructural
changes or improvements to the Premises. Such responsibility shall include, but
shall not be limited to, the obligation to remove architectural and
communication barriers in the Premises created by the Tenant's trade fixtures
and leasehold improvements made by the Tenant where such removal is readily
achievable.
(iii) If building alterations are commenced by Landlord and involve the
Common Areas, it shall be the Landlord's responsibility to comply with the
standards of accessibility required under the ADA and its implementing
regulations.
(iv) Except as provided in subsection (v) below, if building
alterations are commenced by Tenant and involve the Premises, it shall be the
Tenant's responsibility to comply with the standards of accessibility required
under the ADA and its implementing regulations.
(v) In the event the Landlord and the Tenant shall agree as part of the
terms and conditions of the Lease that the Landlord, at the Landlord's expense,
shall construct improvements on the Premises or any part thereof, it shall be
the Landlord's responsibility to comply with the standards of accessibility for
such new construction.
(vi) Each party shall be responsible for the ADA compliance of its own
standards, criteria, administrative methods, eligibility criteria, policies,
practices and procedures.
(vii) The Tenant shall be responsible for the provisions of any
"auxiliary aids and services," as such term is defined and used in the ADA, to
its customers, clients and patrons, if and to the extent required in connection
with the operation of its business or occupancy of the Premises.
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(viii) To the extent permitted by the ADA, if either the Landlord or
the Tenant can demonstrate that barrier removal is not readily achievable in an
area in which either party has responsibility for ADA compliance, the party
responsible for compliance, as herein provided, shall make use of alternatives
to barrier removal, if such alternatives are readily achievable.
20. DAMAGE OR DESTRUCTION.
(a) If the Premises shall be damaged by fire or other casualty, the
Landlord shall collect the proceeds of such insurance and immediately and with
all due diligence commence to repair such damage at its expense. From the date
the damage occurs to the date the repairs are complete, the rent due hereunder
shall be reduced by the same percentage as the percentage of the Premises which,
in the Tenant's reasonable judgment, cannot be safely, economically or
practically used for the operation of the Tenant's business. Anything herein to
the contrary notwithstanding, if in the Tenant's reasonable judgment, any damage
or destruction to the Premises from any cause whatsoever cannot be repaired
within one hundred eighty (180) days following the date such damage occurs, the
Tenant may terminate this Lease by written notice to the Landlord given within
ninety (90) days following the occurrence of such damage. In addition, if any
damage or destruction to the Premises from any cause whatsoever cannot be
repaired, in the Landlord's reasonable judgment, within one hundred eighty (180)
days following the date such damage occurs and the Landlord elects not to repair
such damage, the Landlord shall have the right to terminate this Lease by
written notice to the Tenant given within ninety (90) days after the date such
damage occurred provided that no more than three (3) calendar years remain in
the term hereof. Notwithstanding the foregoing, if at the time the Landlord
gives such termination notice any of the renewal options provided for in the
Lease have not yet been exercised and the Tenant exercises a renewal option
within thirty (30) days after receipt of the Landlord's termination notice, then
this Lease shall not be terminated and the Landlord shall promptly commence
restoration of the Premises.
(b) In the event of a termination of the Lease pursuant to this
paragraph, all insurance proceeds payable by reason of damage under policies
required to be carried hereunder (excluding any insurance proceeds attributable
to damage to the Tenant's inventory, trade fixtures, business or leasehold
improvements paid for by the Tenant) shall be paid to the Landlord.
21. CONDEMNATION. If all or any part of the Premises or the Center
shall be taken under the power of eminent domain, (i) this Lease shall terminate
as to the part so taken on the date on which the Tenant is required to yield
possession thereof, (ii) the Landlord shall make such repairs and alterations as
may be necessary in order to restore the part not taken to a condition
satisfactory for the Tenant's use, and (iii) the rent due hereunder shall be
reduced by the same percentage as the percentage of the Premises or the Center
so taken. If the portion so taken of the Premises, the Center or the Common
Areas or access thereto substantially impairs the Tenant's use of the Premises
or the economic viability of the business then being operated by the Tenant in
the Premises, the Tenant shall have the option to terminate this Lease at any
time following the date on which the Landlord or the Tenant is required to yield
possession of the area so taken.
22. INDEMNIFICATION. Subject to the insurance requirements of Section
18, the Landlord hereby indemnifies the Tenant, and the Tenant hereby
indemnities the Landlord for any cost, damage or expense incurred or suffered by
the other as a result of the negligence or other act or omission of the
indemnifying party.
23. QUIET ENJOYMENT. Landlord warrants that Tenant shall have the
continuous and uninterrupted quiet enjoyment and exclusive possession of the
Premises and the non-exclusive right to use the Common Areas during the term of
this Lease. In the event that, at any time during the term hereof, Tenant's
quiet enjoyment and possession is deprived for more than sixty (60) days as a
result of a defect in the title of Landlord to the Center and/or the Premises,
and Landlord fails or refuses to cure such defect within such sixty (60) day
period, Tenant shall have the right, at its option, to terminate this Lease
without prejudice to any other right or remedy it may have at law or equity or
under this Lease.
24. LANDLORD'S COVENANTS. The Landlord represents (i) that it has the
right to enter into this Lease, (ii) that it has good and marketable title to
the Premises, (iii) that the Premises, including without limitation, the roof
and HVAC system, are in good condition and repair, (iv) that the Premises is
properly zoned for use by
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<PAGE> 13
the Tenant as an off-price full line department store retail location, (v) that
the Landlord has obtained all necessary approvals and permits from appropriate
governmental authorities for the development of the Center in accordance with
the Site Plan and for the construction and occupancy of the Premises by Tenant
as an off-price full line department store retail location, and (vi) that the
Landlord has entered into no leases, agreements or restrictive covenants that
would prohibit or interfere with the use of the Premises by the Tenant as an
off-price full line department store retail location.
25. HAZARDOUS SUBSTANCES.
(a) "Hazardous Substances", as used herein, shall mean all "hazardous
substances" (as defined in the Comprehensive Environmental Response Compensation
and Liability Act of 1980, 42 U.S.C. paragraph 9601 et seq. and the regulations
promulgated pursuant thereto, as amended [the "Act"]); any other toxic or
hazardous waste, material or substance as defined under any other federal state
or local law, rule, regulation or ordinance; petroleum products and any other
pollutant or environmental containment. "Remediate" or "remediation" as used
herein shall mean "remediate" or "remediation" as defined in the Act.
(b) During the term of the Lease, the Tenant shall not: (i) release,
spill, leak, store, generate or accumulate any Hazardous Substances in, on or
under the Premises (except that the Tenant may store ordinary and necessary
quantities of cleaning, office and pest control supplies stored in a safe and
lawful manner and immaterial quantities of petroleum products may be discharged
from the operation of motor vehicles on the Premises); (ii) install any
underground storage tanks in, on or under the Premises; (iii) accumulate tires,
spent batteries, mining spoil, debris or other solid waste (except for rubbish
in containers for normal scheduled disposal in compliance with all applicable
laws); or (iv) Drain, fill or modify wetlands on the Premises (except in
compliance with all applicable laws).
(c) The Tenant shall notify the Landlord immediately upon the Tenant's
learning during the term of this Lease that: (i) any duty in subparagraph (b)
has been violated, (ii) there has been a release, discharge or disposal of any
Hazardous Substance on any property contiguous to the Premises such that
contamination of the Premises is possible; (iii) the Premises are the subject of
any third party claim or action, because of any environmental condition on or
originated from the Premises. The Tenant shall promptly provide the Landlord
with copies of all correspondence to or from third parties, including, but not
limited to, governmental agencies, regarding environmental conditions on or
originating from the Premises.
(d) The Tenant shall indemnify and agrees to hold the Landlord harmless
from and against all costs, liability and damages suffered by the Landlord as a
result of a breach of the Tenant's duties hereunder.
(e) The Landlord hereby represents and warrants that: (i) it has not
used, generated, discharged, released or stored any Hazardous Substances on, in
or under the Center and has received no notice and has no knowledge of the
presence in, on or under the Center of any such Hazardous Substances; (ii) there
have never been any underground storage tanks at the Center, whether owned by
the Landlord or its predecessors in interest; (iii) there are not and have never
been accumulated tires, spent batteries, mining spoil, debris or other solid
waste (except for rubbish and containers for normal scheduled disposal in
compliance with all applicable laws) in, on or under the Center; (iv) it has not
spilled, discharged or leaked petroleum products other than de minimis
quantities in connection with the operation of motor vehicles on the Center; (v)
there has been no draining, filling or modification of wetlands (as defined by
federal, state or local law, regulation or ordinance) at the Center; and (vi)
there is no asbestos or asbestos-containing material in the Premises. The
representations and warranties set forth in this subparagraph (e) shall apply to
any contiguous or adjacent property owned by the Landlord, whether or not the
Landlord is in possession.
(f) If any such Hazardous Substances are discovered at the Center
(unless introduced by the Tenant, its agents or employees) or if any asbestos or
asbestos containing material is discovered in the Premises, and removal,
encapsulation or other remediation is required by applicable laws, the Landlord
immediately and with all due diligence and at no expense to the Tenant shall
take all measures necessary to comply with all applicable laws and to remove
such Hazardous Substances or asbestos from the Center and/or encapsulate or
remediate such Hazardous Substances or asbestos, which removal and/or
encapsulation or remediation shall be in compliance with all environmental laws
and regulations, and the Landlord shall repair and restore the Center at its
expense. From the date such Hazardous Substances are
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<PAGE> 14
discovered at the Center to the date such removal, encapsulation, remediation
and restoration is complete, the rent due hereunder shall be reduced by the same
percentage as the percentage of the Premises which, in the Tenant's reasonable
judgment, cannot be safely, economically or practically used for the operation
of the Tenant's business. Anything herein to the contrary notwithstanding, if in
the Tenant's reasonable judgment, such removal, encapsulation, remediation and
restoration cannot be completed within one hundred eighty (180) days following
the date such Hazardous Substances or asbestos are discovered, the Tenant may
terminate this Lease by written notice to the Landlord, which notice shall be
effective on Landlord's receipt thereof.
(g) If any of the representations or warranties set forth in
subparagraph (e) are Incorrect, misleading or breached, if any Hazardous
Substances are discovered at the Center (unless introduced by the Tenant, its
agents or employees) or if any asbestos or asbestos containing material is
discovered in the Premises, all costs incurred by the Tenant as the result of
such breach or discovery of such Hazardous Substances or asbestos shall be borne
by the Landlord, and the Landlord hereby indemnifies and agrees to hold the
Tenant and the Tenant's officers, directors, stockholders, employees and agents
harmless from and against all such costs, liability and damages including,
without limitation, all third-party claims (including sums paid in settlement
thereof, with or without legal proceedings) for personal injury or property
damage, and all judgments, compensatory and punitive damages, penalties, fines,
costs, losses, attorneys' fees (through all levels of proceedings), costs of
remediation and removal, consultants' and experts' fees, and all costs incurred
in enforcing this indemnity.
(h) Beginning on the date of this Lease, the Tenant shall have the
right to conduct an environmental study of the Premises and the Center, and the
Landlord agrees to cooperate with and to provide access to the Center and the
Premises to the Tenant and its agents. If the Tenant discovers any Hazardous
Substances at the Center or any asbestos or asbestos containing materials in the
Premises as a result of such environmental study, the Tenant shall have the
right to terminate in accordance with paragraph 25 hereof.
(i) The obligations of the Landlord and the Tenant hereunder shall
survive the expiration or earlier termination of this Lease and any extensions
hereof.
26. DEFAULT BY TENANT - REMEDIES OF LANDLORD.
(a) Each of the following shall be deemed a default by Tenant and a
breach of this Lease: (i) filing of a petition by Tenant for adjudication as a
bankrupt or an adjudication as a bankrupt or for reorganization or for an
arrangement under any federal or state statute, except a Chapter 11 Bankruptcy
where rent is being paid and the terms of the Lease are being complied with;
(ii) involuntary dissolution or liquidation of Tenant; (iii) appointment of a
permanent receiver or a permanent trustee of all or substantially all the
property of Tenant, if such appointment shall not be vacated within one hundred
and twenty (120) days; (iv) taking possession of the property of Tenant by any
governmental officer or agency pursuant to statutory authority for dissolution,
rehabilitation, reorganization or liquidation of the Tenant if such taking of
possession shall not be vacated within one hundred and twenty (120) days; (v)
making by the Tenant of an assignment for the benefit of creditors.
If any event mentioned in this subdivision (a) shall occur, Landlord
may thereupon or at any time thereafter elect to cancel this Lease by thirty
(30) days notice to the tenant in possession and this Lease shall terminate on
the day in such notice specified with the same force and effect as if that date
were the date herein fixed for the expiration of the term of the Lease.
(b) (i) Default in the payment of the base rent reserved for a period
of twenty (20) days after notice. In the event Tenant deducts from base rent or
other charges hereunder such sums expended by Tenant to remedy defects or make
repairs upon Landlord's failure to perform its obligations hereunder, such
action by Tenant shall not be construed as a default in the payment of fixed
rent or other charges hereunder.
(ii) A default in the performance of any other covenant or condition
of this Lease on the part of the Tenant to be performed for a period of thirty
(30) days after notice. For purposes of this subdivision (b) (ii) hereof, no
default on the part of Tenant in performance of work required to be performed or
acts to be done
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<PAGE> 15
or conditions to be modified shall be deemed to exist if steps shall have been
commenced by Tenant diligently after notice to rectify the same and shall be
prosecuted to completion with reasonable diligence, subject, however, to
unavoidable delays.
(c) In cases of any such default under Section 26(b) and at any time
thereafter following the expiration of the respective grace periods above
mentioned, Landlord may serve a notice upon the Tenant electing to terminate
this Lease upon a specified date not less than twenty (20) days after the date
of serving of such notice and this Lease shall then expire on the date so
specified as if that date had been originally fixed as the expiration date of
the term herein granted; however, a default under Section 26(b) hereof shall be
deemed waived if such default is cured before the date specified for termination
in the notice of termination served on Tenant.
If a default occurs subsequent to Tenant's assignment or subletting of
the Premises, Landlord may proceed to terminate this Lease in the manner
described above, provided: (i) a copy of the specified notices shall be served
upon the original Tenant herein as well as the party entitled to possession, and
(ii) Tenant shall be entitled to timely rectify any defaults occurring after
such assignment or subletting.
