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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405/A2
[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 JANUARY 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
incorporation or organization) Identification No.)
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 (or for such shorter period that the registrant was
required to file such reports), 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,
12,370,147 Common Shares, based on the $11.00 closing sale price on April 19,
2000, was $136,071,617.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 33,544,600 Common Shares were
outstanding at April 19, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Proxy Statement for 1999 Annual Meeting of Shareholders, in part, as
indicated.
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TABLE OF CONTENTS
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FORM
10-K405
REPORT
ITEM NO PAGE
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PART I
1. Business......................................................................................3
2. Properties...................................................................................17
3. Legal Proceedings............................................................................18
4. Submission of Matters to a Vote of Security Holders..........................................18
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters....................19
6. Selected Financial Data......................................................................20
7. Management's Discussion and Analysis of Financial Condition and Results of Operations........21
7A. Quantitative and Qualitative Disclosures about Market Risk ..................................30
8. Financial Statements and Supplementary Data..................................................31
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........31
PART III
10. Directors and Executive Officers of the Registrant...........................................32
11. Executive Officer Compensation...............................................................32
12. Security Ownership of Certain Beneficial Owners and Management...............................32
13. Certain Relationships and Related Transactions...............................................32
PART IV
14. Exhibits, Financial Statement Schedule and Reports on Form 8-K...............................33
Signatures...................................................................................34
TABLE OF CONTENTS TO FINANCIAL STATEMENTS AND SCHEDULES
Independent Auditors' Report.........................................................................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 Consolidated Financial Statements...........................................................F-6
SCHEDULES
II - Valuation and Qualifying Accounts...............................................................S-1
Index to Exhibits....................................................................................E-1
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PART I
ITEM 1. BUSINESS.
GENERAL
Value City Department Stores, Inc. (the "Company") currently operates a
chain of 118 department stores located in Ohio, Pennsylvania and 13 other
Midwestern, Eastern and Southern states, principally under the name "Value City"
as well as 60 DSW Shoe Warehouse Stores ("DSW") located throughout the United
States. In addition, we acquired 17 Filene's Basement stores in March 2000 which
we are operating under the Filene's Basement name. For over 80 years, our
strategy has been to provide exceptional value by offering a broad selection of
brand name merchandise at prices substantially below conventional retail prices.
Our department stores carry men's, women's and children's apparel, housewares,
giftware, home furnishings, toys, sporting goods, jewelry, shoes and health and
beauty care items, with apparel comprising over 60% of total sales. Our
department stores average 87,000 square feet which allow us to offer over
100,000 different items of merchandise similar to the items found in traditional
department, specialty and discount stores. Our DSW stores are a chain of upscale
shoe stores offering a wide selection of dress and casual footwear below
traditional retail prices. These stores average 24,000 square feet with up to
55,000 pairs of women's and men's designer brand shoes and athletic footwear per
store. The Filene's Basement stores average 28,000 square feet and specialize in
high-end brand name merchandise of men's and women's apparel, accessories and
home goods.
Our pricing strategy is supported by our ability to purchase large
quantities of goods in a variety of special buying opportunities. For many
years, we have had a reputation in the marketplace as a purchaser of buy-outs
and manufacturers' closeouts.
HISTORY OF OUR BUSINESS
We opened our first department store in Columbus, Ohio in 1917. The
Value City department stores operated as a division of Schottenstein Stores
Corporation ("SSC") until we went public on June 18, 1991. SSC still owns 55.3%
of our stock. We have a number of ongoing related party agreements with SSC that
are described in Item 13 of this report.
In July 1997, we entered into agreements with Mazel Stores, Inc.
("Mazel") to create VCM, Ltd. ("VCM"), a 50/50 joint venture. VCM operates the
health and beauty care and toy and sporting goods departments in our stores as
licensed departments. We account for our fifty percent interest in the joint
venture under the equity method. See "Licensed Departments."
Effective May 3, 1998, we purchased 99.9% of the common stock of Shonac
Corporation ("Shonac") from Nacht Management, Inc. and SSC. Shonac had been the
shoe licensee in all of the Value City stores since its inception in 1969 and
also operated the DSW chain of retail shoe stores. Also effective May 3, 1998,
we acquired the store operations of Valley Fair Corporation
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("Valley Fair") from SSC. Valley Fair operated two department stores located in
Irvington and Little Ferry, New Jersey. Prior to their acquisition, we had been
a licensee of certain departments in these two stores for eighteen years.
On November 19, 1999, we purchased 100% of the common stock of Gramex
Retail Stores, Inc. ("Gramex") from Gramex Corporation pursuant to a Stock
Purchase Agreement, dated as of November 8, 1999. Gramex operated a chain of
fifteen discount stores under the name "Grandpa's" in the greater St. Louis
metropolitan area.
Of the 15 stores acquired and after liquidation of the existing
Grandpa's inventory, 13 stores were converted to the Value City format. Six
stores received only minor improvements and were reopened in March 2000. The
other seven stores were remodeled based on our current Value City format and
were reopened in April 2000.
On March 17, 2000, we completed the acquisition of substantially all of
the assets and the assumption of certain liabilities of Filene's Basement Corp.,
a Massachusetts corporation, and Filene's Basement, Inc., a wholly owned
subsidiary of Filene's Basement Corp. (collectively, "Filene's") through our
wholly owned subsidiary, Base Acquisition Corp. ("Base Acquisition"), pursuant
to the closing of an asset purchase agreement, dated February 2, 2000. Filene's
was operating as debtor-in-possession under Chapter 11 of the Bankruptcy Code.
We continue to operate the 14 Filene's Basement stores acquired on March 17 and
we have reopened three other Filene's Basement stores in the Washington D.C.
area that Filene's had closed during their bankruptcy proceeding.
We and our wholly owned subsidiaries are sometimes referred to
collectively in this report as the "Company" or as "VCDS."
CHANGE IN FISCAL YEAR-END
On June 10, 1998, we determined to change our fiscal year from a 52/53
week year that ended on the Saturday nearest to July 31 to a 52/53 week year
that ends on the Saturday nearest to January 31. The six-month transition period
of August 2, 1998 through January 30, 1999 (the "Transition Period") preceded
the start of the 1999 fiscal year ended January 29, 2000.
OPERATING SEGMENTS
See Note 12 of Notes to Consolidated Financial Statements beginning on
page F-21 of this annual report for information regarding our Company's
segments.
BUSINESS STRATEGIES
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Our strategy is to provide brand name merchandise substantially below
conventional retail prices. The strategy is reflected in our name, "Value City,"
and our motto, "It's your money, get more for it." We believe that the size of
our Value City department stores facilitates a full-line merchandise offering
and range of brands that differentiates us from other off-price retailers.
Filene's Basement's strategy is similar to Value City's focus on
providing the best brand names at everyday low prices for men's and women's
apparel, accessories and home goods.
Our DSW stores' mission is to be each customers' favorite retailer of
branded footwear by satisfying customer expectations for selection, service and
value. The principal elements of Value City's, DSW's and Filene's Basement's
business strategies 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 care items. Off-price retailing, as
distinguished from traditional full-price retailing and discount or off-brand
merchandising, is characterized by the purchase of primarily high quality brand
name merchandise, at prices below normal cost to most retailers. A portion of
the cost savings is then passed on to customers through lower prices. Our Value
City stores strive to offer customers one-stop-shopping in terms of categories
of merchandise carried. The large size of our stores facilitates the offering of
a wide range of merchandise categories with broad, deep selections of goods
within each category. Our stores carry over 100,000 different items of
merchandise similar to the items found in traditional department, specialty and
discount stores. To improve store profitability and meet the changing needs of
our customers, we continually refine the Value City merchandise mix eliminating
less productive departments and introducing new merchandise categories.
We believe customers are attracted to Value City stores because of
continuous new offerings of value-priced merchandise acquired in special
purchases. At the same time, Value City maintains a broad and consistent range
of goods, it purchases continuing lines of merchandise and draws upon its vendor
contacts to ensure constant availability of certain basic categories of
merchandise as well as current fashion trends.
DSW stores attract customers because of their wide assortment of top
quality name brand dress, casual and athletic footwear for men and women
together with a regularly changing selection of more fashion-oriented footwear.
Our DSW stores are large, contemporary, upscale warehouses, averaging over
24,000 square feet and allow us to sell a large selection of branded footwear in
a clean and simple environment.
Filene's Basement offers branded apparel, home goods, accessories and
retail stocks purchased
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directly from major upscale retailers. The branded merchandise represents a
focused assortment of fashionable, nationally-recognized men's and women's
apparel, accessories and home goods bearing prominent designers' and
manufacturers' names. Branded merchandise constitutes most of the product line
and is obtained through opportunistic purchases from a diverse group of quality
manufacturers.
The following table sets forth relative contributions of each major
merchandise category to total sales.
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FISCAL YEAR 6 MONTHS
ENDED ENDED FISCAL YEAR ENDED
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1/29/00 1/30/99 8/1/98 8/2/97
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Apparel and Ready-to-Wear - Includes: Men's, Women's
and Children's outerwear, suits, dresses, sportswear,
sleepwear, underwear and accessories; and department
store shoe sales from May 3, 1998 to January 29, 2000................ 62.7% 62.8% 62.2% 61.6%
Hard goods and Home Furnishings - Includes: domestics;
jewelry; housewares; giftware; small appliances; and for
fiscal year 1997, toys and sporting goods.............................. 17.2 18.8 19.0 23.9
Licensed Departments - Includes: shoes through May 2, 1998;
health and beauty care; toys and sporting goods for periods
subsequent to fiscal 1997 and other incidental departments.. 6.3 7.5 15.2 14.5
DSW Stores............................................................... 13.8 10.9 3.6 --
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100.0% 100.0% 100.0% 100.0%
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Value Pricing
Value City stores offer quality brand name merchandise at prices
typically 50% to 70% below prices charged by traditional department stores for
similar items and at prices comparable to or lower than prices charged by other
off-price retailers. We can offer exceptional values because our buyers purchase
merchandise directly from manufacturers and other vendors generally at prices
substantially below those paid by conventional retailers. This allows us to pass
on the savings directly to our customers. See "Supplier Relationships and
Purchasing."
DSW price points are targeted to be up to 50% lower than traditional
department stores. DSW continually strives to improve its merchandise sourcing
to maintain quality, lower costs and shortened delivery cycles. Identifying and
building relationships with cost-efficient manufacturers and suppliers of
quality merchandise is essential to DSW's merchandising strategy.
Well known designer labels, brand names and original retailer names are
prominently
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displayed throughout our Value City and Filene's Basement 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, comparable or "nationally advertised" prices. In certain 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."
Our Filene's Basement stores' merchandise assortment is typically
priced at levels 30%- 60% below regular prices at traditional department and
specialty stores. These discounts are achieved by buying in-season overruns and
end-of-season surplus at advantageous prices and offering them for sale at lower
markups than those of traditional department stores. We are also able to keep
the cost of merchandise low because we do not require markdown or advertisement
allowances, or anticipation of returns from vendors, all of which are typical in
the department store industry.
Licensed Departments
We operate all departments in the Value City stores except for the
health and beauty care and toys and sporting goods, 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 10 years with, in some instances, an option to renew.
In addition, we receive a fee from some licensees for general and administrative
expenses. The aggregate annual license fees received from licensees for the
fiscal year ended January 29, 2000, were approximately $8,451,000.
SSC owned a controlling interest in L. F. Widmann, Inc. ("Widmann"),
the licensee that operated the health and beauty care departments in our stores.
In July 1997, we entered into agreements with Mazel to create VCM, a 50/50 joint
venture. Effective August 3, 1997, VCM purchased 100% of Widmann's capital stock
and purchased the assets of the Company's toys and sporting goods departments.
VCM operates the health and beauty care and toys and sporting goods departments
in our stores as licensed departments. The license agreements provide for fees
based on a percentage of sales, as defined, for license fees, advertising fees
and credit and administrative charges. We provide certain personnel,
administrative and service functions for which we receive a monthly fee from VCM
to cover the related costs. The license and joint venture agreements are for a
term of ten years ending in 2007 and contain certain provisions whereby either
business partner can initiate renegotiation of terms if certain minimum
requirements are not met.
SSC also owned 49.9% of the outstanding stock of Shonac, the licensee
that operated the shoe departments in all of the Value City stores until May
1998 when we purchased 99.9% of the common stock of Shonac.
Licensees supply their own merchandise and generally supply their own
store fixtures but
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in most instances utilize our associates to operate their departments. The
licensees reimburse us for all costs associated with such associates. Licensees
operate their departments under our general supervision and are required to
abide by our policies with regard to pricing, quality of merchandise, refunds
and store hours. Licensed departments complement the operations of our stores
and are considered an integral part of our store operations. The common
ownership interest in licensees facilitates the uniformity of merchandising
strategy in the stores, including the overall emphasis on values resulting from
special purchase opportunities.
SUPPLIER RELATIONSHIPS AND PURCHASING
An important factor in our growth has been our many years of experience
in purchasing merchandise directly from manufacturers and other vendors at
prices substantially below those generally paid by conventional retailers. We
believe that over the years our buyers have established excellent relationships
with suppliers and have established a reputation for our willingness and ability
to purchase entire lots of merchandise and make prompt payment. We continuously
seek to find and negotiate special purchase opportunities. As a result of our
relationships, experience and reputation for prompt payment, many suppliers
offer us special purchase opportunities 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
competitors in their regular distribution channels. By selling such merchandise
through our own retail stores, we are able to assure suppliers that the
merchandise will be sold without disturbing the suppliers' regular channels of
distribution.
Although we cannot quantify the amount by which the prices we pay for
special purchases are lower, if any, than the prices paid by our competitors for
similar purchases, we believe that such special purchases are made at prices
sufficiently favorable to enable us to offer merchandise to our customers at
prices significantly lower than those prices offered by many of our competitors.
We purchase merchandise from more than 3,700 suppliers, none of which
accounted for a material percentage of purchases during the past fiscal year. We
do not maintain any long-term or exclusive commitments to purchase merchandise
from any one supplier. We regularly purchase 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, we purchase all or substantially all of the inventories of financially
distressed retailers and makes other special purchases. Also, we have begun to
more aggressively seek advantageous buying opportunities overseas, particularly
in non-apparel categories.
Our distribution facilities are designed to enable us to prioritize the
processing of merchandise on short notice and to deliver merchandise to stores
within days of receipt. This allows our buyers to purchase merchandise very late
in the season, when prices are more favorable, and still deliver the merchandise
to stores before the end of the season. At the same
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time, we have devoted warehouse space to out-of-season goods for our department
stores. This merchandise is held until the most opportune time to offer it in
the Value City stores, which in most cases is the next season. This ability to
purchase and quickly distribute or hold merchandise in substantial quantities
has enabled us to offer high-quality merchandise to customers at prices
significantly below usual retail prices. We believe that this ability
distinguishes us from the typical discount or department store and provides us
with a competitive advantage in making purchases as favorable opportunities
arise.
The relatively large size of the Value City stores provides us 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.
Although there is growing competition for the kinds of special purchases that we
seek, we believe that, because of the factors discussed above, we will be able
to obtain sufficient supplies of desirable merchandise at favorable prices in
the future.
DSW's merchandising group constantly monitors current fashion trends as
well as historical sales trends to determine the fashion direction for an
upcoming season. Once the styles and merchandise mix are determined, the
merchandising group works to assure that the required quantities are brought in
at the lowest cost with the highest possible quality.
DSW believes it has good relationships with its vendors. Merchandise is
purchased from both domestic and foreign suppliers directly or through agents.
Vendors include suppliers who either manufacture their own merchandise or supply
merchandise manufactured by others, or both. DSW believes that, consistent with
the retail footwear industry as a whole, most of its domestic vendors import a
large portion of their merchandise from abroad. Quality control programs are in
place under which buyers inspect the product for fit, color and material, as
well as for overall quality of manufacturing. In general, DSW has not
experienced any difficulties with merchandise manufactured overseas. As the
number of DSW locations increase, management believes there will be adequate
sources available to acquire and/or produce a sufficient supply of quality goods
in a timely manner and on satisfactory economic terms.
The acquisition of Filene's Basement, an institution in Boston since
1908, is a good fit with our 'deal driven' merchandise strategy. We believe this
acquisition will strengthen our merchandising team and give us greater power in
the off-price industry. Because of the longstanding relationships Filene's has
with vendors, Filene's Basement receives quality buying opportunities at
competitive prices. These longstanding relationships make Filene's Basement a
prime choice for vendors with overruns, department store cancellations and unmet
volume objectives. From time to time, Filene's Basement commits to the future
purchase of branded merchandise from vendors at advantageous prices. These
forward purchases allow for timely, fashionable assortments. Based on our
experience, we believe that the current supply of branded merchandise is
adequate for our needs.
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DISTRIBUTION
We use a regionalized distribution strategy with eleven distribution
centers located in Columbus, Ohio, two distribution facilities in St. Louis,
Missouri and one distribution facility in Auburn, Massachusetts. The aggregate
area of the distribution facilities is approximately 3,000,000 square feet;
however, use of multi-tier processing levels in some of the distribution centers
substantially increases their operating capacity. In addition, to expedite the
flow of merchandise to certain clusters of stores, we use third party processors
located in New Jersey, Chicago and Detroit.
Our distribution facilities utilize material handling equipment,
including new mechanized conveyor systems to separate and collate shipments to
the stores. Our 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. We continue to
focus on improving inventory turns by implementing changes which will expedite
the flow of merchandise to our selling floors.
Merchandise is processed, ticketed and consolidated prior to shipment
to the stores to ensure full-truck loads to minimize shipping costs. We lease
our fleet of road tractors and approximately 40% of our semi-rig trailers with
the remainder being owned. The Company's fleet makes the majority of all
deliveries to the stores.
For Filene's Basement merchandise we currently lease a two-story
457,000 square foot distribution facility situated on 32.8 acres with adjacent
rail service in Auburn, Massachusetts. We intend to consolidate operations onto
one floor and to sublet the remaining space.
ADVERTISING AND PROMOTION
We commit substantial resources to advertising and believe that our
marketing strategy is one of the keys to our success. Value City advertises
frequently in print, including newspapers, circulars and flyers, and on
television and radio. The promotional strategy is carefully planned and budgeted
to include not only institutional and 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."
Our DSW stores currently use a broadcast campaign, primarily radio,
focusing on the slogan "The shoes of the moment, the deal of a lifetime." This
campaign is supplemented by print promotions. In addition, a valuable marketing
tool for DSW is the "Reward Your Style" loyal customer program. Customers are
asked to join the program during the checkout procedure. By analyzing the member
database, as well as the sales transactions of those members, we are able to
direct the advertising to encourage repeat shopping and to reach targeted
customers.
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Filene's Basement employs a multi-media approach, using print,
broadcast and direct mail. The communication strategy is designed to target
customer segments and generate increased store trips and cross shopping
opportunities.
STORES
Store Location and Design
Our Value City stores average approximately 87,000 square feet, with
approximately 70% of the total area of each store representing selling space.
The 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 full
appearance. 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 are
located in leased facilities.
Our DSW stores average approximately 24,000 square feet, with about 90%
of the total area of each store representing selling space. The stores'
exteriors feature black and white color schemes and in many cases, windows with
striped awnings. The store interiors are well lit and feature a unique display
concept, an uncomplicated cardboard case presentation which groups the shoes
together by style. Interior signage is tasteful and kept to a minimum. The shoe
stores are generally laid out on a single level, with the cases of shoes forming
the aisles in the stores. This allows customers to view the entire store when
they enter. The stores are generally open from 9:30 a.m. until 9:00 p.m. Monday
through Saturday and 12:00 p.m. until 6:00 p.m. on Sunday. The stores are
located in leased facilities.
We believe that customers are attracted to our stores principally by
the wide assortment of quality items at substantial savings. Of the 118
department stores open as of April 18, 2000, 28 are free-standing and 90 are in
shopping centers, 25 of which are enclosed malls in which they serve as an
anchor. Of the 60 shoe stores open as of April 19, 2000, seven are free-standing
and 53 are in shopping centers. Most of our stores are located in suburban
areas, near large residential neighborhoods and away from downtown commercial
centers.
The Filene's Basement Boston store is a landmark institution recognized
by generations of New England families and visitors as a source of quality
off-price men's and women's merchandise. The downtown location is famous for a
unique marketing concept - the Automatic Markdown Plan - whereby certain
merchandise is automatically discounted based on the number of days the
merchandise has been on the sales floor. Filene's Basement believes that the
Automatic Markdown Plan generates a sense of shopping urgency and creates
customer excitement and loyalty. Filene's Basement subleases 178,000 square feet
(approximately 65,300 square feet of selling space) on four floors. The sublease
terminates in 2009 with rights on behalf of Filene's Basement to extend until
2024. The Boston store generated over $1,282 in sales per square foot of selling
space during fiscal 1999.
In addition to the downtown Boston store, Filene's Basement operates 16
branch stores in three states and Washington, D.C. with an average of
approximately 26,692 square feet of selling
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space per store. Generally, the branch store's selling space is on a single
level and uses a prototypical "racetrack" aisle layout for merchandise
presentation. The branch stores are designed to be convenient and attractive in
their merchandise presentation, dressing rooms, checkouts and customer service
areas. Filene's Basement branch stores that were open during the full year of
fiscal year 1999 generated $487 in sales per square foot of selling space.
The branch stores averaged $13.5 million in sales volume per store in
fiscal 1999. Their merchandise mix is similar to that of the Boston flagship
store. Because of the operational complexities associated with transferring the
Automatic Markdown Plan to the branch stores, the branch stores do not operate
under the Automatic Markdown Plan, although markdowns are taken as required.
Store Operations
We are committed to offering customers a convenient, pleasurable
shopping experience and a high level of satisfaction. At Value City, a training
program is utilized to assure that every associate maintains the highest level
of professionalism and places customer service at the forefront. At DSW, all
associates receive Retail Results University training in both product knowledge
and sales/service. This in-house training program emphasizes acknowledgment of
all customers, customized levels of service, and realization of sales
opportunities at all moments of customer contact.
Our 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 and footwear. In all stores, a customer
service desk is conveniently located generally adjacent to the central check-out
area. We pride ourselves on ease of checkout and have 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. We accept all major credit cards, and
also provide a private label credit card program at the department stores.
Private label and other credit card sales are nonrecourse to our Company, with
the servicing agent assuming all of the credit risk. Value City offers a
convenient layaway program in its department stores and maintains a liberal
return policy.
Our stores are organized into separate geographic regions and
districts, each with a regional or district manager. Regional and district
managers are headquartered in their region and spend the majority of their time
in their stores to ensure adherence to merchandising, operational and personnel
standards. The typical staff for a Value City store consists of a store manager,
an operations manager, two assistant managers, a human resource administrator, a
customer service manager, a receiving manager, and full and part-time hourly
associates. Each store manager reports directly to one of the regional or
district managers, and each of the regional or district managers reports to a
Regional Vice President who in turn reports to the Vice President of Operations.
The typical staff for a DSW store consists of a store manager, two
assistant managers, a lead staff person and full and part-time hourly
associates. Each manager reports directly to one of
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eleven district managers who in turn report to a national operations manager.
Our 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. Our store managers are an
important source of information concerning local market conditions, trends and
customer preferences.
We prefer 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.
Our Filene's Basement stores' typical staff consists of a general
manager, an assistant store manager, a personnel/customer service manager,
merchandising group managers and full and part-time associates. Each general
manager reports to the Regional Vice President who in turn reports to the Vice
President of Operations/Personnel.
Expansion
We have increased our department store base from 74 stores at the start
of fiscal 1994 to 105 stores at the end of the fiscal 1999. We have expanded
both by leasing newly constructed locations and by acquiring existing locations
from other retailers. Thirteen additional stores were opened in the St. Louis
market during March and April 2000. Five additional stores are planned for
fiscal 2000.
We have opened one DSW store in March 2000 and one in April 2000. We
plan to open 15 to 18 additional DSW shoe stores during the remainder of fiscal
2000. We intend to open additional DSW stores in both existing and new markets
with an emphasis on locating stores in highly visible sites on high traffic
streets in relatively affluent trade areas. Factors considered in evaluating new
store sites include store size, configuration, demographics and lease terms. We
seek to cluster stores in targeted metropolitan areas to enhance name
recognition, share advertising costs and achieve economies of scale in
management and distribution.
13
<PAGE> 14
The table below sets forth certain information relating to the
Company's stores during each of the last five fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR 6 MONTHS FISCAL YEAR ENDED
ENDED ENDED -----------------------------------------
1/29/00 1/30/99 8/1/98 8/2/97 8/3/96 7/29/95
------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Beginning of Year(1)........... 145 142 95 86 79 75
Opened(2).................... 22 4 49 9 7 6
Closed ...................... -- 1 2 0 0 2
--- --- --- --- --- --
End of Year ........................ 167 145 142 95 86 79
=== === === == == ==
</TABLE>
(1) Excludes apparel, domestics and housewares departments operated by the
Company in two Valley Fair department stores prior to May 3, 1998.
(2) 1998 includes the two department stores obtained in the purchase of Valley
Fair and the 43 shoe stores obtained in the purchase of Shonac.
Based upon our experience, we estimate that the average cost of opening
a new department store ranges from approximately $4,500,000 to $6,500,000 and
the cost of opening a new shoe store ranges from approximately $1,000,000 to
$2,000,000, including leasehold improvements, fixtures, inventory, pre-opening
expenses and other costs. Preparations for opening a department store generally
take between eight and twelve weeks and preparations for opening a shoe store
generally take eight to ten weeks. We charge pre-opening expenses to operations
as incurred. It has been our experience that new stores generally achieve
profitability and contribute to net income following the first year of
operations.
We continually refurbish our 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, we select stores to be
remodeled, which generally involves more significant changes to the interior or
exterior of the store. We maintain our own architectural design staff,
construction crews and carpentry shop to assist in refurbishing and remodeling
store interiors and to build in- store display tables and racks.
MANAGEMENT INFORMATION AND CONTROL SYSTEMS
We believe that a high level of automation is essential to maintaining
and improving our competitive position. We rely upon computerized data systems
to provide information at all levels, including warehouse operations, store
billing, inventory control and automated accounting. Value City utilizes two IBM
AS/400 computer systems, and Shonac utilizes one additional AS400 computer
system.
14
<PAGE> 15
We utilize point of sale ("POS") registers with full scanning
capabilities to increase speed and accuracy at customer check-outs and
facilitate inventory restocking. Since layaways represent an important part of
our department store business, an automated system to capture and control
layaways is integrated into the POS system.
ASSOCIATES
As of April 2000, we had approximately 15,700 associates of which 7,100
were full-time and 8,600 were part-time. Approximately 2,200 of these associates
in 23 stores are covered by collective bargaining agreements.
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.
We believe that, in general, we have satisfactory relations with all of
our associates.
COMPETITION
The retail industry is highly competitive. We compete 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,
on-line providers, factory outlet stores and other off-price stores.
In the discount or off-price retailing segment, we differentiate
ourself through our store format and breadth of product offering. Our large
stores differ from most other off-price retailers which tend to operate
substantially smaller stores focusing predominantly on either hard or soft
goods. Our large stores facilitate our merchandise offering and broad range of
brands and products.
In addition, because we purchase much of our inventory
opportunistically, we compete for merchandise with other national and regional
off-price apparel and discount outlets. Many of our competitors handle identical
or similar lines of merchandise and have comparable locations, and some have
greater financial resources than we do.
Competitive factors important to our customers include fashion, value,
merchandise selection, brand name recognition and, to a lesser degree, store
location. We compete primarily on the basis of value, merchandise quality and
selection. We believe our competitive advantages include our reputation in the
marketplace for being able to purchase and promptly pay for entire lots of
merchandise, together with our ability to either quickly distribute or hold the
merchandise for sale at the most opportune time, as well as our full-line
merchandise offering and range of brand names.
15
<PAGE> 16
SERVICE MARKS, TRADEMARKS AND TRADENAMES
The service mark "Value City" has been registered by SSC in the U.S.
Patent and Trademark Office. Our four department stores in Columbus operate
under the tradename "Schottenstein's," which has been registered in the state of
Ohio. We are entitled to use such names for the sole purpose of operating
department stores on an exclusive basis pursuant to a perpetual license from
SSC. SSC also operates a chain of furniture stores under the name "Value City
Furniture." We have also registered in the U.S. Patent and Trademark Office
various trademarks used in our marketing program.
Through the acquisition of Shonac, we registered in the U.S. Patent and
Trademark Office a number of trademarks and service marks, including: DSW; DSW
Shoe Warehouse; Coach and Four; Crown Shoes; Flites; Jonathan Victor; Kristi G;
Lakota Trail; Landmarks; Sander; Shoes by Kari and Sylvia Cristie.
Filene's Basement has an exclusive, perpetual, world-wide, royalty-free
license to use the name Filene's Basement and Filene's Basement of Boston
trademark and service mark registrations as well as certain other tradenames.
Filene's Basement's exclusive licensee status with respect to these registered
marks has been recorded with the United States Patent and Trademark Office and
relevant state offices.
16
<PAGE> 17
ITEM 2. PROPERTIES.
Set forth in the following table are the locations of stores operated
by the Company as of January 29, 2000:
<TABLE>
<CAPTION>
VALUE CITY DSW
DEPARTMENT SHOE
STORES WAREHOUSE
---------- ---------
<S> <C> <C>
Arizona - 1
Colorado - 2
Delaware 3 -
Florida - 3
Georgia 3 2
Illinois 11 5
Indiana 7 1
Kansas - 2
Kentucky 4 -
Maryland 7 2
Massachusetts - 2
Michigan 9 3
Minnesota - 1
Missouri 1 1
New Jersey 7 2
New York - 10
North Carolina 1 1
Ohio 23 6
Oklahoma - 1
Pennsylvania 19 2
Tennessee 1 2
Texas - 7
Virginia 4 1
Washington D.C. 1 -
West Virginia 4 -
Wisconsin - 1
--- ---
105 58
</TABLE>
We maintain buying offices in Columbus, Ohio; Boston, Massachusetts;
and Los Angeles, California. We operate eleven warehouse/distribution complexes
located in Columbus, Ohio, two distribution facilities in St. Louis, Missouri
and one distribution facility in Auburn, Massachusetts. In addition, to expedite
the flow of merchandise to certain clusters of stores, we use third party
processors located in New Jersey, Chicago and Detroit. Our executive offices
occupy approximately 45,000 square feet in a building which includes a store and
also serves as one of the Company's apparel distribution centers. Shonac
occupies approximately 33,000 square feet in a building which also serves as the
shoe division's distribution center.
17
<PAGE> 18
The stores and all of the warehouse, buying and executive office
facilities are leased or subleased except for one owned shoe store location. As
of January 29, 2000 we leased or subleased nineteen stores and three warehouse
facilities from SSC or entities affiliated with SSC. The remaining stores and
warehouses 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.
Our office, warehouse and distribution facilities for our department
store business are adequate for our current needs and we believe that such
facilities, with certain modifications and additional equipment will be adequate
for our foreseeable future demands.
To support the planned growth of our DSW shoe warehouse business, we
are consolidating and relocating the related back office and distribution
operations of our shoe business to a new 685,000 square feet facility located in
Columbus, Ohio. We recently entered into a 15 year lease with 3 five-year option
periods. The lease is with an affiliate of SSC and is at current market rate
rents.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in various legal proceedings that are incidental to the
conduct of our 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.
18
<PAGE> 19
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 April 19, 2000, there were 527 shareholders of record.
<TABLE>
<CAPTION>
HIGH LOW
------- --------
<S> <C> <C>
Fiscal 1998:
First Quarter ........................................ $ 8 1/2 $ 7 5/8
Second Quarter ........................................ 10 3/8 7 9/16
Third Quarter ......................................... 21 1/16 9 1/8
Fourth Quarter......................................... 22 3/8 16 7/8
Six Months Ended January 30, 1999:
First Quarter ........................................ $ 19 1/4 $ 7 3/4
Second Quarter ........................................ 14 3/8 8 1/4
Fiscal 1999:
First Quarter ......................................... $ 12 $ 8 5/8
Second Quarter ........................................ 15 3/8 8 5/16
Third Quarter ......................................... 15 15/16 12 1/16
Fourth Quarter ........................................ 19 1/2 13 7/8
</TABLE>
We have paid no dividends and presently anticipate that all of our future
earnings will be retained for development of our businesses and we do not
anticipate paying cash dividends on our Common Shares during fiscal 2000. The
payment of any future dividends will be at the discretion of our Board of
Directors and will depend upon, among other things, future earnings, operations,
capital requirements, our general financial condition and general business
conditions. The payment of dividends under our long-term credit facility is
restricted to the greater of $5.0 million or 10% of consolidated net income.