If Tenant assigns this Lease or sublets the Premises, Landlord, when
giving notice to said assignee or subtenant or any future assignee or subtenant
in respect of any default, shall also serve a copy of such notice upon the
original Tenant (herein called the "Original Tenant"), and no notice of default
shall be effective until a copy thereof is so given to the Original Tenant. The
Original Tenant shall have the same period after receipt of such notice to cure
such default as is given to Tenant therefore under this Lease. If this Lease
terminates or this Lease and the term hereof ceases and expires because of a
default of such assignee or subtenant after an assignment of this Lease or
sublease shall have been made, Landlord shall promptly give to the Original
Tenant notice thereof; and the Original Tenant shall have the option,
exercisable by the giving of notice by the Original Tenant to Landlord within
ten (10) days after receipt by the Original Tenant of Landlord's notice, to cure
any default and become Tenant under a new lease for the remainder of the term of
this Lease (including any renewal periods) upon all of the same terms and
conditions as then remain under this Lease, and such new lease shall commence on
the date of termination of this Lease. except that if the Original Tenant is
occupying less than ten percent (10%) of the Premises, Landlord may deliver to
the Original Tenant, together with Landlord's notice, a release as to all future
liability under this Lease.
(d) In case this Lease shall be terminated as hereinbefore provided. or
by legal proceedings, Landlord or its agents may, immediately or any time
thereafter, re-renter and resume possession of the Premises or such part
thereof, and remove all persons and property therefrom, by a suitable action or
proceeding at law. No re-entry by Landlord shall be deemed an acceptance of a
surrender of this Lease.
(e) In case this Lease shall be terminated as hereinbefore provided,
Landlord shall, in its own name but as agent for Tenant, if the Lease be not
terminated, or if the Lease be terminated in its own behalf, use its best
efforts to mitigate its damages and relet the whole or any portion of the
Premises for any sum which may be reasonable, giving due consideration to the
rents reserved herein and in connection with any such lease, Landlord may make
such changes in the character of the improvements on the Premises as may be
appropriate or helpful in effecting such lease. Landlord shall not in any event
be required to pay Tenant any surplus of any sums received by Landlord on a
reletting of the Premises in excess of the rent reserved in this Lease.
(f) In case this Lease be terminated as provided in Section 26(c),
subject to rebuttal by Tenant, Landlord shall be entitled to recover from the
Tenant, the following: (i) a sum equal to all reasonable expenses, if any,
including reasonable counsel fees, incurred by Landlord in recovering possession
of the Premises, and all reasonable costs and charges for the care of said
Premises while vacant, which damages, less the avails of reletting, shall be due
and payable by Tenant to Landlord; and (ii) a sum equal to the amount of all
rent and other charges reserved under this Lease which shall be due and payable
by Tenant to Landlord on the several days on which the rent and other charges
reserved in this Lease would have become due and payable, less the greater of
(1) the fair rental value of the Premises, or (2) the net rent, if any,
collected by Landlord on reletting the Premises; that is, upon each of such days
Tenant shall pay to Landlord the amount of deficiency
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then existing after receipt of credit for the fair rental value or net rent
collected by Landlord. Any excess amounts of rent collected by Landlord shall be
credited against future rent. Such net rent collected on reletting shall be
computed by deducting from the gross rents collected all necessary expenses
incurred in connection with reletting of the Premises or any part thereof,
including reasonable brokers' commissions.
(g) Separate actions may be maintained by Landlord against Tenant from
time to time to recover any damages which, at the commencement of any such
action, have then or theretofore become due and payable to the Landlord under
this Section 26 without waiting until the end of the then current term.
27. LANDLORD'S DEFAULT. In the event that the Landlord defaults in the
performance of any of its obligations hereunder and such default continues
uncured (by the Landlord or any mortgagee of the Center) for thirty (30) days
after written notice from the Tenant to the Landlord (and to any mortgagee of
the Center for whom the Tenant has been provided a name and address) and such
default is reasonably capable of being cured within thirty (30) days, then, in
addition to all other rights and remedies provided by law, the Tenant shall have
the right to cure such default and offset the cost of such cure against the
rents and other amounts due hereunder; provided, however, that if such default
is not reasonably capable of being cured within thirty (30) days, the period for
curing such default shall be extended for so long as the Landlord (or its
mortgagee) is proceeding with reasonable diligence to cure such default.
Provided further that in the case of an emergency, the Tenant shall be required
to give only such notice as is reasonable under the circumstances.
28. CONDITIONS TO LEASE. INTENTIONALLY DELETED
29. NONDISTURBANCE. If this Lease or the Tenant's rights hereunder are
subordinate to the lien of any deed of trust, mortgage, or any other security
instrument or lien encumbering the Premises or the Center, or if the Landlord
leases pursuant to a ground lease or other lease any portion of the Center, the
Landlord shall obtain for the benefit of the Tenant (and without cost to the
Tenant) a nondisturbance agreement in form satisfactory to the Tenant. Such
nondisturbance agreement shall provide that if a foreclosure or other proceeding
is brought to enforce the lien of such deed of trust, mortgage, lien or security
instrument or a termination of any such ground or underlying lease, then the
ground lessor or holder of the note secured by any such deed of trust or
mortgage or the purchaser at such a foreclosure sale shall recognize this Lease
and all the Tenant's rights hereunder shall continue in full force and effect.
30. LANDLORD'S CONSTRUCTION WORK.
(a) CONSTRUCTION. Landlord agrees that it is anticipated that it will
complete construction of the Premises and improvements prior to the Commencement
Date of the Lease in accordance with Exhibit "D" (Landlord's Construction Work).
(b) PARKING REQUIREMENTS. Landlord agrees that throughout the term of
this Lease and any renewal terms hereunder, parking facilities shall be provided
by Landlord so that the minimum number of parking spaces (for standard-size
American cars) in the Center shall be at least five and one-half (5.5) per one
thousand (1,000) square feet of gross leasable area.
(c) COMMENCEMENT OF CONSTRUCTION. INTENTIONALLY DELETED
(d) COMPLETION OF CONSTRUCTION OF PREMISES. Upon completion of
construction, Landlord shall satisfy the following conditions:
(i) Landlord shall furnish Tenant with a temporary certificate of
occupancy and other necessary approvals which must be issued by the appropriate
governmental authorities for the occupancy and use of the Premises as
contemplated. Landlord agrees to provide a permanent certificate of occupancy as
soon as available in the ordinary course of the issuing authority's practice;
(ii) The architect engaged by Landlord shall execute his certificate of
completion of the Premises in a good and workmanlike manner substantially in
accordance with Landlord's Construction Work (Exhibit "D"), and the Working
Drawings and readiness for occupancy and deliver it to Tenant;
(iii) Landlord agrees that Tenant shall have the right, at Tenant's
option, to inspect the Premises during and upon completion (and prior to Tenant
taking possession) to determine compliance by Landlord of
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Tenant Criteria Drawings, Landlord's Construction Work (Exhibit "D"), and, the
Working Drawings. Landlord agrees to correct or change those items which are
deemed by Tenant as not in compliance prior to Tenant taking possession;
(iv) Landlord shall complete repair or replacement of all items
presented by Tenant to Landlord in the form of a "punch list" within thirty (30)
days after Tenant shall present such list to Landlord. Tenant shall present such
"punch list" to Landlord within a reasonable period, not to exceed ninety (90)
days, after Landlord's completion of the Premises. Tenant shall be permitted to
cure such punch list at Landlord's expense and deduct the cost of the same from
its next rental installment due hereunder in the event Landlord fails to
complete such "punch list" within such thirty (30) day period.
(E) REMAINDER OF IMPROVEMENTS.
(i) Except as presently exists or as otherwise provided herein or as
shown on Exhibit "A", no improvement or structure in the Center (including all
outlot pads) shall be of a height greater than twenty feet (20') above ground
level nor contain more than one (1) story or a basement or mezzanine. The
foregoing notwithstanding, Landlord shall have the right to construct one or
more one (1) story buildings in the area designated on Exhibit "A" as
"Landlord's Future Building Area" provided that there is sufficient parking to
comply with local zoning ordinances and Section 30(b) without Landlord's
applying for a variance therefrom. Landlord agrees that if Landlord builds on
any part of "Landlord's Future Building Area", as designated on the Site Plan -
Exhibit "A", Landlord will not apply for a variance from the local zoning
ordinances for the purpose of reducing the amount of space which must be
provided for parking.
(ii) In performing any construction work, repairs or maintenance in the
Center after Tenant has taken physical possession of the Premises, Landlord
shall use its reasonable efforts to prevent any interference with the operation
of the Center and the business of Tenant or any subtenant or licensee of Tenant.
(f) RESPONSIBILITY OF LANDLORD FOR CONSTRUCTION. INTENTIONALLY DELETED.
(g) GUARANTEES. In addition to any guarantees provided to Tenant in
Exhibit "D", Landlord shall unconditionally guarantee all of Landlord's Work
against defective workmanship and materials for one (1) year from the
Commencement Date. Further, Landlord shall assign and pass through to Tenant all
manufacturer's warranties on all equipment provided to Tenant as part of
Landlord's construction obligations.
31. HOLDING OVER. Any holding over after the expiration of the term
shall be construed to create a tenancy from month-to-month at the rent herein
specified (prorated on a monthly basis) and shall otherwise be on the terms and
conditions specified in this Lease as far as applicable.
32. FOR RENT SIGNS. The Landlord shall have the right during the last
sixty (60) days of the term, to place one for rent or for sale sign, not
exceeding two feet by two feet in size, on one window of the Premises. The
Tenant shall also allow the Landlord, or its agents, during such sixty (60) day
period to show the Premises to prospective tenants or purchasers during
reasonable business hours by prior appointment provided that there is no
interference with the conduct of the Tenant's business.
33. SUCCESSORS. The covenants, conditions and terms contained in this
Lease shall bind and inure to the benefit of the Landlord, the Tenant and their
respective successors and assignees.
34. WAIVER. The waiver by the Landlord or the Tenant of any breach of
any provision of this Lease or the failure by the Landlord or the Tenant to
insist upon the strict observance of any provisions shall not be deemed to be a
waiver of such provision or any subsequent breach thereof.
35. NOTICES. Any notice, demand, request or other instrument which may
be, or is required to be given under this Lease, shall be in writing and
delivered in person or by courier service or by United States certified mail,
postage prepaid, and shall be addressed:
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(a) if to the Landlord, at Schottenstein Stores Corporation, 1800 Moler
Road, Columbus, Ohio 43207 attn Real Estate Department, or at such other address
Landlord may designate by written notice; or
(b) if to the Tenant, at 3241 Westerville Road, Columbus, Ohio 43224,
or at such other address as Tenant may designate by written notice.
All notices shall be effective upon receipt or refusal of receipt.
36. BROKER.
(a) Intentionally Deleted.
(b) No other broker has been involved in this transaction and if any
claims for brokerage commissions or fees are ever made in connection with this
transaction, each party shall indemnify and hold harmless the other from and
against any and all such claims or demands with respect to any brokerage fees or
agent's commissions or other compensation asserted by any person, firm or
corporation in connection with this Lease.
37 MEMORANDUM OF LEASE. Landlord and Tenant agree not to record this
Lease, and instead agree to execute and acknowledge a Memorandum of Lease for
recording ("Memorandum"), attached to this Lease as Exhibit "H". Landlord and
Tenant agree that the Memorandum will be suitable for recording with the County
Recorder of the county in which the Center is situated and agree that such
Memorandum shall be recorded. Landlord shall be obligated at its expense to
record the memorandum and forward recorded copies to Tenant.
38. ESTOPPEL CERTIFICATES. Each party shall, upon request from the
other at any time and from time to time, execute, acknowledge and deliver to the
other a written statement within twenty (20) days of the request therefore
certifying as follows: (i) that this Lease is unmodified and in full force and
effect (or, if there has been a modification, stating the nature thereof and
that the Lease is in full force and effect as modified); (ii) that to the best
of such party's knowledge, there are no uncured defaults on the part of the
other party (or if any such defaults exist, the specific nature and extent
thereof); (iii) the date to which any rent and other charges under the Lease
have been paid in advance, if any; and (iv) such other matters as such party may
reasonably request. Tenant acknowledges that any such statement requested by
Landlord and delivered by Tenant shall be relief upon by a prospective
purchaser, mortgagee or encumbrancer of the Premises or the Center or any
prospective assignee of any such mortgage or encumbrance thereof.
39. LANDLORD'S CONSENT. In any case where Landlord's approval or
consent is required under the terms of this Lease, such consent or approval
shall be in writing and shall not be unreasonably or arbitrarily withheld by the
Landlord, nor shall the Landlord require the payment of any money before giving
such consent other than a reasonable charge for the processing of the
application for and preparation of the consent.
40. MARKETABLE TITLE. Landlord hereby covenants and warrants (i) that
Landlord owns indefeasible title to the Center; (ii) there are no legal
impediments to the use by Tenant of the Premises as an off price full line
department store in accordance with the terms of this Lease; (iii) the Center is
free and clear of any and all liens and encumbrances, easements and
restrictions, except ad valorem taxes not due and payable and those matters set
forth in Exhibit "C" hereto, none of which shall encroach upon the Premises or
hinder or interfere with Tenant's use and enjoyment thereof in accordance with
this Lease; (iv) that Landlord has full right and is duly authorized to enter
into the terms of this Lease, and that the execution of this Lease in no way
violates or breaches any of the material terms and conditions of any of the
documents forming the title to the Center, or violates or breaches any of the
terms and conditions of any mortgages or other documents encumbering the Center;
and (v) that the Tenant at all times shall have unobstructed and adequate means
of ingress and egress between each of the entrances to the Premises and a public
street or public highway, as shown on Exhibit "A". Before tendering the Premises
for fixturing, the Landlord shall deliver to the Tenant a title insurance binder
or opinion of counsel evidencing the state of Landlord's title as of a date not
earlier than the date hereof and an opinion of counsel regarding the state of
such title shall be delivered
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to the Tenant sixty (60) days prior to acceptance of possession by the Tenant.
The aforementioned title insurance binder shall contain as an exhibit any deed
restrictions on the Premises or Center. Tenant and Landlord covenant that the
signatures to this Lease have full right and power to enter into this Lease for
the full Term and upon all conditions contained herein. This Lease shall become
effective only upon execution and delivery thereof by Landlord and Tenant.
41. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the state in which the Premises are located.
IN WITNESS WHEREOF, the parties have executed this Agreement of Lease effective
the date first set forth above.
Signed and acknowledged
in the presence of
LANDLORD:
Schottenstein Stores Corporation
a Delaware corporation
_________________________________ By:_________________________________
_________________________________ ITS:_________________________________
TENANT:
Value City Department Stores. Inc.
an Ohio corporation
_________________________________ BY:_________________________________
_________________________________ ITS:_________________________________
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STATE OF______________ :
: SS.
COUNTY OF____________ :
The foregoing instrument was acknowledged before me this _______ day of
_________ I 9___, by ____________________________,
_______________________________, of _________________________________, a
________________________________, for and on behalf of said
______________________________.
--------------------------------
Notary Public
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STATE OF______________ :
: SS.