19
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA.
(dollars in thousands, except per share and per square foot amounts)
The following table sets forth for the periods indicated selected financial data
included in our consolidated financial statements and our underlying books and
records. The 12 month period ended January 30, 1999 is presented for comparative
purposes.
<TABLE>
<CAPTION>
TRANSITION
PERIOD
FISCAL YEAR 12 MONTHS SIX MONTHS FOR THE YEAR ENDED
ENDED ENDED ENDED -----------------------------------------------------
1/29/00 1/30/99 1/30/99(1)(2) 8/1/98(2) 8/2/97 8/3/96(1) 7/29/95
------------ ---------- ------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales (3) ............ $1,670,176 $1,364,030 $ 780,263 $1,161,379 $1,073,399 $ 954,308 $ 871,949
Operating Profit ......... $ 65,642 $ 51,226 $ 40,799 $ 36,921 $ 10,513 $ 36,213 $ 24,209
Net Income ............... $ 33,468 $ 24,871 $ 20,256 $ 20,359 $ 3,951 $ 21,718 $ 13,819
Basic Earnings per Share . $ 1.03 $ 0.77 $ 0.63 $ 0.64 $ 0.12 $ 0.68 $ 0.43
Diluted Earnings per Share $ 1.02 $ 0.76 $ 0.62 $ 0.63 $ 0.12 $ 0.68 $ 0.43
Total Assets ............. $ 744,181 $ 574,427 $ 574,427 $ 684,078 $ 457,973 $ 437,010 $ 361,887
Working Capital .......... $ 205,011 $ 165,527 $ 165,527 $ 204,784 $ 158,476 $ 161,397 $ 154,112
Current Ratio ............ 1.82 1.98 1.98 1.88 2.14 2.21 2.48
Long-term Obligations .... $ 144,168 $ 101,447 $ 101,447 $ 165,648 $ 57,763 $ 46,942 $ 20,853
Number of
Department Stores (4) . 105 97 97 95 95 86 79
Shoe Stores ........... 58 44 44 43 -- -- --
Net Sales per
Selling Sq. Ft. (5) ... $ 249 $ 235 $ 126 $ 229 $ 217 $ 221 $ 220
Comp Sales Change (6) .... 7.2% 6.0% 3.3% 5.9% 0.1% (0.1)% (3.8)%
</TABLE>
(1) The six month period includes 26 weeks. Fiscal 1996 includes 53 weeks;
all other years contain 52 weeks.
(2) The 1999 Transition Period and fiscal 1998 include the operations of
Shonac and Valley Fair Corporation from the date of acquisition, May 3,
1998.
(3) Excludes sales of licensed departments. Prior to fiscal 1998, sales
from the Company's toys and sporting goods departments were included in
Net Sales. At the start of fiscal 1998 these departments became
licensed departments operated by VCM, Ltd., a 50/50 joint venture
between the Company and Mazel Stores, Inc.
(4) Includes all stores operating at the end of the fiscal year. Years
prior to 1998 exclude the apparel, domestic and housewares departments
operated by the Company in two affiliated department stores which were
acquired effective May 3, 1998.
(5) Excludes stores not operated during the entire fiscal period and
licensed departments.
(6) 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, comparable store sales are computed using
like 52-week periods.
20
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationships to net sales of the listed items included in the Company's
Consolidated Statements of Operations, except for the 12 month period ended
January 30, 1999, which is presented here for comparative purposes.
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE YEAR FOR THE 12 MONTHS FOR THE 6 MONTHS ENDED
ENDED ENDED ENDED ---------------------
1/29/00 1/30/99 1/30/99 8/1/98 8/2/97
------------- ---------------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net sales, excluding sales
licensed departments ..... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ................ (62.2) (62.2) (62.0) (63.1) (65.0)
----- ----- ----- ----- -----
Gross profit ................. 37.8 37.8 38.0 36.9 35.0
Selling, general and
administrative expenses .. (34.7) (35.2) (33.9) (35.8) (36.0)
License fees from affiliates
and other operating income 0.8 1.2 1.1 2.1 2.0
----- ----- ----- ----- -----
Operating profit ............. 3.9 3.8 5.2 3.2 1.0
Gain on disposal of assets ... -- -- -- 0.1 --
Interest expense, net ........ (0.6) (0.8) (0.8) (0.5) (0.5)
Other income, net ............ -- -- -- -- --
Amortization of excess
net assets over cost ..... -- -- -- 0.1 0.1
Equity in income
(loss) of joint venture .. 0.1 -- -- (0.1) --
----- ----- ----- ----- -----
Income before income taxes ... 3.4 3.0 4.4 2.8 0.6
Provision for income taxes ... (1.4) (1.2) (1.8) (1.0) (0.2)
----- ----- ----- ----- -----
Net income ................... 2.0% 1.8% 2.6% 1.8% 0.4%
===== ===== ===== ===== =====
</TABLE>
21
<PAGE> 22
FISCAL YEAR ENDED JANUARY 29, 2000 COMPARED TO TWELVE MONTHS ENDED
JANUARY 30, 1999
The Company's net sales increased $306.2 million, or 22.4%, from $1,364.0
million to $1,670.2 million. Comparable store sales increased 7.2%. Net sales
for the department stores ("Value City") increased $148.3 million, or 13.5%,
from $1,106.8 million to $1,255.1 million. Value City's comparable store sales
increased 6.5%, or $69.7 million. The shoe departments in Value City's stores
contributed net sales of $168.5 million. Non-apparel sales increased 9.0% and
apparel sales increased 15.0%. On a comparable store basis, apparel and
non-apparel sales increased 7.9% and 2.1%, respectively. DSW Shoe Warehouse
("DSW") achieved sales of $246.6 million with a 19.5% comparable stores sales
increase.
Gross profit increased $115.9 million from $515.1 million to $631.0
million, and remained at 37.8% as a percentage of net sales.
Selling, general and administrative expenses ("SG&A") increased $98.9
million from $480.6 million to $579.5 million, but decreased as a percentage of
net sales from 35.2% to 34.7%, a reduction of 0.5%, due primarily to the
leveraging effect of higher sales volume partially offset by increased pre-
opening costs in fiscal 1999 of approximately $7.6 million.
Based upon its experience, the Company estimates the average cost of
opening a new department store to range from approximately $4.5 million to $6.5
million and the cost of opening a new shoe store to range from approximately
$1.0 million to $2.0 million including leasehold improvements, fixtures,
inventory, pre-opening expense and other costs. Preparations for opening a
department store generally take between eight and twelve weeks and preparations
for a shoe store generally take eight to ten weeks. Effective August 1998,
pre-opening costs are expensed as incurred in accordance with Accounting
Standards Executive Committee Statement of Position 98-5. Previously, such costs
were amortized ratably over the first twelve months of the store's operations.
It has been the Company's experience that new stores generally achieve
profitability and contribute to net income after the first full year of
operations. Ten department stores opened less than twelve months as of the
beginning of fiscal 1999 had a pre-tax net operating loss of $1.6 million,
including $3.8 million of pre-opening expense amortization. Four department
stores opened less than twelve months during fiscal 1998 had pre-tax operating
losses of $2.0 million in 1998, including $1.5 million of pre-opening expense.
22 DSW stores opened less than twelve months in fiscal 1999 had a pre-tax net
operating loss of $3.7 million, including $3.3 million of pre-opening expenses.
12 DSW stores opened less than twelve months during fiscal 1998 had a pre-tax
net operating loss of $0.4 million after recognizing $0.9 million of pre-opening
expenses.
License fees from affiliates decreased $3.5 million, or 29.5%, from $12.0
million to $8.5 million, and decreased as a percentage of net sales from 0.9% to
0.5%. The decrease is attributable to the consolidation of Shonac, which was
previously treated as a licensee.
Other operating income increased $0.9 million, or 18.1%, from $4.8
million to $5.6 million and
22
<PAGE> 23
remained at 0.3% as a percentage of net sales.
Operating profit increased $14.4 million from $51.2 million to $65.6
million, and increased as a percentage of net sales from 3.8% to 3.9% as a
result of the above factors.
Interest expense, net of interest income, increased from $10.5 million to
$10.7 million.
Equity in income of joint venture increased $1.8 million from a loss of
$0.5 million to income of $1.3 million.
Income before provision for income taxes increased $16.1 million from
$40.3 million to $56.4 million, and increased as a percentage of sales from 3.0%
to 3.4% as a result of the above factors.
SIX MONTH PERIOD ENDED JANUARY 30, 1999 COMPARED TO SIX MONTH PERIOD
ENDED JANUARY 31, 1998
Net sales for the department stores ("Value City") increased $25.9
million, or 4.5% from $577.6 million to $603.5 million. Value City's comparable
store net sales increased 3.3%, or $19.2 million. Shonac Corporation ("Shonac")
contributed net sales of $176.8 million with comparable store sales increases of
2.4%. For the Transition Period, apparel sales increased 1.3% and non-apparel
net sales increased 14.4%. On a comparable store basis, apparel and non-apparel
sales increased 0.4% and 12.7%, respectively.
Gross profit increased $86.6 million from $210.2 million to $296.8
million, and increased as a percentage of net sales from 36.4% to 38.0%. The
acquisition of Shonac contributed $76.2 million. Value City's gross profit
increased $10.4 million, or 4.9%, from $210.2 million to $220.6 million, and
increased as a percentage of net sales from 36.4% to 36.5%. The percentage
increase is due to reduced markdowns and improvement in initial markup.
Selling, general and administrative expenses ("SG&A") increased $65.6
million from $199.0 million to $264.6 million, but decreased as a percentage of
net sales from 34.5% to 33.9%, a reduction of 0.6%, due primarily to the
leveraging effect of the Shonac acquisition. Shonac incurred SG&A of $59.6
million, or 33.7% of their net sales. Value City's SG&A increased $14.9 million
and increased as a percentage of net sales from 34.5% to 35.4%. This is
primarily attributable to increases in distribution, advertising, personnel, new
stores, net of closed stores, and the addition of Valley Fair operations.
However, in total Valley Fair's operations contributed $0.5 million to operating
profit during the period.
Effective in the Transition Period, pre-opening costs are expensed as
incurred in accordance with Accounting Standards Executive Committee Statement
of Position 98-5. Previously, such costs were amortized ratably over the first
twelve months of the store's operations. It has been the Company's experience
that new stores generally achieve profitability and contribute to net income
after the first full year of operations. Two department stores opened less than
twelve months during the Transition Period
23
<PAGE> 24
had pre-tax operating losses of $0.8 million.
License fees from affiliates and other operating income decreased $6.7
million, or 43.8%, from $15.3 million to $8.6 million, and decreased as a
percentage of net sales from 2.7% to 1.1%.This decrease is due primarily to the
reduction of license fees from Shonac resulting from its acquisition and
consolidation with Value City. This was partially offset by $0.9 million of
license fees earned from third parties at the two stores purchased from Valley
Fair.
Operating profit increased $14.3 million from $26.5 million to $40.8
million, and increased as a percentage of net sales from 4.6% to 5.2% as a
result of the above factors.
Interest expense, net of interest income, increased from $1.4 million to
$6.7 million and increased as a percentage of net sales from 0.3% to 0.8%. This
increase is due primarily to the interest on debt incurred to acquire Shonac and
the operations of Valley Fair.
Gain on disposal of assets, net, decreased $1.6 million. The gain in the
prior period related to the sale of the land, building and improvements of a
site originally purchased for future store development and selling the lease
rights for a store that was closed during the second quarter.
Equity in the unconsolidated joint venture represents the Company's fifty
percent interest in VCM's operating results. Equity in VCM increased $0.9
million from a loss of $0.8 million to income of $0.1 million.
Income before provision for income taxes increased $8.3 million from
$25.9 million to $34.2 million, and decreased as a percentage of net sales from
4.5% to 4.4% as a result of the above factors.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Net sales for the department stores increased $1.6 million, or 0.1% from
$1,073.4 million to $1,075.0 million. Value City's comparable store net sales
increased 5.9%, or $52.8 million. Reported net sales for fiscal 1997 of $1,073.4
million included toys and sporting goods sales of $57.3 million. These
departments are now operated by VCM, Ltd., a 50/50 joint venture between the
Company and Mazel Stores, Inc. and are therefore treated as licensed department
sales. The acquisition of Shonac Corporation effective as of May 3, 1998,
contributed net sales since the acquisition date of $86.4 million with
comparable store sales increases of 6.6%. For fiscal 1998, apparel sales
increased 5.4% and non-apparel net sales increased 7.3%. On a comparable store
basis, apparel and non-apparel sales increased 5.3% and 7.7%, respectively.
Gross profit increased $52.9 million from $375.6 million to $428.5
million, and increased as a percentage of net sales from 35.0% to 36.9%. The
acquisition of Shonac contributed $33.9 million. Value City's gross profit
increased $19.0 million, or 5.1%, from $375.6 million to $394.6 million, and
24
<PAGE> 25
increased as a percentage of net sales from 35.0% to 36.7%. The percentage
increase is due to reduced markdowns and improvement in initial markup as well
as exclusion of toys and sporting goods gross margin.
Selling, general and administrative expenses ("SG&A") increased $30.3
million from $385.9 million to $416.2 million, but decreased as a percentage of
net sales from 36.0% to 35.8%, a reduction of 0.2%, due primarily to the
leveraging effect of the Shonac acquisition. Shonac incurred SG&A of $24.3
million, or 28.1% of their net sales. Value City's SG&A increased $6.0 million
and increased as a percentage of net sales from 36.0% to 36.5%. This increase is
attributable to higher store and home office expenses, partially offset by the
elimination of certain direct expenses for the toys and sporting goods
operations transferred to VCM.
Nine department stores opened less than twelve months as of the beginning
of fiscal 1998 had a pre-tax net operating loss of $5.1 million, including $1.5
million of pre-opening expense amortization. Twelve department stores opened
less than twelve months during fiscal 1997 had pre-tax operating losses of $7.0
million in 1997, including $6.3 million of pre-opening expense amortization.
License fees from affiliates and other operating income increased $3.9
million, or 18.8%, from $20.8 million to $24.7 million, and increased as a
percentage of net sales from 1.9% to 2.1%. The change is the net result of an
increase in license fees received during the year along with fees from the VCM
venture on toys and sporting goods sales partially offset by the elimination of
license fees related to the acquisition of Shonac for the fourth quarter.
Operating profit increased $26.4 million from $10.5 million to $36.9
million, and increased as a percentage of net sales from 1.0% to 3.2% as a
result of the above factors.
Interest expense, net of interest income, increased from $5.1 million to
$5.3 million.
Gain on disposal of assets, net, increased from $0.2 million to $1.6
million due to selling the land, building and improvements of a site originally
purchased for future store development and selling the lease rights for a store
that was closed during the second quarter.
Equity in loss of unconsolidated joint venture represents the Company's
fifty percent interest in VCM's operating results. These losses are due
primarily to weak sales attributable to transitioning the toys and sporting
goods and health and beauty care departments to a new format.
Income before provision for income taxes increased $25.4 million from
$6.5 million to $31.9 million, and increased as a percentage of net sales from
0.6% to 2.7% as a result of the above factors.
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
25
<PAGE> 26
back-to-school and Christmas selling seasons.
FISCAL YEAR
In June 1998, the Company decided to change its fiscal year to a 52/53
week year that ends on the Saturday nearest to January 31. This change was made
to reflect the reporting period common to most retailers.
INCOME TAXES
The effective tax rate for fiscal 1999 was 40.6% versus 38.2% for the 12
months ended January 1999. The earlier period's provision was reduced by
approximately $1.4 million relating to the resolution of certain federal and
state income tax issues.
The effective tax rate for the Transition Period ended January 30, 1999
was 40.8%. The rate increase resulted primarily from the effect of
non-deductible goodwill amortization related to the Shonac acquisition. The
effective tax rate for the year ended August 1, 1998 was 36.2%. The effective
tax rate for the year ended August 2, 1997 was 39.0%. The 2.8% reduction
reflects the benefits of several fourth quarter favorable settlements of federal
and state income tax issues.
The effective tax rate for fiscal 2000 is expected to be approximately
41.0% due primarily to the effect of non-deductible goodwill amortization
related to the Shonac acquisition.
ADOPTION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") periodically issues
Statements of Financial Accounting Standards ("SFAS"), some of which require
implementation by a date falling within or after the close of the Company's
fiscal year.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement is required to be adopted in
years beginning after June 15, 2000. The Company is currently evaluating the
effect this statement might have on the consolidated financial position and
results of operations of the Company.
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
26
<PAGE> 27
Net working capital was $205.0 million, $166.5 million and $205.8 million
at January 29, 2000, January 30, 1999 and August 1, 1998, respectively. Current
ratios at those dates were 1.8, 2.0 and 1.9, respectively.
Net cash provided from operating activities totaled $27.5 million, $93.2
million, $43.3 million, and $38.7 million for the fiscal years 1999, Transition
Period 1998, 1998 and 1997, respectively. Net income, adjusted for depreciation
and amortization, provided $67.7 million of operating cash flow for the fiscal
year 1999. This was decreased by $67.0 million representing an increase in
inventories net of a decrease in accounts payable. Other changes in working
capital assets and liabilities provided $26.8 million.
During the twelve months ended January 30, 1999, net income adjusted for
depreciation and amortization, provided $55.9 million of operating cash flow.
This was increased by $9.6 million representing a reduction in inventories net
of an increase in accounts payable. Other changes in working capital assets and
liabilities provided $6.3 million.
Net cash used for investing activities totaled $49.7 million, $18.2
million, $127.5 million and $46.8 million for fiscal years 1999, Transition
1998, 1998 and 1997, respectively.
Net cash used for capital expenditures was $37.3 million, $17.3 million,
$27.2 million and $46.8 million for fiscal years 1999, Transition 1998, 1998 and
1997, respectively. During fiscal 1999, capital expenditures included $14.5
million for new stores, $8.0 million for improvements in existing stores, $2.5
million for renovations in existing warehouses, $10.6 million for MIS equipment
upgrades and new systems $1.4 million for energy management systems and $0.3 for
other capital expenditures. Total capital expenditures for 2000 are estimated at
approximately $72.0 million including $28.0 million for new stores, $17.0
million for distribution centers, $15.0 million for management information
systems and $12.0 million for store remodels and other capital expenditures.
At January 29, 2000, the Company had a $167.5 million credit facility
bearing interest primarily at a floating rate of LIBOR plus 1.5%. The interest
rate on $40.0 million has been locked in a fixed annual rate of 7.395% for a
three-year period under a swap agreement. The terms of the credit facility
required the Company to comply with certain restrictive covenants and financial
ratio tests. At January 29, 2000 the borrowings aggregated $70.0 million, $21.1
million of letters of credit were issued and outstanding for merchandise
purchases and the VCM loan guarantee totaled $2.4 million leaving $74.0 million
available under the facility. See discussion under subsequent events for details
regarding the Company's amendment and restatement of the credit facility in
March 2000. 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.
ACQUISITIONS
Effective May 3, 1998, the Company purchased 99.9% of the common stock of
Shonac from Nacht Management, Inc. and Schottenstein Stores Corporation ("SSC").
SSC owns approximately 55.3% of the Company's outstanding common shares. The
Company also acquired the store operations
27
<PAGE> 28
of Valley Fair Corporation from SSC. The combined purchase price for both
acquisitions was $108.5 million. Shonac had been the shoe licensee in all of the
Company's stores since its inception in 1969 and also operated a chain of retail
shoe outlets located throughout the United States, principally under the name
DSW Shoe Warehouse. Valley Fair Corporation operated two department stores
located in Irvington and Little Ferry, New Jersey. The Company had been a
licensee of certain departments in these two stores for 18 years.
Both acquisitions were accounted for as purchases. The acquisitions were
funded by cash provided by operations and approximately $88.0 million from the
Company's $167.5 million long-term unsecured revolving bank credit facility.
This facility replaced Value City's $100.0 million credit facility and Shonac's
$30.0 million facility. The initial term of the facility was effective through
May 1, 2001 with interest primarily at a floating rate of LIBOR plus 1.5%. The
interest rate on $40.0 million had been locked in at a fixed annual rate of
7.395% for a three year period under a swap agreement. The terms of the credit
facility require the Company to comply with certain restrictive covenants and
financial ratio tests, including minimum tangible net worth; a maximum
consolidated debt to earnings before interest, taxes, depreciation and
amortization ratio; a minimum fixed charge coverage ratio; and, limitations on
dividends, additional incurrence of debt and capital expenditures.
On November 19, 1999, we purchased 100% of the common stock of Gramex
Retail Stores, Inc. ("Gramex") from Gramex Corporation pursuant to a Stock
Purchase Agreement, dated as of November 8, 1999. Gramex operated a chain of
fifteen discount stores under the name "Grandpa's" in the greater St. Louis
metropolitan area.
The purchase price for Gramex was $13.1 million including cash of $8.0
million, 255,949 shares of the Company's common stock with an agreed value of
$4.0 million and an unsecured, 5-year note of $1.1 million. In conjunction with
the acquisition, the Company satisfied approximately $37 million of Gramex bank
debt at closing and assumed certain trade payable and other obligations which
was satisfied from the proceeds from liquidation of inventory and certain other
assets. The transaction was funded by cash from operations and a $25 million,
180 day bank loan bearing interest at 8.0925%. The acquisition was accounted for
as a purchase. Allocation of the purchase price will be determined based on fair
market valuation of the net assets acquired.
Of the 15 stores acquired and after liquidation of the existing Grandpa's
inventory, 13 stores were converted to the Value City format. Six stores
received only minor improvements and were reopened in March 2000. Seven stores
were remodeled based on the current Value City format and were reopened in April
2000. The lease for one store, with terms consistent with current market
conditions, is located near our existing store in St. Louis. This location was
assigned, without payment of additional consideration to the Value City
Furniture Division of Schottenstein Stores Corporation after completion of
liquidation of the store inventory and fixtures.
SUBSEQUENT EVENT
On March 17, 2000, the Company, through its wholly-owned subsidiary, Base
Acquisition Corp. ("Base Acquisition"), completed the acquisition of
substantially all of the assets and assumed certain liabilities of Filene's
Basement Corp., a Massachusetts corporation, and Filene's Basement Inc., a
28
<PAGE> 29
wholly owned subsidiary of Filene's Basement Corp. (collectively, "Filene's")
pursuant to the closing of the asset purchase agreement, dated February 2, 2000.
The purchase price included cash of $3.5 million paid at closing, $6
million to be paid in three equal annual installments, 403,208 shares of the
Company's common stock with an agreed value of $5.5 million and the assumption
of specified liabilities. The assumed liabilities included the payment of
amounts outstanding under Filene's debtor-in-possession financing facility of
approximately $30.6 million and certain trade payable and other obligations
which will be paid in the ordinary course. Allocation of the purchase price will
be determined based on fair market valuation of the net assets acquired.
The acquisition was funded by cash from operations and a portion of the
proceeds from the Company's new $300.0 million Amended and Restated Credit
Agreement, dated as of March 15, 2000 (the "New Bank Facility"). It was
co-underwritten by National City Bank and Bank One Capital Markets, Inc. and has
a three year term ending March 15, 2003. This facility replaced the $167.5
million facility that would have matured in May 2001. The New Bank Facility is
secured only by a pledge of the stock of Base Acquisition and the Filene's
assets acquired. It provides for various borrowing rates, currently equal to 200
basis points over LIBOR.
On March 17, 2000, the Company also closed a $75.0 million Senior
Subordinated Convertible Loan Agreement, dated as of March 15, 2000 (the "Senior
Facility") with Prudential Securities Credit Corporation ("Prudential"), as
lender. The Senior Facility also bears interest at various rates, currently
equal to 250 basis points over LIBOR. The interest rate increases an additional
50 basis points every 90 days after the first anniversary date. The Senior
Facility is due in September 2003. However, if the Company has not repaid the
Senior Facility prior to March 17, 2001, from the proceeds of an equity offering
or other subordinated debt acceptable to the lenders under the New Bank
Facility, then after that date Prudential has the right to convert the debt into
stock of the Company at a price equal to 95% of the 20-day average of high and
low sales prices reported on the New York Stock Exchange at the time of
conversion. After that date, Prudential also has the right to require
Schottenstein Stores Corporation ("SSC"), the owner of a majority of the
Company's outstanding stock, to purchase the Senior Facility at par plus accrued
interest, pursuant to the terms of a Put Agreement, dated as of March 15, 2000
between Prudential and SSC. The Company paid SSC a one time fee of 200 basis
points, or $1.5 million, at closing in consideration for entering into the Put
Agreement.
Both the New Bank Facility and the Senior Facility contain customary,
affirmative and negative covenants, including certain financial covenants.
29
<PAGE> 30
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, other filings with the Security and Exchange Commission 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 1999
and beyond to differ materially from those expressed or implied in any such
forward-looking statements: decline in demand for the Company's merchandise, the
ability to repay the $75.0 million Senior Facility through an equity offering or
refinancing, the availability of desirable store locations on suitable terms,
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, and the ability to hire and train associates.
Historically, the Company's operations have been seasonal, with a
disproportionate amount of sales and a majority of net income occurring in the
back-to-school and Christmas selling seasons. As a result of this seasonality,
any factors negatively affecting the Company during this period, including
adverse weather, the timing and level of markdowns or unfavorable economic
conditions, could have a material adverse effect on the Company's financial
condition and results of operations for the entire year.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The Company is exposed to market risk from changes in interest rates
which may adversely affect its financial position, results of operations and
cash flows. In seeking to minimize the risks from interest rate fluctuations,
the Company manages exposures through its regular operating and financing
activities and, when deemed appropriate, through the use of derivative financial
instruments. The Company does not use financial instruments for trading or other
speculative purposes and is not party to any leveraged financial instruments.
The Company is exposed to interest rate risk primarily through its
borrowings under its revolving credit facility. At January 29, 2000, direct
borrowings aggregated $70.0 million. The facility as amended and restated
effective March 17, 2000 permits debt commitments up to $300.0 million, has a
March 15, 2003 maturity date and generally bears interest at a floating rate of
LIBOR plus 2.0%. The Company has swap agreements to help manage the exposure to
interest rate movements and reduce borrowing costs. As of January 29, 2000 the
interest rate on $40.0 million has been locked in at a fixed rate of 7.395%
until May 2001 and has a fair market value of $402,000. After January 29, 2000
the interest rate on an additional $35.0 million was locked in at a fixed rate
of 8.99% until April 2003.
At January 29, 2000, the Company performed a sensitivity analysis
assuming an average outstanding principal amount of $218.9 million subject to
variable interest rates. A 10% increase in LIBOR would result in approximately
$1.5 million of additional interest expense annually.
30
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and financial statement schedule of the
Company and the Independent Auditors' Report 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.
31
<PAGE> 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item appears under the captions
"Nominees for Election as Directors," "Officers and Key Employees," and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Company's Proxy Statement relating to the Company's Annual Meeting of
Shareholders to be held on June 1, 2000 and is incorporated herein by reference.
ITEM 11. EXECUTIVE OFFICER COMPENSATION.
The information required by this item appears under the captions
"Executive Officer Compensation," "Information Concerning Board of Directors,"
and "Compensation Committee Interlocks and Insider Participation" in the
Company's Proxy Statement relating to the Company's Annual Meeting of
Shareholders to be held on June 1, 2000 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item appears under the caption
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the
Company's Proxy Statement relating to the Company's Annual Meeting of
Shareholders to be held on June 1, 2000 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item appears under the caption
"RELATIONSHIP WITH SSC AND ITS AFFILIATES" in the Company's Proxy Statement
relating to the Company's Annual Meeting of Shareholders to be held on June 1,
2000 and is incorporated herein by reference.
32
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS
ON FORM 8-K.
14(A)(1) FINANCIAL STATEMENTS
The documents listed below are filed as part of this Form 10-K405/A2:
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K405/A2
---------------
<S> <C>
Independent Auditors' Report .......................................... F - 1
Consolidated Balance Sheets at January 29, 2000,
January 30, 1999 and August 1, 1998 ............................... F - 2
Consolidated Statements of Income for the year ended
January 29, 2000, twelve months ended January 30, 1999 (unaudited),
six months ended January 30, 1999 and for years ended
August 1, 1998 and August 2, 1997 ................................. F - 3
Consolidated Statements of Shareholders' Equity for the year
ended January 29, 2000, six months ended January 30, 1999 and for
years ended August 1, 1998 and
August 2, 1997 .................................................... F - 4
Consolidated Statements of Cash Flows for the year ended
January 29, 2000, twelve months ended January 30, 1999 (unaudited),
for six months ended January 30, 1999 and for years ended
August 1, 1998 and August 2, 1997 ................................. F - 5
Notes to Consolidated Financial Statements ............................ F - 6
14(A)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
The schedule listed below is filed as part of this Form 10-K405/A2:
Schedule II. Valuation and Qualifying Accounts................ 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
During the fourth quarter, the Company filed a Form 8-K on December 6, 1999
relating to Item 2 - "Acquisition or Disposition of Assets" and a Form 8-K
on November 8, 1999 relating to Item 5 - "Other Items" with both forms
relating to the acquisition of Gramex Retail Stores, Inc., during the
quarter ended January 29, 2000.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VALUE CITY DEPARTMENT STORES, INC.
Date: May 3, 2000 By: *
--------------------------
(Jay L. Schottenstein, Chairman of the Board of
Directors and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended 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 Board of Directors 5/3/00
- ------------------------------------
(Jay L. Schottenstein) and Chief Executive Officer
* Director 5/3/00
- ------------------------------------
(Saul Schottenstein)
* Vice Chairman of the Board of Directors 5/3/00
- ------------------------------------
(Martin P. Doolan)
/s/ Robert M. Wysinski Senior Vice President, Secretary and 5/3/00
- ------------------------------------
(Robert M. Wysinski) Treasurer (Principal Financial Officer), Director
* Controller, Assistant Treasurer 5/3/00
- ------------------------------------
(Richard L. Walters) and Assistant Secretary (Principal Accounting Officer)
* Director 5/3/00
- ------------------------------------
(Geraldine Schottenstein)
* Director 5/3/00
- ------------------------------------
(Jon P. Diamond)
* Director 5/3/00
- ------------------------------------
(Norman Lamm)
* Director 5/3/00
- ------------------------------------
(Richard Gurian)
* Director 5/3/00
- ------------------------------------
(Robert L. Shook)
* Director 5/3/00
- ------------------------------------
(Ari Deshe)
* Director 5/3/00
- ------------------------------------
(Henry L. Aaron)
* Director 5/3/00
- ------------------------------------
(David L. Nichols)
*By:/s/ Robert M. Wysinski
----------------------
Robert M. Wysinski, (Attorney-in-Fact)
</TABLE>
34
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Value City
Department Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Value City
Department Stores, Inc. (a majority owned subsidiary of Schottenstein Stores
Corporation) and its wholly owned subsidiaries (the "Company") as of January 29,
2000, January 30, 1999, and August 1, 1998 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
ended January 29, 2000, August 1, 1998, and August 2, 1997, and the six month
period ended January 3, 1999. Our audits also included the financial statement
schedule listed in the Index as Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Value City Department Stores,
Inc. and its wholly owned subsidiaries as of January 29, 2000, January 30, 1999,
August 1, 1998, and the results of their operations and their cash flows for the
years ended January 29, 2000, August 1, 1998, and August 1997, and the six
months ended January 30, 1999 in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 2 to the consolidated financial statements, the
accompanying financial statements have been restated to reflect an accrual for
sales returns.
Deloitte & Touche LLP
Columbus, Ohio
April 5, 2000
F 1
<PAGE> 36
VALUE CITY DEPARTMENT STORES, INC.