COUNTY OF____________ :
The foregoing instrument was acknowledged before me this ________ day of
___________ 19___, by ____________________________,
_______________________________, of ________________________________, a
__________________________________, for and on behalf of said
______________________________.
--------------------------------
Notary Public
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EXHIBIT "A"
-----------
SITE PLAN
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EXHIBIT "B"
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LEGAL DESCRIPTION
24
<PAGE> 24
PROPERTY DESCRIPTION
--------------------
THAT PART OF THE SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF SECTION 34, TOWNSHIP 40
NORTH, RANGE 12 EAST OF THE THIRD PRINCIPAL MERIDIAN DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHWEST CORNER OF THE AFORESAID SOUTHEAST 1/4 OF THE
SOUTHEAST 1/4 OF SECTION 34; THENCE NORTH ALONG THE WEST LINE OF SAID SOUTHEAST
1/4 OF THE SOUTHEAST 1/4, A DISTANCE OF 104.50 FEET;. THENCE EAST 410.00 FEET
ALONG THE NORTH LINE OF NORTH AVENUE AS WIDENED, TO THE POINT OF BEGINNING OF
THE TRACT DESCRIBED HEREIN, SAID NORTH LINE OF NORTH AVENUE AS WIDENED, BEING A
LINE DRAWN TO A POINT ON THE EAST LINE OF THE WEST 1/2 OF THE AFORESAID
SOUTHEAST 1/4, OF THE SOUTHEAST 1/4 OF SECTION 34, AT A POINT 104.85 FEET NORTH
OF THE SOUTH LINE OF SAID SOUTHEAST 1/4; THENCE NORTH, ALONG THE EAST LINE OF
THE WEST 410.00 FEET OF SAID SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF SECTION 34, A
DISTANCE OF 280.00 FEET; THENCE WEST, ALONG A LINE DRAWN PARALLEL WITH THE
AFORESAID NORTH LINE OF NORTH AVENUE, 410.00 FEET TO THE POINT OF INTERSECTION
WITH THE WEST LINE OF THE AFORESAID SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF
SECTION 34; THENCE NORTH, ALONG SAID WEST LINE, A DISTANCE OF 355.74 FEET TO THE
POINT OF INTERSECTION WITH THE SOUTH LINE OF THE NORTH 591.00 FEET OF THE
AFORESAID SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF SECTION 34; THENCE EAST, ALONG
SAID SOUTH LINE, 278.20 FEET TO THE POINT OF INTERSECTION WITH THE EAST LINE OF
THE WEST 278.20 FEET OF THE AFORESAID SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF
SECTION 34; THENCE NORTH, ALONG SAID EAST LINE, 360.00 FEET TO THE POINT OF
INTERSECTION WITH THE SOUTH LINE OF THE NORTH 231.00 FEET OF THE AFORESAID
SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF SECTION 34; THENCE WEST, ALONG SAID SOUTH
LINE, 278.20 FEET TO THE POINT OF INTERSECTION WITH THE WEST LINE OF THE
AFORESAID SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF SECTION 34, THENCE NORTH, ALONG
SAID WEST LINE, 45.00 FEET TO THE POINT OF INTERSECTION WITH THE SOUTH LINE OF
THE NORTH 186.00 FEET OF THE AFORESAID SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF
SECTION 34; THENCE EAST, ALONG SAID SOUTH LINE, 663.68 FEET TO THE POINT OF
INTERSECTION WITH THE WEST LINE OF LOT 17 IN STURM ESTATE SUBDIVISION IN THE
EAST 1/2 OF THE AFORESAID SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF SECTION 34;
THENCE NORTH ALONG SAID WEST LINE, 1.11 FEET TO THE POINT OF INTERSECTION WITH
THE SOUTH LINE OF THE NORTH 186.00 FEET OF SAID LOT 17; THENCE EAST, ALONG SAID
SOUTH LINE 75.00 FEET TO THE POINT OF INTERSECTION WITH THE EAST LINE OF THE
WEST 75.00 FEET OF SAID LOT 17; THENCE SOUTH, ALONG SAID EAST LINE, 1041.48 FEET
TO THE POINT OF INTERSECTION WITH THE NORTH LINE OF NORTH AVENUE AS WIDENED,
SAID NORTH LINE BEING DRAWN FROM A POINT ON THE EAST LINE OF THE AFORESAID
SOUTHEAST 1/4 OF SECTION 34 AT A POINT 105.20 FEET NORTH OF THE SOUTHEAST CORNER
OF SAID SOUTHEAST 1/4, TO A POINT ON THE AFORESAID EAST LINE OF THE WEST 1/2 OF
THE SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF SECTION 34 AT A POINT 104.85 FEET
NORTH OF THE SOUTH LINE OF SAID SOUTHEAST 1/4; THENCE WEST, ALONG SAID NORTH
LINE OF NORTH AVENUE, 75.13 FEET TO THE POINT OF INTERSECTION WITH THE AFORESAID
EAST LINE OF THE WEST 1/2 OF THE SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF SECTION
34; THENCE WEST, ALONG THE NORTH LINE OF NORTH AVENUE AS WIDENED), 252.88 FEET
TO THE HEREINABOVE DESCRIBED POINT OF BEGINNING, IN COOK COUNTY, ILLINOIS.
25
<PAGE> 25
EXHIBIT "C"
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USE RESTRICTIONS
Intentionally Deleted
26
<PAGE> 26
EXHIBIT "D"
LANDLORD'S WORK
27
<PAGE> 27
LANDLORD'S WORK
Tenant accepts the Premises "as is".
28
<PAGE> 28
EXHIBIT "E"
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TENANT'S WORK
29
<PAGE> 29
TENANT'S WORK
1. Renovation and Construction Plan
2. Exterior Elevation/Elevation Details
3. Floor Plan
4. Floor Covering Plan
5. Interior Elevation and Details
6. Interior Elevation and Details
7. Electrical Plan
8. Englander Gallery
9. Counter and Cabinet Details
S1 Structural Plans
S2 Structural Plans
30
<PAGE> 30
EXHIBIT "F"
-----------
SIGNAGE
Intentionally Deleted
31
<PAGE> 31
EXHIBIT "G"
-----------
BROKER AGREEMENT
Intentionally Deleted
32
<PAGE> 1
AGREEMENT OF LEASE
------------------
THIS AGREEMENT OF LEASE made as of October 4, 1996, between
Hickory Ridge Pavilion, Ltd., an Ohio limited liability company (the
"Landlord"), and Value City Department Stores, Inc., an Ohio corporation (the
"Tenant").
1. BASIC LEASE PROVISIONS AND PREMISES.
(a) Basic Lease Provisions.
(i) Name of Shopping Center:Hickory Ridge Pavilion
(ii) Leasable Area of Premises:101,473 square feet
(iii) Primary Lease Term: twenty (20) years
(iv) Annual Fixed Rent: years
1-5 $558,101.50
6-10 $608,838.00
11-15 $659,574.50
16-20 $710,311.00
(v) Monthly Installment of Fixed Rent: years
1-5 $46,508.46
6-10 $50,736.50
11-15 $54,964.54
16-20 $59,192.58
(vi) Renewal Lease Term: years
21-25 $763,072.50
26-30 $813,944.00
31-35 $864,815.50
36-40 $915,687.00
(vii) Monthly Installment of Fixed Rent During Renewal
Term: years
21-25 $63,589.37
26-30 $67,828.67
31-35 $72,067.96
36-40 $76,307.25
(b) Landlord hereby leases to Tenant, and Tenant hereby rents from
<PAGE> 2
Landlord, the premises containing approximately 101,473 square feet and outlined
in red on the site plan attached to this Lease as Exhibit "A" and made a part
hereof (the "Site Plan"), together with all improvements now or to be
constructed thereon, and all easements, rights, privileges and interests
appurtenant thereto (collectively referred to as the "Premises"). The Premises
constitute a portion of a shopping center known as Hickory Ridge Pavilion, Ltd.
(the "Center"). Landlord represents and warrants to Tenant that the Premises and
Center are substantially shown on the Site Plan, including all rights of access,
ingress and egress, at the point shown on the Site Plan, in, to, from and over
any and all streets, ways or alleys adjoining the Center. The real property
comprising the Center is more particularly described on Exhibit "B", attached
hereto and made a part hereof.
(c) Landlord also grants to Tenant, its customers, employees,
licensees, invitees and subtenants a non-exclusive easement in common with the
other tenants of the Center for the use of all parking areas, driveways, outdoor
lighting facilities, sidewalks, service areas, landscaped areas (including all
landscaped areas adjacent to the Premises) footpaths, corridors and the other
areas intended for the non-exclusive use of the tenants of the Center
(collectively referred to as the "Common Areas"). Tenant shall also have the
right to use, on a non-exclusive basis with other tenants of the Center, the
areas, if any, on real estate adjacent to the Center and shown on the Site Plan.
Landlord covenants, represents and warrants that, during the Lease term, there
shall be reasonably adequate sidewalks, driveways and roadways for automotive
and pedestrian ingress and egress to and from Tenant's Premises and adjacent
public streets and highways.
2. SITE PLAN. The Landlord covenants that the Center is or shall be
developed in accordance with the Site Plan and that it shall be used as a retail
shopping center throughout the term of this Lease. The Landlord may not modify
or replace the Site Plan without the prior written consent of the Tenant, which
consent shall not be unreasonably withheld or delayed. No such modification or
replacement shall (i) reduce the ratio of parking spaces to gross leasable area
of buildings in the Center shown on the Site Plan, (ii) reduce or rearrange the
parking spaces cross-hatched on the Site Plan, (ii) interfere with truck access
to the loading doors of the Premises, (iv) interfere with customer access to the
Premises or the parking areas closest to the Premises, (v) interfere with the
visibility of the Premises from the roads providing direct access to the Center
or (vi) result in the construction of any buildings in the area designated "No
Build Area" on the Site Plan.
3. TERM.
<PAGE> 3
(a) The construction term (the "Construction Term") of this Lease shall
begin on the Commencement Date and end on the "Rent Commencement Date" (as
hereinafter defined). During the Construction Term, the Tenant shall proceed to
renovate the Premises and to install and construct in the Premises certain
additional improvements, as provided in paragraph 8 hereof.
(b) The initial term (the "Initial Term") of the Lease shall (i)
commence on the date on which the Tenant opens for business in the Premises (the
"Rent Commencement Date") and (ii) end on the last day of the last full Lease
Year. The term "Lease Year" shall mean a period of twelve consecutive calendar
months. The first Lease Year during the term hereof shall commence on the first
day of the first February following the Rent Commencement Date. Each subsequent
Lease Year shall begin on the anniversary of the first Lease Year.
(c) The Tenant shall have four (4) consecutive separate options to
extend the term of this Lease for successive renewal terms of five (5) Lease
Years each. The Tenant may exercise each such renewal option by giving written
notice to the Landlord at least ninety (90) days prior to the end of the then
current term or renewal term; provided, however, that if the Tenant fails to
exercise any renewal term option, the Tenant's rights to exercise the option
shall not expire until thirty (30) days after written notice to the Tenant from
the Landlord of the Tenant's failure to exercise said option.
(d) The Construction Term, Initial Term and any renewal terms are
hereinafter collectively referred to as the "term".
(e) Beginning on the date of this Lease and ending on the Commencement
Date, the Tenant, its employees and agents shall have the right to enter the
Premises or any part thereof at reasonable times during regular business hours
for the purpose of making such inspections as the Tenant may deem reasonably
necessary; provided that (i) such entry does not interfere with the business, if
any, being operated in the Premises, and (ii) the Tenant shall restore the
Premises to substantially the same condition as existed on the date of this
Lease. In consideration of the Tenant's right to inspect the Premises, the
Tenant agrees to indemnify, defend and hold the Landlord harmless from any and
all loss, damage, claims, costs, demands or expenses (including reasonable
attorney's fees and litigation costs) resulting from such entry on the Premises
by the Tenant or its agents.
4. RENT.
<PAGE> 4
(a) During the Initial Term and any renewal term hereof, the Tenant
agrees to pay to the Landlord annual base rent in the amounts and for the
periods set forth below.
<TABLE>
<CAPTION>
Annual Rent
-----------
Period Per Sq. Ft. Annual Rent Monthly Rent
<S> <C> <C> <C>
1-5 5.50 $558,101.50 $46,508.46
6-10 6.00 $608,838.00 $50,736.50
11-15 6.50 $659,574.50 $54,964.54
16-20 7.00 $710,311.00 $59,192.58
Renewal Lease Term
21-25 7.50 $763,072.50 $63,589.37
26-30 8.00 $813,944.00 $67,828.67
31-35 8.50 $864,815.50 $72,067.96
36-40 9.00 $915,687.00 $76,307.25
</TABLE>
(b) Such rent shall be payable in advance in equal monthly installments
payable on the first day of each calendar month during the term hereof,
commencing on the first day of the first full calendar month following the Rent
Commencement Date. All payments of rent shall be made to the Landlord at the
address specified in paragraph 35 hereof or as the Landlord otherwise notifies
the Tenant in writing.
(c) If, at any time or times during the term, the Premises are
remeasured and it is determined from such remeasurement that the gross leasable
square footage of the Premises as set forth in paragraph 1 of this Lease is
incorrect, the annual rent shall be adjusted to equal the product of the actual
gross leasable square footage of the Premises multiplied by the applicable
amount of annual rent per square foot as set forth in subparagraph (a) above.
Upon the request of either party, an Addendum to this Lease shall be executed
setting forth the actual gross leasable square footage of the Premises.
(f) Beginning with the first Lease Year, the Tenant shall pay to the
Landlord, in addition to the minimum rental, an annual percentage rent in the
amount, if any, by which the Tenant's "Gross Sales" (as hereinafter defined)
during each Lease Year, multiplied by two percent (2%), exceed the "Sales Base"
for such Lease Year. The Sales Base for any Lease Year shall equal (i) the base
rent payable for such Lease Year divided by (ii) two percent (2%). The annual
percentage rent shall be paid by the Tenant to the Landlord within sixty (60)
days
<PAGE> 5
after the end of each Lease Year. For purposes of permitting verification by the
Landlord of the Gross Sales reported by the Tenant, the Landlord shall have the
right, upon not less than five (5) days notice to the Tenant, to audit the
Tenant's books and records relating to the Gross Sales for a period of two (2)
years after the end of each Lease Year. If such an audit reveals that the Tenant
has understated its Gross Sales by more than three percent (3%), the Tenant, in
addition to paying the additional percentage rent due, shall pay the cost of the
audit.
Within thirty (30) days after the end of each Lease Year during the
term hereof, the Tenant shall deliver to the Landlord a statement signed by an
authorized representative of the Tenant setting forth the Gross Sales during
such month.
"Gross Sales" shall mean the aggregate amount, expressed in dollars, of
all sales of goods, whether made in full or discount prices or for cash or
credit, made in, on, or from the Premises by the Tenant, provided, however, that
the following shall be excluded from Gross Sales: (i) all credit, refunds, and
allowances granted to customers; (ii) all excise taxes, sales taxes, and other
taxes levied or imposed by any governmental authority upon or in connection with
such sales; (iii) bulk sales of goods in connection with the sale of the
Tenant's business; (iv) sales of fixtures, furniture and equipment not made in
the ordinary course of business; (v) sales of cigarettes and other tobacco
products; (vi) discount sales made to employees of the Tenant and the Tenant's
subsidiaries and affiliated corporations, if any; (vii) exchanges of merchandise
between the Tenant's warehouse or other stores and other similar movements of
merchandise; (viii) returns to suppliers; (ix) the proceeds from vending
machines and coin operated telephones and commissions on such proceeds to the
extent such proceeds and commissions are less than five percent (5%) of Gross
Sales exclusive of such proceeds and commissions; (x) uncollectible customer
charges and bad checks; (xi) disallowed amounts and discount payments for credit
card charges; (xii) delivery charges; (xiii) finance charges paid directly to
Tenant (which shall not include credit card fees); (xiv) customer credit
insurance; (xv) extended product warranty fees.
5. TAXES.
(a) "Real Estate Taxes" means all general and special real estate
taxes, special assessments and other ad valorem taxes, rates, levies and
assessments paid upon or with respect to the Premises, or, if the Premises is
not separately assessed for such purposes, the tax parcels comprising the
Center, for a calendar year or portion thereof to any governmental agency or
authority and all taxes
<PAGE> 6
specifically imposed in lieu of any such taxes. Nothing contained in this Lease
shall require the Tenant to pay any franchise, corporate, estate, inheritance,
succession, capital levy, business or transfer tax of the Landlord, or any
income, profits, gross receipts or renewal tax.
(b) Except as provided in subparagraph (c) below, the Landlord shall
pay, as and when they become due, all Real Estate Taxes payable upon or with
respect to the Center. The Landlord shall pay or cause the payment of all Real
Estate Taxes before any fine, penalty, interest or cost may be added thereto,
become due or be imposed by operation of law for the nonpayment or late payment
thereof. Should the Landlord fail to pay such Real Estate Taxes or any part
thereof, the Tenant shall have the right, at its sole election, after written
notice to the Landlord in accordance with paragraph 35, to cure such failure by
payment of the Real Estate Taxes and any interest and penalties due thereon and
may deduct the cost thereof, plus interest at the rate of ten percent (10%) per
annum (the "Default Rate"), from the next installment(s) of base rent and other
charges due hereunder. In no event shall the Tenant be liable for any discount
forfeited or penalty incurred as a result of late payment by another tenant. The
Landlord shall remain primarily responsible for such payment of Real Estate
Taxes notwithstanding the fact that such payment may be made by a tenant of the
Center or other third party pursuant to an agreement to which the Tenant is not
a party.
(c) If the Premises are separately assessed for Real Estate Taxes, the
Tenant shall pay, within thirty (30) days after invoice thereof (but not more
than forty-five (45) days prior to the due date thereof), all Real Estate Taxes
payable upon or with respect to the Premises. Should the Tenant fail to pay such
Real Estate Taxes or any part thereof within thirty (30) days after invoice
therefor (but not more than forty-five (45) days prior to the due date thereof),
the Landlord shall have the right, at its sole election, after written notice to
the Tenant in accordance with paragraph 26, to cure such failure by payment of
such Real Estate Taxes. Any such amount(s) paid by the Landlord shall constitute
additional rent due hereunder and shall bear interest at the Default Rate until
the Landlord is reimbursed for such amounts. Tenant shall only be liable for
interest and penalties thereon to the extent arising after such thirty (30) day
payment period but prior to the payment of such Real Estate Taxes by Tenant to
Landlord.
(d) If the Premises are not separately assessed for Real Estate Taxes,
the Tenant shall reimburse the Landlord for the Tenant's pro rata share of the
Real Estate Taxes payable upon or with respect to the Center exclusive of any
penalties or late charges within thirty (30) days after the Tenant's receipt of
the
<PAGE> 7
Landlord's statement therefor (but not more than forty-five (45) days prior to
the due date thereof), accompanied by the tax bill on which such statement is
rendered. The Tenant's pro rata share of the Real Estate Taxes shall be
calculated by multiplying the total tax assessed, net of any early payment
discounts available from the taxing authority at the time the Tenant's payment
is due, by a fraction, the numerator of which is the gross leasable square
footage of the Premises and the denominator of which is the total gross leasable
square footage of all buildings in the Center. Changes in applicable floor areas
in the Premises or in the Center shall result in corresponding pro rata
adjustments. Real Estate Taxes shall be prorated as of the Rent Commencement
Date and the expiration or earlier termination of this Lease, and, if
applicable, the Landlord shall promptly return to the Tenant any overpayment
made by the Tenant. All basements and mezzanine areas in which Landlord is
receiving rent or income shall be included.
(e) Landlord shall deliver to Tenant copies of all notices of proposed
increases in Taxes or proposed revaluation of any property that is included in
the calculation of Tenant's proportionate share of Taxes in time to permit
Tenant to contest such proposed increases or revaluation. If the Tenant disputes
the amounts of any Real Estate Taxes, it may contest and defend, and conduct any
necessary proceedings to avoid, such disputed taxes or assessments, and the
Landlord shall cooperate with the Tenant in contesting the validity or amount of
such taxes, including joining in the signing of any protests or pleadings that
the Tenant may deem reasonably advisable to file. Any rebate made on account of
any Real Estate Taxes attributable to the Premises shall belong to, and be paid
to, the Tenant. During any such contest, the Tenant agrees to prevent any public
sale, foreclosure or any divesting thereby of the Landlord's title to the
Premises.
(f) Any special assessments for benefits on or to the Center installed
following the Commencement Date shall be included in Real Estate Taxes.
(Predevelopment and development assessments and impact fees shall not be
included in Real Estate Taxes or in other pro rata charges to Tenant.) Landlord
agrees to elect the longest period available under law for payment of such
assessments. Landlord agrees that such assessments shall be amortized to Tenant
over a term not less than ten (10) years, and that any unamortized assessment
remaining at the end of the Lease term shall be borne by Landlord. If special
assessments are permitted to be paid in installments, and if the payment of such
installments are permitted to be paid over a period in excess of ten (10) years,
then there shall be included in Real Estate Taxes for any fiscal year only the
amount of the installment of such assessment that would result had Landlord
elected to pay such assessment over the maximum number of installments permitted
by law to be paid without interest or penalties. Such installments shall
<PAGE> 8
be in lieu of amortizing. Landlord will not submit improvements to a special
improvements district without Tenant's prior written consent unless such
submission shall not result in any charges to Tenant for such improvements.
6. UTILITIES. The Tenant shall pay all utility charges and deposits
required to establish accounts for gas, heat, light, water, sewer, electricity,
garbage and other utility use services supplied to the Premises during the term
of this Lease. The Premises shall be separately metered by Landlord for such
charges. In the event of any assignment or subletting of a portion of the
Premises by the Tenant then, at the Tenant's option, such assignment or
subletting shall provide that either (i) such portion of the Premises shall be
separately metered for such charges or (ii) the subtenant or assignee shall be
required to pay its pro rata share of such expenses (which pro rata share shall
be the amount of such costs multiplied by a fraction, the numerator of which
shall be the number of gross leasable square feet in that portion of the
Premises that is assigned or sublet, and the denominator of which shall be the
gross leasable square footage of the Premises).
7. USE.
(a) The Tenant shall have the right to use the Premises for any retail
purpose excluding only those uses set forth in Exhibit "C", attached hereto and
made a part hereof (but only for so long as they remain in effect and have not
been otherwise waived in writing by the parties benefited thereby). The Landlord
represents and warrants to the Tenant that the Premises are properly zoned for
Tenant's stated use and that all use restrictions are set forth in Exhibit "C"
hereof and that the Tenant's use of the Premises as full line-off price
department store does not violate any such use restrictions. The Tenant shall
not permit or suffer the use of the Premises for any unlawful purpose.
(b) The Landlord shall maintain in the Center a mix of tenants as will
best serve the interest of all tenants. So long as the Tenant is operating from
the Premises, the Landlord shall not lease, or approve or consent to any lease,
assignment or sublease of space in the Center to a full line-off price
department store.
8. LANDLORD AND TENANT'S WORK. The Landlord agrees to provide, at its
expense, the improvements to the Premises described on Exhibit "D", attached
hereto and made a part hereof (the "Landlord's Work"). If the Landlord does not
commence construction of the Landlord's Work on or before September 1, 1996
(time being of the essence) or if the Landlord's Work shall not be substantially
completed on or before October 17, 1996 (time being of the essence) the Tenant
shall have the right, at its election, to either (i) cancel and terminate this
Lease, or (ii) continue the Lease in which event the annual rent due hereunder
shall be adjusted so that, after the Rent Commencement Date, the Tenant shall
receive two (2) days free rent for each day the substantial completion of the
Premises is delayed. The Landlord's Work shall be deemed "substantially
<PAGE> 9
completed" when all of the Landlord's Work has been completed except for punch
list items that do not affect the Tenant's use or the appearance of the
Premises. The Tenant agrees to provide, at its expense, after the completion of
Landlord's Work, the improvements to the Premises described on Exhibit "E",
attached hereto and made a part hereof (the "Tenant's Work"). The Landlord's
Work and the Tenant's Work shall be done in a good and workmanlike manner and in
accordance with plans and specifications approved by the other party, which
approval shall not be unreasonably withheld or delayed, and shall be in
compliance with all applicable building codes, laws, ordinances and regulations.
The plans and specifications delivered for approval to the Tenant and the
Landlord, as applicable, shall be deemed approved if not approved or otherwise
acted upon within fifteen (15) days following receipt of such plans and
specifications. The Landlord and the Tenant shall obtain, at their own expense,
all necessary building permits for their respective work.
9. TENANT ALTERATIONS AND IMPROVEMENTS. The Tenant may, from time to
time, make or cause to be made any interior nonstructural alterations, additions
or improvements to the Premises without the Landlord's consent. The construction
of interior demising walls and interior doors shall be deemed nonstructural. The
Tenant may make interior structural and exterior alterations, additions or
improvements to the Premises only with the Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. Any request to make
such interior structural or external alterations, additions or improvements
shall be deemed approved if not approved or otherwise acted upon within fifteen
(15) days following request for such approval. The Landlord agrees to execute
and deliver upon the Tenant's request any instrument or instruments which may be
required by any public or quasi-public authority for the purpose of obtaining
any license or permit for the making of such alterations or improvements.
10. LANDLORD'S ADDITIONAL COVENANTS.
(a) Exclusive. To the fullest extent permitted by law and as a
condition of an inducement to Tenant's entering into this Lease, Landlord grants
to Tenant the exclusive right to operate in the Center (and any enlargement or
expansion thereof) a off price full line department store. Any parcel sold shall
require a restriction of deed incorporating the foregoing exclusive.
(b) Covenant Against Certain Uses. To the full extent permitted by law
and as a condition and inducement to Tenant to enter into this Lease, Landlord
agrees that Landlord will not lease, rent, occupy or permit to be occupied any
premises in the Center (and any enlargement or expansion thereof) to be used for
the operation of a bingo parlor, bar, tavern, cocktail lounge, restaurant, adult
book or adult video store (defined for the purposes hereof as a store devoting
ten percent (10%) or more of its floor space to offering books and/or video
materials for sale or for rent which are directed to or restricted to adult
customers due to sexually explicit subject matter or for any other reason making
it inappropriate for general use), automotive maintenance or automotive repair
facility, warehouse, car wash, pawn shop, check cashing service, establishment
selling second hand goods, or flea market, entertainment or recreational
<PAGE> 10
facility (including bowling alley) or training or educational facility; for the
renting, leasing or selling or displaying therefore of any boat, motor vehicle
or trailer; or for industrial purposes. For the purpose hereof, the phrase
"entertainment or recreational facility" shall include, without limitation, a
movie or live theater or cinema, bowling alley, skating rink, gym, health spa or
studio, dance hall, billiard or pool hall, massage parlor, health club, game
parlor or bingo parlor or video arcade (which shall be defined as any store
containing more than five (5) electronic games). The phrase "training or
educational facility" shall include, without limitation, a beauty school, barber
college, reading room, place of instruction or any other operation catering
primarily to students or trainees as opposed to customers. Notwithstanding the
foregoing, Landlord may lease any premises in the Center for use as a restaurant
provided that Landlord complies with the restrictions set forth hereunder in
this Section 10(b). Notwithstanding anything to the contrary contained in this
Lease, no part of the Center within four hundred feet (400') of Tenant's
Building shall be used as a restaurant (except that one restaurant, sit down
type, not to exceed 2,500 square feet shall be permitted, provided, however, any
such restaurant use shall not offer liquor, beer or wine for sale).
(c) Landlord further agrees that Tenant shall have the right to approve
any changes in use or other alterations to any building within one hundred (100)
feet of the Premises.
(d) Landlord acknowledges that in the event of a breach or an attempted
or prospective breach hereof by Landlord, Tenant's remedies at law would be
inadequate. Therefore, in any such event, if such breach is not cured within
sixty (60) days after written notice from Tenant to Landlord, Tenant shall be
entitled, at its option and without limitation of any other remedy permitted by
law or equity or by this Lease, to cancel this Lease on thirty (30) days written
notice to Landlord and/or to full and adequate relief by temporary and permanent
injunction; provided that the remedy of lease cancellation shall not be
applicable if the violation of this Section 10 is due to the breach of another
tenant's lease and Landlord is, in Tenant's good faith judgment, diligently
pursuing appropriate legal proceedings to halt the violation.
<PAGE> 11
11. TENANT'S PROPERTY. All equipment, inventory, trade fixtures and
other property owned by the Tenant and located in the Premises shall remain the
personal property of the Tenant and shall be exempt from the claims of the
Landlord or any mortgagee or lienholder of the Landlord without regard to the
means by which they are installed or attached. The Landlord expressly waives any
statutory or common law landlord's lien and any and all rights granted under any
present or future laws to levy or distrain for rent (whether in arrears or in
advance) against the aforesaid property of the Tenant on the Premises and
further agrees to execute any reasonable instruments evidencing such waiver, at
any time or times hereafter upon the Tenant's request. The Tenant shall have the
right, at any time or from time to time, to remove such trade fixtures or
equipment. If such removal damages any part of the Premises, the Tenant shall
repair such damages. Tenant is expressly authorized to finance, pledge, and
encumber its own trade fixtures, equipment, and inventory for purposes of
financing such trade fixtures, equipment and inventory.
12. SIGNS.
(a) Announcements. Landlord agrees, upon execution of this Lease, to
erect, at Landlord's expense, a sign on the Premises. Such sign shall be a
minimum of four feet (4') by eight feet (8') and visible to the public, as set
forth on Exhibit "F" attached hereto and made a part hereof.