CONSOLIDATED BALANCE SHEETS
at January 29, 2000, January 30, 1999 and August 1, 1998
(in thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS
1/29/00 1/30/99 8/1/98
--------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents ................................. $ 6,027 $ 20,895 $ 32,802
Accounts receivable, net ............................. 10,131 6,996 5,458
Receivables from affiliates .......................... 299 587 636
Inventories .......................................... 412,479 286,029 373,175
Prepaid expenses and other assets .................... 8,544 4,384 8,192
Deferred income taxes ................................ 18,052 15,086 18,332
--------- --------- ---------
TOTAL CURRENT ASSETS ............................ 455,532 333,977 438,595
PROPERTY AND EQUIPMENT, AT COST:
Furniture, fixtures and equipment .................... 191,632 168,270 165,261
Leasehold improvements ............................... 142,066 126,857 122,011
Land and building .................................... 1,376 986 1,001
Capital leases ....................................... 42,328 15,276 15,276
--------- --------- ---------
377,402 311,389 303,549
Accumulated depreciation and amortization ............ (169,907) (143,208) (133,707)
--------- --------- ---------
PROPERTY AND EQUIPMENT, NET ..................... 207,495 168,181 169,842
INVESTMENT IN JOINT VENTURE .............................. 9,679 8,391 8,260
GOODWILL AND TRADENAMES, NET ............................. 45,566 45,895 47,093
OTHER ASSETS ............................................. 25,909 17,983 20,288
--------- --------- ---------
TOTAL ASSETS .................................... $ 744,181 $ 574,427 $ 684,078
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................... $ 164,196 $ 110,312 $ 133,539
Accounts payable to affiliates ....................... 4,532 3,687 7,235
Accrued expenses:
Compensation ..................................... 17,118 6,617 13,524
Taxes ............................................ 22,604 12,925 17,646
Other ............................................ 41,611 25,650 29,643
Current maturities of long-term
obligations .......................................... 460 9,259 32,224
--------- --------- ---------
TOTAL CURRENT LIABILITIES ....................... 250,521 168,450 233,811
LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES ............................................... 144,168 101,447 165,648
DEFERRED INCOME TAXES AND OTHER NONCURRENT
LIABILITIES .............................................. 7,131 3,204 4,460
COMMITMENTS AND CONTINGENCIES ............................ -- -- --
SHAREHOLDERS' EQUITY:
Common shares, without par value;
80,000,000 authorized; issued, including
treasury shares, 32,992,122 shares,
32,637,617 shares, and 32,619,767 shares,
respectively ..................................... 114,733 113,073 112,749
Contributed capital .................................. 17,868 12,083 12,097
Retained earnings .................................... 212,946 179,478 159,222
Deferred compensation expense, net ................... (2,513) (671) (1,080)
Treasury shares, at cost, 87,651, 343,600,
and 368,600, respectively ............................ (673) (2,637) (2,829)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY ...................... 342,361 301,326 280,159
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ............................ $ 744,181 $ 574,427 $ 684,078
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F 2
<PAGE> 37
VALUE CITY DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended January 29, 2000, Twelve Months Ended January 30, 1999 (Unaudited),
Six Months Ended January 30, 1999 and
Years Ended August 1, 1998 and August 2, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR
FOR THE 12 MONTHS FOR
THE YEAR ENDED THE 6 MONTHS FOR THE YEAR ENDED
ENDED 1/30/99 ENDED ---------------------------
1/29/00 (UNAUDITED) 1/30/99 8/1/98 8/2/97
----------- -------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales, excluding sales of
licensed departments ................ $ 1,670,176 $ 1,364,030 $ 780,263 $ 1,161,379 $ 1,073,399
Cost of sales ........................... (1,039,145) (848,964) (483,502) (732,902) (697,822)
----------- ----------- ----------- ----------- -----------
GROSS PROFIT ........................ 631,031 515,066 296,761 428,477 375,577
Selling, general and
administrative expenses ............. (579,460) (480,584) (264,590) (416,218) (385,911)
License fees from affiliates ............ 8,451 11,987 4,880 20,674 17,685
Other operating income .................. 5,620 4,757 3,748 3,988 3,162
----------- ----------- ----------- ----------- -----------
OPERATING PROFIT .................... 65,642 51,226 40,799 36,921 10,513
Interest expense, net ................... (10,728) (10,532) (6,702) (5,267) (5,126)
Gain on disposal of assets, net ......... 146 40 16 1,623 161
Amortization of excess net
assets over cost .................... -- -- -- -- 927
----------- ----------- ----------- ----------- -----------
INCOME BEFORE EQUITY IN INCOME (LOSS)
OF JOINT VENTURE AND PROVISION
FOR INCOME TAXES .................. 55,060 40,734 34,113 33,277 6,475
Equity in income (loss) of joint venture 1,340 (464) 131 (1,377) --
----------- ----------- ----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES .................. 56,400 40,270 34,244 31,900 6,475
Provision for income taxes .............. (22,932) (15,399) (13,988) (11,541) (2,524)
----------- ----------- ----------- ----------- -----------
NET INCOME ........................ $ 33,468 $ 24,871 $ 20,256 $ 20,359 $ 3,951
=========== =========== =========== =========== ===========
BASIC EARNINGS PER SHARE ................ $ 1.03 $ 0.77 $ 0.63 $ 0.64 $ 0.12
=========== =========== =========== =========== ===========
DILUTED EARNINGS PER SHARE .............. $ 1.02 $ 0.76 $ 0.62 $ 0.63 $ 0.12
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F 3
<PAGE> 38
VALUE CITY DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
YearEnded January 29, 2000, Six months
ended January 30, 1999 and the Years
Ended August 1, 1998 and August 2, 1997
(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, AUGUST 2, 1997,
AS PREVIOUSLY REPORTED ........ 32,259 369 $ 110,068 $ 10,728 $ 139,455 $ (982) $ (2,829) $ 256,440
Cumulative effect on
prior years of recognizing
a liability for sales returns (592) (592)
------ ------ --------- --------- --------- --------- --------- ---------
Balance at beginning of year,
as restated ................. 32,259 369 110,068 10,728 138,863 (982) (2,829) 255,848
Net income .................... 20,359 20,359
Exercise of stock options ..... 331 2,681 921 3,602
Tax benefit realized on
vested restricted shares .... 120 120
Grant of restricted shares .... 30 328 (328)
Amortization of deferred
compensation expense ........ 230 230
------ ------ --------- --------- --------- --------- --------- ---------
BALANCE, AUGUST 1, 1998 ......... 32,620 369 112,749 12,097 159,222 (1,080) (2,829) 280,159
Net income .................... 20,256 20,256
Sale of treasury shares ....... (25) 119 192 311
Exercise of stock options ..... 41 324 324
Tax benefit realized on
vested restricted shares .... 145 145
Forfeiture of restricted shares (23) (278) 278
Amortization of deferred
compensation expense ........ 131 131
------ ------ --------- --------- --------- --------- --------- ---------
BALANCE, JANUARY 30, 1999 ....... 32,638 344 113,073 12,083 179,478 (671) (2,637) 301,326
Net income .................... 33,468 33,468
Exercise of stock options ..... 198 1,660 1,660
Tax benefit on stock options
and restricted shares ....... 1,548 1,548
Grant of restricted shares .... 156 2,201 (2,201)
Amortization of deferred ...... 359 359
compensation expense
Acquisitions ................ (256) 2,036 1,964 4,000
------ ------ --------- --------- --------- --------- --------- ---------
BALANCE, JANUARY 29, 2000 ....... 32,992 88 $ 114,733 $ 17,868 $ 212,946 $ (2,513) $ (673) $ 342,361
====== ====== ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F 4
<PAGE> 39
VALUE CITY DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended January 29, 2000, Twelve Months Ended
January 30, 1999 (Unaudited), Six Months Ended January
30, 1999 and Years ended August 1, 1998 and August 2, 1997
(in thousands)
<TABLE>
<CAPTION>
12 MONTHS
YEAR ENDED 6 MONTHS YEAR ENDED
ENDED 1/30/99 ENDED --------------------
1/29/00 (UNAUDITED) 1/30/99 8/1/98 8/2/97
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 33,468 $ 24,871 $ 20,256 $ 20,359 $ 3,951
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ........................ 34,230 31,012 16,299 27,773 29,583
Amortization of excess net assets over cost .......... -- -- -- (927)
Deferred income taxes and other noncurrent liabilities (68) (696) 1,990 (1,920) 232
Equity in (income) loss of joint venture ............. (1,340) 464 (131) 1,377 --
Gain on disposal of assets ........................... (146) (39) (16) (1,623) (161)
Change in working capital, assets and liabilities,
excluding effects of acquisitions:
Receivables ........................................ 4,317 669 (1,490) 1,504 402
Inventories ........................................ (126,284) 11,027 87,146 (39,223) 10,710
Prepaid expenses and other assets .................. (3,178) 2,028 3,808 6,383 (10,511)
Accounts payable ................................... 59,265 (1,425) (26,775) 16,269 2,880
Accrued expenses ................................... 27,263 3,884 (7,908) 12,358 2,584
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................... 27,527 71,795 93,179 43,257 38,743
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................................... (37,317) (36,889) (17,305) (27,165) (46,750)
Investment in joint venture .............................. -- -- -- (9,637) --
Proceeds from sale of assets ............................. 167 60 24 22,388 85
Acquisitions ............................................. (8,000) (108,473) -- (108,473) --
Notes receivable ......................................... -- -- -- 1,906 738
Other assets ............................................. (4,580) (7,301) (963) (6,532) (900)
--------- --------- --------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES ........................ (49,730) (152,603) (18,244) (127,513) (46,827)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares .................. 1,660 2,912 324 2,681 618
Net payments under demand note facility .................. -- -- -- (12,000) (21,000)
Net proceeds from issuance of long-term obligations ...... 15,000 137,225 -- 137,225 50,000
Net principal payments under long-term obligations ....... (9,325) (107,402) (87,166) (22,462) (20,404)
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .......... 7,335 32,735 (86,842) 105,444 9,214
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS .............. (14,868) (48,073) (11,907) 21,188 1,130
CASH AND EQUIVALENTS, BEGINNING OF YEAR ...................... 20,895 68,968 32,802 11,614 10,484
--------- --------- --------- --------- ---------
CASH AND EQUIVALENTS, END OF YEAR ............................ $ 6,027 $ 20,895 $ 20,895 $ 32,802 $ 11,614
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F 5
<PAGE> 40
NOTES TO 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. 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 well as better-branded
off-price shoe stores, under the name "DSW Shoe Warehouse." As of January
29, 2000 a total of 163 stores were open, including 105 Value City stores
located principally in Ohio (23 stores) and Pennsylvania (19 stores) with
the remaining stores dispersed throughout the Midwest, East and South and
58 shoe stores located throughout the United States.
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
On June 10, 1998, the Company determined to change its fiscal year from a
52/53 week year that ends on the Saturday nearest to July 31 to a 52/53
week year that ends on the Saturday nearest to January 31. The six-month
transition period of August 3, 1998 through January 30, 1999 (the
"Transition Period") contains 26 weeks and precedes the start of the new
fiscal year.
An unaudited consolidated statement of income and an unaudited consolidated
statement of cash flows for the twelve months ended January 30, 1999 is
presented for comparative purposes. All necessary adjustments for fair
presentation have been made.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
after elimination of significant intercompany transactions and balances.
CASH AND EQUIVALENTS
Cash and equivalents represent cash and highly liquid investments with
maturities when purchased of three months or less.
INVENTORIES
Merchandise inventories are stated at the lower of cost or market using the
retail method.
PRE-OPENING EXPENSES
Effective August 1998, pre-opening expenses are expensed as incurred. In
prior periods, pre-opening costs were charged to operations ratably over
the first twelve months of a new store's operations. Pre-opening costs
expensed were $7,563,000, $1,308,000, $1,434,000 and $6,943,000 for fiscal
1999, the Transition Period and for fiscal years 1998 and 1997,
respectively.
INVESTMENT IN JOINT VENTURE
VCM, Ltd. ("VCM") operates the health and beauty care and toy and sporting
goods departments in the Company's stores as licensed departments. VCM is a
50/50 joint venture with Mazel Stores, Inc.
F 6
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
("Mazel"). The Company accounts for its fifty percent interest in the joint
venture under the equity method. (See Note 3, Related Party Transactions.)
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:
<TABLE>
<S> <C>
Buildings 31 years
Furniture, fixtures and equipment 3 to 10 years
Leasehold improvements 10 years
</TABLE>
LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that full
recoverability is questionable.
GOODWILL AND TRADENAMES
Goodwill represents the excess cost over the estimated fair values of net
assets and identifiable intangible assets of businesses acquired and is
being amortized over 15 years. Tradenames represent the values assigned to
names that the Company acquired and is being amortized over 15 years. The
accumulated amortization for these assets was $5,631,000, $2,294,000 and
$766,000 at January 29, 2000, January 30, 1999 and August 1, 1998,
respectively.
REVENUE RECOGNITION
Sales of merchandise and services are net of returns and allowances and
exclude sales tax. Layaway sales are recognized when the merchandise has
been paid for in full. In fiscal 1999, the Company began accruing sales
returns in accordance with generally accepted accounting principles.
Accordingly, the cumulative effect of this adjustment on prior periods was
recorded as an increase in current liabilities and a corresponding decrease
in retained earnings of $592,000 as of February 1, 1997. Because the
effects of this change are insignificant to the 1997 and 1998 fiscal years,
the Company has recorded such amounts in the current year. The impact of
recording this change in fiscal 1999 is an increase in net income of
$136,000. Previously sales returns were expensed as incurred which did not
materially differ from the method adopted in the current year.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. During fiscal year 1999,
the Transition Period and during fiscal years 1998 and 1997, advertising
expense was $59,194,000, $29,741,000, $38,245,000 and $39,005,000,
respectively.
INTEREST RATE SWAP AGREEMENT
The Company utilizes an interest rate swap agreement to manage the interest
rate risk associated with a portion of its borrowings. The counterparty to
this instrument is a major financial institution. This agreement is used to
reduce the potential impact of increases in interest rates on variable rate
long-term debt. The differential to be paid or received is accrued as
interest rates change and is recognized as an adjustment to interest
expense.
F 7
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EARNINGS PER SHARE
Basic earnings per share is based on a simple weighted average of common
shares outstanding. Diluted earnings per share reflects the potential
dilution of common shares, related to outstanding stock options, calculated
using the treasury stock method. The numerator for the calculation of basic
and diluted earnings per share is net income. The denominator is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
6 MONTHS YEAR
YEAR ENDED ENDED YEAR ENDED ENDED
1/29/00 1/30/99 8/1/98 8/2/97
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 32,495 32,285 31,997 31,740
Assumed exercise of dilutive stock
options ........................ 366 350 364 277
------ ------ ------ ------
Number of shares for computation of
diluted earnings per share ..... 32,861 32,635 32,361 32,017
====== ====== ====== ======
</TABLE>
Options to purchase 16,000 shares of stock at prices ranging from $16.56 to
$21.44 per share were outstanding during the year ended January 29, 2000
but were not included in the computation of diluted earnings per share
because the options' exercise prices were greater than the average market
price of the stock.
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,
actual results could differ from these estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement is required to be
adopted in years beginning after June 15, 2000. The Company is currently
evaluating the effect this statement might have on the consolidated
financial position and results of operations of the Company.
F 8
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS
The Company purchases merchandise from and sells merchandise to affiliates
of Schottenstein Stores Corporation ("SSC"), direct owner of approximately
55.3% of the Company's common shares, and VCM. The related party
transactions are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED 6 MONTHS ENDED YEAR ENDED YEAR ENDED
1/29/00 1/30/99 8/1/98 8/2/97
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Purchases of merchandise
from affiliates ...................... $7,228 $1,471 $4,898 $4,477
Merchandise sold to affiliates at cost,
including handling charges ........... -- -- 333 12
Merchandise purchased on behalf of
and shipped directly to affiliates, at
cost plus delivery charges ........... -- -- 3,935 4
</TABLE>
The Company had license agreements with Shonac prior to its acquisition.
The license agreement was for the operation of shoe departments in all of
the Company's stores and provided for fees based on a percentage of sales,
as defined.
Prior to fiscal 1998, L.F. Widmann, Inc. ("Widmann"), a related party as a
result of significant ownership by SSC, operated the health and beauty care
departments in the Company's stores as licensed departments. In July 1997,
the Company entered into agreements to create VCM. An asset and stock
purchase agreement along with an operating agreement were signed on July
14, 1997 pursuant to which VCM would purchase 100% of Widmann's capital
stock and purchase the inventory and other assets of the Company's owned
toys and sporting goods departments. These transactions were completed in
August 1997. VCM operates the health and beauty care and toys and sporting
goods departments in the Company's stores as licensed departments. The
license and operating agreements are for a term of ten years ending in
fiscal 2007 and contain certain provisions whereby either business partner
can initiate renegotiation of terms if certain minimum requirements are not
met. All license agreements provide for fees based on percentages of sales,
as defined.
F 9
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Sales by licensed departments and the related license fees earned are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED 6 MONTHS ENDED YEAR ENDED YEAR ENDED
1/29/00 1/30/99 8/1/98 8/2/97
---------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
VCM
Sales ...... $112,333 $ 63,480 $ 87,651 --
License fees 8,451 4,880 7,540 --
Widmann
Sales ...... -- -- -- $ 38,198
License fees -- -- -- 1,841
Shonac
Sales ...... -- -- $119,319 $144,035
License fees -- -- 13,134 15,844
</TABLE>
Prior to the May 1998 acquisition of the operations of Valley Fair
Corporation ("Valley Fair"), the Company operated apparel, houseware and
domestic departments in the two stores owned by Valley Fair, a related
party, under a license agreement and paid a license fee of 11% of sales
against an aggregate minimum license fee of $733,000 per annum.
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 $9,564,000, $4,001,000, $7,265,000 and $6,101,000 in fiscal years
1999, the Transition Period, 1998, and 1997, respectively, for such
coverage.
During the Transition Period and fiscal years 1998, and 1997, the Company
contributed $1,120,000 each period to a private charitable foundation
controlled by the Schottenstein family. The fiscal 1999 contribution was
made in March 2000 by utilizing 80,000 common shares of the Company held in
Treasury.
F 10
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LEASES
The Company operates stores and warehouses under various arrangements with
related and unrelated parties. Such leases expire through 2019 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 a Master Lease Agreement, as amended, the Company leases
five store locations owned by SSC for an annual minimum rent of $1,314,000
and additional contingent rents based on aggregate sales in excess of
specified sales levels for the store locations. The Company also leased or
subleased from SSC and affiliates fourteen store locations, three warehouse
facilities and a parcel of land for specified minimum rentals, plus
contingent rents based on sales in excess of specified sales levels for the
store locations. 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.
On August 12, 1997, seventeen related party leases (thirteen stores and
four other facilities) were renegotiated and became unrelated party leases
pursuant to a sale-leaseback transaction between SSC and a third party. All
of the new leases for the thirteen stores covered by the SSC sale-leaseback
transaction eliminated percentage rents and provided for increased fixed
rents for an initial twenty year term.
The Company incurred new capital lease obligations, including one with a
related party, aggregating $27,100,000 and $9,400,000 in 1999 and 1997,
respectively, to obtain store facilities. The total cost of capital leases
at January 29, 2000, January 30, 1999, and August 1, 1998 were $42,328,000,
$15,276,000 and $15,276,000, respectively. Assets held under capital leases
are amortized over the terms of the related leases. The accumulated
amortization for these assets was $1,988,000, $1,299,000 and $1,017,000 at
January 29, 2000, January 30, 1999 and August 1, 1998, respectively.
Future minimum lease payments required under the aforementioned leases,
exclusive of real estate taxes, insurance and maintenance costs, at January
29, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING LEASES
FISCAL -----------------------------------------
YEAR UNRELATED RELATED CAPITAL
ENDING TOTAL PARTY PARTY LEASES
------ ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
2001 .................................................... $ 73,070 $ 64,035 $ 9,035 $ 3,709
2002 .................................................... 68,297 59,995 8,302 3,709
2003 .................................................... 62,633 55,350 7,283 3,826
2004 .................................................... 57,601 50,621 6,980 3,826
2005 .................................................... 53,063 46,272 6,791 3,826
Future Years ............................................ 379,034 312,155 66,879 70,451
---------
Total minimum lease payments .......... 89,347
Less amount representing interest ..... (52,305)
---------
Present value of minimum lease payments 37,042
Less current portion ........ (250)
---------
Total long-term portion ........ $ 36,792
=========
</TABLE>
F 11
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The composition of rental expense (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED 6 MONTHS ENDED YEAR ENDED YEAR ENDED
1/29/00 1/30/99 8/1/98 8/2/97
---------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Minimum rentals:
Unrelated parties $47,562 $20,421 $27,618 $14,878
Related parties . 8,361 4,093 8,307 15,043
Contingent rentals:
Unrelated parties 5,648 1,585 2,681 2,469
Related parties . 2,289 357 1,556 2,366
------- ------- ------- -------
Total ........... $63,860 $26,456 $40,162 $34,756
======= ======= ======= =======
</TABLE>
Many of the Company's leases contain fixed escalations of the minimum
annual lease payments during the original term of the lease. For these
leases, the Company recognizes rental expense on a straight- line basis and
records the difference between the average rental amount charged to expense
and the amount payable under the lease as deferred rent. At the end of
fiscal 1999, the Transition Period and fiscal year 1998 the balance of
deferred rent was $3,863,000, $2,560,000 and $2,124,000, respectively, and
is included in other noncurrent liabilities.
5. LONG-TERM OBLIGATIONS AND NOTES PAYABLE
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
1/29/00 1/30/99 8/1/98
--------- --------- ---------
<S> <C> <C> <C>
Senior unsecured notes .. $ 36,571 $ 45,714 $ 47,857
Credit facility ......... 70,000 55,000 140,000
Capital lease obligations 37,042 9,992 10,015
Other ................... 1,015 -- --
--------- --------- ---------
144,628 110,706 197,872
Less current maturities . (460) (9,259) (32,224)
--------- --------- ---------
$ 144,168 $ 101,447 $ 165,648
========= ========= =========
</TABLE>
During 1997, the Company completed a private placement for $50.0 million of
senior unsecured notes. The proceeds were used to repay demand notes
payable. The senior unsecured notes required payments of $9,143,000
annually beginning December 1999 and were retired in conjunction with the
Company's renegotiation of its credit facilities on March 17, 2000.
In conjunction with the acquisition of Shonac and Valley Fair, the Company
replaced its $100.0 million credit facility and Shonac's $30.0 million
facility with a $185.0 million three-year unsecured revolving bank credit
facility. The facility generally bears interest at a floating rate of LIBOR
plus 150 basis points. The interest rate on $40.0 million has been locked
in at a fixed annual rate of 7.395% for a
F 12
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
three year period ending on May 1, 2001 under a swap agreement. The fair
market value of the swap agreement at January 29, 2000, January 30, 1999
and August 1, 1998 was $402,000, $(797,000) and $(218,000), respectively.
At January 29, 2000, direct borrowings aggregated $70.0 million and $21.1
million of letters of credit were issued and outstanding for merchandise
under the credit facility. The weighted average interest rate on borrowings
under the Company's credit facilities during fiscal year 1999, the
Transition Period and the fiscal years 1998 and 1997 was 8.8%, 8.3%, 8.56%
and 7.11%, respectively. During the Transition Period, underwriting fees,
unused commitment fees and rate swap costs for the new credit facility
increased the effective weighted average interest rate by 1.1%. The terms
of the credit facility require the Company to comply with certain
restrictive covenants and financial ratio tests, including minimum tangible
net worth; a maximum consolidated debt to earnings before interest, taxes,
depreciation and amortization ratio; a minimum fixed charge coverage ratio;
and, limitations on dividends, additional incurrence of debt and capital
expenditures.
On March 17, 2000, the Company renegotiated its credit facility and
replaced the existing facility with a $300 million Amended and Restated
Credit Agreement, dated as of March 15, 2000 (the "New Bank Facility"). It
has a three year term ending March 15, 2003 and replaced a $167.5 million
facility that would have matured in May 2001. The New Bank Facility is
secured only by a pledge of the stock of Base Acquisition and the Filene's
assets acquired. See Note 11. It provides for various borrowing rates,
currently equal to 200 basis points over LIBOR.
On March 17, 2000, the Company also closed a $75.0 million Senior
Subordinated Convertible Loan Agreement, dated as of March 15, 2000 (the
"Senior Facility") with Prudential Securities Credit Corporation
("Prudential"), as lender. The Senior Facility also bears interest at
various rates, currently equal to 250 basis points over LIBOR. The interest
rate increases an additional 50 basis points every 90 days after the first
anniversary date. The Senior Facility is due in September 2003. However, if
the Company has not repaid the Senior Facility prior to March 17, 2001,
from the proceeds of an equity offering or other subordinated debt
acceptable to the lenders under the New Bank Facility, then after that date
Prudential has the right to convert the debt into stock of the Company at a
price equal to 95% of the 20-day average of high and low sales prices
reported on the New York Stock Exchange at the time of conversion. After
that date, Prudential also has the right to require Schottenstein Stores
Corporation ("SSC"), the owner of a majority of the Company's outstanding
stock, to purchase the Senior Facility at par plus accrued interest,
pursuant to the terms of a Put Agreement, dated as of March 15, 2000
between Prudential and SSC. The Company paid SSC a one time fee of 200
basis points, or $1.5 million, at closing in consideration for entering
into the Put Agreement.
Both the New Bank Facility and the Senior Facility contain customary,
affirmative and negative covenants, including certain financial covenants.
In addition, the Company has provided an unconditional guarantee of 50% of
amounts outstanding on VCM's $25.0 million revolving line of credit. At
January 29, 2000, January 30, 1999 and August 1, 1998, the aggregate
amounts guaranteed were $2.4 million, $3.8 million and $8.6 million,
respectively.
The book value of notes payable and long-term debt approximates fair value
at January 29, 2000.
F 13
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BENEFIT PLANS
The Company participates in the SSC sponsored 401(k) savings plan (the
"401(k) Plan"). Employees who attained twenty and one-half years of age and
completed one year of service could contribute up to fifteen percent of
their salaries to the 401(k) Plan on a pre-tax basis, subject to IRS
limitations. The Company matched up to three percent of participants'
eligible compensation. Effective as of April 1, 1999 employees who work 20
or more hours per week are eligible to participate in the 401K Plan after
60 days of service, with the Company matching contributions beginning after
one full year of service. Employees who work less than 20 hours per week
continue to participate under the pre-April 1999 rules. Additionally, the
Company has contributed a discretionary profit sharing amount to the 401(k)
Plan each year. The Company incurred costs associated with the 401(k) Plan
of $4,696,000, $1,591,000, $3,907,000 and $3,540,000 for fiscal year 1999,
the Transition Period and for fiscal years 1998 and 1997, respectively. In
1998 the Company recognized the benefit of approximately $1,639,000 of
forfeitures attributable to employer contributions pursuant to an amendment
to the plan.
The Company provides 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 all fiscal periods presented are not
material to the consolidated financial statements.
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.
Certain employees of the Company participate in the Schottenstein Stores
Corporation Deferred Compensation Plan which is a non-qualified, pre-tax,
income deferral plan. The cost of the plan is not material to the
consolidated financial statements.
7. SHAREHOLDERS' EQUITY
During fiscal years 1999 and 1997, the Company issued common shares to
certain key employees pursuant to individual employment agreements. The
agreements and grants were approved by the Board of Directors and each
consists of a one time grant of restricted shares. As a result, the Company
recorded the market value of the shares at the date of grant of $2,201,000
and $328,000 in 1999 and 1998, respectively, as deferred compensation
expense. The agreements condition the vesting of the shares upon continued
employment with the Company with such restrictions expiring as to 20% of
the shares on each of the five anniversary dates of the grants. Deferred
compensation is charged to income on a straight-line basis over the period
during which the restrictions lapse.
8. STOCK OPTION PLANS
The Company has a Non-employee Director Stock Option Plan (the
"Non-employee Director Plan") which provides for the issuance of options to
purchase up to 130,000 common shares. One option to
F 14
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purchase 1,000 common shares is automatically granted to each non-employee
director on the first New York Stock Exchange ("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
option-holders' service as directors of the Company.
The Company has a 1991 Stock Option Plan which provides for the grant of
options to purchase up to 3,000,000 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.
The following table summarizes the Company's stock option plans and related
Weighted Average Exercise Prices ("WAEP") (shares in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
FISCAL YEAR ENDED 6 MONTHS ENDED ----------------------------------
1/29/00 1/30/99 8/1/98 8/ 2/97
---------------- ----------------- ---------------- ---------------
SHARES WAEP SHARES WAEP SHARES WAEP SHARES WAEP
------ ------- ------ -------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year .... 2,296 $ 9.31 2,331 $ 9.27 2,398 $ 8.90 1,603 $ 7.91
Granted .......................... 526 9.56 48 11.56 357 10.71 1,043 10.26
Exercised ........................ (201) 8.14 (41) 8.05 (331) 8.12 (80) 7.69
Canceled ......................... (161) 9.07 (42) 11.08 (93) 9.40 (168) 8.44
----- ----- ----- -----
Outstanding end of year .......... 2,460 10.12 2,296 9.31 2,331 9.27 2,398 8.90
===== ===== ===== =====
Options exercisable end of year .. 1,171 $ 9.08 1,028 $ 8.77 885 $ 8.61 808 $ 8.22
===== ===== ===== =====
Shares available for additional
grants ........................... 443 310 316 80
===== ===== ===== =====
</TABLE>
The following table summarizes information about stock options outstanding
as of January 29, 2000 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE EXERCISE
PRICES SHARES CONTRACT LIFE PRICE SHARES PRICE
--------- -------- ------------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
$5.87-
$7.94 190 6 yrs $ 6.98 114 $ 6.92
$8.06-
$11.78 1,606 6 yrs $ 8.79 915 $ 8.45
$13.25-
$21.44 664 9 yrs $ 14.23 142 $ 14.82
</TABLE>
F 15
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and accordingly has elected to
retain the intrinsic value method of accounting for stock- based
compensation. Had the compensation cost for the Company's stock-option
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the methods of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED 6 MONTHS ENDED YEAR ENDED YEAR ENDED
1/29/00 1/30/99 8/1/98 8/2/97
----------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Net income:
As reported ......... $ 33,468 $ 20,256 $ 20,359 $ 3,951
Pro forma ........... $ 31,877 $ 19,519 $ 18,817 $ 3,373
Basic earnings per share:
As reported ......... $ 1.03 $ 0.63 $ 0.64 $ 0.12
Pro forma ........... $ 0.98 $ 0.61 $ 0.59 $ 0.11
Diluted earnings per share
As reported ......... $ 1.02 $ 0.62 $ 0.63 $ 0.12
Pro forma ........... $ 0.97 $ 0.60 $ 0.58 $ 0.11
</TABLE>
To determine the pro forma amounts, the fair value of each stock option has
been estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants in
the fiscal year 1999, Transition Period, and fiscal 1998 and 1997,
respectively: expected volatility of 48.9%, 67.8%, 38.6% and 37.6%;
dividend yield of 0%; risk-free interest rates of 6.7%, 4.9%, 5.6% and
6.3%; and, expected lives of 6.8, 5.8, 5.1 and 6.5 years. The weighted
average fair value of options granted in the fiscal year 1999, Transition
Period and in fiscal year 1998 was $7.25, $7.43 and $6.17, respectively.
Consistent with SFAS No. 123, pro-forma net income and earnings per share
have not been calculated for options granted prior to July 30, 1995. Pro
forma disclosures may not be representative of that to be expected in
future years.
9. 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.