(b) Pylon and Building Signs. Landlord shall, at its sole cost and
expense, construct, erect and maintain at the location shown on the Site Plan,
pylon signs upon which Tenant's advertising panel shall be installed, and
thereafter throughout the Term of the Lease, Tenant shall have continuous
representation on the pylon sign(s) and Building sign and any replacement pylon
sign in the same position and size as shown on Exhibit "A". Landlord hereby
approves the color of Tenant's advertising panel for the pylon. The dimensions
and structure of the pylon sign, as well as the size of Tenant's advertising
panel and its placement in relation to other panels on the pylon signs shall be
approved by Tenant, in accordance with Tenant's sign requirements as identified
on Exhibit "F". Tenant shall have the right to install its standard signs on the
exterior of the Premises, as described on Exhibit "F" attached hereto. Landlord
agrees to provide an adequate building facia for Tenant's signs.
<PAGE> 12
(c) Maintenance. Tenant agrees to maintain said advertising panel and
exterior building signs in a good state of repair, save the Landlord harmless
from maintenance or removal of such signs, provided that at the end of this
Term, the Tenant agrees to remove the same and repair any damages caused
thereby.
(d) Interior Signage. Tenant shall also have the right to place signs
or banners in the windows of the Premises, provided same are professionally
done.
(e) Removal. Landlord agrees that at or before the time for surrender
of the Premises to Landlord, said Tenant may remove all the trade fixtures and
signs and all other personal property owned by Tenant in accordance with Section
17 herein.
13. ASSIGNMENT AND SUBLETTING. Tenant shall have the right, without the
consent of the Landlord, (i) to grant licenses and/or concessions with the
Premises, and (ii) to assign this Lease or sublet all or any portion of the
Premises to a parent, subsidiary or affiliate corporation of the Tenant or to a
successor by merger, acquisition or consolidation of the Tenant, its parent or
subsidiary or to a corporation acquiring all or substantially all of the assets
of the Tenant, its parent or subsidiary; provided, however that Tenant shall
remain fully liable hereunder. Notwithstanding the foregoing, Tenant shall be
released from all further liability hereunder in the event such assignee (i) has
a net worth of at least Ten Million Dollars ($10,000,000.00), and (ii) has
sufficient business experience and a good business reputation.
Tenant shall have the right, without the consent of Landlord, to assign
this Lease or sublet the Premises to any party or entity other than set forth in
the immediately preceding paragraph, so long as (i) such proposed use does not
violate any exclusive in the Center, (ii) such use is consistent with the
general character of the Center, and (iii) the proposed assignee or subtenant
has sufficient business experience and a good business reputation. In all other
cases, Tenant may assign or sublet upon obtaining the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed. Tenant
shall remain liable hereunder unless such assignee or subtenant has a net worth
greater than that of Tenant at the time of such proposed assignment or
subletting.
14. MAINTENANCE.
<PAGE> 13
(a) The Tenant shall maintain at its expense the interior of the
Premises, including the doors and windows therein, in good condition and repair.
The Tenant shall repair defective work performed as part of the Tenant's Work
but shall have no obligation to repair any defective work performed by the
Landlord as part of the Landlord's Work.
(b) Tenant shall have the right to make alterations or additions to the
Premises at its sole cost and expense provided, nevertheless, that any such
alterations or additions shall be of good workmanship and material and shall not
reduce the size and strength of the then existing improvements. Tenant shall not
be required to remove any such additions or alterations or to restore the
Premises to their original condition at the termination of tenancy hereunder.
The Landlord hereby covenants and agrees to join with Tenant in applying for and
securing from any governmental authority having jurisdiction thereof, any
permits or licenses which may be necessary in connection with the making of any
alterations, additions, changes or repairs and the Landlord agrees, upon request
by the Tenant, to execute or join in the execution of any application for such
licenses and permits.
(c) The Landlord hereby assigns to the Tenant all manufacturers' and
other warranties applicable to that portion of the Premises and the equipment
and systems therein that the Tenant is obligated to maintain.
15. COMMON AREA MAINTENANCE.
(a) From and after the Commencement Date, Landlord, at its cost and
expense, shall maintain the Common Areas and the Center clean and in good repair
so that Tenant and its customers, guests, invitees, officers and employees can
use and enjoy the same. The obligation of Landlord pursuant hereto shall
include, but not be limited to, the management and maintenance of the Center and
the pylon structure of Tenant's identification sign (if the same is affixed to a
pylon sign used in common with Landlord or other tenants in the Center, but not
Tenant's advertising panels), regular cleaning of the Common Areas, removal of
trash and debris from the Common Areas, repairing the asphalt and concrete
portions of the Common Areas (including potholes, curbs and sidewalks),
repairing common utility lines and facilities, repairing storm drains, repairing
parking lot lights, maintaining the landscaped portion of the Common Areas
(including regular grass cutting), maintaining floodlights and other necessary
means of illumination sufficient to illuminate the Common Areas during twilight
and evening hours that Tenant's store is open for business and in operation,
prompt removal of snow and
<PAGE> 14
ice on every occasion where safety of the Common Areas is impeded, employing
traffic control personnel (such as off-duty police personnel), and periodically
restriping the parking area. Landlord covenants that such maintenance and repair
shall be planned and preventative maintenance undertaken in order to maintain
the Common Areas in good usable condition so as to avoid breakdown of
maintenance and avoidable costly repairs. Landlord shall not in any manner
change the size, location, nature, design or use of the Common Areas as shown on
the Site Plan without the prior written consent of Tenant, which shall not be
unreasonably withheld unless the proposed change would involve additional
buildings of any kind or reduce the number of parking spaces, or otherwise
materially and adversely affect the access to or visibility of the Premises, in
any of which cases Tenant's approval may be withheld in its sole discretion.
(b) The Tenant shall reimburse the Landlord for its proportionate share
of the Landlord's "Common Area Maintenance Costs" (as hereinafter defined).
(c) As used herein, the term "Common Area Maintenance Costs" means all
reasonable costs actually paid by the Landlord for maintaining and repairing the
Common Areas. The following items shall be specifically excluded from Common
Area Maintenance Costs: (i) depreciation on maintenance equipment; (ii) all Real
Estate Taxes; (iii) financing costs, including, but not limited to, any and all
of Landlord's payments for (1) loan principal or interest, together with
expenses, thereto related in connection with such financing or any refinancing
during the term of this Lease, (2) ground lease rent, or (3) similar payments;
(iv) salaries of Landlord's employees or agents contracted through outside
services or employed by Landlord who are not exclusively engaged in the
day-to-day maintenance of the Center; (v) profit or mark-up; (vi) maintenance,
repairs, services or improvements on the buildings or other tenant premises,
except that periodic painting of the exterior of the buildings shall be an
allowable expense; (vii) costs of outside management services; (viii) Merchants
Association costs; (ix) Center advertising, promotions and promotional
materials; (x) remodeling of the Center, or any costs for renovation or
improvement to the Common Areas required as a result of other tenants within the
Center remodeling, adding an addition or renovating; (xi) enforcement costs -
any and all of Landlord's costs to compel full performance under leases with all
prior, existing, and prospective tenants at the Center, including, without
limitation all legal fees, costs and expenses to collect rental arrearages and
recover possession, or legal fees and expenses; (xii) leasing costs - any and
all of Landlord's costs of leasing space in the Center to all prior, existing
and prospective tenants, including, without limitation, consulting and marketing
fees, advertising expenses, brokerage commissions, legal fees, vacancy costs,
rent or other rent concessions, and/or refurbishment or improvement expenses;
<PAGE> 15
(xiii) capital costs - any and all of the Landlord's capital costs,
improvements, alterations, repairs and/or replacements (including redesign and
retrofitting of existing capital improvements) to any part of the Center
including, but not limited to, resurfacing and/or replacement of paving; (xiv)
parking garage facilities - any and all of Landlord's expenses relating to any
parking garage facility or facilities on or about the property or comprising a
part of the Center; (xv) any improvement or construction charge which would
normally be and/or should have been in the original construction of the Center
and any repairs or replacements to the interior or exterior which are required
because of defective or faulty installation, materials, design or other latent
defects; (xvi) utility service and/or service lines (for any utility service)
repair, replacement, addition or maintenance charge except for those utility
service and lines within the Common Areas and are used by all tenants of the
Center; (xvii) any utility charge for usage of the Center if such usage is
charged to Tenant's Premises as a result of separate metering of the service or
services. In addition, any utility usage of the Common Areas which is as a
result of other tenants' extended operating hours shall be excluded, and the
cost of any utility, maintenance, service or repair provided to any other
premises in the Center; (xviii) any Common Areas Maintenance Costs incurred or
required prior to the commencement of this Lease; (xix) maintenance, repair or
replacement of Common Areas which is the result of Landlord's negligence in
performing preventative and/or planned maintenance which increases the costs to
maintain the Common Areas in good usable condition; (xx) off site repairs,
replacements or improvements; (xxi) any costs or expenses incurred by the
Landlord in bringing the Center, or any portion thereof, into compliance with
any applicable federal, state or local statutes, codes, ordinances or rules;
(xxii) reserves for anticipated future expenses; (xxiii) any bad debt loss, rent
loss or reserves for bad debts or rent loss; (xxiv) any cost related to the
operation of Landlord as an entity rather than the operating of the Center
including the cost and formation of the entity, internal accounting, legal
matters, preparation of tax returns, etc.; (xxv) any operating expense incurred
by Landlord with respect to other premises in the Center occupied or occupiable
by other tenants of the Center; and (xxvi) any expense for insured or uninsured
loss. Any allowable replacement of Common Areas which would constitute a
"capital expenditure" shall be amortized over the useful life of said
replacement and only the annual amortized portion of said cost shall be included
in Tenant's proportionate share of Common Areas Costs. The Tenant's
proportionate share of the Common Area Maintenance Costs, subject to Section
15(b) above (the "Tenant's Share") shall be the amount of such costs multiplied
by a fraction, the numerator of which shall be the gross leasable area of the
Premises as set forth in paragraph 1 hereof and the denominator of which shall
be the gross leasable area of all buildings in the Center.
<PAGE> 16
(d) The Tenant shall pay the Tenant's Share to the Landlord in
quarterly payments in arrears. Within thirty (30) days after the end of each
calendar quarter, the Landlord shall give the Tenant a statement in reasonable
detail, together with all applicable invoices and receipts, setting forth the
Common Area Maintenance Costs for such quarter and the Tenant's Share. Subject
to subparagraph 15(b) above, the Tenant shall pay such amount to the Landlord
within thirty (30) days following receipt of such statement.
16. LANDLORD'S MAINTENANCE AND REPAIRS. Landlord agrees that it shall,
at its sole cost and expense, at all times during the term of this Lease:
(a) Keep, repair and maintain in good order and condition (including
replacement, if necessary), the roof (including all components thereof) and the
interior and exterior structural portions of the Premises, including, without
limitation, the exterior walls (painted, cleaned and/or sandblasted, but
excluding plate glass windows, doors, door closure devices, door frames,
molding, locks and hardware); the window frames (but only to the extent repair
thereto is necessitated due to settling of the building or other structural
failure of the building); the foundation, structural parts of the floor; all
structural members; gutters, downspouts; duct work; automated sprinkler supply
line; and, electrical wiring from main circuit breaker panels (excluding the
circuit breaker) to the weatherboard and extending to the public utility power
sources. In addition, Landlord shall be responsible for "replacement" of major
equipment, including air condition and heating equipment, upon said equipment
being deemed unrepairable by a registered engineer selected by Tenant. Should
Landlord elect to renovate or remodel the exterior of said Premises, Landlord
may do so at Landlord's expense provided Tenant has approved the same.
(b) Make any repair or replacements which become necessary as the
consequence (whether with or without any intervening act, negligence, or default
under this Lease of Landlord, its employees, agents, licensees, or contractors)
of a condition Landlord is required to correct, as in the case of damage to the
ceiling which results from a roof leak.
(c) If Landlord fails to perform its maintenance obligations hereunder,
Tenant, after thirty (30) days written notice to Landlord (or upon such notice
as may be reasonable in the event of an emergency or in the event such repairs
are necessary in order to avoid damage to the Tenant's merchandise or
interference with the Tenant's business) may perform such unperformed
maintenance at the cost of the Landlord. Tenant may offset the cost of
performing the Landlord's
<PAGE> 17
maintenance obligations against the rent due hereunder.
(d) In the event it shall become necessary to make any emergency repair
which would otherwise be required to be made by Landlord, Tenant shall use its
best efforts to contact Landlord, and in the event of its inability to do so,
Tenant may proceed forthwith to have the repairs made and pay the cost thereof
and promptly thereafter deliver a bill for such repairs to Landlord. In the
event the bill for such repairs is not paid within thirty (30) days after
Landlord's receipt of such bill, Tenant may deduct all of its costs and expenses
in connection therewith from up to one-half of each monthly installment of the
Fixed Rent thereafter becoming due until such sum shall be recovered in full.
17. SURRENDER OF PREMISES. At the expiration of the term, the Tenant
shall surrender the Premises in good condition and repair, ordinary wear and
tear and damage by fire and casualty excepted.
18. INSURANCE.
(a) The Tenant agrees that it will, at all times during the term of
this Lease, keep in full force and effect a policy of general liability
insurance with respect to the Premises and the business operated by the Tenant
therein in which the limits shall not be less than One Million Dollars
($1,000,000.00) in respect of personal injury and not less than Five Hundred
Thousand Dollars ($500,000.00) in respect of property damage.
(b) The Landlord agrees that it will, at all times during the term of
this Lease, keep in full force and effect a policy of fire and extended coverage
("all-risk" form) insurance, insuring all improvements in the Center and the
Premises on full replacement cost basis, including:
(i) With respect to the Center, extended coverage and vandalism and
malicious endorsement, in an amount not less than the full replacement cost of
the buildings and improvements thereon; and
(ii) Sprinkler leakage insurance with respect to the Center (but not
with respect to Tenant's fixtures, furniture, equipment, stock, or inventory),
in an amount not less than one hundred percent (100%) of said replacement value.
(c) Landlord shall maintain a policy or policies of general
comprehensive public and property damage insurance for damages on account of
injuries to property or person, including, death, sustained by any person or
persons while
<PAGE> 18
within said Common Areas (including but not limited to parking lot and
sidewalks) in the amount of Five Million Dollars ($5,000,000.00) combined single
limit protection.
Landlord is to notify Tenant of any changes in the liability policy or
if there is a termination of that policy without replacement. At Tenant's
request, but not more frequently than twice each calendar year, Landlord will
furnish to Tenant evidence of such insurance.
(d) The party obligated to maintain the insurance policies hereunder
shall, within fifteen (15) days after request therefor, deliver to the other
party a certificate of insurance naming the other party as an additional insured
and evidencing that the insurance required hereunder is in full force and
effect. All insurance required hereunder may be carried under blanket policies
maintained by the party required to maintain such insurance.
(e) The Landlord and the Tenant agree that with respect to any loss
which is required to be covered by insurance hereunder, the one carrying or
required to carry such insurance and suffering such loss releases the other of
and from any and all claims with respect to such loss. The Landlord and the
Tenant further agree that their respective insurance policies shall provide for
an appropriate waiver of subrogation reflecting this release.
(f) The net proceeds of the insurance referred to in Section 18(b)
shall be applied to the restoration of the Premises. Any surplus proceeds shall
belong to the Landlord. Landlord agrees to convey any insurance proceeds
received by Landlord to a title company or lender mutually agreed to by the
parties hereto to hold in escrow for rebuilding if Landlord is required to
rebuild.
(g) Tenant shall be named as an additional insured in Landlord's public
liability and property damage insurance policies. Any insurance required to be
maintained by Landlord under this Section 18 may be maintained under a so-called
blanket policy or policies; may contain reasonable deductible provisions
customary for similar properties in the Center locale and consistent with sound
insurance practices; and, the insurance required to be maintained shall include
a clause waiving any right of subrogation against Tenant. Tenant shall pay to
Landlord monthly, as additional rent, Tenant's pro rata share of the premiums
for the insurance described above. Landlord shall charge Tenant for its pro rata
share of the foregoing insurance separately from Common Areas expense charges,
and Landlord shall not add an administrative charge as a part of such insurance
expense.
<PAGE> 19
(h) Landlord represents that the insurance premiums payable by Landlord
for the coverage enumerated herein shall be at rates which are commercially
reasonably, and comparable to the rates paid by other owners of similarly-sized,
first-class shopping centers for similar coverage in the metropolitan area. In
the event Tenant is able to locate an insurance carrier (or carriers) of
comparable quality and expertise as Landlord's carrier which will provide to
Landlord identical coverage at rates which are less than the premium rates
charged by Landlord's insurance carrier, Tenant's Proportionate Share of
insurance premiums shall be calculated based upon the rates quoted by Tenant's
proposed insurance carrier or carriers (whether or not Landlord elects to obtain
the insurance coverage required hereunder from such source or sources) which
Tenant shall make available to Landlord.
19. COMPLIANCE WITH GOVERNMENTAL REGULATIONS.
(a) Except as provided in subparagraph (c) below, the Tenant shall, at
its cost and expense, comply with the lawful requirements of all municipal,
state, federal and other applicable governmental authorities arising as a result
of the Tenant's particular use of the Premises; provided, however, that the
Tenant shall have no obligation to make any additions, alterations or
improvements to the Premises required by such governmental authorities if the
cost of such additions, alterations or improvements exceeds $25,000.00 or if
less than two years remain in the term hereof.
(b) Except as provided in subparagraph (c) below, the Landlord shall,
at its sole cost and expense, comply with all other lawful requirements of all
municipal, state, federal or other applicable governmental authorities arising
as a result of or in connection with the use and occupancy of the Premises and
the Common Areas or the failure of the Landlord's Work to comply with such
requirements.
(c) As used in this subparagraph, the Americans with Disabilities Act
("ADA") shall mean the Americans with Disabilities Act of 1990, 42 U.S.C. e1201,
et. seq., and all implementing regulations. The Landlord and the Tenant intend
to comply with the ADA and the parties hereby agree to allocate responsibility
for such compliance as follows:
(i) Except as provided in subsection (ii) below, the Landlord shall
have responsibility to comply with the requirements of the ADA in all Common
Areas and in the Premises. Such compliance responsibility shall include, but
shall not be
<PAGE> 20
limited to, the obligation to remove architectural and communication barriers in
the Common Areas and the Premises where such removal is readily achievable.
(ii) Except as provided in subsection (i) above, the Tenant shall have
responsibility to comply with the requirements of the ADA in the Premises to the
extent that such requirements require the Tenant to make interior nonstructural
changes or improvements to the Premises. Such responsibility shall include, but
shall not be limited to, the obligation to remove architectural and
communication barriers in the Premises created by the Tenant's trade fixtures
and leasehold improvements made by the Tenant where such removal is readily
achievable.
(iii) If building alterations are commenced by Landlord and involve the
Common Areas, it shall be the Landlord's responsibility to comply with the
standards of accessibility required under the ADA and its implementing
regulations.
(iv) Except as provided in subsection (v) below, if building
alterations are commenced by Tenant and involve the Premises, it shall be the
Tenant's responsibility to comply with the standards of accessibility required
under the ADA and its implementing regulations.
(v) In the event the Landlord and the Tenant shall agree as part of the
terms and conditions of the Lease that the Landlord, at the Landlord's expense,
shall construct improvements on the Premises or any part thereof, it shall be
the Landlord's responsibility to comply with the standards of accessibility for
such new construction.
(vi) Each party shall be responsible for the ADA compliance of its own
standards, criteria, administrative methods, eligibility criteria, policies,
practices and procedures.
(vii) The Tenant shall be responsible for the provisions of any
"auxiliary aids and services," as such term is defined and used in the ADA, to
its customers, clients and patrons, if and to the extent required in connection
with the operation of its business or occupancy of the Premises.
(viii) To the extent permitted by the ADA, if either the Landlord or
the Tenant can demonstrate that barrier removal is not readily achievable in an
area in which either party has responsibility for ADA compliance, the party
responsible for compliance, as herein provided, shall make use of alternatives
to barrier removal, if such alternatives are readily achievable.
<PAGE> 21
20. DAMAGE OR DESTRUCTION.
(a) If the Premises shall be damaged by fire or other casualty, the
Landlord shall collect the proceeds of such insurance and immediately and with
all due diligence commence to repair such damage at its expense. From the date
the damage occurs to the date the repairs are complete, the rent due hereunder
shall be reduced by the same percentage as the percentage of the Premises which,
in the Tenant's reasonable judgment, cannot be safely, economically or
practically used for the operation of the Tenant's business. Anything herein to
the contrary notwithstanding, if in the Tenant's reasonable judgment, any damage
or destruction to the Premises from any cause whatsoever cannot be repaired
within one hundred eighty (180) days following the date such damage occurs, the
Tenant may terminate this Lease by written notice to the Landlord given within
ninety (90) days following the occurrence of such damage. In addition, if any
damage or destruction to the Premises from any cause whatsoever cannot be
repaired, in the Landlord's reasonable judgment, within one hundred eighty (180)
days following the date such damage occurs and the Landlord elects not to repair
such damage, the Landlord shall have the right to terminate this Lease by
written notice to the Tenant given within ninety (90) days after the date such
damage occurred provided that no more than three (3) calendar years remain in
the term hereof. Notwithstanding the foregoing, if at the time the Landlord
gives such termination notice any of the renewal options provided for in the
Lease have not yet been exercised and the Tenant exercises a renewal option
within thirty (30) days after receipt of the Landlord's termination notice, then
this Lease shall not be terminated and the Landlord shall promptly commence
restoration of the Premises.
(b) In the event of a termination of the Lease pursuant to this
paragraph, all insurance proceeds payable by reason of damage under policies
required to be carried hereunder (excluding any insurance proceeds attributable
to damage to the Tenant's inventory, trade fixtures, business or leasehold
improvements paid for by the Tenant) shall be paid to the Landlord.
21. CONDEMNATION. If all or any part of the Premises or the Center
shall be taken under the power of eminent domain, (i) this Lease shall terminate
as to the part so taken on the date on which the Tenant is required to yield
possession thereof, (ii) the Landlord shall make such repairs and alterations as
may be necessary in order to restore the part not taken to a condition
satisfactory for the Tenant's use, and (ii) the rent due hereunder shall be
reduced by the same percentage as the percentage of the Premises or the Center
so taken. If the portion so taken of the Premises, the Center or the Common
Areas or access
<PAGE> 22
thereto substantially impairs the Tenant's use of the Premises or the economic
viability of the business then being operated by the Tenant in the Premises, the
Tenant shall have the option to terminate this Lease at any time following the
date on which the Landlord or the Tenant is required to yield possession of the
area so taken.
22. INDEMNIFICATION. Subject to the insurance requirements of Section
18, the Landlord hereby indemnifies the Tenant, and the Tenant hereby
indemnifies the Landlord for any cost, damage or expense incurred or suffered by
the other as a result of the negligence or other act or omission of the
indemnifying party.
23. QUIET ENJOYMENT. Landlord warrants that Tenant shall have the
continuous and uninterrupted quiet enjoyment and exclusive possession of the
Premises and the non-exclusive right to use the Common Areas during the term of
this Lease. In the event that, at any time during the term hereof, Tenant's
quiet enjoyment and possession is deprived for more than sixty (60) days as a
result of a defect in the title of Landlord to the Center and/or the Premises,
and Landlord fails or refuses to cure such defect within such sixty (60) day
period, Tenant shall have the right, at its option, to terminate this Lease
without prejudice to any other right or remedy it may have at law or equity or
under this Lease.
24. LANDLORD'S COVENANTS. The Landlord represents (i) that it has the
right to enter into this Lease, (ii) that it has good and marketable title to
the Premises, (iii) that the Premises, including without limitation, the roof
and HVAC system, are in good condition and repair, (iv) that the Premises is
properly zoned for use by the Tenant as a off price full line department store
retail location, (v) that the Landlord has obtained all necessary approvals and
permits from appropriate governmental authorities for the development of the
Center in accordance with the Site Plan and for the construction and occupancy
of the Premises by Tenant as a off price full line department store retail
location, and (vi) that the Landlord has entered into no leases, agreements or
restrictive covenants that would prohibit or interfere with the use of the
Premises by the Tenant as a off price full line department store retail
location.
25. HAZARDOUS SUBSTANCES.
(a) "Hazardous Substances", as used herein, shall mean all "hazardous
substances" (as defined in the Comprehensive Environmental Response Compensation
and Liability Act of 1980, 42 U.S.C. paragraph 9601 et seq. and the regulations
promulgated pursuant thereto, as amended [the "Act"]); any other
<PAGE> 23
toxic or hazardous waste, material or substance as defined under any other
federal state or local law, rule, regulation or ordinance; petroleum products
and any other pollutant or environmental contaminant. "Remediate" or
"remediation" as used herein shall mean "remediate" or "remediation" as defined
in the Act.
(b) During the term of the Lease, the Tenant shall not: (i) release,
spill, leak, store, generate or accumulate any Hazardous Substances in, on or
under the Premises (except that the Tenant may store ordinary and necessary
quantities of cleaning, office and pest control supplies stored in a safe and
lawful manner and immaterial quantities of petroleum products may be discharged
from the operation of motor vehicles on the Premises); (ii) install any
underground storage tanks in, on or under the Premises; (iii) accumulate tires,
spent batteries, mining spoil, debris or other solid waste (except for rubbish
in containers for normal scheduled disposal in compliance with all applicable
laws); or (iv) drain, fill or modify wetlands on the Premises (except in
compliance with all applicable laws).
(c) The Tenant shall notify the Landlord immediately upon the Tenant's
learning during the term of this Lease that: (i) any duty in subparagraph (b)
has been violated; (ii) there has been a release, discharge or disposal of any
Hazardous Substance on any property contiguous to the Premises such that
contamination of the Premises is possible; (iii) the Premises are the subject of
any third party claim or action, because of any environmental condition on or
originated from the Premises. The Tenant shall promptly provide the Landlord
with copies of all correspondence to or from third parties, including, but not
limited to, governmental agencies, regarding environmental conditions on or
originating from the Premises.
(d) The Tenant shall indemnify and agrees to hold the Landlord harmless
from and against all costs, liability and damages suffered by the Landlord as a
result of a breach of the Tenant's duties hereunder.
(e) The Landlord hereby represents and warrants that: (i) it has not
used, generated, discharged, released or stored any Hazardous Substances on, in
or under the Center and has received no notice and has no knowledge of the
presence in, on or under the Center of any such Hazardous Substances; (ii) there
have never been any underground storage tanks at the Center, whether owned by
the Landlord or its predecessors in interest; (iii) there are not and have never
been accumulated tires, spent batteries, mining spoil, debris or other solid
waste (except for rubbish and containers for normal scheduled disposal in
compliance with all applicable laws) in, on or under the Center; (iv) it has not
spilled, discharged or leaked petroleum products other than de minimis
quantities in
<PAGE> 24
connection with the operation of motor vehicles on the Center; (v) there has
been no draining, filling or modification of wetlands (as defined by federal,
state or local law, regulation or ordinance) at the Center; and (vi) there is no
asbestos or asbestos-containing material in the Premises. The representations
and warranties set forth in this subparagraph (e) shall apply to any contiguous
or adjacent property owned by the Landlord, whether or not the Landlord is in
possession.
(f) If any such Hazardous Substances are discovered at the Center
(unless introduced by the Tenant, its agents or employees) or if any asbestos or
asbestos containing material is discovered in the Premises, and removal,
encapsulation or other remediation is required by applicable laws, the Landlord
immediately and with all due diligence and at no expense to the Tenant shall
take all measures necessary to comply with all applicable laws and to remove
such Hazardous Substances or asbestos from the Center and/or encapsulate or
remediate such Hazardous Substances or asbestos, which removal and/or
encapsulation or remediation shall be in compliance with all environmental laws
and regulations, and the Landlord shall repair and restore the Center at its
expense. From the date such Hazardous Substances are discovered at the Center to
the date such removal, encapsulation, remediation and restoration is complete,
the rent due hereunder shall be reduced by the same percentage as the percentage
of the Premises which, in the Tenant's reasonable judgment, cannot be safely,
economically or practically used for the operation of the Tenant's business.
Anything herein to the contrary notwithstanding, if in the Tenant's reasonable
judgment, such removal, encapsulation, remediation and restoration cannot be
completed within one hundred eighty (180) days following the date such Hazardous
Substances or asbestos are discovered, the Tenant may terminate this Lease by
written notice to the Landlord, which notice shall be effective on Landlord's
receipt thereof.
(g) If any of the representations or warranties set forth in
subparagraph (e) are incorrect, misleading or breached, if any Hazardous
Substances are discovered at the Center (unless introduced by the Tenant, its
agents or employees) or if any asbestos or asbestos containing material is
discovered in the Premises, all costs incurred by the Tenant as the result of
such breach or discovery of such Hazardous Substances or asbestos shall be borne
by the Landlord, and the Landlord hereby indemnifies and agrees to hold the
Tenant and the Tenant's officers, directors, stockholders, employees and agents
harmless from and against all such costs, liability and damages including,
without limitation, all third-party claims (including sums paid in settlement
thereof, with or without legal proceedings) for personal injury or property
damage, and all judgments, compensatory and punitive damages, penalties, fines,
costs, losses, attorneys'
<PAGE> 25
fees (through all levels of proceedings), costs of remediation and removal,
consultants' and experts' fees, and all costs incurred in enforcing this
indemnity.
(h) Beginning on the date of this Lease, the Tenant shall have the
right to conduct an environmental study of the Premises and the Center, and the
Landlord agrees to cooperate with and to provide access to the Center and the
Premises to the Tenant and its agents. If the Tenant discovers any Hazardous
Substances at the Center or any asbestos or asbestos containing materials in the
Premises as a result of such environmental study, the Tenant shall have the
right to terminate in accordance with paragraph 25 hereof.