F 16
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED 6 MONTHS ENDED YEAR ENDED YEAR ENDED
1/29/00 1/30/99 8/1/98 8/2/97
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal ........ $ 22,852 $ 10,323 $ 12,174 $ 2,417
State and local 4,071 2,510 1,912 699
-------- -------- -------- --------
26,923 12,833 14,086 3,116
-------- -------- -------- --------
Deferred:
Federal ........ (3,492) 1,015 (2,227) (533)
State and local (499) 140 (318) (59)
-------- -------- -------- --------
(3,991) 1,155 (2,545) (592)
-------- -------- -------- --------
Income tax expense $ 22,932 $ 13,988 $ 11,541 $ 2,524
======== ======== ======== ========
</TABLE>
The provision (benefit) for deferred income taxes includes the following
amounts (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED 6 MONTHS ENDED YEAR ENDED YEAR ENDED
1/29/00 1/30/99 8/1/98 8/2/97
---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Type of temporary differences:
Basis differences in inventory $(4,707) $ 2,778 $ (586) $ (950)
Depreciation ................. (142) (1,376) (1,003) 186
Deferred bonus ............... (168) 1,107 (1,030) 288
Other ........................ 1,026 (1,354) 74 (116)
------- ------- ------- -------
$(3,991) $ 1,155 $(2,545) $ (592)
======= ======= ======= =======
</TABLE>
A reconciliation of the expected income taxes based upon the statutory
federal rate are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED 6 MONTHS ENDED YEAR ENDED YEAR ENDED
1/29/00 1/30/99 8/1/98 8/2/97
---------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Income tax expense at
federal statutory rate ..... $ 19,740 $ 11,986 $ 11,165 $ 2,266
Jobs credit ................... (712) (235) (164) (59)
State and local taxes, net .... 2,843 1,753 1,548 161
Resolution of income tax issues (269) -- (1,410) --
Non-deductible goodwill ....... 1,080 388 273 --
Other ......................... 250 96 129 156
-------- -------- -------- --------
$ 22,932 $ 13,988 $ 11,541 $ 2,524
======== ======== ======== ========
</TABLE>
F 17
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the net deferred tax asset as of January 29, 2000,
January 30, 1999 and August 1, 1998 are (in thousands):
<TABLE>
<CAPTION>
1/29/00 1/30/99 8/1/98
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Basis differences in inventory ........ $ 15,565 $ 10,481 $ 14,320
Basis differences in fixed assets ..... 2,416 2,409 2,333
State and local taxes ................. 1,085 1,578 1,096
Deferred compensation ................. 39 289 281
Amortization of lease acquisition costs 1,415 2,575 2,434
Other ................................. 4,362 3,008 3,942
-------- -------- --------
24,882 20,340 24,406
-------- -------- --------
Deferred tax liabilities:
Depreciation .......................... (5,730) (4,249) (5,957)
Capital leases ........................ (2,173) (2,120) (1,723)
Other ................................. -- (174) (1,374)
-------- -------- --------
(7,903) (6,543) (9,054)
-------- -------- --------
Total net ................................ $ 16,979 $ 13,797 $ 15,352
======== ======== ========
</TABLE>
F 18
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net deferred tax asset is recorded in the Company's consolidated
balance sheet as follows (in thousands):
<TABLE>
<CAPTION>
6 MONTHS
ENDED
1/29/00 1/30/99 8/1/98
-------- -------- --------
<S> <C> <C> <C>
Current deferred tax asset ....... $ 18,052 $ 14,441 $ 17,687
Non-current deferred tax liability (1,073) (644) (2,335)
-------- -------- --------
Net deferred tax asset ........... $ 16,979 $ 13,797 $ 15,352
======== ======== ========
</TABLE>
11. ACQUISITIONS
Effective May 3, 1998, the Company purchased 99.9% of the common stock of
Shonac from Nacht Management, Inc. and SSC. SSC owned approximately 60% of
the Company's outstanding common shares at the time of the acquisition. The
Company also acquired the store operations of Valley Fair from SSC. Shonac
had operated, as licensee, the shoe departments in the Company's department
stores since Shonac's inception in 1969. Shonac also operated a chain of
retail shoe outlets located throughout the United States, principally under
the name DSW Shoe Warehouse. Valley Fair operated two department stores
located in Irvington and Little Ferry, New Jersey. The Company had been a
licensee of certain departments in these two stores for 18 years. The
negotiated purchase price for Shonac and Valley Fair was $108,473,000. The
acquisitions were funded by cash provided by operations and approximately
$88,000,000 of borrowings.
The acquisitions have been accounted for using the purchase method of
accounting and accordingly, the purchase price has been allocated to the
net assets and identifiable intangible assets acquired based upon their
estimated fair values at the date of acquisition. The aggregate amount of
goodwill recorded was $35,218,000.
The operating results of Shonac and Valley Fair have been included in the
consolidated results of the Company from the date of acquisition. The
following unaudited pro forma consolidated financial results for the fiscal
years ended August 1, 1998 and August 2, 1997 are presented as if the
acquisitions had taken place at the beginning of the applicable periods (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net Sales ................ $ 1,408,800 $ 1,345,986
Net Income ............... $ 22,427 $ 7,749
Basic earnings per share . $ 0.70 $ 0.24
Diluted earnings per share $ 0.69 $ 0.24
</TABLE>
F 19
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On November 19, 1999, the Company purchased 100% of the common stock of
Gramex Retail Stores, Inc. ("Gramex") from Gramex Corporation pursuant to a
Stock Purchase Agreement, dated as of November 8, 1999. Gramex operated a
chain of fifteen discount stores under the name "Grandpa's" in the greater
St. Louis metropolitan area.
The purchase price for Gramex was $13.1 million including cash of $8.0
million, 255,949 shares of the Company's common stock with an agreed value
of $4.0 million and an unsecured, 5-year note of $1.1 million. In
conjunction with the acquisition, the Company satisfied approximately $37
million of Gramex bank debt at closing and assumed certain trade payable
and other obligations which were satisfied from the proceeds from
liquidation of inventory and certain other assets. The transaction was
funded by cash from operations and a $25 million 180 day bank loan bearing
interest at 8.0925%. The acquisition was accounted for as a purchase.
Allocation of the purchase price was based on fair market valuation of the
net assets acquired.
Of the 15 stores acquired and after liquidation of the existing Grandpa's
inventory, 13 stores were converted to the Value City format. Six stores
received only minor improvements and were reopened in March 2000. Seven
stores were remodeled based on the current Value City format and were
reopened in April 2000. The lease for one store with terms consistent with
current market conditions is located near an existing store in St. Louis.
This location was assigned without payment of additional consideration to
the Value City Furniture Division of SSC after completion of liquidation of
the store inventory and fixtures.
On March 17, 2000, the Company completed through its wholly owned
subsidiary, Base Acquisition Corp. ("Base Acquisition"), the acquisition of
substantially all of the assets and assumed certain liabilities of Filene's
Basement Corp., a Massachusetts corporation, and Filene's Basement, Inc., a
wholly owned subsidiary of Filene's Basement Corp. (collectively,
"Filene's") pursuant to the closing of an asset purchase agreement, dated
February 2, 2000.
The purchase price included cash of $3.5 million paid at closing, $6
million to be paid in three equal annual installments, 403,208 shares of
the Company's common stock with an agreed value of $5.5 million and the
assumption of specified liabilities. The assumed liabilities included the
payment of amounts outstanding under Filene's debtor-in-possession
financing facility of approximately $30.6 million and certain trade payable
and other obligations which will be paid in the ordinary course. The
acquisition will be accounted for as a purchase. Allocation of the purchase
price will be determined based on fair market valuation of the net assets
acquired.
The acquisition was funded by cash from operations and a portion of the
proceeds from the New Bank Facility. See Note 5 for further discussion.
The operating results of Grandpa's have been included in the consolidated
results of the Company from the date of acquisition. The following
unaudited pro forma consolidated financial results for the fiscal
F 20
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
years ended January 29, 2000, six months ended January 30, 1999 and fiscal
year ended August 1, 1998 are presented as if the acquisitions had taken
place at the beginning of the applicable periods. The pro forma results are
not indicative of results of operations in future or in the periods
presented below. Included in the proforma results are the adjustments to
depreciation and amortization based on the purchase price allocation, the
effects of the issuance of additional common shares and interest on
acquisition related borrowings (in thousands, except per share amounts):
<TABLE>
<CAPTION>
6 MONTHS
ENDED
1/29/00 1/30/99 8/1/98
-------------- ------------- ---------------
<S> <C> <C> <C>
Net Sales ................ $ 1,818,008 $ 879,864 $ 1,326,289
Net Income ............... $ 31,799 $ 24,203 $ 22,051
Basic earnings per share . $ 0.98 $ 0.74 $ 0.68
Diluted earnings per share $ 0.97 $ 0.74 $ 0.68
</TABLE>
12. SEGMENT REPORTING
The Company has adopted FASB Statement No. 131, "Disclosure about Segments
of a Business Enterprise and Related Information." The Company is managed
in two operating segments: Value City Department Stores and DSW Stores. All
of the operations are located in the United States. The Company has
identified such segments based on the management responsibility and
measures segment profit as operating profit which is defined as income
before interest expense and income taxes. Corporate assets include goodwill
and loan costs related to the Shonac acquisition. Prior to the acquisition
of Shonac effective May 3, 1998, the Company was managed as one operating
segment.
YEAR ENDED JANUARY 29, 2000 (IN THOUSANDS):
<TABLE>
<CAPTION>
VALUE CITY DSW CORPORATE TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales ................... $1,423,581 $ 246,595 -- $1,670,176
Operating profit ............ 57,982 7,660 -- 65,642
Identifiable assets ......... 656,758 56,893 $ 30,530 744,181
Capital expenditures ........ 32,293 5,024 -- 37,317
Depreciation and amortization 28,309 2,216 3,706 34,231
</TABLE>
F 21
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTH PERIOD ENDED JANUARY 30, 1999 (IN THOUSANDS):
<TABLE>
<CAPTION>
VALUE CITY DSW CORPORATE TOTAL
----------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ................... $688,103 $ 92,160 -- $780,263
Operating profit ............ 35,380 5,419 -- 40,799
Identifiable assets ......... 486,242 54,473 $ 33,712 574,427
Capital expenditures ........ 16,377 928 -- 17,305
Depreciation and amortization 13,655 942 1,702 16,299
</TABLE>
YEAR ENDED AUGUST 1, 1998 (IN THOUSANDS):
<TABLE>
<CAPTION>
VALUE CITY DSW CORPORATE TOTAL
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net sales ................... $1,113,894 $ 47,485 -- $1,161,379
Operating profit ............ 35,173 1,748 -- 36,921
Identifiable assets ......... 608,185 39,556 $ 36,337 684,078
Capital expenditures ........ 26,501 664 -- 27,165
Depreciation and amortization 24,641 444 2,688 27,773
</TABLE>
The following sets forth sales by each major merchandise category (in
thousands):
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS FISCAL YEAR ENDED
ENDED ENDED -------------------------
1/30/00 1/30/99 8/1/98 8/2/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Apparel and ready to wear ..... $1,117,885 $ 529,401 $ 853,458 $ 772,853
Hard goods and home furnishings 305,694 158,702 260,436 300,546
DSW Stores .................... 246,597 92,160 47,485 --
---------- ---------- ---------- ----------
Total ................ $1,670,176 $ 780,263 $1,161,379 $1,073,399
========== ========== ========== ==========
</TABLE>
F 22
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
FISCAL YEAR ENDED JANUARY 30, 2000
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
05/01/99 7/31/99 10/30/99 01/29/00(1)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ......................... $ 344,481 $ 372,812 $ 441,281 $ 511,602
Cost of sales ..................... (214,859) (232,543) (272,109) (319,634)
--------- --------- --------- ---------
GROSS PROFIT .................. 129,622 140,269 169,172 191,968
Selling, general and
administrative expenses ....... (126,820) (133,731) (155,558) (163,351)
License fees ...................... 1,523 1,832 1,640 3,456
Other operating income ............ 933 1,097 1,372 2,218
--------- --------- --------- ---------
OPERATING PROFIT .............. 5,258 9,467 16,626 34,291
Interest expense, net ............. (2,480) (2,424) (3,288) (2,536)
Gain on sale of assets, net ....... 13 34 32 67
--------- --------- --------- ---------
INCOME BEFORE EQUITY IN INCOME
(LOSS) OF JOINT VENTURE AND
PROVISION FOR INCOME TAXES 2,791 7,077 13,370 31,822
Equity in income (loss) of
joint venture ................. (111) (245) (168) 1,864
--------- --------- --------- ---------
INCOME BEFORE PROVISION
FOR INCOME TAXES .............. 2,680 6,832 13,202 33,686
Provision for income taxes ........ (1,118) (2,870) (5,504) (13,440)
--------- --------- --------- ---------
NET INCOME .................... $ 1,562 $ 3,962 $ 7,698 $ 20,246
========= ========= ========= =========
BASIC EARNINGS PER SHARE .......... $ 0.05 $ 0.12 $ 0.24 $ 0.62
========= ========= ========= =========
DILUTED EARNINGS PER SHARE ........ $ 0.05 $ 0.12 $ 0.23 $ 0.61
========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED JANUARY 30, 1999
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR.
10/31/98 1/30/99(1)
--------- ---------
<S> <C> <C>
Net sales ......................... $ 356,755 $ 423,508
Cost of sales ..................... (219,575) (263,927)
--------- ---------
GROSS PROFIT .................. 137,180 159,581
Selling, general and
administrative expenses ....... (129,172) (135,418)
License fees and other
operating income .............. 3,417 5,211
--------- ---------
OPERATING PROFIT .............. 11,425 29,374
Interest expense, net ............. (3,557) (3,145)
Gain on sale of assets, net ....... 3 13
--------- ---------
INCOME BEFORE EQUITY IN INCOME
(LOSS) OF JOINT VENTURE AND
PROVISION FOR INCOME TAXES 7,871 26,242
Equity in income (loss)
of joint venture .............. (1,113) 1,244
--------- ---------
INCOME BEFORE PROVISION
FOR INCOME TAXES .............. 6,758 27,486
Provision for income taxes ........ (2,740) (11,248)
--------- ---------
NET INCOME .................... $ 4,018 $ 16,238
========= =========
BASIC EARNINGS PER SHARE ......... $ 0.12 $ 0.51
========= =========
DILUTED EARNINGS PER SHARE ........ $ 0.12 $ 0.50
========= =========
</TABLE>
F 23
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEAR ENDED AUGUST 1, 1998
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
11/1/97 1/31/98 5/2/98 8/1/98(2)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ........................ $ 264,385 $ 313,227 $ 244,789 $ 338,978
Cost of sales .................... (166,955) (200,486) (154,475) (210,986)
--------- --------- --------- ---------
GROSS PROFIT ..................... 97,430 112,741 90,314 127,992
Selling, general and
administrative expenses ...... (97,764) (101,232) (93,028) (124,194)
License fees and other
operating income ............. 7,089 8,232 6,268 3,073
--------- --------- --------- ---------
OPERATING PROFIT ............. 6,755 19,741 3,554 6,871
Interest expense, net ............ (1,049) (391) (556) (3,271)
Gain on sale of assets, net ...... 852 748 5 18
--------- --------- --------- ---------
INCOME BEFORE EQUITY IN LOSS
OF JOINT VENTURE AND
PROVISION FOR INCOME TAXES 6,558 20,098 3,003 3,618
Equity in loss of
joint venture ................ (1,109) 327 (136) (459)
--------- --------- --------- ---------
INCOME BEFORE PROVISION
FOR INCOME TAXES ............. 5,449 20,425 2,867 3,159
Provision for income taxes ....... (2,171) (7,960) (1,178) (232)
--------- --------- --------- ---------
NET INCOME ................... $ 3,278 $ 12,465 $ 1,689 $ 2,927
========= ========= ========= =========
BASIC EARNINGS PER SHARE ......... $ 0.10 $ 0.39 $ 0.05 $ 0.10
========= ========= ========= =========
DILUTED EARNINGS PER SHARE ....... $ 0.10 $ 0.39 $ 0.05 $ 0.09
========= ========= ========= =========
</TABLE>
(1) The results of operations for the quarters ended 1/29/00, 1/30/99 and
1/31/98 include reductions of $3.1 million, $1.8 million and $1.5 million,
respectively, to cost of sales representing the annual book to physical
adjustment for the physical inventory completed in the respective quarters.
(2) The provision for income taxes for the quarter ended August 1, 1998
includes reductions of approximately $1.4 million relating to the
resolution of federal and state income tax issues.
14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED 6 MONTHS ENDED YEAR ENDED YEAR ENDED
1/29/00 1/30/99 8/1/98 8/2/97
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Cash paid during the year for:
Interest ................. $11,756 $ 7,586 $ 5,911 $ 5,700
======= ======= ======= =======
Income taxes ............. $17,101 $15,465 $ 9,018 $10,365
======= ======= ======= =======
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
In December 1998, the Company exchanged 25,000 of its treasury shares with
a fair market value of $311,000 for the right to acquire several leases.
During 1999 and 1997 the Company incurred capital lease obligations to
obtain new store facilities. Non-cash amounts of $27,100,000 and $6,155,000
were capitalized as of January 29, 2000 and August 2, 1997, respectively
under the captions of property and equipment and long-term obligations in
relation to these leases.
Amounts of $756,000, $490,000 and $2,126,000 were recorded under the
captions of property and equipment and accounts payable for real estate
improvements and construction at new stores as of January 29, 2000, January
30, 1999 and August 1, 1998, respectively.
In November 1999, the Company exchanged 255,959 of its treasury shares with
a fair market value of $4.0 million as part of its acquisition of Gramex.
See Note 11.
F 24
<PAGE> 59
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 CHARGES TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) OF PERIOD
----------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Allowance deducted from asset
to which it applies:
Allowance for doubtful
accounts:
Period Ended:
12 Months, 8/2/97 ........... $ 491 $ 531 $ 0 $ 659 $ 363
12 Months, 8/1/98 ........... 363 716 95 832 342
6 Months, 1/30/99 ........... 342 195 0 227 310
12 Months, 1/29/00 .......... 310 3,742 442 3,469 1,025
Allowance for Markdowns:
Period Ended:
12 Months, 8/2/97 ........... $ 0 $ 4,311 $ 0 $ 0 $ 4,311
12 Months, 8/1/98 ........... 4,311 2,828 8,893 4,203 11,829
6 Months, 1/30/99 ........... 11,829 4,460 0 5,897 10,392
12 Months, 1/29/00 .......... 10,392 13,745 0 6,908 17,229
Allowance for Sales Returns:
Period Ended:
12 Months, 8/2/97 ........... $ 968 $ 0 $ 0 $ 0 $ 968
12 Months, 8/1/98 ........... 968 0 645 0 1,613
6 Months, 1/30/99 ........... 1,613 0 0 0 1,613
12 Months, 1/29/00 .......... 1,613 0 0 227 1,386
Reserves
Store Closing
Reserve:
Year ended:
12 Months, 8/2/97 ........... $ 0 $ 400 $ 0 $ 5 $ 395
12 Months, 8/1/98 ........... 395 511 721 722 905
6 Months, 1/30/99 ........... 905 145 0 973 77
12 Months, 1/29/00 .......... 77 0 0 4 73
</TABLE>
(1) The charges to other accounts represent balances resulting from the
acquisition of Shonac in 1998 and Gramex Retail Stores, Inc. in 1999.
(2) The deductions in Column D are amounts written off against the
respective reserve.
S - 1
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
2.1 Stock Purchase Agreement entered into Previously filed as Exhibit 2.1 to Form 8-K
as of May 1, 1998 between the (file no. 1-10767) filed May 22, 1998, and
Company and Schottenstein Stores incorporated herein by reference.
Corporation and Nacht Management,
Inc.
2.2 Asset Purchase Agreement entered into Previously filed as Exhibit 2.2 to Form 8-K
as of May 1, 1998 between the (file no. 1-10767) filed May 22, 1998, and
Company and Valley Fair Corporation, incorporated herein by reference.
an affiliate of Schottenstein Stores
Corporation.
2.3 Stock Purchase Agreement entered into Previously filed as Exhibit 2.3 to Form 8-K
As of November 8, 1999 between the (file no. 1-10767) filed December 6, 1999, and
Company and Gramex Corporation. Incorporated herein by reference.
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 Previously filed as Exhibit 10.1.3 to
October 1996 between the Company Form 10-K (file no. 1-10767) filed
and SSC. November 1, 1996, and incorporated
herein by reference.
</TABLE>
E - 1
<PAGE> 61
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
10.1.4 Corporate Services Agreement, dated Previously filed as Exhibit 10.1.4 to Form 10-Q
October 13, 1997, between the Company (file no. 1-10767) filed December 16, 1997, and
and SSC. incorporated herein by reference.
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.
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 departments.
</TABLE>
E - 2
<PAGE> 62
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
10.4.4 Letter Agreement dated May 1, 1996, Previously filed as Exhibit 10.4.4 to
between the Company and L.F. Widmann, Form 10-K (file no. 1-10767) filed
Inc. extending the license agreement dated November 1, 1997, and incorporated
July 1, 1987 to June 30, 1997. herein by reference.
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.
10.6.1 Agreement, effective as of May 13, 1997 Previously filed as Exhibit 10.6.1 to
between George Iacono and the Company Form 10-K (file no. 1-10767) filed
re non-renewal of employment contract. October 31, 1997, 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.
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.
</TABLE>
E - 3
<PAGE> 63
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
10.9.3 Exercise of the first five-year renewal Previously filed as Exhibit 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.
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.
</TABLE>
E - 4
<PAGE> 64
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
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.
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.
</TABLE>
E - 5
<PAGE> 65
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
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.
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.V. 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.
</TABLE>
E - 6
<PAGE> 66
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
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.
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.
</TABLE>
E - 7
<PAGE> 67
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
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 Valueway, 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 Valueway, 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.
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.
</TABLE>
E - 8
<PAGE> 68
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
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.
10.43 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.
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 Previously filed as Exhibit 10.49 to
between the Company, as tenant, Form 10-K (file no. 1-10767) filed
and SSC, as landlord, re the Melrose November 1, 1997 and incorporated
Park, IL store. herein by reference.
</TABLE>
E - 9
<PAGE> 69
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
10.50 Agreement of Lease, dated October 4, Previously filed as Exhibit 10.50 to
1996, between the Company, as tenant, Form 10-K (file no. 1-10767) filed
and Hickory Ridge Pavilion, Ltd., as November 1, 1997 and incorporated
landlord, re the Memphis, TN store. herein by reference.
10.51 Asset and Stock Purchase Agreement, Previously filed as Exhibit 10.51 to
dated as of July 14, 1997, by and among Form 10-K (file no. 1-10767) filed
VCM, LTD., Mazel Stores, Inc., Valley October 31, 1997, and incorporated
Fair Corporation L.F. Widmann, Inc. and herein by reference.
Value City Department Stores, Inc.
10.52 Employment Agreement, dated July 15, Previously filed as Exhibit 10.52 to
1997, between Martin P. Doolan and the Form 10-K (file no. 1-10767) filed
Company. October 31, 1997, and incorporated
herein by reference.
10.52.1 First Amendment to Employment Previously filed as Exhibit 10.52.1 to
Agreement, effective as of July 1, 1997, Form 10-K (file no. 1-10767) filed
between Marin P. Doolan and the October 30, 1998, and incorporated
Company. herein by reference.
10.53 Restricted Stock Agreement dated Previously filed as Exhibit 10.53 to
July 14, 1997 between Martin P. Form 10-K (file no. 1-10767) filed
Doolan and the Company. October 31, 1997, and incorporated
herein by reference.
10.54 Employment Agreement, dated July 2, Previously filed as Exhibit 10.54 to
1997 between Michael J. Tanner and the Form 10-K (file no. 1-10767) filed
Company. October 30, 1009, and incorporated
herein by reference.
10.56 Lease, dated October 30, 1998 between the Previously filed as Exhibit 10.56 to
Company, as tenant, and Jubilee Limited Form 10-K (file no. 1-10767) filed
Partnership, as landlord, re River Oaks West April 30, 1999, and incorporated
Shopping Center, Calumet City, Illinois. herein by reference.
10.57 Lease, dated May 3, 1998 between the Previously filed as Exhibit 10.57 to
Company, as tenant, and Valley Fair Form 10-K (file no. 1-10767) filed
Corporation, as landlord, re Irvington, NJ April 30, 1999, and incorporated
herein by reference.
10.58 Employment Agreement, dated July 2, Previously filed as Exhibit 10.58 to
1997 between Louis Virag and the Form 10-K (file no. 1-10767) filed
Company. April 30, 1999, and incorporated
herein by reference.
10.59 Employment Agreement dated June 28,
1999 between Mark Miller and the
Company.
10.60 Lease, dated March 22, 2000 between
East Fifth Avenue LLC, an affiliate of
SSC, and Shonac Corporation.
</TABLE>
E - 10
<PAGE> 70
<TABLE>
<CAPTION>
Exhibit
No. Description Exhibit Page No.
- -------- ----------- ----------------
<S> <C> <C>
21 List of Subsidiaries Page E-12.
23 Consent of Deloitte & Touche LLP Page E-13.
24 Power of Attorney Page E-14
27 Financial Data Schedule Page E-15.
</TABLE>
E - 11
<PAGE> 1
EXHIBIT 10.59
EMPLOYMENT AGREEMENT
(Mark J. Miller)
THIS AGREEMENT is by and between Value City Department Stores, Inc. ("Company")
and Mark J. Miller ("Executive"), and is effective as of the date it has been
fully executed by both parties.
Company agrees to employ Executive as Executive Vice President and Chief
Operating Officer-Home ("EVP"), and Executive accepts such employment and
appointment and agrees to serve Company subject to the general supervision,
advice and direction of Company's President, and upon the following terms and
conditions:
1. Position and Duties. Effective July 12, 1999, Executive shall be employed
as Executive Vice President and Chief Operating Officer-Home Products, with such
authority and duties as are customary for this position, and shall perform such
other services and duties as the Chief Executive Officer and/or President may
from time to time designate.
1.1. Executive agrees to devote his full business time, best efforts, and
undivided attention to the business and affairs of Company, except for any
vacations, illness, or disability. Executive shall not engage in any other
businesses that would interfere with his duties, provided that nothing contained
herein is intended to limit Executive's right to make passive investments in the
securities of publicly-owned companies or other businesses which will not
interfere or conflict with his duties hereunder.
1.2. Executive agrees that he shall at all times observe and be bound by
all rules, policies, practices, and resolutions heretofore or hereafter adopted
in writing by the Company which are generally applicable and provided to
Company's officers and employees and which do not otherwise conflict with this
Agreement.
2. Term. This Agreement shall terminate three years from Executive's first
date of employment unless sooner terminated as provided herein; provided,
however, that this Agreement shall be extended automatically for successive
12-month periods unless either party notifies the other of an intent to
terminate, in writing, at least 60 calendar days prior to the date of automatic
extension.
3. Compensation.
3.1. Base Salary. Company shall pay Executive an annual base salary of
$432,000 as compensation for his services hereunder, payable in equal
installments in accordance with Company's payroll practices for executive
employees. Executive's base salary may be increased annually at Company's sole
discretion.
3.2. Bonus. Executive will be eligible to receive an annual performance
bonus targeted at 60% of his base salary. This bonus shall be calculated based
on agreed-upon, Board-approved, pre-determined performance targets and measures
set prior to the end of each fiscal year. Any performance bonus due will be paid
within 120 calendar days after the close of Company's fiscal year and completion
of an outside audit by Company's then current outside audit firm.
3.3. Signing Incentive. Within five business days after the effective date
of this Agreement, Company shall pay him a signing incentive of $250,000, which
shall be grossed up for tax purposes. Executive agrees that he shall reimburse
Company this amount in full if any of the following occur: (i) he fails to start
as agreed upon; (ii) he does not relocate to Columbus, OH and make it his
primary residence within 90 days of his employment, or (iii) he voluntarily
resigns within the first 12 months of his employment. (The term "grossed up" as
used in this Agreement refers to a payment to Executive in an amount that, after
reduction for any income or excise taxes due, is equal to the net amount
payable.)
3.4. Stock Grant. Subject to the Board's approval, Executive shall receive
a restricted stock grant of 50,000 shares. Said grant shall be subject to
exercise in accordance with Company's "Restricted Stock Agreement" typically
used for executives.
<PAGE> 2
3.5. Stock Options. Subject to the Board's approval, Executive shall
receive a non-qualified option to purchase 75,000 shares of common stock of the
Company. All options granted hereunder shall be priced and subject to exercise
in accordance with Company's "1991 Stock Option Plan" (as amended or revised
with Board approval).
3.6. Loan. On Executive's first day of employment, Company agrees to loan
him the sum of $250,000 and Executive agrees to sign a "Promissory Note" for the
same. This loan shall be paid back to Company in accordance with the terms set
forth in the Promissory Note (i.e, in equal yearly installments along with
accrued interest on the anniversary date of Executive's employment); provided,
however, that if Executive voluntarily resigns, this loan shall become due and
payable in full within 30 days along with all accrued interest.
3.7. Vacation. Executive shall be entitled to vacation commensurate with
other Company executives. The dates of said vacations must be mutually agreed
upon by Company's President.
3.8. Business Expenses. Company shall pay, advance or reimburse Executive
for all normal and reasonable business-related expenses, including travel
expenses, incurred in the performance of his duties on the same basis as paid to
other executives. Company shall furnish Executive with company credit cards
provided to other executives for use solely in the performance of his duties.
3.9. Car. Company will pay Executive a car allowance sufficient to cover
the annual lease of a Range Rover such as that currently driven by Executive,
which sum shall be grossed up for tax purposes and paid in regular increments
along with Executive's salary.
3.10. Taxes. The compensation provided to Executive hereunder is subject to
any withholdings and deductions required by any applicable tax laws.
3.11. Benefit Plans. Executive is entitled to participate in any deferred
compensation or other employee benefit plans, including any profit sharing or
401(k) plans; group life, health, hospitalization and disability insurance
plans; deferred compensation plan; annual executive physical; discount
privileges; and other employee welfare benefits made available generally to, and
under the same terms as, Company's executives.
4. Living/Commuting Expenses and Relocation.
4.1. Company will pay Executive's temporary living expenses in Columbus, OH
for up to 90 days. Thereafter, Executive agrees to relocate to Columbus, OH. The
parties may mutually agree to extend this time period, so long as such agreement
is in writing and signed by both parties.
4.2. Company will pay Executive's round-trip commuting expenses to
California up to eleven times per year in order for Executive to see his family;
provided, however, that Executive will use his best efforts to combine such
trips with a business purpose. However, if the parties mutually agree to extend
the time period set forth in paragraph 4.1., the number of trips set forth in
this paragraph may be reduced as mutually agreed upon by the parties, so long as
such agreement is in writing and signed by both parties.
4.3. Company will pay for Executive to relocate to the Columbus, OH area.
Executive agrees to handle relocation in accordance with Company's "Tier One
Relocation Package," a copy of which is attached hereto. Company agrees to
reimburse Executive, after submission of the appropriate expense reports and
receipts, for the reasonable out-of-pocket expenses related to said relocation.
In addition, if Executive decides to relocate his children to the Columbus, OH
area during the first 24 months of this Agreement, or thereafter as mutually
agreed upon by the parties, Company agrees to pay for their relocation as well.
4.4. If any of these expenses are determined to be taxable, they will be
grossed up.
2
<PAGE> 3
5. Executive's Obligations.
5.1. Confidential Information. Executive agrees that during and after his
employment, any "confidential information" as defined below shall be held in
confidence and treated as proprietary to Company. Executive agrees not to use or
disclose any confidential information except to promote and advance the business
interests of Company. Executive agrees that upon his separation from employment,
for any reason whatsoever, he shall not take or copy, and shall immediately
return to Company, any documents that constitute or contain confidential
information. "Confidential information" includes, but is not limited to, any
confidential data, figures, projections, estimates, pricing data, customer
lists, buying manuals or procedures, distribution manuals or procedures, other
policy and procedure manuals or handbooks, supplier information, tax records,
personnel histories and records, information regarding sales, information
regarding properties and any other confidential information regarding the
business, operations, properties or personnel of Company which are disclosed to
or learned by Executive as a result of his employment, but shall not include his
personal personnel records. Confidential information shall not include any
information that (i) Executive had in his possession prior to his first
performing services for Company; (ii) becomes a matter of public knowledge
thereafter through sources independent of Executive; (iii) is disclosed by
Company without restriction on its use; or (iv) is required to be disclosed by
law or governmental order or regulation.
5.2. Solicitation.
5.2.1. Employees. Executive agrees that during his employment and for
two years after the end of his employment, for any reason, he shall not,
directly or indirectly, solicit Company's employees to leave their employment;
he shall not employ or seek to employ them; and, he shall not cause or induce
any of Company's competitors to solicit or employ Company's employees.