(i) The obligations of the Landlord and the Tenant hereunder shall
survive the expiration or earlier termination of this Lease and any extensions
hereof.
26. DEFAULT BY TENANT - REMEDIES OF LANDLORD.
(a) Each of the following shall be deemed a default by Tenant and a
breach of this Lease: (i) filing of a petition by Tenant for adjudication as a
bankrupt or an adjudication as a bankrupt or for reorganization or for an
arrangement under any federal or state statute, except a Chapter 11 Bankruptcy
where rent is being paid and the terms of the Lease are being complied with;
(ii) involuntary dissolution or liquidation of Tenant; (iii) appointment of a
permanent receiver or a permanent trustee of all or substantially all the
property of Tenant, if such appointment shall not be vacated within one hundred
and twenty (120) days; (iv) taking possession of the property of Tenant by any
governmental officer or agency pursuant to statutory authority for dissolution,
rehabilitation, reorganization or liquidation of the Tenant if such taking of
possession shall not be vacated within one hundred and twenty (120) days; (v)
making by the Tenant of an assignment for the benefit of creditors.
If any event mentioned in this subdivision (a) shall occur, Landlord
may thereupon or at any time thereafter elect to cancel this Lease by thirty
(30) days notice to the tenant in possession and this Lease shall terminate on
the day in such notice specified with the same force and effect as if that date
were the date herein fixed for the expiration of the term of the Lease.
(b) (i) Default in the payment of the base rent reserved for a period
of twenty (20) days after notice. In the event Tenant deducts from base rent or
other charges hereunder such sums expended by Tenant to remedy defects or make
repairs upon Landlord's failure to perform its obligations hereunder, such
<PAGE> 26
action by Tenant shall not be construed as a default in the payment of fixed
rent or other charges hereunder.
(ii) A default in the performance of any other covenant or condition of
this Lease on the part of the Tenant to be performed for a period of thirty (30)
days after notice. For purposes of this subdivision (b) (ii) hereof, no default
on the part of Tenant in performance of work required to be performed or acts to
be done or conditions to be modified shall be deemed to exist if steps shall
have been commenced by Tenant diligently after notice to rectify the same and
shall be prosecuted to completion with reasonable diligence, subject, however,
to unavoidable delays.
(c) In cases of any such default under Section 26(b) and at any time
thereafter following the expiration of the respective grace periods above
mentioned, Landlord may serve a notice upon the Tenant electing to terminate
this Lease upon a specified date not less than twenty (20) days after the date
of serving of such notice and this Lease shall then expire on the date so
specified as if that date had been originally fixed as the expiration date of
the term herein granted; however, a default under Section 26(b) hereof shall be
deemed waived if such default is cured before the date specified for termination
in the notice of termination served on Tenant.
If a default occurs subsequent to Tenant's assignment or subletting of
the Premises, Landlord may proceed to terminate this Lease in the manner
described above, provided: (i) a copy of the specified notices shall be served
upon the original Tenant herein as well as the party entitled to possession, and
(ii) Tenant shall be entitled to timely rectify any defaults occurring after
such assignment or subletting.
If Tenant assigns this Lease or sublets the Premises, Landlord, when
giving notice to said assignee or subtenant or any future assignee or subtenant
in respect of any default, shall also serve a copy of such notice upon the
original Tenant (herein called the "Original Tenant"), and no notice of default
shall be effective until a copy thereof is so given to the Original Tenant. The
Original Tenant shall have the same period after receipt of such notice to cure
such default as is given to Tenant therefor under this Lease. If this Lease
terminates or this Lease and the term hereof ceases and expires because of a
default of such assignee or subtenant after an assignment of this Lease or
sublease shall have been made, Landlord shall promptly give to the Original
Tenant notice thereof; and the Original Tenant shall have the option,
exercisable by the giving of notice by the Original Tenant to Landlord within
ten (10) days after receipt by the Original
<PAGE> 27
Tenant of Landlord's notice, to cure any default and become Tenant under a new
lease for the remainder of the term of this Lease (including any renewal
periods) upon all of the same terms and conditions as then remain under this
Lease, and such new lease shall commence on the date of termination of this
Lease, except that if the Original Tenant is occupying less than ten percent
(10%) of the Premises, Landlord may deliver to the Original Tenant, together
with Landlord's notice, a release as to all future liability under this Lease.
(d) In case this Lease shall be terminated as hereinbefore provided, or
by legal proceedings, Landlord or its agents may, immediately or any time
thereafter, re-renter and resume possession of the Premises or such part
thereof, and remove all persons and property therefrom, by a suitable action or
proceeding at law. No re-entry by Landlord shall be deemed an acceptance of a
surrender of this Lease.
(e) In case this Lease shall be terminated as hereinbefore provided,
Landlord shall, in its own name but as agent for Tenant, if the Lease be not
terminated, or if the Lease be terminated in its own behalf, use its best
efforts to mitigate its damages and relet the whole or any portion of the
Premises for any sum which may be reasonable, giving due consideration to the
rents reserved herein and in connection with any such lease, Landlord may make
such changes in the character of the improvements on the Premises as may be
appropriate or helpful in effecting such lease. Landlord shall not in any event
be required to pay Tenant any surplus of any sums received by Landlord on a
reletting of the Premises in excess of the rent reserved in this Lease.
(f) In case this Lease be terminated as provided in Section 26(c),
subject to rebuttal by Tenant, Landlord shall be entitled to recover from the
Tenant, the following: (i) a sum equal to all reasonable expenses, if any,
including reasonable counsel fees, incurred by Landlord in recovering possession
of the Premises, and all reasonable costs and charges for the care of said
Premises while vacant, which damages, less the avails of reletting, shall be due
and payable by Tenant to Landlord; and (ii) a sum equal to the amount of all
rent and other charges reserved under this Lease which shall be due and payable
by Tenant to Landlord on the several days on which the rent and other charges
reserved in this Lease would have become due and payable, less the greater of
(1) the fair rental value of the Premises, or (2) the net rent, if any,
collected by Landlord on reletting the Premises; that is, upon each of such days
Tenant shall pay to Landlord the amount of deficiency then existing after
receipt of credit for the fair rental value or net rent collected by Landlord.
Any excess amounts of rent collected by Landlord shall be credited against
future rent. Such net rent collected on reletting shall be computed by deducting
from the gross rents collected all necessary
<PAGE> 28
expenses incurred in connection with reletting of the Premises or any part
thereof, including reasonable brokers' commissions.
(g) Separate actions may be maintained by Landlord against Tenant from
time to time to recover any damages which, at the commencement of any such
action, have then or theretofore become due and payable to the Landlord under
this Section 26 without waiting until the end of the then current term.
27. LANDLORD'S DEFAULT. In the event that the Landlord defaults in the
performance of any of its obligations hereunder and such default continues
uncured (by the Landlord or any mortgagee of the Center) for thirty (30) days
after written notice from the Tenant to the Landlord (and to any mortgagee of
the Center for whom the Tenant has been provided a name and address) and such
default is reasonably capable of being cured within thirty (30) days, then, in
addition to all other rights and remedies provided by law, the Tenant shall have
the right to cure such default and offset the cost of such cure against the
rents and other amounts due hereunder; provided, however, that if such default
is not reasonably capable of being cured within thirty (30) days, the period for
curing such default shall be extended for so long as the Landlord (or its
mortgagee) is proceeding with reasonable diligence to cure such default.
Provided further that in the case of an emergency, the Tenant shall be required
to give only such notice as is reasonable under the circumstances.
28. CONDITIONS TO LEASE. intentionally deleted
29. NONDISTURBANCE. If this Lease or the Tenant's rights hereunder are
subordinate to the lien of any deed of trust, mortgage, or any other security
instrument or lien encumbering the Premises or the Center, or if the Landlord
leases pursuant to a ground lease or other lease any portion of the Center, the
Landlord shall obtain for the benefit of the Tenant (and without cost to the
Tenant) a nondisturbance agreement in form satisfactory to the Tenant. Such
nondisturbance agreement shall provide that if a foreclosure or other proceeding
is brought to enforce the lien of such deed of trust, mortgage, lien or security
instrument or a termination of any such ground or underlying lease, then the
ground lessor or holder of the note secured by any such deed of trust or
mortgage or the purchaser at such a foreclosure sale shall recognize this Lease
and all the Tenant's rights hereunder shall continue in full force and effect.
30. LANDLORD'S CONSTRUCTION WORK.
(a) CONSTRUCTION. Landlord agrees that it is anticipated that it will
<PAGE> 29
complete construction of the Premises and improvements prior to the Commencement
Date of the Lease in accordance with Exhibit "D" (Landlord's Construction Work),
and including Landlord's Working Drawings approved by Tenant, which construction
drawings are to be provided by Landlord no later than August 30, 1996.
(b) PARKING REQUIREMENTS. Landlord agrees that throughout the term of
this Lease and any renewal terms hereunder, parking facilities shall be provided
by Landlord so that the minimum number of parking spaces (for standard-size
American cars) in the Center shall be at least five and one-half (5.5) per one
thousand (1,000) square feet of gross leasable area.
(c) COMMENCEMENT OF CONSTRUCTION. Construction contemplated by the
Working Drawings shall be commenced by Landlord as soon as reasonably possible,
but not later than September 1, 1996. Landlord agrees to apply for any required
regulatory approvals as soon as reasonably possible and prosecute the
application with all due diligence. Landlord shall use its reasonable best
efforts to cause the contractor to complete such construction expeditiously.
Landlord shall furnish Tenant, within thirty (30) days after commencement of
construction, a schedule showing when different portions of construction are
scheduled to be started and completed according to the various subdivisions of
the Working Drawings.
(d) COMPLETION OF CONSTRUCTION OF PREMISES. Upon completion of
construction, Landlord shall satisfy the following conditions:
(i) Landlord shall furnish Tenant with a temporary certificate of
occupancy and other necessary approvals which must be issued by the appropriate
governmental authorities for the occupancy and use of the Premises as
contemplated. Landlord agrees to provide a permanent certificate of occupancy as
soon as available in the ordinary course of the issuing authority's practice;
(ii) The architect engaged by Landlord shall execute his certificate of
completion of the Premises in a good and workmanlike manner substantially in
accordance with Landlord's Construction Work (Exhibit "D"), and the Working
Drawings and readiness for occupancy and deliver it to Tenant;
(iii) Landlord agrees that Tenant shall have the right, at Tenant's
option, to inspect the Premises during and upon completion (and prior to Tenant
taking possession) to determine compliance by Landlord of Tenant Criteria
Drawings,
<PAGE> 30
Landlord's Construction Work (Exhibit "D"), and the Working Drawings. Landlord
agrees to correct or change those items which are deemed by Tenant as not in
compliance prior to Tenant taking possession;
(iv) Landlord shall complete repair or replacement of all items
presented by Tenant to Landlord in the form of a "punch list" within thirty (30)
days after Tenant shall present such list to Landlord. Tenant shall present such
"punch list" to Landlord within a reasonable period, not to exceed ninety (90)
days, after Landlord's completion of the Premises. Tenant shall be permitted to
cure such punch list at Landlord's expense and deduct the cost of the same from
its next rental installment due hereunder in the event Landlord fails to
complete such "punch list" within such thirty (30) day period.
(e) REMAINDER OF IMPROVEMENTS.
(i) Except as presently exists or as otherwise provided herein or as
shown on Exhibit "A", no improvement or structure in the Center (including all
outlot pads) shall be of a height greater than twenty feet (20') above ground
level nor contain more than one (1) story or a basement or mezzanine. The
foregoing notwithstanding, Landlord shall have the right to construct one or
more one (1) story buildings in the area designated on Exhibit "A" as
"Landlord's Future Building Area" provided that there is sufficient parking to
comply with local zoning ordinances and Section 30(b) without Landlord's
applying for a variance therefrom. Landlord agrees that if Landlord builds on
any part of "Landlord's Future Building Area", as designated on the Site Plan -
Exhibit "A", Landlord will not apply for a variance from the local zoning
ordinances for the purpose of reducing the amount of space which must be
provided for parking.
(ii) In performing any construction work, repairs or maintenance in the
Center after Tenant has taken physical possession of the Premises, Landlord
shall use its reasonable efforts to prevent any interference with the operation
of the Center and the business of Tenant or any subtenant or licensee of Tenant.
(f) RESPONSIBILITY OF LANDLORD FOR CONSTRUCTION. If Landlord fails
substantially to complete Landlord's Construction Work in accordance with
Exhibit "D" and the Working Drawings and tender the Premises to Tenant by
October 17, 1996 (subject to delays due to force majeure, hereinafter called
"Excused Delay"), then Tenant shall be granted and receive one (1) day's free
rent for reach day of delay beyond November 1, 1996, as such date may be
extended by Excused Delay. In the event Landlord fails substantially to complete
Landlord's Work by December 1, 1996, Tenant, at its option exercised by
delivering written notice to
<PAGE> 31
Landlord within ten (10) days thereafter, shall have the right to terminate this
Lease, whereupon neither Tenant nor Landlord shall have any duties or
obligations to each other hereunder. Notwithstanding anything to the contrary
contained herein and notwithstanding force majeure, but subject to delays caused
by Tenant, Landlord shall complete construction by December 15, 1996, or Tenant
may terminate this Lease upon written notice to Landlord. Tenant may extend its
right to terminate for such additional thirty (30) day periods as Tenant, in its
sole discretion, deems appropriate.
(g) GUARANTEES. In addition to any guarantees provided to Tenant in
Exhibit "D", Landlord shall unconditionally guarantee all of Landlord's Work
against defective workmanship and materials for one (1) year from the
Commencement Date. Further, Landlord shall assign and pass through to Tenant all
manufacturer's warranties on all equipment provided to Tenant as part of
Landlord's construction obligations.
31. HOLDING OVER. Any holding over after the expiration of the term
shall be construed to create a tenancy from month-to-month at the rent herein
specified (prorated on a monthly basis) and shall otherwise be on the terms and
conditions specified in this Lease as far as applicable.
32. FOR RENT SIGNS. The Landlord shall have the right during the last
sixty (60) days of the term, to place one for rent or for sale sign, not
exceeding two feet by two feet in size, on one window of the Premises. The
Tenant shall also allow the Landlord, or its agents, during such sixty (60) day
period to show the Premises to prospective tenants or purchasers during
reasonable business hours by prior appointment provided that there is no
interference with the conduct of the Tenant's business.
33. SUCCESSORS. The covenants, conditions and terms contained in this
Lease shall bind and inure to the benefit of the Landlord, the Tenant and their
respective successors and assignees.
34. WAIVER. The waiver by the Landlord or the Tenant of any breach of
any provision of this Lease or the failure by the Landlord or the Tenant to
insist upon the strict observance of any provisions shall not be deemed to be a
waiver of such provision or any subsequent breach thereof.