5.2.2. Third Parties. Executive agrees that during his employment and
for two years following the end of his employment, for any reason, he shall not,
either directly or indirectly, recruit, solicit or otherwise induce or influence
any customer, supplier, sales representative, lender, lessor or any other person
having a business relationship with Company to discontinue or reduce the extent
of such relationship except in the course of his duties pursuant to this
Agreement and with the good faith objective of advancing Company's business
interests.
5.3. Noncompetition. Executive agrees that if his employment ends for any
reason, for 12 months thereafter or through the remainder of this Agreement,
whichever period is longer, he shall not, either directly or indirectly, accept
employment with, act as a consultant to, or otherwise perform the same services
(which shall be determined regardless of job title) for any business that
directly competes with Company's business, which shall be understood as the sale
of discount and off-price merchandise (including shoes and accessories).
5.4. Cooperation.
5.4.1. With Company. Executive agrees to cooperate with Company during
the course of all third-party proceedings arising out of Company's business
about which Executive has knowledge or information. Such proceedings may
include, but are not limited to, internal investigations, administrative
investigations or proceedings, and lawsuits (including pre-trial discovery). For
purposes of this paragraph, cooperation includes, but is not limited to,
Executive's making himself available for interviews, meetings, depositions,
hearings, and/or trials without the need for subpoena or assurances by Company,
providing any and all documents in his possession that relate to the proceeding,
and providing assistance in locating any and all relevant notes and/or
documents.
5.4.2. With Third Parties. Executive agrees to communicate with, or
give statements to, third parties relating to any matter about which Executive
has knowledge or information as a result of his employment only to the extent
that it is Executive's good faith belief that such communication or statement is
in Company's business interests.
3
<PAGE> 4
5.4.3. With Media. Executive agrees to communicate with, or give
statements to, any member of the media (print, television or radio) relating to
any matter about which Executive has knowledge or information as a result of his
employment only to the extent that it is Executive's good faith belief that such
communication or statement is in Company's business interests.
5.5. Remedies. Executive agrees that any disputes under paragraph 5 shall
not be subject to arbitration. If Executive breaches paragraph 5, the damage
will be substantial, although difficult to quantify, and money damages may not
afford Company an adequate remedy; therefore, if Employee breaches or threatens
to breach this paragraph, Company shall be entitled, in addition to other rights
and remedies, to specific performance, injunctive relief and other equitable
relief to prevent or restrain such conduct.
6. Termination and Related Benefits.
6.1. Death. This Agreement shall terminate automatically upon Executive's
Death, and Company shall pay his surviving spouse, or if he leaves no spouse,
his estate, any base salary earned by Executive, and any rights or benefits that
have vested.
6.2. Permanent Disability. Upon Executive's permanent disability, Company
shall have the right to terminate this Agreement immediately with written
notice. For these purposes, permanent disability shall mean that Executive fails
to perform his duties on a full-time basis for a period of more than 90 calendar
days during any 12-month period, due to a physical or mental disability or
infirmity. If this Agreement is terminated due to Executive's permanent
disability, Company shall pay Executive any base salary earned and any rights or
benefits that have vested.
6.3. Termination by Company.
6.3.1. At End of Term. Company may terminate this Agreement at the end
of its term or any extension of this Agreement by giving 60 calendar days'
written notice to Executive. Company may, in its sole discretion, require
Executive to cease active employment and pay out the 60-day notice period.
Company shall thereafter have no obligations or liabilities under this
Agreement, unless otherwise provided herein.
6.3.2. During the Term. Except as provided below in paragraph 6.3.3.,
Company may terminate this Agreement during its term, for any reason, upon 30
days' written notice to Executive. Company may, in its sole discretion, require
Executive to cease active employment immediately. In the event of such a
termination, Company shall have the following obligations:
Pay Executive his base salary for 18 months, with either being payable in
the form of salary continuation or in a lump sum (subject to present value
calculation), at Company's sole discretion;
(ii) Provide health benefits (excluding disability and life insurance)
during the period of salary continuation or, if a lump sum payment is
made, during the period that Executive's salary would have been
continued) under the same terms as provided to other Company
executives;
(iii) Executive's restricted stock shall be exercisable in accordance with
Executive's "Restricted Stock Agreement" and his stock options shall
be exercisable in accordance with Company's "Stock Option Plan;" and
(iv) Company shall thereafter have no further obligations or liabilities
under this Agreement, unless otherwise provided herein.
6.3.3. For Cause. Company may terminate this Agreement during its term
if it has "cause" to do so. For purposes of this paragraph, the term "cause"
means the following:
(i) violation of laws and regulations governing Company;
4
<PAGE> 5
(ii) failure to substantially comply with any material terms of this
Agreement, provided Company shall make a written demand for
substantial compliance setting forth the specific reason(s) for same
and Executive shall have 60 days to cure, if possible;
(iii) breach of fiduciary duties;
(iv) damage, misrepresentation, or dishonesty which Company determines has
had or is likely to have a material adverse effect upon Company's
operations, assets, reputation, or financial conditions; or
(v) breach of any stated material employment policy of Company.
Executive may have an opportunity to be heard by the Board prior to a
termination for cause. In the event of termination for cause, Company's
obligations hereunder cease on Executive's last day of active employment, unless
otherwise provided herein.
6.3.4. Method of Payment. Executive agrees that Company shall have the
option of paying the present value of any amount(s) due under this paragraph in
a lump sum or in the form of salary continuation, but in no event shall such
payout period exceed the remainder of the term of this Agreement. Present value
shall be calculated based upon National City Bank's prime interest rate.
6.4. Termination by Executive.
6.4.1. At End of Term. Executive may terminate this Agreement at the
end of its term or any extension of this Agreement by giving 60 calendar days'
written notice to Company's President. Company may, in its sole discretion,
accept Executive's termination effective immediately; provided, however, that it
shall continue to pay Executive for 60 calendar days. Company shall thereafter
have no obligations to Executive under this Agreement.
6.4.2. Voluntary Resignation. Executive may terminate this Agreement
by his voluntary resignation. Executive shall give at least 60 calendar days'
written notice of his intention to resign to Company's President, which Company
may accept immediately. In the event of Executive's resignation, Company will
have no further obligations or liability hereunder.
6.5. Salary Due at Termination. In the event of any termination of
Executive's employment under this Agreement, Executive (or his estate) shall be
paid any unpaid portion of his salary that has accrued by virtue of his
employment during the period prior to termination, and any unpaid, declared
bonus, together with any unpaid business expenses properly incurred under this
Agreement prior to termination.
7. Arbitration. Unless stated otherwise herein, the parties agree that
arbitration shall be the sole and exclusive remedy to redress any dispute, claim
or controversy involving the interpretation of this Agreement or the terms,
conditions or termination of this Agreement or the terms, conditions or
termination of Executive's employment with Company. The parties intend that any
arbitration award shall be final and binding and that a judgment on the award
may be entered in any court of competent jurisdiction and enforcement may be had
according to its terms. This paragraph shall survive the termination or
expiration of this Agreement.
7.1. Arbitration shall be held in Columbus, Ohio, and shall be conducted by
a retired federal judge or other qualified arbitrator mutually agreed upon by
the parties in accordance with the Voluntary Arbitration Rules of the American
Arbitration Association then in effect. The parties shall have the right to
conduct discovery pursuant the Federal Rules of Civil Procedure; provided,
however, that the Arbitrator shall have the authority to establish an expedited
discovery schedule and cutoff and to resolve any discovery disputes. The
Arbitrator shall not have jurisdiction or authority to change any provision of
this Agreement by alterations of, additions to or subtractions from the terms
hereof. The Arbitrator's sole authority in this regard shall be to interpret or
apply any provision(s) of this Agreement. The Arbitrator shall be limited to
awarding compensatory damages, including unpaid wages or benefits, but shall
have no authority to award punitive, exemplary or similar-type damages.
5
<PAGE> 6
7.2. Any claim or controversy not sought to be submitted to arbitration, in
writing, within 120 days of when it arose shall be deemed waived and the moving
party shall have no further right to seek arbitration or recovery with respect
to such claim or controversy.
7.3. The arbitrator shall be entitled to award expenses, including the
costs of the proceeding, and reasonable counsel fees.
7.4. The parties hereby acknowledge that since arbitration is the exclusive
remedy, neither party has the right to resort to any federal, state or local
court or administrative agency concerning breaches of this Agreement, except as
otherwise provided herein in paragraph 5, and that the decision of the
Arbitrator shall be a complete defense to any suit, action or proceeding
instituted in any federal, state or local court before any administrative agency
with respect to any arbitrable claim or controversy.
8. General Provisions.
8.1. The parties agree that the covenants and promises set forth in
paragraphs 5, 6 and 7 shall survive the termination of this Agreement and
continue in full force and effect.
8.2. Except as otherwise provided in paragraph 7.2 above, failure to insist
upon strict compliance with any term hereof shall not be considered a waiver of
any such term.
8.3. In computing the number of days for purposes of this Agreement, all
days shall be counted, including Saturdays, Sundays, and legal holidays;
provided, however, that if the final day of any time period falls on a Saturday,
Sunday, or legal holiday, then such final day shall be deemed to be the next day
which is not a Saturday, Sunday, or legal holiday.
8.4. Executive represents and warrants to Company that he is not now under,
or bound to be under in the future, any obligation to any person, firm or
corporation which is or would be inconsistent or in conflict with this
Agreement, or that would prevent, limit, or impair in any way the performance of
his obligations hereunder.
8.5. This Agreement, along with any other document or policy or practice
referenced herein (which are collectively referred to as "Agreement" herein),
contain the entire agreement of the parties regarding Executive's employment and
supersede any prior written or oral agreements or understandings relating to the
same. No modification or amendment of this Agreement shall be valid unless in
writing and signed by or on behalf of both parties.
8.6. Once signed by both parties, this Agreement shall be binding upon and
shall inure to the benefit of the heirs, successors, and assigns of the parties.
8.7. This Agreement is intended to be performed in accordance with, and
only to the extent permitted by, all applicable laws, ordinances, rules and
regulations. If any provisions of this Agreement, or the application thereof to
any person or circumstance, shall, for any reason and to any extent, be held
invalid or unenforceable, such invalidity and unenforceability shall not affect
the remaining provisions hereof and the application of such provisions to other
persons or circumstances, all of which shall be enforced to the greatest extent
permitted by law.
8.8. The validity, construction, and interpretation of this Agreement and
the rights and duties of the parties hereto shall be governed by the laws of the
State of Ohio, without reference to the Ohio choice of law rules.
8.9. Any written notice required or permitted hereunder shall be mailed,
certified mail (return receipt requested) or hand-delivered, addressed to
Company's President at Company's then principal office, or to Executive at his
most recent home address. Notices are effective upon receipt.
8.10. The rights of Executive under this Agreement shall be solely those of
an unsecured general creditor of Company.
6
<PAGE> 7
8.11. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
any provision hereof.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement
consisting of nine pages.
EXECUTIVE
/s/ Mark Miller 6/28/99
------------------------------------------
Mark Miller / date signed
VALUE CITY DEPARTMENT STORES, INC.
By: /s/ Jay Schottenstein 6/28/99
----------------------------------------
Jay Schottenstein / date signed
Its: Chairman and Chief Executive Officer
7
<PAGE> 1
EXHIBIT 10.60
INDUSTRIAL SPACE LEASE -- NET
LANDLORD: 4300 East Fifth Avenue LLC
1800 Moler Road
Columbus, Ohio 43207
TENANT: Shonac Corporation
1675 Watkins Road
Columbus, Ohio 43207-1979
LEASED PREMISES: 694,972 square feet in
Building 6
Columbus International Aircenter
Columbus, Ohio
<PAGE> 2
INDUSTRIAL SPACE LEASE -- NET
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C> <C>
I. GRANT, TERM, DEFINITIONS AND BASIC LEASE PROVISIONS.........................................1
1.1 Grant...........................................................................1
1.2 Term............................................................................1
1.3 Tenant's Pro Rata Share.........................................................2
1.4 Agent...........................................................................2
1.5 Basic Lease Provisions..........................................................2
II. POSSESSION.................................................................................3
2.1 Possession......................................................................3
2.2 Tenant's Work...................................................................4
III. PURPOSE...................................................................................5
3.1 Purpose.........................................................................5
3.2 Use of Real Estate..............................................................5
IV. RENT.......................................................................................5
4.1 Annual Rent.....................................................................5
4.2 Interest On Late Payments.......................................................5
4.3 Additional Rent.................................................................6
V. IMPOSITIONS.................................................................................6
5.1 Payment by Tenant...............................................................6
5.2 Alternative Taxes...............................................................7
5.3 Other Taxes.....................................................................7
VI. RISK ALLOCATION AND INSURANCE..............................................................7
6.1 Allocation of Risks.............................................................7
6.2 Tenant's Insurance..............................................................8
6.3 Landlord's Insurance............................................................9
6.4 Form of Insurance...............................................................10
6.5 Insurance Premiums..............................................................10
6.6 Fire Protection.................................................................10
6.7 Waiver of Subrogation...........................................................11
6.8 Disclaimer OF Liability.........................................................11
VII. DAMAGE OR DESTRUCTION.....................................................................11
7.1 Landlord's Obligation to Rebuild................................................11
7.2 Tenant's Rights After Casualty..................................................12
VIII. CONDEMNATION.............................................................................12
8.1 Taking of Whole.................................................................12
8.2 Partial Taking..................................................................12
8.3 Temporary Taking................................................................13
8.4 Payment to Tenant...............................................................13
IX. MAINTENANCE AND ALTERATIONS................................................................13
9.1 Landlord's Maintenance..........................................................13
9.2 Tenant's Maintenance............................................................13
9.3 Alterations.....................................................................14
X. ASSIGNMENT AND SUBLETTING...................................................................15
10.1 Consent Required................................................................15
10.2 Other Transfer of Lease.........................................................17
XI. LIENS AND ENCUMBRANCES.....................................................................17
11.1 Encumbering Title...............................................................17
11.2 Liens and Right to Contest......................................................18
XII. UTILITIES.................................................................................18
12.1 Utilities.......................................................................18
XIII. INDEMNITY................................................................................19
13.1 Indemnity.......................................................................19
XIV. RIGHTS RESERVED TO LANDLORD...............................................................19
14.1 Rights Reserved to Landlord.....................................................19
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
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14.2 Maintenance Costs...............................................................21
XV. QUIET ENJOYMENT............................................................................22
15.1 Quiet Enjoyment.................................................................22
XVI. SUBORDINATION OR SUPERIORITY..............................................................22
16.1 Subordination or Superiority....................................................22
XVII. SURRENDER................................................................................22
17.1 Surrender.......................................................................22
17.2 Removal of Tenant's Property....................................................23
17.3 Holding Over....................................................................23
XVIII. ENVIRONMENTAL CONDITIONS................................................................23
18.1 "Environmental Condition" Defined...............................................23
18.2 Compliance by Tenant............................................................24
18.3 Environmental Indemnity.........................................................24
18.4 Testing and Remedial Work.......................................................25
XIX. REMEDIES..................................................................................25
19.1 Defaults........................................................................25
19.2 Remedies........................................................................26
19.3 Remedies Cumulative.............................................................27
19.4 No Waiver.......................................................................27
19.5 Default Under Other Leases......................................................28
19.6 Delinquent Rent.................................................................28
XX. SECURITY DEPOSIT -[INTENTIONALLY DELETED]..................................................28
XXI. MISCELLANEOUS.............................................................................28
21.1 Tenant's Statement..............................................................28
21.2 Estoppel Certificates...........................................................28
21.3 Landlord's and Tenant's Right to Cure...........................................28
21.4 Amendments Must be in Writing...................................................29
21.5 Notices.........................................................................29
21.6 Short Form Lease................................................................29
21.7 Time of Essence.................................................................29
21.8 Relationship of Parties.........................................................29
21.9 Captions........................................................................29
21.10 Severability....................................................................29
21.11 Law Applicable..................................................................30
21.12 Covenants Binding On Successors.................................................30
21.13 Brokerage.......................................................................30
21.14 Landlord Means Owner............................................................30
21.15 Lender's Requirements...........................................................30
21.16 Signs...........................................................................30
21.17 Parking Areas...................................................................30
21.18 Force Majeure...................................................................31
21.19 Landlord's and Tenant's Expenses................................................31
21.20 Execution of Lease by Landlord..................................................31
21.21 Tenant's Authorization..........................................................31
21.22 Exculpatory Clause..............................................................32
21.23 Airport Access..................................................................32
21.24 Expansion Area..................................................................32
21.25 Consent.........................................................................33
</TABLE>
Exhibit A - Legal Description
Exhibit B - Site Plan
Exhibit C - Footprint of Premises
Exhibit D - Subordination, Non-Disturbance and Attornment Agreement
<PAGE> 4
INDUSTRIAL SPACE LEASE -- NET
THIS LEASE is made this ____ day of ___________, 2000, by and between 4300
East Fifth Avenue LLC, an Ohio limited liability company (hereinafter sometimes
referred to as "Landlord"), with offices at 1798 Frebis Avenue, Columbus, Ohio
43206-0410, and Shonac Corporation, an Ohio corporation (hereinafter sometimes
referred to as "Tenant"), with offices at 1675 Watkins Road, Columbus, Ohio
43207-1979, who hereby mutually covenant and agree as follows:
I. GRANT, TERM, DEFINITIONS AND BASIC LEASE PROVISIONS
1.1 GRANT. Landlord, for and in consideration of the rents herein reserved
and of the covenants and agreements herein contained on the part of Tenant to be
performed, hereby leases to Tenant, and Tenant hereby lets from Landlord,
premises consisting of approximately 694,972 square feet of area in Building No.
6 of the Columbus International Aircenter, which premises are commonly known as
4150 East Fifth Avenue, Columbus, Ohio 43219. The Columbus International
Aircenter comprises approximately 178.966 acres, more or less, of real property
in Franklin County, Ohio, which real property is legally described on Exhibit A,
attached hereto and made a part hereof (hereinafter sometimes referred to as the
"Real Estate"). The premises are outlined on the site plan attached hereto as
Exhibit B and made a part hereof (the "Site Plan"). Said premises, together with
all improvements now located or to be located on said premises during the term
of this Lease, shall collectively be referred to herein as the "Leased
Premises". A footprint of the Leased Premises is delineated on Exhibit C,
attached hereto and made a part hereof. The Leased Premises contain
approximately 483,160 feet of warehouse space (the "Warehouse Space"),
approximately 142,700 square feet of mezzanine space (the "Mezzanine Space") and
approximately 69,112 square feet of office space (the "Office Space").
Tenant shall also have the non-exclusive right to use all common areas of
the Real Estate, as the same may be modified, altered and reduced from time to
time during the term hereof. Said common areas include all taxiways and airplane
parking and servicing areas designated from time to time by Landlord. Tenant
acknowledges that Landlord may promulgate reasonable rules and regulations in
connection with the use of all such common areas, and Tenant's use thereof shall
not unreasonably interfere with the use of said common areas by Landlord or
other tenants, occupants or users of the Real Estate, as well as their
respective customers, employees, agents, licensees, contractors, subcontractors
and invitees (hereinafter collectively the "Permitted Parties"), so long as
Landlord has provided a copy of same to Tenant, nor shall Tenant's use interfere
with the environmental remediation activities of the United States of America,
as hereinafter set forth. Tenant acknowledges that this Lease is subject to the
terms and conditions of the Declaration of Restrictions and Easements, dated
October 17, 1997, and recorded as Instrument No. 199710170122036, Recorder's
Office, Franklin County, Ohio and Tenant agrees to comply with all provisions
thereof.
Tenant acknowledges that it shall have no right of access to Port Columbus
International Airport by virtue of this Lease. Any such access shall be pursuant
to the terms of a separate agreement between Tenant and the Columbus Airport
Authority. In the event Tenant enters into such an agreement with the Columbus
Airport Authority, Tenant agrees to abide by all of the terms and conditions
thereof, and Tenant shall indemnify Landlord in the event of any liability to
Landlord on account of Tenant's non-compliance therewith.
1.2 TERM. The term of this Lease shall commence upon Tenant taking physical
possession of any portion of the Leased Premises (hereinafter sometimes referred
to as "Commencement Date") and shall end on December 31, 2016, unless sooner
terminated as herein set forth. The term "Lease Year" shall be defined as each
successive period of twelve (12) consecutive calendar months, with the first
Lease Year commencing on January 1, 2002.
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<PAGE> 5
The date on which Tenant first takes physical possession of any portion of
the Leased Premises shall be the "Tenant Entrance Date". The time period between
the Tenant Entrance Date and the first day of the first Lease Year shall be
referred to as the "Initial Occupancy Period".
Landlord hereby grants to Tenant the option to extend the Term of this
Lease for three (3) consecutive option terms of five (5) years each, referred to
herein as "First Option Term", "Second Option Term", and "Third Option Term".
The First Option Term shall commence at the end of the original Term of this
Lease, the Second Option Term shall commence at the end of the First Option
Term, and the Third Option Term shall commence at the end of the Second Option
Term. So long as Tenant is then in possession of the Leased Premises and is not
in default hereunder, Tenant may elect to exercise each option by giving the
Landlord written notice at least two hundred seventy (270) days prior to the
expiration of the original Term or the then existing Option Term. Said Option
Terms shall be upon the same terms, covenants and agreements as are herein set
forth, including, without limitation, increases in annual rent as set forth in
Section 1.5(b)(ii) below.
1.3 TENANT'S PRO RATA SHARE. As used in this Lease, "Tenant's Pro Rata
Share" shall initially be Twenty-three percent (23%). Tenant's Pro Rata Share
shall be based upon a fraction, the numerator of which is the number of square
feet in the Leased Premises, and the denominator of which is the number of
leasable square feet of building space on the Real Estate, which is
approximately Three Million (3,000,000) square feet as of the date hereof, as
the same shall be adjusted, from time to time, during the Term hereof to reflect
the then existing number of leasable square feet on the Real Estate.
1.4 AGENT. As used in this Lease, the term "Agent" shall mean the agent
of Landlord. Until otherwise designated by notice in writing from Landlord,
Agent shall be Schottenstein Management Company, 1800 Moler Road, Columbus, Ohio
43207, Attn: Vice President, Real Estate. Tenant may rely upon any consent or
approval given in writing by Agent or upon notice from Agent or from the
attorneys for Agent or Landlord.
1.5 BASIC LEASE PROVISIONS. These basic lease provisions are intended for
convenience only, and any conflict between these provisions and the body of the
Lease shall be resolved in favor of the body of the Lease.
(a) Purpose (See Section 3.1): The Leased Premises shall be used as a
general warehouse and distribution facility, together with business
offices in connection therewith, and for no other purpose whatsoever
without the prior written consent of Landlord.
(b) Annual Rent (See Section 4.1):
(i) Initial Occupancy Period
Annual Rent during the Initial Occupancy Period shall be equal to
that amount which Tenant is no longer required to pay its
landlord for Tenant's Watkins Road facility due to Tenant's
transition out of said space to the Leased Premises.
(ii) Lease Term
Annual Rent, from and after the commencement of the first Lease
Year, shall be as follows:
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<TABLE>
<CAPTION>
Monthly
Period: Annual Rent: Installments:
------- ------------ -------------
<S> <C> <C>
Yrs. 1-5 $2,084,916.00 $173,743.00
Yrs. 6-10 $2,258,695.00 $188,221.58
Yrs. 11-15 $2,432,402.00 $202,700.17
Yrs. 16-20 (1st option) $2,606,145.00 $217,178.75
Yrs. 21-25 (2nd option) $2,779,887.96 $231,657.33
Yrs. 26-30 (3rd option) $2,953,631.04 $246,135.92
</TABLE>
(c) Payee (See Section 4.1): 4300 East Fifth Avenue LLC.
(d) Payee's Address (See Sections 4.1 and 4.2): 1798 Frebis Avenue,
Columbus, Ohio 43206.
(e) Form of Insurance (See Article VI): The insurance specified in Section
6.1 shall comply with the provisions of Section 6.2. Initial Tenant's
Monthly Pro Rata Share of Insurance Premiums (See Sections 4.3 and
6.5): $1,158.29 ($0.02/s.f.).
(f) Initial Monitoring Service Charge (See Sections 4.3 and 6.6): to be
paid by Landlord.
(g) Water and Sewerage Charge (See Sections 4.3 and 12.1): to be paid by
Landlord.
(h) Initial Tenant's Pro Rata Share of Monthly Impositions (See Sections
4.3 and 5.1): $13,320.30 ($0.23/s.f.).
(i) Initial Tenant's Pro Rata Share of Monthly Maintenance Costs (See
Sections 4.3, 9.1 and 14.2): $14,478.58 ($0.25/s.f.).
(j) Tenant's Address (for notices) (See Section 21.5): 1675 Watkins Road,
Columbus, Ohio 43207-1979, with copy to: 1800 Moler Road, Columbus,
Ohio 43207, Attn: Law Department.
(k) Landlord's Address (for notices) (See Sections 21.5 regarding notices
and 16.1(c) regarding notices to Landlord's lender): 1800 Moler Road,
Columbus, Ohio 43207, Attn: Law Department, and to 1798 Frebis Avenue,
Columbus, Ohio 43206.
(l) Broker(s) (See Section 21.13): None.
(m) Guarantor's Name and Address: None
(n) Rider: List any Riders that are attached: None.
II. POSSESSION
2.1 POSSESSION. Except as otherwise expressly provided herein, Landlord
shall deliver possession of the warehouse portion of the Leased Premises to
Tenant upon full execution of this Lease in their condition as of the execution
and delivery hereof, reasonable wear and tear and damage by casualty excepted,
with the roof to be in "leak-free" condition, and siding installed on the
exterior of the Leased Premises, and Landlord's environmental remediation to the
Leased Premises completed, including the removal of all asbestos from the
interior of the Leased Premises. Because possession is
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<PAGE> 7
being granted prior to commencement of the first Lease Year, such occupancy
shall be subject to all the terms and conditions of this Lease. Tenant
acknowledges that possession of the mezzanine and office portions of the Leased
Premises may not be delivered to Tenant until the June 1, 2000. If Landlord
shall be unable to deliver possession of the remainder of the Leased Premises to
Tenant on or before September 1, 2000 due to the failure of the existing tenant,
the United States of America, to vacate such portion of the Leased Premises upon
expiration of the term of its lease with Landlord, and/or on account of delays
caused by Tenant, then Landlord shall not be subject to any liability for the
failure to give possession on said date, nor shall the validity of this Lease or
the obligations of Tenant hereunder be in any way affected, except as expressly
provided in this paragraph. Under such circumstances, unless the delay is the
fault of Tenant, annual rent and other charges which would otherwise be payable
hereunder shall not commence until the date possession of the Leased Premises is
given to Tenant. If such delay is the fault of Tenant, annual rent and other
charges shall commence as set forth herein if Landlord would have otherwise
delivered the Leased Premises to Tenant but for such delay caused by Tenant. In
the event possession of the mezzanine and office portions of the Leased Premises
are not delivered by January 1, 2001, and the delay is not the fault of Tenant,
then in such event the date set forth herein for the commencement of annual rent
and other charges hereunder shall be delayed one (1) day for each day after
January 1, 2001 until possession of all of the Leased Premises has been
delivered to Tenant. In the event possession of the mezzanine and office
portions of the Leased Premises are not delivered by March 1, 2001, and the
delay is not the fault of Tenant, then in such event Tenant shall have the right
and option to elect to terminate this Lease and all further liability and
obligations of the parties hereunder at any time thereafter but prior to
delivery of possession of the mezzanine and office portions of the Leased
Premises to Tenant by notice to Landlord. Landlord acknowledges that Tenant will
be moving out of its existing facility into the Leased Premises in three (3)
phases, currently contemplated by Tenant to occur on or about April 1, 2001, May
31, 2001 and November 30, 2001, and Landlord agrees to reasonably cooperate with
Tenant to facilitate said transition.
2.2 TENANT'S WORK. Upon delivery of possession to Tenant, Tenant agrees to
make the improvements to the Leased Premises described in this Section 2.2 (the
"Tenant's Work"). In consideration for the construction allowance payable by
Landlord pursuant to this Section 2.2, Tenant hereby represents and warrants to
Landlord that it will spend no less than Twenty One Million Five Hundred
Thousand Dollars ($21,500,000.00) for Tenant's Work. In the event Tenant spends
less than said amount, Landlord and Tenant agree to equally share in said
savings. The Tenant's Work shall be done in a good and workmanlike manner under
a build to suit contract in accordance with the preliminary plans and
specifications prepared by Sage Collaborative, Inc. and engineered by Larsen
Engineering, dated December 2, 1999, with a full set of plans to be preapproved
by both parties at a later date. Any changes thereto by Tenant shall be approved
in advance by Landlord, which approval shall not be unreasonably withheld or
delayed, and shall be in compliance with all applicable building codes, laws
ordinances and regulations. Upon substantial completion of the various phases of
Tenant's Work, and upon delivery of lien waivers from all parties performing
such phases of Tenant's Work to Landlord, Landlord agrees to make progress
payments to Tenant on a monthly basis therefor, in an amount equal to the
product of the cost of Tenant's Work in place for which Tenant has not been paid
and which has not been subject to a construction draw request from Tenant
multiplied by a fraction, the numerator of which fraction is Six Million Four
Hundred Fifty Thousand Dollars ($6,450,000.00) (the "Construction Allowance"),
and the denominator of which fraction is the total anticipated cost of Tenant's
Work, provided such total amount disbursed by Landlord shall not exceed the full
Construction Allowance.
Landlord agrees to act as Tenant's construction manager for Tenant's Work,
utilizing Landlord's personnel, to provide expertise as needed by Tenant in
connection
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<PAGE> 8
with construction management services for Tenant's Work.
v
<PAGE> 9
III. PURPOSE
3.1 PURPOSE. The Leased Premises shall be used and occupied only for the
Purpose set forth in Section 1.5(a) hereof, except that no such use shall (a)
violate any certificate of occupancy or law, ordinance or other governmental
regulation in effect from time to time affecting the Leased Premises or the use
thereof, including all recorded instruments of record, (b) cause injury to the
improvements, (c) cause the value or usefulness of the Real Estate or any part
thereof to diminish, (d) constitute a public or private nuisance or waste, (e)
authorize Tenant to use, treat, store or dispose of hazardous or toxic materials
on the Real Estate, or (f) render the insurance on the Leased Premises void or
the insurance risk more hazardous, provided, however, that if Tenant's use of
the Leased Premises does make the insurance risk more hazardous then, without
prejudice to any other remedy of Landlord for such breach, Tenant shall pay to
Landlord, on demand, the amount by which Landlord's insurance premiums are
increased as a result of such use, which payment shall be in addition to the
payment by Tenant for premiums as provided in Section 6.3 hereof. Tenant shall
not use or occupy the Leased Premises contrary to any statute, rule, order,
ordinance, requirement or regulation applicable thereto.
3.2 USE OF REAL ESTATE. Tenant acknowledges that the Real Estate is
adjacent to the Columbus International Airport (the "Airport") and that portions
of the Real Estate may be used for storage, repair, loading and unloading of
airplanes and other services associated with the Airport and airplanes. Tenant's
operations as a general warehouse distribution facility at the Real Estate and
the Airport, including the hiring of employees or contractors, shall be in full
compliance with all security, safety and other regulations of the Federal
Aviation Administration, United States State Department or other applicable
governmental or quasi-governmental authorities having jurisdiction over the Real
Estate and/or the Airport. Landlord hereby represents to Tenant that, as of the
date of execution hereof, Landlord is not aware of any such regulations or
restrictions which would be violated by Tenant's operation of the Leased
Premises as a general warehouse distribution facility and Landlord further
agrees that it shall promptly advise Tenant at such time as Landlord becomes
aware of any such regulations or restrictions. Tenant further acknowledges that
these uses generate substantial noise and other emissions and covenants that
Tenant will not interfere with these uses of the Real Estate. Tenant consents to
the above uses of the Real Estate and agrees that such use shall not interfere
with its use of the Leased Premises nor shall Tenant permit any use of the
Leased Premises which shall be inconsistent with the use of the Real Estate and
the adjacent Airport. Tenant acknowledges and consents to any expansion of the
Airport, including without limitation one which includes a major runway, or a
portion thereof, between the current Airport runways and the Leased Premises.
IV. RENT
4.1 ANNUAL RENT. Beginning with the Tenant Entrance Date and the
commencement of the first Lease Year, as applicable, Tenant shall pay, without
demand, annual rent as set forth in Section 1.5(b) hereof payable monthly in
advance on or before the first day of each month during the term of this Lease
in installments as set forth in said Section. Rent shall be paid to or upon the
order of Payee at the Payee's Address. Landlord shall have the right to change
the Payee or the Payee's Address by giving written notice thereof to Tenant. All
payments of rent shall be made without any deduction, set off, discount or
abatement whatsoever, in lawful money of the United States.
4.2 INTEREST ON LATE PAYMENTS. Each and every installment of rent and each
and every payment of other charges hereunder which shall not be paid when due
and not paid within five (5) days after notice thereof shall bear interest at
the highest rate then payable by Tenant in the state in which the Leased
Premises are located or, in the
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<PAGE> 10
absence of such a maximum rate, at a rate per annum equal to four percent (4%)
in excess of the announced prime rate of interest of National City Bank,
Columbus, in effect on the due date of such installment(s), from the date when
the same is payable under the terms of this Lease until the same shall be paid;
provided that payment of such interest shall not excuse default in the payment
of rent or other sums due hereunder.
4.3 ADDITIONAL RENT. Tenant shall also pay to Landlord as additional rent
the sum of Tenant's Pro Rata Share of Impositions (defined in Section 5.1),
Landlord's insurance (pursuant to Article 6), Common Area Utility Charges
(pursuant to Section 12.1(b), below), and Landlord's Maintenance Costs (defined
in Section 14.2). The amounts payable pursuant to the preceding sentence shall
be paid to Landlord each month on the dates and at the place specified for the
payment of annual rent, unless Landlord notifies Tenant in writing of a
different address therefor.
During the Initial Occupancy Period, Tenant's contributions to Impositions,
Insurance Premiums and Maintenance Costs (including common area utility charges)
(as specified in Sections 5.1, 6.5, 12.1(b) and 14.2 herein) shall not exceed
Fifty Cents (50") per square foot per year, payable monthly, less the per square
foot amount paid by Tenant each month for said items at its Watkins Road
Facility.
V. IMPOSITIONS
5.1 PAYMENT BY TENANT.
(a) Definition of Impositions. Tenant shall pay to Landlord, as additional
rent for the Leased Premises, Tenant's Pro Rata Share of all (i) taxes and
assessments, general and special, water rates and all other impositions,
ordinary and extraordinary, of every kind and nature whatsoever, which are
payable during the term of this Lease upon the Real Estate or any part thereof
or upon any improvements at any time situated thereon, (ii) any assessment by
any association of owners of property in the complex of which the Real Estate is
a part which is payable during the term of this Lease and (iii) all fees and
costs incurred by Landlord during the Lease term for the purpose of contesting
or protesting tax assessments or rates ("Impositions"). For the purpose of
determining the amount of Impositions payable by Landlord during any year, there
shall be added to the amount of Impositions paid or payable by Landlord an
amount equal to any tax abatements or comparable credits allowed to Landlord by
the City of Columbus or other applicable governmental jurisdiction for such
year. Tenant's Pro Rata Share of such Impositions shall be prorated between
Landlord and Tenant for the first Lease Year and as of the expiration date of
the Lease term for the last year of the Lease term (on the basis of Landlord's
reasonable estimate thereof). Landlord may take the benefit of the provisions of
any statute or ordinance permitting any assessment to be paid over a period of
years, in which event Tenant shall be obligated to pay its Pro Rata Share of
only those installments paid during the term of this Lease and any extensions
thereof. There shall be excluded from Impositions all federal income taxes,
state and local net income taxes, federal excess profit taxes, franchise,
capital stock and federal or state estate or inheritance taxes of Landlord.
(b) Calculation of Tenant's Pro Rata Share of Impositions. Tenant's Pro
Rata Share of such Impositions shall be determined by (i) multiplying Tenant's
Pro Rata Share (as set forth in Section 1.3 hereof) by the amount of Impositions
(as defined in Section 5.1(a) above) paid or payable in a Lease Year and (ii)
subtracting from the result thereof the amount of any tax abatement or
comparable credit specifically applicable to the Leased Premises. If any such
tax abatement or other credit includes the Leased Premises and other portions of
the Real Estate, the amount of such abatement or credit to be subtracted in (ii)
above shall be the amount of such tax abatement or credit, multiplied by a
fraction, the numerator of which shall be the number of square feet of
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<PAGE> 11
leasable space in the Leased Premises and the denominator of which shall be the
number of square feet of leasable space in the portion of the Real Estate for
which the tax abatement or credit was given. Tenant's Pro Rata Share of
Impositions shall be paid by Tenant to Landlord within ten (10) days after
Landlord bills Tenant therefor or, at Landlord's election, in monthly
installments in amounts reasonably estimated by Landlord. Tenant's Pro Rata
Share of all Impositions shall be computed by Landlord within ninety (90) days
after the end of each accounting year (which Landlord may change from time to
time). Landlord shall furnish to Tenant a statement showing in reasonable detail
the actual Impositions incurred during such accounting year and Tenant's Pro
Rata Share thereof. To the extent Tenant's Pro Rata Share of such costs is
greater than the sums paid by Tenant for such year, the difference shall be
billed to and paid by Tenant within thirty (30) days after Tenant's receipt of
said bill. Any excess payment made by Tenant shall be credited against future
installments of such Pro Rata Share of Impositions. Tenant's estimated monthly
Pro Rata Share of Impositions may thereafter be adjusted by written notice from
Landlord.
(c) Real Estate Tax Appeals. Tenant shall have the right to compel Landlord
to appeal Impositions if Tenant notifies Landlord in writing that Tenant has
made a good faith determination that Impositions exceed an amount which Tenant
believes are consistent with the fair market value of the Real Estate. In the
event Landlord receives such notice, Landlord shall contest such Impositions by
counsel reasonably satisfactory to Landlord. The cost to contest the Impositions
shall be added to Impositions and Tenant shall pay its pro rata share thereof;
provided, however, that Tenant shall receive a pro rata share of any reduction
in Impositions based upon the leasable square footage of those tenant's leasing
portions of the Real Estate which is the subject of such appeal of Impositions,
prorated to reflect the term of the Lease.
5.2 ALTERNATIVE TAXES. If at any time during the term of this Lease the
method of taxation prevailing at the commencement of the term hereof shall be
altered so that any new tax, assessment, levy, imposition, or charge, or any
part thereof, shall be measured by or be based in whole or in part upon the
Lease, or the Leased Premises, or the Real Estate, or the rent, additional rent
or other income therefrom and shall be imposed upon Landlord, in lieu of or in
substitution for previously existing Impositions, then all such taxes,
assessments, levies, impositions or charges, or the part thereof, to the extent
that they are so measured or based, shall be deemed to be included within the
term "Impositions" for the purpose hereof, to the extent that such Impositions
would be payable if the Real Estate were the only property of Landlord subject
to such Impositions, and Tenant shall pay its Pro Rata Share of Impositions as
so defined.
5.3 OTHER TAXES. Tenant further covenants and agrees to pay promptly when
due all taxes assessed against Tenant's fixtures, furnishings, equipment and
stock-in trade placed in or on the Leased Premises during the term of this
Lease.
VI. RISK ALLOCATION AND INSURANCE
6.1 ALLOCATION OF RISKS. The parties desire, to the extent permitted by
law, to allocate certain risks of personal injury, bodily injury or property
damage, and risks of loss of real or personal property by reason of fire,
explosion or other casualty, and to provide for the responsibility for insuring
those risks. It is the intent of the parties that, to the extent any event is
required by the terms hereof to be covered by insurance, any loss, cost, damage
or expense, including, without limitation, the expense of defense against claims
or suits, be covered by insurance, without regard to the fault of Tenant, its
officers, employees, agents, contractors and customers ("Tenant Protected
Parties"), and without regard to the fault of Landlord, Agent, their respective
members, officers, directors, employees, agents and contractors ("Landlord
Protected Parties"). As between Landlord Protected Parties and Tenant Protected
Parties, such risks are allocated as follows:
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<PAGE> 12
(a) Tenant shall bear the risk of bodily injury, personal injury or death,
or damage to property, or to third persons, occasioned by events
occurring within, on or about the Leased Premises, regardless of the
party at fault, if any. Said risks shall be insured as provided in
Section 6.2(a).
(b) Landlord shall bear the risk of bodily injury, personal injury, or
death or damage to property, or to third persons, occasioned by events
occurring on or about the Real Estate (other than premises leased to
tenants), regardless of the party at fault, if any; provided, however,
Landlord shall not bear the risk for the Ramp Area, including but not
limited to all aircraft thereon, as such area is designated on the
Site Plan. Said risk shall be insured against as provided in Section
6.3(a).
(c) Tenant shall bear the risk of bodily injury, personal injury, or death
or damage to property, or to third persons, occasioned by any event
occurring on or about the Real Estate, including the Ramp Area as
designated on the Site Plan (but excluding premises leased to other
tenants), provided such event is occasioned by the wrongful act or
omission of any of Tenant Protected Parties. Said risk shall be
insured against as provided in Section 6.2(a).
(d) Tenant shall bear the risk of damage to contents, trade fixtures,
machinery, equipment, furniture, furnishings and property of Tenant,
Tenant's Protected Parties and property in Tenant's control, care and
custody in the Leased Premises arising out of loss by all events
required to be insured against pursuant to Section 6.2(b)
(e) Landlord shall bear the risk of damage to the building on the Real
Estate arising out of loss by events required to be insured against
pursuant to Section 6.3(b).
Notwithstanding the foregoing, provided the party required to carry insurance
under Section 6.2(a) or Section 6.3(a) hereof does not default in its obligation
to do so, if and to the extent that any loss occasioned by any event of the type
described in Section 6.1(a) or Section 6.1(b) exceeds the coverage or amount of
insurance actually carried, or results from an event not required to be insured
against and not actually insured against, the party at fault shall pay the
amount not actually covered under these respective policies.
6.2 TENANT'S INSURANCE. Tenant shall procure and maintain policies of
insurance, at its own cost and expense, insuring:
(a) The Landlord Protected Parties as "additional insureds", and
Landlord's mortgagee, if any, of which Tenant is given written notice,
and Tenant Protected Parties, from all claims, demands or actions made
by or on behalf of any person or persons, firm, corporation or entity
and arising from, related to or connected with the Leased Premises,
Tenant's use thereof or operations therein, or on the non-taxiway
portions of the common areas of the Real Estate for bodily injury to
or personal injury to or death of any person, or more than one (1)
person, or for damage to property in an amount of not less than
$3,000,000.00 combined single limit per occurrence/aggregate. Said
insurance shall be written on an "occurrence" basis and not on a
"claims made" basis, and such liability policies shall include
products and completed operations liability insurance. If at any time
during the term of this Lease, Tenant owns or rents more than one
location, the policy shall contain an endorsement to the effect that
the aggregate limit in the policy shall apply separately to each
location owned or rented by Tenant. Landlord shall have the right,
exercisable by giving written notice
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<PAGE> 13
thereof to Tenant, to require Tenant to increase such limit if, in
Landlord's reasonable judgment, the amount thereof is insufficient to
protect the Landlord Protected Parties and Tenant Protected Parties
from judgments which might result from such claims, demands or
actions. Tenant shall cause its liability insurance to include
contractual liability coverage fully covering the indemnity set forth
above and in Section 13.1 below.
(b) All contents and Tenant's trade fixtures, machinery, equipment,
furniture and furnishings in the Leased Premises to the extent of at
least ninety percent (90%) of their replacement cost under Standard
Fire and Extended Coverage Policy and all other risks of direct
physical loss as insured against under Special Form ("all risk"
coverage). Said insurance shall contain an endorsement waiving the
insurer's right of subrogation against any Landlord Protected Party.
(c) Tenant Protected Parties from all worker's compensation claims,
including employer's liability with minimum limits of $500,000.00 per
occurrence.
(d) Landlord and Tenant against breakage of all plate glass utilized in
the improvements on the Leased Premises.
(e) Tenant agrees to maintain, at its own expense, for the benefit of
itself, Tenant's Protected Parties and Landlord's Protected Parties,
excess and/or umbrella liability insurance of such types and with
limits not less than Twenty Five Million Dollars ($25,000,000.00) as
may be approved by Landlord, insuring against liability for damage or
loss to property, and against liability for personal injury or death,
arising from acts or omissions of Tenant, its agents, employees or
invitees. Said excess and/or umbrella policies shall include all
liability policies in Section 6.2(a), employer's liability in Section
6.2(c) and hangar liability in Section 6.2(e) as underlying policies.
(f) Automobile liability naming Landlord as additional insured with
minimum of $1,000,000.00 limits for property damage, death or bodily
injury. This policy shall be for the benefit of Tenant and Landlord
for any claims, demands or actions made by or on behalf of any person
or persons, firm, corporation, or entity arising from the control,
operation or use of any vehicle by Tenant or Tenant's Protected
Parties on or about the Real Estate. The automobile policy shall be
listed as an underlying policy on the umbrella policy referred to in
Section 6.2(e).
Tenant agrees to provide Landlord with notice of any self-insurance
programs and Landlord shall have the right to approve any such programs. Any
insurance deductibles or self-insurance amounts shall be the responsibility of
Tenant, and any deductibles or self-insurance amounts in excess of $250,000
shall be approved in advance by Landlord.
6.3 LANDLORD'S INSURANCE. Landlord shall procure and maintain policies of
insurance insuring:
(a) Commercial general liability (including products and completed
operations) or other policy forms which would provide similar
coverages on behalf of Landlord and Landlord's Protected Parties for
those claims of bodily injury or property damage arising from the Real
Estate and the operations of the Landlord and Landlord's Protected
Parties. Said liability insurance policy shall be written on an
"occurrence" basis with a combined single limit of One Million Dollars
($1,000,000.00) per occurrence and not less than Two Million Dollars
($2,000,000.00) policy aggregate limit, and One Million
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Dollars ($1,000,000.00) limit for products and completed operations.
Umbrella liability insurance providing a minimum of Fifty Million
Dollars ($50,000,000.00) limit naming the commercial general liability
policy (Section 6.3(a)(i)) as an underlying policy.
(b) The building containing the Leased Premises against loss or damage by
fire, lightning, wind storm, hail storm, aircraft, vehicles, smoke,
explosion, riot or civil commotion as provided by the Standard Fire
and Extended Coverage Policy and all other risks of direct physical
loss as insured against under Special Form ("all risk" coverage). The
insurance coverage shall be for not less than 90% of the full
replacement cost of the Leased Premises for an agreed amount basis
with the insurance carrier, with sufficient limits to replace the
Leased Premises of similar utility purpose. . Landlord shall be named
as the insured and all proceeds of insurance shall be payable to
Landlord. Said insurance shall contain an endorsement waiving the
insurer's right of subrogation against any Tenant Protected Party.
(c) Landlord's business income, protecting Landlord from loss of rents and
other charges during the period while the Leased Premises are
untenantable due to fire or other casualty (for the period reasonably
determined by Landlord).
(d) Flood or earthquake insurance whenever, in the reasonable judgment of
Landlord, such protection is necessary and it is available at
commercially reasonable cost.
6.4 FORM OF INSURANCE. All of the aforesaid insurance shall be in reputable
companies licensed to do business in the State of Ohio with a minimum A.M. Best
rating of "A". Landlord shall have the right to self-insure and use high
deductibles or self-insured retention levels to help control the cost of
insurance premiums. As to Tenant's insurance, the insurer and the form,
substance and amount (where not stated above) shall be satisfactory from time to
time to Landlord and any mortgagee of Landlord, and shall unconditionally
provide that it is not subject to cancellation or non-renewal except after at
least thirty (30) days prior written notice to Landlord and any mortgagee of
Landlord. Originals of Tenant's insurance policies (or certificates thereof
satisfactory to Landlord), together with satisfactory evidence of payment of the
premiums thereon, shall be deposited with Landlord at the Commencement Date and
renewals thereof not less than thirty (30) days prior to the end of the term of
such coverage. Landlord shall have the right, from time to time, to increase the
occurrence limits and/or policy limits of Landlord and/or Tenant hereunder, as
Landlord may reasonably determine.
6.5 INSURANCE PREMIUMS. Tenant shall pay to Landlord, as additional rent
for the Leased Premises, Tenant's Pro Rata Share of any premiums for all
property, boiler and machinery, worker's compensation, crime insurance, business
income and liability insurance (with all endorsements) paid annually by Landlord
with respect to the Real Estate (collectively, "Insurance Premiums"). Tenant
shall be obligated to pay its Pro Rata Share of only those annual premiums which
relate to insurance coverage during the term of this Lease. Tenant's Pro Rata
Share of such premiums shall be paid by Tenant to Landlord within ten (10) days
after Landlord bills Tenant therefor, or at Landlord's election, in monthly
installments in amounts estimated by Landlord. Tenant's proportionate share of
all insurance costs shall be computed by Landlord within ninety (90) days after
the end of each accounting year (which Landlord may change from time to time).
Landlord shall furnish to Tenant a statement showing in reasonable detail the
actual insurance costs incurred during such accounting year and Tenant's Pro
Rata Share thereof. To the extent Tenant's Pro Rata Share of such costs is
greater than the sums paid by Tenant for such year, the difference shall be
billed to and paid by Tenant
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within thirty (30) days after Tenant's receipt of said bill. Any shortfall shall
be credited against future installments of rent. Tenant's estimated monthly
insurance costs thereafter may be adjusted by written notice from Landlord.
6.6 FIRE PROTECTION. Tenant shall conform the Leased Premises with all
applicable fire codes of any governmental authority, and with the rules and
regulations of Landlord's fire underwriters and their fire protection engineers,
including, without limitation, the installation and maintenance of adequate fire
extinguishers, and/or any other unique requirements based on Tenant's occupancy.
Landlord agrees to coordinate the installation and/or modification of the
sprinkler systems, alarms and/or special hazards fire protection for the Leased
Premises provided that Tenant shall be responsible for any additional cost
caused solely on account of Tenant's particular use of the Leased Premises.
Landlord is providing a sprinkler monitoring system with a direct connection to
the local fire department or monitoring service. In the event of impairment of
the sprinkler system, the party discovering such impairment shall immediately
notify the other party hereto. During the period of any such impairment or
shutdown of the fire protection system(s), Tenant shall cease any operations
which may create any form of flame, spark, combustible risk or explosive
atmosphere.
In addition to the Monitoring Service Charge payable by Tenant as set forth
in the preceding paragraph (if any), Tenant shall, upon invoice therefor,
reimburse Landlord for Landlord's costs incurred in maintaining and repairing
any sprinkler or other fire suppression system, such costs to be prorated based
upon Tenant's proportionate share of the floor space in the Building in which
the Leased Premises is situated. Landlord and Tenant hereby agree that all
maintenance and repair on the sprinkler systems, alarms and/or special hazard
fire protection shall be the responsibility of the Tenant for those systems
affording protection to the Leased Premises.
6.7 WAIVER OF SUBROGATION. Landlord and Tenant, and all parties claiming
under each of them, mutually release and discharge each other from all claims
and liabilities arising from or caused by any casualty or hazard covered or
required hereunder to be covered in whole or in part by insurance coverage
required to be maintained by the terms of this Lease on the Leased Premises or
in connection with the Real Estate or activities conducted thereon or therewith,
and waive any right of subrogation which might otherwise exist in or accrue to
any person on account thereof, including all other tenants of the Building. All
policies of insurance required to be maintained by the parties hereunder shall
contain waiver of subrogation provisions in accordance with the foregoing so
long as the same are available.
6.8 DISCLAIMER OF LIABILITY. To the extent of the insurance carried by
Tenant or required by the terms of this Lease to be carried by Tenant, Tenant
hereby disclaims, and releases Landlord and Landlord's Protected Parties from
any and all liability, whether in contract or tort (including strict liability
and negligence), for any loss, damage, or injury of any nature whatsoever
sustained by Tenant and Tenant's Protected Parties, during the term of this
Lease. The parties hereby agree that under no circumstances shall Landlord be
liable for indirect, consequential, special, or exemplary damages, whether in
contract or tort (including strict liability and negligence), such as, but not
limited to, loss of revenue or anticipated profits or other damage related to
the leasing of the Premises under this Lease. Tenant shall also hold Landlord
and Landlord's Protected Parties harmless from and against any and all
liability, fines, or other charges incurred as a result of alleged violations of
airport security regulations (FAR parts 107 and 139) by Tenant and Tenant's
Protected Parties.
To the extent of the insurance carried by Landlord or required by the terms
of this Lease to be carried by Landlord, Landlord hereby disclaims, and releases
Tenant from any and all liability, whether in contract or tort (including strict
liability and negligence), for any loss, damage, or injury of any nature
whatsoever sustained by Landlord and
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Landlord's Protected Parties, during the term of this Lease. The parties hereby
agree that under no circumstances shall Tenant be liable for indirect,
consequential, special, or exemplary damages, whether in contract or tort
(including strict liability and negligence), such as, but not limited to, loss
of revenue or anticipated profits or other damage related to this Lease.
Landlord shall also hold Tenant and Tenant's Protected Parties harmless from and
against any and all liability, fines, or other charges incurred as a result of
alleged violations of airport security regulations (FAR parts 107 and 139) by
Landlord and Landlord's Protected Parties.
VII. DAMAGE OR DESTRUCTION
7.1 LANDLORD'S OBLIGATION TO REBUILD. In the event the Leased Premises are
damaged by fire, explosion or other casualty, Landlord shall commence the
repair, restoration or rebuilding thereof within sixty (60) days after such
damage and shall complete such restoration, repair or rebuilding within one
hundred fifty (150) days after the commencement thereof, provided that if
construction is delayed because of changes, deletions, or additions in
construction requested by Tenant, strikes, lockouts, casualties, acts of God,
war, material or labor shortages, governmental regulation or control or other
causes beyond the control of Landlord, the period for restoration, repair or
rebuilding shall be extended for the amount of time Landlord is so delayed. If
the casualty or the repair, restoration or rebuilding caused thereby shall
render the Leased Premises untenantable, in whole or in part, rent shall be
equitably abated during the period of untenantability and Tenant shall have no
liability for the abated rent. If such a fire, explosion or other casualty
damages the building in which the Leased Premises are located, in a material or
substantial way, Landlord may, in lieu of repairing, restoring or rebuilding the
same, terminate this Lease within sixty (60) days after the occurrence of the
event causing the damage by notice to Tenant. In such event, the obligation of
Tenant to pay rent and other charges hereunder shall end as of the date when the
damage occurred.
7.2 TENANT'S RIGHTS AFTER CASUALTY. In the event of any substantial damage
or destruction to the Leased Premises, Landlord shall notify Tenant within
thirty (30) days thereafter of the anticipated time to complete the repair,
restoration or rebuilding thereof. In the event the anticipated time is greater
than one hundred fifty (150) days from the date of such casualty, then in such
event Tenant shall have the right to elect to terminate this Lease by notice to
Landlord within thirty (30) days after receipt of Landlord's estimate of the
anticipated time to restore the Leased Premises. Additionally, in the event any
damage or destruction to the Leased Premises is not repaired, restored or
rebuilt, as the case may be, within one hundred fifty (150) days after such
damage or destruction, then in such event Tenant shall have the right and option
to elect to terminate this Lease by notice to Landlord at any time prior to
substantial completion of such work by Landlord; provided, however, that upon
receipt of any such notice, Landlord shall have the right to nullify such
election by notice to Tenant so long as Landlord substantially completes the
repair, restoration or rebuilding of the Leased Premises within thirty (30) days
after receipt of Tenant's notice.
VIII. CONDEMNATION
8.1 TAKING OF WHOLE. If the whole of the Leased Premises shall be taken or
condemned for a public or quasi-public use or purpose by a competent authority,
or if such a portion of the Leased Premises shall be so taken that as a result
thereof the balance cannot be used for the same purpose and with substantially
the same utility to Tenant as immediately prior to such taking, then in either
of such events, the Lease term shall terminate upon delivery of possession to
the condemning authority, and any award, compensation or damages (hereinafter
sometimes called the "Award") shall be paid to and be the sole property of
Landlord whether the Award shall be made as compensation for diminution of the
value of the leasehold estate or the fee of the Real Estate or otherwise and
Tenant hereby assigns to Landlord all of Tenant's right, title and interest in
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and to any and all of the Award. Tenant shall continue to pay rent and other
charges hereunder until the Lease term is terminated and any Impositions and
premiums prepaid by Tenant, or which accrue prior to the termination, shall be
adjusted between the parties.
8.2 PARTIAL TAKING. If only a part of the Leased Premises shall be so taken
or condemned, but the Lease is not terminated pursuant to Section 8.1 hereof,
Landlord shall repair and restore the Leased Premises and all improvements
thereon, to the extent reasonably practicable, provided that Landlord shall not
hereby be required to expend for repair and restoration any sum in excess of the
Award. Any portion of the Award which has not been expended by Landlord for such
repairing or restoration shall be retained by Landlord as Landlord's sole
property. The rent shall be equitably abated following delivery of possession to
the condemning body. If the portion of the building within which the Leased
Premises are located shall be so taken or condemned in a material or substantial
way, Landlord may terminate this Lease by giving written notice thereof to
Tenant within sixty (60) days after such taking. In such event, the Award shall
be paid to and be the sole property of Landlord.
8.3 TEMPORARY TAKING. If the whole or a part of the Leased Premises shall
be taken or condemned for a public or quasi-public use or purpose by a competent
authority, but only on a temporary basis, then in such event this Lease shall
continue in full force and effect, without any abatement of rent whatsoever, but
the Award paid on account of such temporary taking shall be paid to Tenant in
full satisfaction of all claims of Tenant on account thereof.
8.4 PAYMENT TO TENANT. Notwithstanding the provisions of this Article VIII,
in the event of a termination of this Lease on account of a taking, then in such
event Landlord agrees that Tenant may prosecute a claim in such condemnation
proceeding for (a) the reasonable relocation and moving costs incurred by Tenant
on account thereof, (b) the unamortized balance of Tenant's leasehold
improvements to the Leased Premises (less the construction allowance paid by
Landlord hereunder), which balance shall be calculated by amortizing such costs
on a straight-line basis over the initial fifteen (15) year Lease term, and (c)
the value of the remaining leasehold interest of Tenant for the then existing
term of this Lease. Tenant agrees that it shall not have the right to claim any
other compensation in such proceeding.
IX. MAINTENANCE AND ALTERATIONS
9.1 LANDLORD'S MAINTENANCE.
(a) Landlord shall perform all maintenance, repairs and replacements of
the roof and the structural components of the Leased Premises (unless
caused by Tenant's use of or alterations to the Leased Premises).
Tenant shall pay to Landlord Tenant's Pro Rata Share of the costs and
expenses incurred by Landlord in fulfilling its obligations under this
Section 9.1 pursuant to the reimbursement provisions set forth in
Section 14.2 below, except that, subject to Section 6.1(d) hereof, if
the necessity for any such maintenance, repairs or replacements
results from any act or omission or negligence of Tenant, its agents,
employees, contractors, customers or invitees, Tenant shall pay to
Landlord all of the costs and expenses incurred by Landlord in
performing such work. Such payment shall be additional rent hereunder
and shall be paid to Landlord within thirty (30) days after Landlord
bills Tenant therefor.
(b) Notwithstanding the provisions of Paragraph (a) above, Landlord shall
not be obligated to repair the following: (i) the exterior or interior
of any doors (other than aircraft hangar doors), windows and plate
glass surrounding the Leased Premises; (ii) heating, ventilating or
air-conditioning equipment in
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the Leased Premises; and (iii) damage to Tenant's improvements or
personal property caused by any casualty, burglary, break-in,
vandalism, war or act of God. Landlord shall, in any event, have ten
(10) days after notice from Tenant stating the need for repairs to
commence such repairs (unless an emergency in which event Landlord
shall proceed forthwith), and Landlord shall thereafter proceed with
due diligence to complete same.
9.2 TENANT'S MAINTENANCE.
(a) Except as provided in Section 9.1 hereof, Tenant shall keep and
maintain the entire interior of the Leased Premises, specifically
including, without limitation, all the heating, ventilating and air
conditioning equipment, pipes and conduits in good condition and
repair. As used herein, each and every obligation of Tenant to keep,
maintain and repair shall include, without limitation, all ordinary
and extraordinary structural and non-structural repairs and
replacements on account of (i) Tenant's use of the Leased Premises,
and (ii) any improvements made to the Leased Premises by Tenant. As to
any repairs costing in excess of $10,000.00 and as to any replacements
whatsoever, Tenant shall, in connection therewith, comply with the
requirements of Section 9.3(b) hereof. Tenant shall keep the Leased
Premises from falling out of repair or deteriorating and shall keep
the same safe, secure and clean and in full compliance with all health
and safety regulations in force. Nothing in Section 1.5(a) shall be
deemed to limit Tenant's obligation under this Section 9.2(a). Tenant
shall promptly remove any debris left by Tenant, its employees,
agents, contractors or invitees in the parking area or other exterior
areas of the Real Estate. Tenant agrees to cooperate with any other
tenants on the Real Estate in connection with exterior maintenance and
repairs not performed by Landlord hereunder to the end that any
exterior repairs and maintenance will be performed in a uniform manner
acceptable to Landlord. In connection therewith, Tenant and such other
tenants may agree among themselves as to the allocation of costs and
responsibilities.
(b) Without limiting Tenant's obligations under Section 9.2(a) hereof,
Tenant shall, at all times during the term of this Lease, have and
keep in force a maintenance contract in form and with a contractor
satisfactory to Landlord, providing for inspection at least once each
calendar quarter of the heating, air conditioning and ventilating
equipment (which inspection shall encompass the work described on
Schedule I attached hereto and made a part hereof), and providing for
necessary repairs thereto. Said contract shall provide that it will
not be cancelable by either party thereto except upon thirty (30)
days' prior written notice to Landlord.
9.3 ALTERATIONS.
(a) Subsequent to the completion of Tenant's Work, Tenant shall thereafter
make all additions, improvements and alterations on the Leased
Premises, and on and to the appurtenances and equipment thereof,
required on account of Tenant's particular use of the Leased Premises
and required by any governmental authority or which may be made
necessary by the act or neglect of Tenant, its employees, agents or
contractors, or any persons, firm or corporation claiming by, through
or under Tenant. Tenant shall also be entitled to construct non-load
bearing partition walls without Landlord's consent. Except as provided
in the immediately preceding sentences, Tenant shall not create any
openings in the roof or exterior walls, or make any other exterior or
structural alterations to the Leased Premises (hereinafter
"Alterations") without Landlord's prior written consent, which
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consent Landlord may, in its discretion, withhold. Notwithstanding the
foregoing, any alterations or improvements by Tenant which alter the
location of partition walls, fire walls, ceilings or other fire
protection shall require the prior written consent of the Landlord,
which consent shall not be unreasonably withheld.
(b) As to any Alterations which Tenant is required hereunder to perform or
to which Landlord consents, and as to all additions, improvements and
alterations required by any governmental authority or which may be
made necessary by the act or neglect of Tenant, and as to any repairs
costing in excess of $10,000.00, and as to any replacements of the
foregoing, or as to work performed pursuant to Article XVIII hereof,
such work shall be performed with new materials, in a workman-like
manner, strictly in accordance with plans and specifications therefor
first approved in writing by Landlord and in accordance with all
applicable laws and ordinances. Tenant shall, prior to the
commencement of such work, deliver to Landlord copies of all required
permits, and builders risk (or installation floater) insurance
coverage to the extent of the cost of the Alterations. Tenant shall
permit Landlord to monitor construction operations in connection with
such work, and to restrict, as may reasonably be required, the passage
of manpower and materials, and the conducting of construction activity
in order to avoid unreasonable disruption, hazard or inconvenience to
Landlord or other tenants of the Real Estate or to Permitted Parties
or damage to the Real Estate or the Leased Premises. Upon completion
of any such work by or on behalf of Tenant, Tenant shall provide
Landlord with such documents as Landlord may require (including,
without limitation, sworn contractors' statements and supporting lien
waivers) evidencing payment in full for such work, and "as built"
working drawings or final working drawings marked by the general
contractor to show changes made in the field. In the event Tenant
performs any work not in compliance with the provisions of this
Section 9.3(b), Tenant shall, upon written notice from Landlord,
immediately remove such work and restore the Leased Premises to their
condition immediately prior to the performance thereof. If Tenant
fails so to remove such work and restore the Leased Premises as
aforesaid, Landlord may, at its option, and in addition to all other
rights or remedies of Landlord under this Lease, at law or in equity,
enter the Leased Premises and perform said obligation of Tenant and
Tenant shall reimburse Landlord for the cost to the Landlord thereof,
immediately upon being billed therefor by Landlord. Such entry by
Landlord shall not be deemed an eviction or disturbance of Tenant's
use or possession of the Leased Premises nor render Landlord liable in
any manner to Tenant.