35. NOTICES. Any notice, demand, request or other instrument which may
be, or is required to be given under this Lease, shall be in writing and
delivered in person or by courier service or by United States certified mail,
postage
<PAGE> 32
prepaid, and shall be addressed:
(a) if to the Landlord, at Hickory Ridge Pavilion, Ltd., 1800 Moler
Road, Columbus, Ohio 43207 with copy to the Russ Group, 635 W. 7th Street, Suite
310, Cincinnati, Ohio 45203, or at such other address as Landlord may designate
by written notice; or
(b) if to the Tenant, at Value City Department Stores, Inc. 3241
Westerville Road, Columbus, Ohio 43228 with a copy to Legal Department, 1800
Moler Road, Columbus, Ohio 43207, or at such other address as Tenant may
designate by written notice.
All notices shall be effective upon receipt or refusal of receipt.
36. BROKER. Intentionally Deleted
37. MEMORANDUM OF LEASE. Landlord and Tenant agree not to
record this Lease, and instead agree to execute and acknowledge a Memorandum of
Lease for recording ("Memorandum"), attached to this Lease as Exhibit "H".
Landlord and Tenant agree that the Memorandum will be suitable for recording
with the County Recorder of the county in which the Center is situated and agree
that such Memorandum shall be recorded. Landlord shall be obligated at its
expense to record the memorandum and forward recorded copies to Tenant.
38. ESTOPPEL CERTIFICATES. Each party shall, upon request from the
other at any time and from time to time, execute, acknowledge and deliver to the
other a written statement within twenty (20) days of the request therefor
certifying as follows: (i) that this Lease is unmodified and in full force and
effect (or, if there has been a modification, stating the nature thereof and
that the Lease is in full force and effect as modified); (ii) that to the best
of such party's knowledge, there are no uncured defaults on the part of the
other party (or if any such defaults exist, the specific nature and extent
thereof); (iii) the date to which any rent and other charges under the Lease
have been paid in advance, if any; and (iv) such other matters as such party may
reasonably request. Tenant acknowledges that any such statement requested by
Landlord and delivered by Tenant shall be relief upon by a prospective
purchaser, mortgagee or encumbrance of the Premises or the Center or any
prospective assignee of any such mortgage or encumbrance thereof.
39. LANDLORD'S CONSENT. In any case where Landlord's approval or
consent is required under the terms of this Lease, such consent or approval
shall
<PAGE> 33
be in writing and shall not be unreasonably or arbitrarily withheld by the
Landlord, nor shall the Landlord require the payment of any money before giving
such consent other than a reasonable charge for the processing of the
application for and preparation of the consent.
40. MARKETABLE TITLE. Landlord hereby covenants and warrants (i) that
Landlord owns indefeasible title to the Center; (ii) there are no legal
impediments to the use by Tenant of the Premises as an off price full line
department store in accordance with the terms of this Lease; (iii) the Center is
free and clear of any and all liens and encumbrances, easements and
restrictions, except ad valorem taxes not due and payable and those matters set
forth in Exhibit "C" hereto, none of which shall encroach upon the Premises or
hinder or interfere with Tenant's use and enjoyment thereof in accordance with
this Lease; (iv) that Landlord has full right and is duly authorized to enter
into the terms of this Lease, and that the execution of this Lease in no way
violates or breaches any of the material terms and conditions of any of the
documents forming the title to the Center, or violates or breaches any of the
terms and conditions of any mortgages or other documents encumbering the Center;
and (v) that the Tenant at all times shall have unobstructed and adequate means
of ingress and egress between each of the entrances to the Premises and a public
street or public highway, as shown on Exhibit "A". Before tendering the Premises
for fixturing, the Landlord shall deliver to the Tenant a title insurance binder
or opinion of counsel evidencing the state of Landlord's title as of a date not
earlier than the date hereof and an opinion of counsel regarding the state of
such title shall be delivered to the Tenant sixty (60) days prior to acceptance
of possession by the Tenant. The aforementioned title insurance binder shall
contain as an exhibit any deed restrictions on the Premises or Center. Tenant
and Landlord covenant that the signatures to this Lease have full right and
power to enter into this Lease for the full Term and upon all conditions
contained herein. This Lease shall become effective only upon execution and
delivery thereof by Landlord and Tenant.
41. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the state in which the Premises are located.
IN WITNESS WHEREOF, the parties have executed this Agreement of Lease
effective the date first set forth above.
Signed and acknowledged
in the presence of:
LANDLORD:
<PAGE> 34
Hickory Ridge Pavilion, Ltd.
a(n) Ohio limited liability company
______________________________ BY: ___________________________
______________________________ ITS: __________________________
TENANT:
Value City Department Stores, Inc.
a(n) Ohio corporation
______________________________ BY: ___________________________
______________________________ ITS: __________________________
STATE OF __________ :
: SS.
COUNTY OF ________ :
The foregoing instrument was acknowledged before me this ____ day of
________________, 19__, by _______________________________,
______________________ of _______________________________________, a
_____________________________, for and on behalf of said
__________________________.
-------------------------------
Notary Public
STATE OF __________ :
: SS.
COUNTY OF ________ :
<PAGE> 35
The foregoing instrument was acknowledged before me this ____ day of
________________, 19__, by _______________________________,
______________________ of _______________________________________, a
_____________________________, for and on behalf of said
__________________________.
-------------------------------
Notary Public
EXHIBIT "A"
-----------
SITE PLAN
EXHIBIT "B"
-----------
LEGAL DESCRIPTION
SCHEDULE C
The land referred to in this policy is situated in the State of Tennessee,
County of Shelby and described as follows:
Parcel I:
Beginning at a point in the south line of Winchester Road (right of way varies)
said point being 57.00 feet south of the existing centerline of said Winchester
Road and 744.20 feet west of the west line of Kirby Parkway (106.00 foot right
of way) said point also being the northwest corner of the final plan for Lot 2,
of the Hickory Ridge Nissan Subdivision, as recorded in Plat Book 96, page 19;
thence S 01(degree) 22' 38" E along the west line of said Lot 2, and along the
west lines of lots 158-178 of the Deer Creek Subdivision, Section "B", as
recorded in Plat Book 96, Page 8, at said Regiater's office a distance of
1235.77 feet to a found iron pin on the west line of said lot 178, said iron pin
being the northeast corner of the Paul W. Clunan, II, Trustee, Property as
recorded in Instrument FA 5132 at said Register's office; thence N
89(degree)20'39" W along the north line of the said Clunan property a measured
distance of 685.14 feet (call 685.05 feet) to a found iron pipe at the southeast
corner of the B. B. Hamilton property as recorded in Book 4335, page 185 at said
Register's office; thence N 01 degrees, 24 minutes, 02 seconds W along the east
line of the said Hamilton property a distance of 1229.89 feet to a point on the
south line of said Winchester Road, said point being 55.13 feet from.the
existing centerline of said Winchester Road, thence N 89 (degree)51' 19" E along
the south line of said Winchester Road a distance of 238.54 feet to an angle
point, said point being 57.00 feet from the existing centerline of said
Winchester Road; thence S 89(degree) 40' 23" E and continuing along said south
line of Winchester Road a distance of 446.93 feet to the point of beginning.
Parcel II
Beginning at a point in the south line of Winchester Road (right-of-way varies),
said point being 55.13 feet south of the existing center line of said Winchester
Road and 1429.67 feet west of the west line of Kirby Parkway (106.00 foot
righ-of- way) said point also being the northwest corner of the Eulyse M.
<PAGE> 36
Smith and Annie Laurie Smith property as recorded in Book 4745, page 385 at said
Register's Office; thence S 01(degree) 24' O" E along the west line of the said
Smith property a distance of 1229.89 feet to a found iron pipe at the northwest
corner of the said Smith property, said pipe lies on the north line of the Paul
W. Clunan, II Trustee property as recorded in Instrument FA 5132 at said
Register's Office; thence N 89(degree) 24' 09" W along the north line of the
said Clunan property a distance of 337.20 feet to the southeast corner of the
Johnnie H. Brewer and Pauline K. Brewer property (instrument not available);
thence N 01(degree)24' 05" W along the east line of the said Brewer property a
distance of 1225.52 feet to a point on the south line of said Winchester Road;
thence N 89(degrees) 51' 19", E along the south line of Winchester Road a
distance of 337.09 feet' to the point of beginning.
Parcel III
Beginning at point in the south line of Winchester Road (right-of-way varies),
said point being 52.48 feet south of the existing centerline of said Winchester
Road and 1766.76 feet west of the west line of Kirby Parkway (106.00 foot
right-of- way) said point also being the northwest corner of the B. B. Hamilton
property as recorded in Book 4335, page 185 at said Register's Office; thence S
01(degree)24' 05" E along the west line of the said Hamilton property a distance
of 1225.52 feet to the southwest corner of the said Hamilton property, said
point lies on the north line of the Paul W. Clunan, II Trustee property as
recorded in Instrument FA 5132 at said Register's Office; thence N 89(degrees)
24' 09" W along the north line of the said Clunan property a distance of 134.64
feet to the southeast corner of the Louis M. Hall and Ann Hall Follis property
as recorded Instrument V6 5045 at said Register's Office; thence N 01(degree)
24' 11" W along the east line of the Hall property a distance of 1223.78 feet to
a point on the south line of said Winchester Road, said point being 51.42 feet
from the existing centerline of said Winchester Road, thence N 89(degrees) 51'
19" E, along the south line of said Winchester Road a distance of 134.63 feet to
the point of beginning.
Parcel IV
Beginning at a point in the south line of Winchester Road (right-of-way varies),
said point being 51.42 feet south of the existing centerline of said Winchester
Road and 1901.39 feet west of the west line of Kirby Parkway (106.00 foot
right-of-way) said point also being the northwest corner of the Johnnie H.
Brewer and Pauline K. Brewer property (instrument number not available); thence
S 01(degree) 24' 11" E along the west line of the said Brewer property a
distance of 1223.78 feet to the southwest corner of the said Brewer property,
said point lies on the north line of the Paul W. Clunan, II Trustee property as
recorded in Instrument Number FA 5132 at said Register's office; thence N
89(degrees) 24' 09" W along the north line of the said Clunan property and along
the north line of the Horizon Corporation, Inc. property as recorded in
Instrument Yl 8603 at said Register's office a measured distance of 143.33 feet
(call 134.64 feet) to the southeast corner of the Robert M. Kaye property as
recorded in Instrument R4 2160 at said Register's Office; thence N 01(degree)
10' 33" W along the east line of the said Kaye property a distance of 1221.83
feet to a point on the south line of said Winchester Road, said point being
50.33 feet from the existing centerline of said Winchester Road, thence N
89(degree) 51' 19" E along the south line of said Winchester Road a measured
distance of 138.43 feet (call 135.43 feet) to the point of beginning.
EXHIBIT "C"
-----------
USE RESTRICTIONS
EXHIBIT "D"
-----------
LANDLORD'S WORK
<PAGE> 37
EXHIBIT "E"
-----------
TENANT'S WORK
VALUE CITY DEPARTMENT STORES
ASI Area Study Plan
100 Construction Plan
101 Fixture Plan
102 Floor Covering Plan
201 Entrance
202 Dresses
203 Children
204 Domestics
205 Market
206 Shoes
207 Mens
208 Mens
209 Jewelry
400 Office Area
501 Section
502 Section
503 Section
504 Section
600 Plan Drawing Details
605 Section
610 Women Fitting Room
611 Women Fitting Room
801 Specification
802 Specification
803 Specification
1689- 1- FORM
EXHIBIT "F"
-----------
<PAGE> 38
SIGNAGE
EXHIBIT "G"
-----------
BROKER AGREEMENT
EXHIBIT "H"
-----------
MEMORANDUM OF LEASE
<PAGE> 1
VALUE CITY DEPARTMENT STORES, INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Weighted average number of common shares outstanding 31,722,381 31,981,893 32,048,745
Add net shares issuable pursuant to stock option plans less
shares assumed repurchased at the average market price 135,064 27,062 131,922
----------- ----------- -----------
Number of shares for computation of primary earnings per share 31,857,445 32,008,955 32,180,667
Add net shares issuable pursuant to stock option plans less
shares assumed repurchased at period end market price 38,172 20,902 2,293
----------- ----------- -----------
Number of shares for computation of fully diluted
earnings per share 31,895,617 32,029,857 32,182,960
=========== =========== ===========
Net income for primary and fully diluted earnings per share $21,718,000 $13,819,000 $38,936,000
=========== =========== ===========
Pro forma net income for primary and fully diluted
earnings per share
Earnings per share - primary and fully diluted $0.68 $0.43 $1.21
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21
VALUE CITY DEPARTMENT STORES, INC.
List of Subsidiaries
--------------------
<TABLE>
<CAPTION>
State of Percentage Doing
Name Incorporation Ownership Business As
- ---- ------------- --------- -----------
<S> <C> <C> <C>
GB Retailers, Inc. Delaware 100% indirect Value City
J. S. Overland Delivery, Inc. Delaware 100% J.S. Overland
Delivery, Inc.
Penn Management Delaware 100% indirect N/A
Value City of Michigan, Inc. Michigan 100% Value City
Value City Limited
Partnership Ohio* 100% indirect Value City
VC Retailers, Inc. Delaware 100% indirect Value City
Westerville Road LP Delaware* 100% Value City
Westerville Road GP Delaware* 100% Value City
<FN>
*This is a limited partnership, not an incorporated entity.
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Value City Department Stores, Inc. on Form S-8 (File Nos. 33-44207, 33-50198,
33-55348, 33-55350, 33-78586, 33-80588 and 33-92966) of our report dated October
28, 1996, on our audits of the consolidated financial statements and financial
statement schedule of Value City Department Stores, Inc., its Partnerships and
its wholly owned subsidiaries as of August 3, 1996 and July 29, 1995 and for
the years ended August 3, 1996, July 29, 1995 and July 30, 1994 which report
is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Columbus, Ohio
October 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-03-1996
<PERIOD-START> JUL-30-1996
<PERIOD-END> AUG-03-1996
<EXCHANGE-RATE> 1
<CASH> 10,484
<SECURITIES> 0
<RECEIVABLES> 5,016
<ALLOWANCES> 491
<INVENTORY> 261,370
<CURRENT-ASSETS> 294,645
<PP&E> 220,371
<DEPRECIATION> 87,610
<TOTAL-ASSETS> 437,010
<CURRENT-LIABILITIES> 133,808
<BONDS> 46,942
<COMMON> 109,450
0
0
<OTHER-SE> 141,995
<TOTAL-LIABILITY-AND-EQUITY> 437,010
<SALES> 954,308
<TOTAL-REVENUES> 954,308
<CGS> 599,460
<TOTAL-COSTS> 599,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 294
<INTEREST-EXPENSE> 1,328
<INCOME-PRETAX> 36,267
<INCOME-TAX> 14,549
<INCOME-CONTINUING> 21,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,718
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