(c) In no event shall Tenant be entitled to use the roof of the Leased
Premises or any other roof on the Real Estate without the prior
written consent of Landlord, which consent may be granted or withheld
in Landlord's sole discretion. In the event Tenant obtains Landlord's
consent to utilize the roof of the Leased Premises or any other roof
of a building on the Real Estate, Tenant shall only use Landlord's
roofing contractor for all purposes for which Landlord has consented.
(d) All improvements and Alterations made to the Leased Premises by Tenant
shall, immediately upon attachment to the Leased Premises or
installation thereof, be deemed the property of Landlord and Tenant
shall have no further right or claim to the title thereof.
(e) Tenant shall have the right upon written notice to Landlord to install
satellite equipment upon the roof of the Leased Premises, subject to
Landlord's
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approval of the equipment and the manner of installation, which
approval shall not be unreasonably withheld or delayed. Tenant agrees
to indemnify and hold harmless Landlord and Landlord's Protected
Parties from any loss, cost or expense (including damage to property
and injury to person) arising out of the installation, maintenance,
operation, repair, replacement and removal of such equipment. Tenant
further agrees that such equipment shall not (i) violate any
governmental laws, rules and regulations, including, without
limitation, those promulgated by the Federal Aviation Administration
("FAA"), (ii) interfere with any other tenants located at the Columbus
International Aircenter, or (iii) result in an unsightly condition.
Tenant shall be fully responsible for the maintenance and repair of
such equipment and shall remove such equipment at the expiration or
early termination of the Term of the Lease.
X. ASSIGNMENT AND SUBLETTING
10.1 CONSENT REQUIRED.
(a) Tenant shall not, without Landlord's prior written consent, (i)
assign, convey or mortgage this Lease or any interest therein; (ii)
allow any transfer thereof or any lien upon Tenant's interest by
operation of law; (iii) sublet the Leased Premises or any part
thereof; (iv) amend a sublease previously consented to by the
Landlord; or (v) permit the use or occupancy of the Leased Premises or
any part thereof by anyone other than Tenant. If Tenant proposes to
assign the Lease or enter into any sublease of the Leased Premises,
Tenant shall deliver written notice thereof to Landlord, together with
the proposed terms of such assignment or sublease agreement at least
thirty (30) days prior to the effective date thereof. Any proposed
assignment or sublease shall be expressly subject to the terms,
conditions and covenants of this Lease. Any proposed assignment shall
contain a written assumption by assignee of all of Tenant's
obligations under this Lease. Any sublease shall (i) provide that the
sublessee shall procure and maintain the insurance required of Tenant
in accordance with the terms of Section 6.2(b) and Section 9.3(b)
hereof, (ii) provide for a copy to Landlord of notice of default by
either party, and (iii) otherwise be reasonably acceptable to
Landlord.
(b) Landlord's consent to any assignment or subletting shall not
unreasonably be withheld; in making its determination as to whether to
consent to any proposed assignment or sublease, Landlord may consider,
among other things, the creditworthiness and business reputation of
the proposed assignee or subtenant, the compatibility of the proposed
use of the Leased Premises with the general character of the Real
Estate, and any other factors which Landlord may reasonably deem
relevant. Tenant's remedy, in the event that Landlord shall
unreasonably withhold its consent to an assignment or subletting,
shall be limited to injunctive relief or declaratory judgment and in
no event shall Landlord be liable for damages resulting therefrom. No
consent by Landlord to any assignment or subletting shall be deemed to
be a consent to any further assignment or subletting or to any
sub-subletting.
Landlord's consent shall not be withheld if Tenant provides sufficient
evidence to Landlord, such that Landlord can verify that: (i) the
proposed use complies with the terms hereof; (ii) such use is
consistent with the general character of the Real Estate, (iii) the
proposed assignee maintains a tangible net worth of at least Sixty
Million Dollars ($60,000,000.00) and (iv) the proposed assignee has
sufficient business experience and a good
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business reputation. Notwithstanding any such transfer, Tenant shall
nevertheless remain fully and primarily liable hereunder.
(c) In the event that Tenant proposes to assign the Lease or enter into a
sublease of all or substantially all of the Leased Premises, Landlord
shall have the right, in lieu of consenting thereto, to terminate this
Lease. Landlord may exercise said right by giving Tenant written
notice thereof within thirty (30) days after receipt by Landlord of
Tenant's notice, given in compliance with Section 10.1(a) hereof, of
the proposed assignment or sublease. In the event that Landlord
exercises such right, Tenant shall surrender the Leased Premises on
the date set forth in Landlord's notice to Tenant as the termination
date, in which event Tenant shall vacate and surrender the Leased
Premises as required herein, and this Lease shall thereupon terminate.
Landlord may, in the event of such termination, enter into a lease
with any proposed assignee or subtenant for the Leased Premises.
Notwithstanding the foregoing paragraph, Tenant shall have the right
to notify Landlord that it is considering assigning or subletting all
or substantially all of its interest in this Lease prior to actively
marketing the Leased Premises and/or negotiating the terms of any
assignment or subletting thereof, in which event such notice shall
trigger Landlord's thirty (30) day right to elect to recapture the
Leased Premises and terminate this Lease. In the event Tenant provides
Landlord with such notice of its intent to pursue an assignment or
subletting of all or substantially all of the Leased Premises, and
Landlord fails to elect to terminate the Lease within said thirty (30)
day period, then Landlord shall not be entitled to elect to terminate
this Lease as outlined in the immediately preceding paragraph for a
period of nine (9) months thereafter.
(d) In the event that Tenant subleases the Leased Premises, Tenant shall
pay to Landlord monthly, as additional rent hereunder, fifty percent
(50%) of the amount calculated by subtracting from the rent and other
charges and consideration payable from time to time by the subtenant
to Tenant for said space, the amount of rent and other charges payable
by Tenant to Landlord under this Lease, allocated (based on the
relative rentable square foot area of the total Leased Premises and of
that portion of the Leased Premises so subleased by Tenant) to the
subleased portion of the Leased Premises.
(e) No permitted assignment shall be effective and no permitted sublease
shall commence unless and until any default by Tenant hereunder shall
have been cured. No permitted assignment or subletting shall relieve
Tenant from Tenant's obligations and agreements hereunder and Tenant
shall continue to be liable as a principal and not as a guarantor or
surety to the same extent as though no assignment or subletting had
been made.
(f) Notwithstanding the foregoing, Tenant may assign this Lease or sublet
the Leased Premises, in whole or in part, to a "Related Party" (as
hereinafter defined) without obtaining Landlord's consent. The term
"Related Party" means any person, firm, corporation or legal entity
which directly controls, is controlled by, or is under common control
by the Schottenstein Family. The term "Schottenstein Family" means any
of Jay L. Schottenstein, Susan S. Diamond, Ann S. Deshe, Lori
Schottenstein, Geraldine Schottenstein, or their respective spouses or
children or any trusts or entities of which any of such persons are
beneficiaries and which any of such persons control, directly or
indirectly. The term "control" means the possession, directly, of the
power to direct or cause the direction of the management and policies
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of Tenant, whether through the ownership of voting securities or by
contract. Additionally, Tenant shall have the right, without the
consent of the Landlord, to assign this Lease or sublet all or any
portion of the Leased Premises to (a) a parent, subsidiary or
affiliate corporation of the Tenant, (b) a successor by merger,
acquisition or consolidation of the Tenant or its parent or
subsidiary, or (c) a corporation acquiring all or substantially all of
the assets of Tenant, its parent or subsidiary; provided, however that
in the event of any of the foregoing, Tenant shall remain fully liable
hereunder.
10.2 OTHER TRANSFER OF LEASE. Tenant shall not allow or permit any transfer
of this Lease, or any interest hereunder, by operation of law, or convey,
mortgage, pledge, or encumber this Lease or any interest therein.
XI. LIENS AND ENCUMBRANCES
11.1 ENCUMBERING TITLE. Tenant shall not do any act which shall in any way
encumber the title of Landlord in and to the Leased Premises or the Real Estate,
nor shall the interest or estate of Landlord in the Leased Premises or the Real
Estate be in any way subject to any claim by way of lien or encumbrance, whether
by operation of law or by virtue of any express or implied contract by Tenant.
Any claim to, or lien upon, the Leased Premises or the Real Estate arising from
any act or omission of Tenant shall accrue only against the leasehold estate of
Tenant and shall be subject and subordinate to the paramount title and rights of
Landlord in and to the Leased Premises and the Real Estate.
11.2 LIENS AND RIGHT TO CONTEST. Tenant shall not permit the Leased
Premises or the Real Estate to become subject to any mechanics', laborers' or
materialmen's lien on account of labor or material furnished to Tenant or
claimed to have been furnished to Tenant in connection with work of any
character performed or claimed to have been performed on the Leased Premises by,
or at the direction or sufferance of Tenant; provided, however, that Tenant
shall have the right to contest, in good faith and with reasonable diligence,
the validity of any such lien or claimed lien if Tenant shall give to Landlord
such security as may be deemed satisfactory to Landlord to assure payment
thereof and to prevent any sale, foreclosure, or forfeiture of the Leased
Premises or the Real Estate by reason of nonpayment thereof; provided further,
that on final determination of the lien or claim for lien, Tenant shall
immediately pay any judgment rendered, with all proper costs and charges, and
shall have the lien released and any judgment satisfied. Tenant hereby agrees to
indemnify and hold Landlord harmless for any liability, cost, damage and expense
occasioned by any mechanic's lien filed against the Leased Premises or the Real
Estate on account of labor or material furnished to Tenant or claimed to have
been furnished to Tenant in connection with the Leased Premises or the Real
Estate.
XII. UTILITIES
12.1 UTILITIES.
(a) Tenant shall purchase all utility services, including but not limited
to fuel, electricity, and steam heat, but excluding water and
sewerage, from the utility complex or entity, providing such service
to the Real Estate, as directed by Landlord, and shall pay for such
services within thirty (30) days after receipt of an invoice therefor.
In the event that at any time during the term of this Lease, said
utility or municipality increases its charge to Landlord for water
and/or sewerage service to the Real Estate over the charge for such
service made as of the date of this Lease, then Tenant shall pay to
Landlord an amount equal to Tenant's Pro Rata Share of the increase in
said utility's or municipality's charge to Landlord. Landlord shall
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give written notice to Tenant of any such increase and Tenant shall
commence paying the increased charge on the effective date of said
utility's or municipality's increase. Should any utility service be
separately metered, Tenant pay all such amounts for services to the
Leased Premises promptly prior to the due date thereof. Landlord shall
not be liable for the quality or quantity of or interference involving
any such utilities. During the term hereof, whether the Leased
Premises are occupied or unoccupied, Tenant agrees to maintain heat
sufficient to heat the Leased Premises so as to avert any damage to
the Leased Premises on account of cold weather.
(b) Tenant shall pay to Landlord, as additional rent for the Leased
Premises, Tenant's Pro Rata Share of the charges for utilities used
for areas of common use by the tenants on the Real Estate. Such
charges shall be paid by Tenant to Landlord within thirty (30) days
after Landlord bills Tenant therefor, or, at Landlord's election, in
monthly installments in amounts estimated by Landlord.
(c) Notwithstanding anything to the contrary contained in Section 12.1(a)
or Section 12.1(b) above, during the period beginning on the Tenant
Entrance Date and ending on May 31, 2001, Landlord shall pay for all
utilities consumed by Tenant at the Leased Premises and for Tenant's
Pro Rata Share of the charges for utilities used for areas of common
use by the tenants on the Real Estate. From and after June 1, 2001,
Tenant shall be responsible for all such costs and expenses as
provided in this Lease.
XIII. INDEMNITY
13.1 INDEMNITY. Tenant will protect, indemnify and save harmless Landlord
Protected Parties (as defined in Section 6.1) from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including without limitation, reasonable attorneys' fees and expenses) imposed
upon or incurred by or asserted against Landlord by reason of (i) any failure on
the part of Tenant to perform or comply with any of the terms of this Lease;
(ii) performance of any labor or services or the furnishing of any materials or
other property in respect of the Leased Premises or any part thereof; (iii) any
violations or alleged violations of airport security regulations by Tenant and
all Permitted Parties of Tenant; (iv) any use of the Leased Premises by Tenant,
including but not limited to, the use of electronic or radar monitoring or
transmission equipment or related transmissions; or (v) any and all liability,
fines or other charges incurred as a result of alleged violations of airport or
aviation security regulations by Tenant and its Permitted Parties. In case any
action, suit or proceeding is brought against Landlord by reason of any
occurrence described in this Section 13.1, Tenant will, at Tenant's expense, by
counsel approved by Landlord, resist and defend such action, suit or proceeding,
or cause the same to be resisted and defended. The costs indemnified against
hereunder and assumed under Article VI include, without limitation, any claims
due to loss suffered by the Landlord, Landlord's other tenants, the Permitted
Parties, the Columbus Airport Authority, the tenants of the Columbus Airport
Authority, or the City of Columbus, Ohio. The obligations of Tenant under this
Section 13.1 shall survive the expiration or earlier termination of this Lease.
Landlord will protect, indemnify and save harmless Tenant Protected Parties
(as defined in Section 6.1) from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including
without limitation, reasonable attorneys' fees and expenses) imposed upon or
incurred by or asserted against Tenant by reason of (i) any failure on the part
of Landlord to perform or comply with any of the terms of this Lease, (ii)
performance of any labor or services or the furnishing of any materials or other
property in respect of the Leased Premises or any part thereof by Landlord, or
(iii) any violations or alleged violations of airport security regulations by
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Landlord and all Permitted Parties of Landlord. In case any action, suit or
proceeding is brought against Tenant by reason of any occurrence described in
this Section 13.1, Landlord will, at Landlord's expense, by counsel approved by
Tenant, resist and defend such action, suit or proceeding, or cause the same to
be resisted and defended. The costs indemnified against hereunder and assumed
under Article VI include, without limitation, any claims due to loss suffered by
the Tenant, the Permitted Parties, the Columbus Airport Authority, the tenants
of the Columbus Airport Authority, or the City of Columbus, Ohio. The
obligations of Landlord under this Section 13.1 shall survive the expiration or
earlier termination of this Lease.
XIV. RIGHTS RESERVED TO LANDLORD
14.1 RIGHTS RESERVED TO LANDLORD. Without limiting any other rights
reserved or available to Landlord under this Lease, at law or in equity,
Landlord, on behalf of itself and Agent reserves the following rights to be
exercised at Landlord's election:
(a) To change the street address of the Leased Premises or the name of the
project which includes the Leased Premises;
(b) To inspect the Leased Premises and to make repairs, additions or
alterations to the Leased Premises or the building of which the Leased
Premises are a part, specifically including, but without limiting the
generality of the foregoing, to make repairs, additions or alterations
within the Leased Premises to mechanical, fire protection systems,
alarm systems, electrical, and other facilities, systems, serving
other premises in the building of which the Leased Premises are a
part, or which serve other parts of the Real Estate;
(c) Upon reasonable advance notice and with appropriate supervision, to
show the Leased Premises to prospective purchasers, mortgagees, or
other persons having a legitimate interest in viewing the same, and,
at any time within one (1) year prior to the expiration of the Lease
term, to persons wishing to rent the Leased Premises;
(d) During the last year of the Lease term, to place and maintain the
usual "For Rent" sign in or on the Leased Premises or the Real Estate,
and at any time during the Lease term to place and maintain "For Sale"
signs on the Real Estate; and
(e) If Tenant shall theretofore have vacated the Leased Premises (but not
earlier than during the last ninety (90) days of the Lease term), to
decorate, remodel, repair, alter or otherwise prepare the Leased
Premises for new occupancy.
(f) To promulgate rules and regulations for the operation and use of the
common areas, including the parking areas for the common use and
benefit of the tenants of the Real Estate and their customers and
invitees. Landlord shall at all times have exclusive control of the
common areas and may at any time and from time to time: (i) modify and
amend reasonable rules and regulations for the use of the common
areas, which rules and regulations shall be binding upon the Tenant
upon delivery of a copy thereof to the Tenant; (ii) temporarily close
any part of the common areas, including but not limited to closing the
streets, sidewalks, road or other facilities to the extent necessary
to prevent a dedication thereof or the accrual of rights of any person
or of the public therein; (iii) exclude and restrain anyone from the
use or occupancy of the common areas or any part thereof except bona
fide customers and suppliers of the tenants of the
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Real Estate who use said areas in accordance with the rules and
regulations established by Landlord; (iv) engage others to operate and
maintain all or any part of the common areas, on such terms and
conditions as Landlord shall, in its sole judgment, deem reasonable
and proper; and (v) make such changes in the common areas as in its
opinion are in the best interest of the Real Estate, including but not
limited to changing the location of walkways, service areas,
driveways, entrances, existing automobile parking spaces and other
facilities, changing the direction and flow of traffic and
establishing prohibited areas. Provided, however, that in no event
shall any such changes under this paragraph (i) materially adversely
affect parking, ingress, egress or access to the Leased Premises or
(ii) modify the two way traffic pattern between Building 6 and
Building 7 required by Tenant for Tenant's truck access to the Leased
Premises.
(g) Remove any obstructions in the common areas created or permitted by
Tenant, including towing vehicles parked in restricted parking zones
at Tenant's sole cost and expense.
Upon reasonable advance notice and with appropriate supervision, Landlord may
enter upon the Leased Premises for any and all of said purposes and may exercise
any and all of the foregoing rights hereby reserved, during normal business
hours unless an emergency exists, without being deemed guilty of any eviction or
disturbance of Tenant's use or possession of the Leased Premises, and without
being liable in any manner to Tenant.
14.2 MAINTENANCE COSTS.
(a) Tenant shall pay to Landlord, as additional rental, in monthly
installments based on Landlord's estimates, from time to time,
simultaneously with payment of minimum rental called for under Section
5, Tenant's Pro Rata Share of the "maintenance cost" for the
operation, maintenance, repair and replacement of the common areas and
those costs incurred by Landlord pursuant to Section 9.1 above.
(b) The maintenance costs for the common areas shall be computed on an
accrual basis, and shall include all costs incurred by Landlord in
connection with operating, securing, maintaining, repairing and
replacing the common areas, including by way of example but not
limitation: (i) cost of labor (including workmen's compensation
insurance, employee benefits and payroll taxes); (ii) materials, and
supplies used or consumed in the maintenance or operation of the
common area; (iii) to the extent not included in Section 12.1(b), the
cost of operating and repairing of the lighting; (iv) cleaning,
painting, removing of rubbish or debris, snow and ice, private
security services, and inspecting the common areas; (v) the cost of
repairing and/or replacing paving, curbs, walkways, markings,
directional or other signs; landscaping, and drainage and lighting
facilities; (vi) rental paid for maintenance of machinery and
equipment; (vii) to the extent not included in Section 6.5, cost of
insurance for public liability and property insurance and boiler and
machinery insurance for property in the common areas which are not
part of the building, and crime insurance; (viii) the cost of
operating, repairing and maintaining the central HVAC system, to the
extent the Leased Premises are served thereby; (ix) one-half (1/2) of
all costs properly chargeable to a capital account and (x) a
reasonable allowance to Landlord for Landlord's supervision, which
allowance shall not in an accounting year exceed ten percent (10%) of
the total of all maintenance costs (excluding item (vii) above) for
such accounting year (all of the foregoing are collectively referred
to herein as "Maintenance Costs."
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Maintenance Costs shall not include greater than one-half (1/2) of any
costs incurred by Landlord properly chargeable to a capital account.
(c) Landlord shall maintain accurate and detailed records of all
Maintenance Costs for the common areas.
(d) Tenant's proportionate share of all Maintenance Costs shall be
computed by Landlord within ninety (90) days after the end of each
accounting year (which Landlord may change from time to time).
Landlord shall furnish to Tenant a statement showing in reasonable
detail the actual Maintenance Costs incurred during such accounting
year and Tenant's Pro Rata Share thereof. To the extent Tenant's Pro
Rata Share of such costs is greater than the sums paid by Tenant for
such year, the difference shall be billed to and paid by Tenant within
thirty (30) days after Tenant's receipt of said bill. Any shortfall
shall be credited against future installments of rent. Tenant's
estimated monthly Maintenance Costs thereafter may be adjusted by
written notice from Landlord.
(e) Notwithstanding anything to the contrary contained herein, Tenant's
contribution to Impositions, Insurance Premiums and Maintenance Costs
(including common area utility charges) (as the foregoing items are
more particularly specified in Sections 5.1, 6.5, 12.1(b) and 14.2
herein) shall not exceed Fifty Cents (50c) per square foot per year
during the first Lease Year; Sixty Cents (60c) per square foot per
year during the second Lease Year; Seventy Cents (70c) per square foot
per year during the third Lease Year; Eighty Cents (80c) per square
foot per year during the fourth Lease Year; and Ninety Cents (90c) per
square foot per year during the fifth Lease Year.
XV. QUIET ENJOYMENT
15.1 QUIET ENJOYMENT. So long as Tenant is not in default under the
covenants and agreements of this Lease, Tenant's quiet and peaceable enjoyment
of the Leased Premises shall not be disturbed or interfered with by Landlord or
by any person claiming by, through or under Landlord.
XVI. SUBORDINATION OR SUPERIORITY
16.1 SUBORDINATION OR SUPERIORITY.
(a) This Lease is subject and subordinate to the lien of any deed of
trust, mortgage or mortgages now placed upon Landlord's interest in
the Real Estate. Landlord agrees to obtain a non-disturbance agreement
for Tenant from its existing lender, United States of America, on the
form agreement previously approved by said lender, which form is
attached hereto as Exhibit D and made a part hereof.
(b) Landlord reserves the right to subject and subordinate this Lease at
all times to the lien of any deed of trust, mortgage or mortgages
hereafter placed upon Landlord's interest in the Leased Premises;
provided, however, that no default by Landlord, under any deed of
trust, mortgage or mortgages, shall affect Tenant's rights under this
Lease, so long as Tenant performs the obligations imposed upon it
hereunder and is not in default hereunder, and Tenant attorns to the
holder of such deed of trust or mortgage, its assignee or the
purchaser at any foreclosure sale. Tenant shall execute any instrument
presented to Tenant for the purpose of
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effecting such subordination so long as the subordination is
substantially in the form attached as Exhibit D. It is a condition,
however, to the subordination and lien provisions herein provided,
that Landlord shall procure from any such mortgagee an agreement in
writing, which shall be delivered to Tenant or contained in the
aforesaid subordination agreement, providing in substance that so long
as Tenant shall faithfully discharge the obligations on its part to be
kept and performed under the terms of this Lease and is not in default
under the terms hereof, its tenancy will not be disturbed nor this
Lease affected by any default under such mortgage.
(c) Wherever notice is required to be given to Landlord pursuant to the
terms of this Lease, Tenant will likewise give such notice to any
mortgagee of Landlord's interest in the Leased Premises upon notice of
such mortgagee's name and address from Landlord. Furthermore, such
mortgagee shall have the same rights to cure any default on the part
of Landlord that Landlord would have had.
XVII. SURRENDER
17.1 SURRENDER. Upon the termination of this Lease, whether by forfeiture,
lapse of time or otherwise, or upon termination of Tenant's right to possession
of the Leased Premises, Tenant will at once surrender and deliver up the Leased
Premises, together with all improvements thereon, to Landlord, in good condition
and repair, reasonable wear and tear and loss by fire or other casualty
excepted; conditions existing because of Tenant's failure to perform
maintenance, repairs or replacements as required herein, or because of Tenant's
particular use of the Leased Premises (even if permitted pursuant to Section
1.5(a) hereof), or because of Tenant's failure to have in force a maintenance
contract as required by Section 9.2(b) hereof, shall not be deemed "reasonable
wear and tear." Tenant shall deliver to Agent all keys to all doors therein. As
used herein, the term "improvements" shall include, without limitation, all
plumbing, lighting, electrical, heating, cooling and ventilating fixtures and
equipment, and all Alterations (as said term is defined in Section 9.3 hereof)
whether or not permitted under said Section 9.3. All alterations, including the
Alterations, improvements and additions, temporary or permanent, made in or upon
the Leased Premises by Tenant, or made by Landlord on Tenant's behalf, shall
become Landlord's property immediately upon installation thereof and shall
remain upon the Leased Premises on any such termination without compensation,
allowance or credit to Tenant; provided, however, that Landlord shall have the
right to require Tenant to remove any alterations, including the Alterations,
and to restore the Leased Premises to their condition prior to the making of any
such alterations, repairing any damage occasioned by such removal and
restoration, unless Landlord has consented to the installation thereof, in which
event no such removal may be required by Landlord. For purposes of this Section
17.1, Tenant's Work is hereby deemed approved by Landlord. Notwithstanding the
foregoing, Landlord may compel Tenant to remove its racking and conveyors from
the Leased Premises at the end of the term. Said right shall be exercised by
Landlord giving written notice thereof to Tenant on or before ten (10) days
after any such termination. If Landlord requires removal of any alterations and
Tenant does not make such removal in accordance with this Section at the time of
such termination, or within thirty (30) days after such request, whichever is
later, Landlord may remove the same (and repair any damage occasioned thereby),
and dispose thereof or, at its election, deliver the same to any other place of
business of Tenant or warehouse the same. Tenant shall pay the costs of such
removal, repair, delivery and warehousing to Landlord on demand.
17.2 REMOVAL OF TENANT'S PROPERTY. Upon the termination of this Lease by
lapse of time, Tenant shall remove Tenant's articles of personal property
incident to Tenant's business ("Trade Fixtures"); provided, however, that Tenant
shall repair any damage to the Leased Premises which may result from such
removal, and shall restore
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the Leased Premises to the same condition as prior to the installation thereof.
If Tenant does not remove Tenant's Trade Fixtures from the Leased Premises prior
to the expiration or earlier termination of the Lease Term, Landlord, may, at
its option, remove the same (and repair any damage occasioned thereby) and
dispose thereof or deliver the same to any other place of business of Tenant or
warehouse the same, and Tenant shall pay the cost of such removal, repair,
delivery and warehousing to Landlord on demand, or Landlord may treat such Trade
Fixtures as having been conveyed to Landlord with this Lease as a bill of sale,
without further payment or credit by Landlord to Tenant.
17.3 HOLDING OVER. Tenant shall have no right to occupy the Leased Premises
or any portion thereof after the expiration of the Lease or after termination of
the Lease or of Tenant's right to possession pursuant to Section 19.2 hereof. In
the event Tenant or any party claiming by, through or under Tenant holds over,
Landlord may exercise any and all remedies available to it at law or in equity
to recover possession of the Leased Premises. For each month or partial month
that Tenant or any party claiming by, through or under Tenant remains in
occupancy of all or any portion of the Leased Premises after the expiration of
the Lease or after termination of the Lease or Tenant's right to possession,
Tenant shall pay monthly rental at a rate equal to 125% of the rate of rent and
other charges payable by Tenant hereunder immediately prior to the expiration or
other termination of the Lease or of Tenant's right to possession. The
acceptance by Landlord of any lesser sum shall be construed as a payment on
account and not in satisfaction of damages for such holding over.
XVIII. ENVIRONMENTAL CONDITIONS
18.1 "ENVIRONMENTAL CONDITION" DEFINED. As used in this Lease, the phrase
"Environmental Condition" shall mean: (a) any adverse condition relating to
surface water, ground water, drinking water supply, land, surface or subsurface
strata or the ambient air, and includes, without limitation, air, land and water
pollutants, noise, vibration, light and odors, or (b) any condition which may
result in a claim of liability under the Comprehensive Environment Response
Compensation and Liability Act, as amended ("CERCLA"), or the Resource
Conservation and Recovery Act ("RCRA"), or any claim of violation of the Clean
Air Act, the Clean Water Act, the Toxic Substance Control Act ("TOSCA"), or any
claim of liability or of violation under any federal statute hereafter enacted
dealing with the protection of the environment or with the health and safety of
employees or members of the general public, or under any rule, regulation,
permit or plan under any of the foregoing, or under any law, rule or regulation
now or hereafter promulgated by the state in which the Leased Premises are
located, or any political subdivision thereof, relating to such matters
(collectively "Environmental Laws"). Landlord hereby represents and warrants to
Tenant that there is no Environmental Condition known to Landlord which would
prevent the use of the Building by Tenant as a general warehouse facility.
18.2 COMPLIANCE BY TENANT. Tenant shall, at all times during the Lease
term, comply with all Environmental Laws applicable to the Leased Premises and
shall not, in the use and occupancy of the Leased Premises, cause or contribute
to, or permit or suffer any other party to cause or contribute to any
Environmental Condition on or about the Leased Premises. Tenant shall not,
however, be responsible for environmental conditions existing prior to Tenant's
possession of the Leased Premises except for Tenant's acts or omissions that
worsen, in any way, said conditions, and only to the extent of the worsening.
Landlord shall use its best efforts to cause its predecessor in interest, the
United States of America, to be responsible for all pre-existing Environmental
Conditions which it is to perform. Landlord shall be responsible for all
pre-existing Environmental Conditions other than those which the United States
of America is to perform. In the event that the United States of America fails
to perform as provided above, Landlord agrees that Landlord and not Tenant shall
be responsible for said pre-existing Environmental Conditions. Without limiting
the generality of the foregoing,
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Tenant shall not, without the prior written consent of Landlord, receive, keep,
maintain or use on or about Leased Premises any substance as to which a filing
with a local emergency planning committee, the State Emergency Response
Commission or the fire department having jurisdiction over the Leased Premises
is required pursuant to '311 and/or '312 of the Comprehensive Environmental
Response, Compensation or Liability Act of 1980, as amended by the Superfund
Amendment and Reauthorization Act of 1986 ("SARA") (which latter Act includes
the Emergency Planning and Community Right-To-Know Act of 1986); in the event
Tenant makes a filing pursuant to SARA or maintains substances as to which a
filing would be required, Tenant shall simultaneously deliver copies thereof to
Agent, or notify Agent in writing of the presence of those substances.
18.3 ENVIRONMENTAL INDEMNITY. Tenant shall protect, indemnify and save
harmless Landlord, Agent and all of their respective members, directors,
officers, employees and agents from and against all liabilities, obligations,
claims damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) of whatever kind or
nature, contingent or otherwise, known or unknown, incurred or imposed, based
upon any Environmental Laws or resulting from any Environmental Condition on or
about the Leased Premises which occurs due to the acts or omissions of Tenant or
the Permitted Parties of Tenant ("Tenant Contamination"). In case any action,
suit or proceeding is brought against any of the parties indemnified herein by
reason of any Tenant Contamination, Tenant will, at Tenant's expense, by counsel
reasonably approved by Landlord, resist and defend such action, suit or
proceeding, or cause the same to be resisted and defended. The obligations of
Tenant under this Section 18.3 shall survive the expiration or earlier
termination of this Lease, and Tenant shall, notwithstanding a termination of
this Lease, continue to pay rent for the Leased Premises in the same amount paid
during the last year of the term hereof until such time as all remediation work
required to cure such matter has been completed.
Landlord shall protect, indemnify and save harmless Tenant and all of its
respective members, directors, officers, employees and agents from and against
all liabilities, obligations, claims damages, penalties, causes of action, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) of whatever kind or nature, contingent or otherwise, known or unknown,
incurred or imposed, based upon any Environmental Laws or resulting from any
Environmental Condition on or about the Leased Premises which occurs due to the
acts or omissions of Landlord or the Permitted Parties of Landlord ("Landlord
Contamination"). In case any action, suit or proceeding is brought against any
of the parties indemnified herein by reason of any Landlord Contamination,
Landlord will, at Landlord's expense, by counsel reasonably approved by Tenant,
resist and defend such action, suit or proceeding, or cause the same to be
resisted and defended. During any remediation necessitated of any Landlord
Contamination, the rent payable hereunder shall be equitably adjusted to the
extent of any material adverse interference with Tenant's use and occupancy of
the Leased Premises. The obligations of Landlord under this Section 18.3 shall
survive the expiration or earlier termination of this Lease.
18.4 TESTING AND REMEDIAL WORK. Landlord may conduct tests and routine
audits on or about the Leased Premises for the purpose of determining the
presence of any Environmental Condition. If such tests and/or audits indicate
the presence of an Environmental Condition on or about the Leased Premises which
occurs due to the acts or omissions of Tenant or its Permitted Parties, Tenant
shall, in addition to its other obligations hereunder, reimburse Landlord for
the cost of conducting such tests. Without limiting Tenant's liability under
Section 18.3 hereof, in the event of any such Environmental Condition, Tenant
shall promptly and at its sole cost and expense, take any and all steps
necessary to remedy the same, complying with all provisions of applicable law
and with Section 9.3(b) hereof. If Tenant fails to promptly remedy same, then
Tenant shall deposit with Landlord an amount sufficient to cause the remediation
of same, based upon Landlord's reasonable estimate of the cost thereof, and upon
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completion of such work by Landlord, Tenant shall pay to Landlord any shortfall
promptly after Landlord bills Tenant therefor, or Landlord shall promptly refund
to Tenant any excess deposit, as the case may be. Additionally, pursuant to a
deed filed for record on October 17, 1997 as Instrument Number 199710170122033,
Recorder's Office, Franklin County, Ohio ("Deed"), it is the obligation of the
United States of America to undertake certain environmental remediation on the
Real Estate, which obligation may interfere with Tenant's use of the Leased
Premises. Tenant agrees to make no claim against the United States of America as
a result of such interference so long as such remediation is in accordance with
the terms of the Deed.
XIX. REMEDIES
19.1 DEFAULTS. Tenant agrees that any one or more of the following events
shall be considered events of default as said term is used herein:
(a) Tenant shall be adjudged an involuntary bankrupt, or a decree or rider
approving, as properly filed, a petition or answer filed against
Tenant asking reorganization of Tenant under the Federal bankruptcy
laws as now or hereafter amended, or under the laws of any state,
shall be entered, and any such decree or judgment or order shall not
have been vacated or set aside within sixty (60) days from the date of
entry or granting thereof; or
(b) Tenant shall file or admit the jurisdiction of the court and the
material allegations contained in any petition in bankruptcy or any
petition pursuant to or purporting to be pursuant to the Federal
bankruptcy laws as now or hereafter amended, or Tenant shall institute
any proceeding or shall give its consent to the institution of any
proceedings for any relief of Tenant under any bankruptcy or
insolvency laws or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganization, arrangements,
composition or extension; or
(c) Tenant shall make any assignment for the benefit of creditors or shall
apply for or consent to the appointment of a receiver for Tenant or
any of the property of Tenant; or
(d) The Leased Premises are levied upon by any revenue officer or similar
officer on account of the actions of Tenant; or
(e) A decree or order appointing a receiver of the property of Tenant
shall be made and such decree or order shall not have been vacated or
set aside within sixty (60) days from the date of entry or granting
thereof;
(f) Tenant shall abandon the Leased Premises during the term hereof; or
(g) Tenant shall default in any payment of rent or in any other payment
required to be made by Tenant hereunder when due as herein provided
(all of which other payments shall be deemed "additional rent" payable
hereunder), or shall default under Sections 6.1 or 6.2 hereof, and any
such default shall continue for five (5) business days after notice
thereof in writing to Tenant; or
(h) Tenant shall fail to contest the validity of any lien or claimed lien
and give security to Landlord to assure payment thereof, or, having
commenced to contest the same and having given such security, shall
fail to prosecute such contest with diligence, or shall fail to have
the same released and satisfy any judgment rendered thereon, and such
default continues for ten (10) days after notice thereof in writing to
Tenant; or
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(i) Tenant shall default in keeping, observing or performing any of the
other covenants or agreements herein contained to be kept, observed
and performed by Tenant, and such default shall continue for thirty
(30) days after notice thereof in writing to Tenant; or
(j) Tenant shall default under any agreement with the Columbus Airport
Authority, the Federal Aviation Administration, the Ohio Environmental
Protection Agency, or with any other governmental entity.
(k) Tenant shall violate any provision of the Declaration of Restrictions
and Easements.
19.2 REMEDIES. Upon the occurrence of any one or more of such events of
default, Landlord may at its election terminate this Lease or terminate Tenant's
right to possession only, without terminating the Lease. Upon termination of the
Lease, or upon any termination of Tenant's right to possession without
termination of the Lease, Tenant shall surrender possession and vacate the
Leased Premises immediately, and deliver possession thereof to Landlord, and
hereby grants to Landlord the full and free right, without demand or notice of
any kind to Tenant except as hereinabove expressly provided for, to enter into
and upon the Leased Premises in such event with or without process of Law and to
repossess the Leased Premises by force, self-help or otherwise without process
of law as Landlord's former estate and to expel or remove Tenant and any other
who may be occupying or within the Leased Premises without being deemed in any
manner guilty of trespass, eviction, or forcible entry or detainer, without
incurring any liability for any damages resulting therefrom and without
relinquishing Landlord's rights to rent or any other right given to Landlord
hereunder or by operation of law. Upon termination of the Lease, Landlord shall
be entitled to recover as damages all rent and other sums due and payable by
Tenant on the date of termination, plus (a) an amount equal to the value of the
rent and other sums provided herein to be paid by Tenant for the residue of the
stated term hereof, less the fair rental value of the Leased Premises for the
residue of the stated term (taking into account the time and expenses necessary
to obtain a replacement tenant or tenants, including expenses hereinafter
described relating to recovery of the Leased Premises, preparation for reletting
and for reletting itself), and (b) the cost of performing any other covenants to
be performed by Tenant. If Landlord elects to terminate Tenant's right to
possession only without terminating the Lease, Landlord may, at Landlord's
option, enter into the Leased Premises, remove Tenant's signs and other
evidences of tenancy, and take and hold possession thereof as hereinabove
provided, without such entry and possession terminating the Lease or releasing
Tenant, in whole or in part, from Tenant's obligations to pay the rent hereunder
for the full term or from any other of its obligations under this Lease.
Landlord may relet all or any part of the Leased Premises for such rent and upon
such terms as shall be satisfactory to Landlord (including the right to relet
the Leased Premises for a term greater or lesser than that remaining under the
Lease term, and the right to relet the Leased Premises as a part of a larger
area, and the right to change the character or use made of the Leased Premises).
For the purpose of such reletting, Landlord may decorate or make any repairs,
changes, alterations or additions in or to the Leased Premises that may be
necessary or convenient. If Landlord does not relet the Leased Premises, Tenant
shall pay to Landlord on demand damages equal to the amount of the rent, and
other sums provided herein to be paid by Tenant for the remainder of the Lease
term. If the Leased Premises are relet and a sufficient sum shall not be
realized from such reletting after paying all of the expenses of such
decorations, repairs, changes, alterations, additions, the expenses of such
reletting and the collection of the rent accruing therefrom (including, but not
by way of limitation, attorneys' fees and brokers' commissions), to satisfy the
rent and other charges herein provided to be paid for the remainder of the Lease
term, Tenant shall pay to Landlord on demand any deficiency and Tenant agrees
that Landlord shall use reasonable efforts to mitigate its damages arising out
of Tenant's default; Landlord
xxviii
<PAGE> 32
shall not be deemed to have failed to use such reasonable efforts by reason of
the fact that Landlord has leased or sought to lease other vacant premises owned
by Landlord, whether on the Real Estate or not, in preference to reletting the
Leased Premises, or by reason of the fact that Landlord has sought to relet the
Leased Premises at a rental rate higher than that payable by Tenant under the
Lease (but not in excess of the then current market rental rate). If Tenant
shall default under Section 19.1(i) and if such default cannot with due
diligence be cured within said period of thirty (30) days after notice in
writing shall have been given to Tenant, and if Tenant promptly commences to
eliminate such default, and vigorously pursues such cure to completion
thereafter, then Landlord shall not have the right to declare said term ended by
reason of such default or to repossess without terminating the Lease so long as
Tenant is proceeding diligently and with reasonable dispatch to take all steps
and do all work required to cure such default, and does so cure such default,
provided, however, that the curing of any default in such manner shall not be
construed to limit or restrict the right of Landlord to declare the said term
ended or to repossess without terminating the Lease, and to enforce all of its
rights and remedies hereunder for any other default not timely cured.
19.3 REMEDIES CUMULATIVE. No remedy herein or otherwise conferred upon or
reserved to Landlord shall be considered to exclude or suspend any other remedy
but the same shall be cumulative and shall be in addition to every other remedy
given hereunder, or now or hereafter existing at law or in equity or by statute,
and every power and remedy given by this Lease to Landlord may be exercised from
time to time and so often as occasion may arise or as may be deemed expedient.
19.4 NO WAIVER. No delay or omission of Landlord to exercise any right or
power arising from any default shall impair any such right or power to be
construed to be a waiver of any such default or any acquiescence therein. No
waiver of any breach of any of the covenants of this Lease shall be construed,
taken or held to be a waiver of any other breach, or as a waiver, acquiescence
in or consent to any further or succeeding breach of the same covenant. The
acceptance by Landlord of any payment of rent or other charges hereunder after
the termination by Landlord of this Lease or of Tenant's right to possession
hereunder shall not, in the absence of agreement in writing to the contrary to
Landlord, be deemed to restore this Lease or Tenant's right to possession
hereunder, as the case may be, but shall be construed as a payment on account,
and not in satisfaction of damages due from Tenant to Landlord.
19.5 DEFAULT UNDER OTHER LEASES. A default in this Lease, or in any other
lease made by Tenant for any premises on the Real Estate shall, at the option of
the Landlord, be deemed a default under this Lease, the other lease or both
leases.
19.6 DELINQUENT RENT. In the event Tenant shall be late in the payment of
rent or other charges required to be paid hereunder more than two (2) times in
any twelve (12) calendar month period (provided notice of such payment or other
monetary default shall have been given to Tenant, but regardless of whether
Tenant shall have timely cured any such payment or other defaults of which
notice was given), and in addition to the other remedies set forth herein,
Tenant shall pay to Landlord, as liquidated damages, ten percent (10%) of such
delinquent amount, together with such delinquent amount.
XX. SECURITY DEPOSIT
[INTENTIONALLY DELETED]
XXI. MISCELLANEOUS
21.1 TENANT'S STATEMENT. Tenant shall furnish to Landlord, within ten (10)
days after written request therefor from Landlord, a copy of the then most
recent financial statement of Tenant certified by Tenant's chief financial
officer. It is mutually agreed that Landlord may deliver a copy of such
statements to any mortgagee or prospective
xxix
<PAGE> 33
mortgagee of Landlord, or any prospective purchaser of the Real Estate, but
otherwise Landlord shall treat such statements and information contained therein
as confidential. Landlord may only deliver a copy of such statements to any
mortgagee or prospective mortgagee of Landlord, or any prospective purchaser of
the Real Estate, on the condition that such other party or parties keep such
information confidential and only use such information for such lending or
purchase analysis and for no other unrelated reason.
21.2 ESTOPPEL CERTIFICATES. Landlord and Tenant shall, at any time and from
time to time upon not less than ten (10) days' prior written request from the
other, execute, acknowledge and deliver to the requesting party, in form
reasonably satisfactory to the requesting party, a written statement certifying
(if true) that Tenant has accepted the Leased Premises, that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), that the other party is not in default hereunder, the date to
which the rental and other charges have been paid in advance, if any, whether
Tenant has any rights of setoff or self-help under this Lease, and such other
accurate certifications as may reasonably be required by the requesting party or
its mortgagee, agreeing to give copies to any mortgagee of all notices required
under this Lease and agreeing to afford the requesting party's mortgagee a
reasonable opportunity to cure any default. It is intended that any such
statement delivered pursuant to this subsection may be relied upon by any
prospective purchaser or mortgagee of the Leased Premises or Real Estate and
their respective successors and assigns.
21.3 LANDLORD'S AND TENANT'S RIGHT TO CURE. Landlord may, but shall not be
obligated to, cure any default by Tenant (specifically including, but not by way
of limitation, Tenant's failure to obtain insurance, make repairs, or satisfy
lien claims); and whenever Landlord so elects, all costs and expenses paid by
Landlord in curing such default, including without limitation reasonable
attorneys' fees, shall be so much additional rent due on the next rent date
after such payment together with interest (except in the case of said attorneys'
fees) at the highest rate then payable by Tenant in the State of Ohio, or, in
the absence of such a maximum rate, at a rate per annum equal to four percent
(4%) in excess of the announced prime rate of interest of National City Bank of
Columbus, Columbus, Ohio in effect on the date of such advance, from the date of
the advance to the date of repayment by Tenant to Landlord.
Tenant may, but shall not be obligated to, cure any default by Landlord
solely with respect to the Leased Premises (specifically including, but not by
way of limitation, Landlord's failure to obtain insurance or make repairs); and
whenever Tenant so elects, all reasonable costs and expenses are paid by Tenant
in curing such default, including without limitation reasonable attorney's fees,
shall be reimbursed by Landlord to Tenant within thirty (30) days after demand
therefor, together with copies of all invoices evidencing such expenditures,
together with interest (except in the case of said attorneys' fees) at the
highest rate then payable by Landlord in the State of Ohio, or, in the absence
of such a maximum rate, at a rate per annum equal to four percent (4%) in excess
of the announced prime rate of interest of National City Bank of Columbus,
Columbus, Ohio in effect on the date of such advance, from the date of the
advance to the date of repayment by Landlord to Tenant. No such right to cure by
Tenant shall be deemed a right to offset any such amount against monies payable
by Tenant to Landlord in the event Landlord fails to reimburse Tenant as
required hereunder.
21.4 AMENDMENTS MUST BE IN WRITING. This document contains the entire
agreement between the parties hereto with respect to the subject matter hereof.
None of the covenants, terms or conditions of this Lease, to be kept and
performed by either party, shall in any manner be altered, waived, modified,
changed or abandoned except by a written instrument, duly signed and delivered
by both parties hereto.
21.5 NOTICES. Whenever under this Lease provisions are made for notice of
any
xxx
<PAGE> 34
kind to Landlord, it shall be deemed sufficient notice and sufficient service
thereof if such notice to Landlord is in writing, addressed to Landlord at 1798
Frebis Avenue, Columbus, Ohio 43206-0410, or at such address as Landlord may
notify Tenant in writing, and deposited in the United States mail by certified
mail, return receipt requested, with postage prepaid or Federal Express, Express
Mail or such other expedited mail service as normally results in overnight
delivery, with a copy of same sent in like manner to (i) President, Real Estate,
1800 Moler Road, Columbus, Ohio 43207, and (ii) Law Department, 1800 Moler Road,
Columbus, Ohio 43207. Notice to Tenant shall be sent in like manner to the
Leased Premises, with a copy to Law Department, 1800 Moler Road, Columbus, Ohio
43207. All notices shall be effective upon receipt or refusal of receipt. Either
party may change the place for service of notice by notice to the other party.
21.6 SHORT FORM LEASE. This Lease shall not be recorded, but the parties
agree, at the request of either of them, to execute a Short Form Lease for
recording, containing the names of the parties, the legal description and the
term of the Lease.
21.7 TIME OF ESSENCE. Time is of the essence of this Lease, and all
provisions herein relating thereto shall be strictly construed.
21.8 RELATIONSHIP OF PARTIES. Nothing contained herein shall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership, or of joint venture, by
the parties hereto, it being understood and agreed that no provision contained
in this Lease or any acts of the parties hereto shall be deemed to create any
relationship other than the relationship of Landlord and Tenant.
21.9 CAPTIONS. The captions of this Lease are for convenience only and are
not to be construed as part of this Lease and shall not be construed as defining
or limiting in any way the scope or intent of the provisions hereof.
21.10 SEVERABILITY. If any term or provision of this Lease shall to any
extent be held invalid or unenforceable, the remaining terms and provisions of
this Lease shall not be affected thereby, but each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
21.11 LAW APPLICABLE. This Lease shall be construed and enforced in
accordance with the laws of the state where the Leased Premises are located.
21.12 COVENANTS BINDING ON SUCCESSORS. All of the covenants, agreements,
conditions, and undertakings contained in this Lease shall extend and inure to
and be binding upon the heirs, executors, administrators, successors and assigns
of the respective parties hereto, the same as if they were in every case
specifically named, and wherever in this Lease reference is made to either of
the parties hereto, it shall be held to include and apply to, wherever
applicable, the heirs, executors, administrators, successors and assigns of such
party. Nothing herein contained shall be construed to grant or confer upon any
person or persons, firm, corporation or governmental authority, other than the
parties hereto, their heirs, executors, administrators, successors and assigns,
any right, claim or privilege by virtue of any covenant, agreement, condition or
undertaking in this Lease contained.
21.13 BROKERAGE. Tenant warrants that it has had no dealings with any
broker or agent in connection with this Lease other than Broker(s), whose
commission Landlord covenants and agrees to pay in the amount agreed to by
Landlord. Tenant covenants to pay, hold harmless, indemnify and defend Landlord
from and against any and all costs, expenses or liability for any compensation,
commissions and charges claimed by any broker or agent other than Broker(s) with
respect to this Lease or the negotiation thereof.
xxxi
<PAGE> 35
21.14 LANDLORD MEANS OWNER. The term "Landlord" as used in this Lease, so
far as covenants or obligations on the part of Landlord are concerned, shall be
limited to mean and include only the owner or owners at the time in question of
the fee of the Real Estate, and in the event of any transfer or transfers of the
title to such fee, Landlord herein named (and in case of any subsequent transfer
or conveyances, the then grantor) shall be automatically freed and relieved,
from and after the date of such transfer or conveyance, of all liability as
respects the performance of any covenants or obligations on the part of Landlord
contained in this Lease thereafter to be performed; provided that any funds in
the hands of such Landlord or the then grantor at the time of such transfer, in
which Tenant has an interest, shall be turned over to the grantee, and any
amount then due and payable to Tenant by Landlord or the then grantor under any
provisions of this Lease shall be paid to Tenant.
21.15 LENDER'S REQUIREMENTS. If any mortgagee or committed financier of
Landlord should require, as a condition precedent to the closing of any loan or
the disbursal of any money under any loan, that this Lease be amended or
supplemented in any manner (other than in the description of the Leased
Premises, the term, the purpose or the rent or other changes hereunder, or in
any other regard as will substantially or materially affect the rights of Tenant
under this Lease), Landlord shall give written notice thereof to Tenant, which
notice shall be accompanied by a Lease Supplement Agreement embodying such
amendments and supplements. Tenant shall, within ten (10) days after the
effective date of Landlord's notice, either consent to such amendments and
supplements (which consent shall not be unreasonably withheld) and execute the
tendered Lease Supplement Agreement, or deliver to Landlord a written statement
of its reason or reasons for refusing to so consent and execute. Failure of
Tenant to respond within said ten (10) day period shall be a default under this
Lease without further notice.
21.16 SIGNS. Tenant shall install no exterior sign without Landlord's prior
written approval of detailed plans and specifications therefor.
21.17 PARKING AREAS. It is understood by and between the parties hereto
that parking on the Real Estate, unless as otherwise specifically designated by
Landlord as exclusive parking, is allocated to the tenants thereof on an
unreserved basis, and Tenant, its employees and invitees may use not more than
Tenant's Pro Rata Share thereof. Landlord shall have no obligation to Tenant to
enforce parking limitations imposed on other tenants on the Real Estate. If
Tenant uses parking in excess of that provided for herein, and if such excess
use occurs on a regular basis, and if Tenant fails, after written notice from
Landlord, to reduce its excess use of parking area, then such excess use shall
constitute a default under this Lease.
Landlord agrees that it shall designate approximately twenty four (24)
spaces in close proximity to the Building for Tenant, the initial location of
which is depicted on the Site Plan. Landlord and Tenant also agree that Tenant
shall have the exclusive right to use the parking lot located across Fifth
Avenue and as more particularly depicted on page 2 of Exhibit B (the "Parking
Lot"). Tenant agrees that it is leasing the parking lot in an as is condition,
subject to all the terms and conditions of this Lease, except that Tenant agrees
to pay for all repair and maintenance costs in connection with Tenant's use
thereof, as well as all real estate taxes and assessments attributable to the
Parking Lot. The parties agree to maintain insurance for the Parking Lot
consistent with the terms and conditions of this Lease.
21.18 FORCE MAJEURE. Landlord shall not be deemed in default with respect
to any of the terms, covenants and conditions of this Lease on Landlord's part
to be performed, if Landlord's failure to timely perform same is due in whole or
in part to any strike, lockout, labor trouble (whether legal or illegal), civil
disorder, failure of power, restrictive governmental laws and regulations,
riots, insurrections, war, shortages, accidents, casualties, acts of God, acts
caused directly by Tenant or Tenant's agents,
xxxii
<PAGE> 36
employees and invitees, or any other cause beyond the reasonable control of
Landlord.
21.19 LANDLORD'S AND TENANT'S EXPENSES. Tenant agrees to pay on demand
Landlord's expenses, including reasonable attorneys' fees, expenses and
administrative hearing and court costs incurred either directly or indirectly in
enforcing any obligation of Tenant under this Lease, in curing any default by
Tenant as provided in Section 19.2 hereof or in connection with appearing,
defending or otherwise participating in any action or proceeding arising from
the filing, imposition, contesting, discharging or satisfaction of any lien or
claim for lien, in defending or otherwise participating in any legal proceedings
initiated by or on behalf of Tenant wherein Landlord is not adjudicated to be in
default under this Lease, or in connection with any investigation or review of
any conditions or documents in the event Tenant requests Landlord's agreement,
approval or consent to any action of Tenant which may be desired by Tenant or
required of Tenant hereunder.
Landlord agrees to pay on demand Tenant's expenses, including reasonable
attorneys' fees, expenses and administrative hearing and court costs incurred
either directly or indirectly in enforcing any obligation of Landlord under this
Lease, in curing any default by Landlord in the Leased Premises or in connection
with appearing, defending or otherwise participating in any action or proceeding
arising from the filing, imposition, contesting, discharging or satisfaction of
any lien or claim for lien, in defending or otherwise participating in any legal
proceedings initiated by or on behalf of Landlord wherein Tenant is not
adjudicated to be in default under this Lease, or in connection with any
investigation or review of any conditions or documents in the event Landlord
requests Tenant's agreement, approval or consent to any action of Landlord which
may be desired by Landlord or required of Landlord hereunder.
21.20 EXECUTION OF LEASE BY LANDLORD. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Leased Premises and this document shall
become effective and binding only upon the execution and delivery hereof by
Landlord and by Tenant. All negotiations, considerations, representations and
understandings between Landlord and Tenant are incorporated herein.
21.21 TENANT'S AUTHORIZATION. If Tenant is a corporation, partnership,
association or any other entity, Tenant shall furnish to Landlord, within ten
(10) days after written request therefor from Landlord, certified resolutions of
Tenant's directors or other governing person or body authorizing execution and
delivery of this Lease and performance by Tenant of its obligations hereunder,
and evidencing that the person who physically executed the Lease on behalf of
Tenant was duly authorized to do so.
21.22 EXCULPATORY CLAUSE. Except with respect to any damages resulting from
the gross negligence of Landlord, its agents, or employees, Landlord shall not
be liable to Tenant, its agents, employees, or customers for any damages,
losses, compensation, accidents, or claims whatsoever. The foregoing
notwithstanding, it is expressly understood and agreed that nothing in this
Lease contained shall be construed as creating any liability whatsoever against
Landlord personally, its members, officers, directors, shareholders or partners,
and in particular without limiting the generality of the foregoing, there shall
be no personal liability to pay any indebtedness accruing hereunder or to
perform any covenant, either express or implied, herein contained, or to keep,
preserve or sequester any property of Landlord, and that all personal liability
of Landlord of every sort, if any, is hereby expressly waived by Tenant, to the
extent permitted by law, and by every person now or hereafter claiming any right
or security hereunder; and that so far as the parties hereto are concerned, the
owner of any indebtedness or liability accruing hereunder shall look solely to
the Leased Premises for the payment thereof.
If the Tenant obtains a money judgment against Landlord, any of its
officers, directors, shareholders, partners, or their successors or assigns
under any provisions of
xxxiii
<PAGE> 37
or with respect to this Lease or on account of any matter, condition or
circumstance arising out of the relationship of the parties under this Lease,
Tenant's occupancy of the building or Landlord's ownership of the Leased
Premises, Tenant shall be entitled to have execution upon any such final,
unappealable judgment only upon Landlord's fee simple or leasehold estate in the
Leased Premises (whichever is applicable) and not out of any other assets of
Landlord, or any of its members, officers, directors, shareholders or partners,
or their successor or assigns; and Landlord shall be entitled to have any such
judgment so qualified as to constitute a lien only on said fee simple or
leasehold estate.
21.23 AIRPORT ACCESS. Tenant acknowledges that it shall have no right of
access to Port Columbus International Airport by virtue of this Lease. Any such
access shall be pursuant to the terms of a separate agreement between Tenant and
the Columbus Airport Authority. In the event Tenant enters into such an
agreement with the Columbus Airport Authority, Tenant agrees to abide by all of
the terms and conditions thereof, and Tenant shall indemnify Landlord in the
event of any liability to Landlord on account of Tenant's non-compliance
therewith.
21.24 EXPANSION AREA. The parties hereby agree that the area depicted on
page 3 of the Site Plan is currently identified by Landlord as a potential
expansion area for Tenant, subject to Landlord and Tenant agreeing upon the
terms and conditions of a lease therefore. In the event that Tenant elects to
expand into said area, Tenant must notify Landlord at any time before the date
which is five (5) calendar years after the Tenant Entrance Date, or (subject to
the second grammatical paragraph of this Section 21.24) Landlord shall no longer
be required to reserve said area for Tenant's use. If Tenant so elects to expand
into said area, said election shall be null and void if Landlord and Tenant are
unable, in the exercise of good faith efforts, to agree upon the terms and
conditions of a lease within sixty (60) days after Landlord receives Tenant's
notice. Additionally, Tenant may not exercise the foregoing expansion right if
Tenant is in default under the Lease or if Tenant is not operating its business
in substantially all of the Leased Premises.
In the event that Tenant does not elect to expand into the expansion area
within said five (5) year period, Tenant shall thereafter have the right to
lease the expansion area as described below. Landlord shall notify Tenant of the
material lease terms for all or any part of the expansion area which Landlord
would be willing to accept (the "Acceptable Terms") by notice to Tenant. Tenant
shall thereafter have thirty (30) days to determine whether or not to enter into
an amendment to this Lease with Landlord on the Acceptable Terms. Any election
by Tenant shall be in writing. If Tenant fails to respond within said thirty
(30) day period, Tenant shall be deemed to have rejected said terms. In the
event that Tenant does not exercise the right to lease contained herein,
Landlord shall be permitted to enter into a lease with a third party consistent
with the Acceptable Terms, in which event Tenant shall have no further rights of
options under this Section 21.24. In the event no lease is consummated pursuant
to the Acceptable Terms with a third party, for any reason, then the rights
contained in this Section 21.24 shall continue, and no further lease of the
expansion area shall be permitted without first offering the opportunity to
Tenant in accordance with this section. Additionally, Tenant may not exercise
the foregoing expansion right if Tenant is in default under the Lease or if
Tenant is not operating its business in substantially all of the Leased
Premises.
21.25 CONSENT. Whenever this Lease requires the consent of either party
hereto, such consent shall not be unreasonably withheld, delayed or conditioned;
provided, however, that this provision shall not apply where a specific standard
is otherwise set forth for granting or withholding consent in this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day
and year first above written.
xxxiv
<PAGE> 38
LANDLORD:
4300 EAST FIFTH AVENUE LLC,
an Ohio limited liability company
By: JUBILEE-AIRCENTER, L.L.C.,
a Delaware limited liability company
Its Managing Member
By: JUBILEE LIMITED PARTNERSHIP,
an Ohio limited partnership,
Its Managing Member
By: SCHOTTENSTEIN PROFESSIONAL
ASSET MANAGEMENT
CORPORATION,
a Delaware corporation,
Its General Partner
BY: /s/ Jay Schottenstein
- --------------------------- --------------------------
Print Name:
----------------
ITS: President
- --------------------------- -------------------------
Print Name:
----------------
TENANT:
SHONAC CORPORATION,
an Ohio corporation
BY: /s/ John C. Rossler
- --------------------------- ----------------------------
Print Name: John C. Rossler
---------------- Executive Vice President/Chief
Operating Officer
- ---------------------------
Print Name:
----------------
xxxv
<PAGE> 39
STATE OF OHIO :
: ss.
COUNTY OF FRANKLIN :
The foregoing instrument was acknowledged before me this _______ day of
__________________________, 2000, by _____________________________________,
___________________ of Schottenstein Professional Asset Management Corporation,
a Delaware corporation, General Partner of Jubilee Limited Partnership, an Ohio
limited partnership, Managing Member of Jubilee-Aircenter L.L.C., a Delaware
limited liability company, Managing Member of 4300 East Fifth Avenue LLC, an
Ohio limited liability company, for and on behalf of said limited liability
company.
_________________________________
Notary Public
STATE OF OHIO :
: ss.
COUNTY OF FRANKLIN :
The foregoing instrument was acknowledged before me this _______ day of
__________________________, 2000, by John C. Rossler, Executive Vice
President/Chief Operating Officer, of Shonac Corporation, an Ohio corporation,
for and on behalf of said corporation.
_________________________________
Notary Public
xxxvi
<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>
Carlyn Advertising
Agency, Inc. Ohio 100% Carlyn
DSW Shoe Warehouse, Inc. Missouri 100% indirect DSW
GB Retailers, Inc. Delaware 100% indirect Value City
J. S. Overland Delivery, Inc. Delaware 100% J.S. Overland
Delivery, Inc.
Value City Department
Stores Services, Inc. Delaware 100% indirect Value City
Shonac Corporation Ohio 99.9% Shonac
Value City of Michigan, Inc. Michigan 100% Value City
Value City Limited
Partnership Ohio* 100% indirect Value City of Kentucky LP
VC Retailers, Inc. Delaware 100% indirect Value City
Westerville Road LP, Inc. Delaware 100% Value City
Westerville Road GP, Inc. Delaware 100% Value City
Value City Acquisition Corp. Delaware 100% Value City
VC Acquisition, Inc. Ohio 100% Value City
Base Acquisition Corp. Delaware 100% Filene's Basement
</TABLE>
[FN]
* This is a limited partnership, not an incorporated entity.
</FN>
E - 12
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
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, 33-92966, 333-15957, 333-15961 and
333-66239) of our report dated April 5, 2000, appearing in the Annual Report on
Form 10-K405/A2 of Value City Department Stores, Inc. for the year ended January
29, 2000.
Deloitte & Touche LLP
Columbus, Ohio
May 3, 2000
E - 13
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
Each director and/or officer of Value City Department Stores, Inc. (the
"Corporation") whose signature appears below hereby appoints Robert M. Wysinski
and Richard L. Walters as the undersigned's attorneys or any of them
individually as the undersigned's attorney, to sign, in the undersigned's name
and behalf and in any and all capacities stated below, and to cause to be filed
with the Securities and Exchange Commission (the "Commission"), the
Corporation's Annual Report on Form 10-K (the "Form 10-K") for the fiscal year
ended January 29, 2000, and likewise to sign and file with the Commission any
and all amendments to the Form 10-K, and the Corporation hereby appoints such
persons as its attorneys-in-fact and each of them as its attorney-in-fact with
like authority to sign and file the Form 10-K and any amendments thereto
granting to each attorney-in-fact full power of substitution and revocation, and
hereby ratifying all that any such attorney-in-fact or the undersigned's
substitute may do by virtue hereof.
IN WITNESS WHEREOF, we have hereunto set our hands effective as of the 27th
day of April, 2000.
/s/ Jay L. Schottenstein Chairman of the Board of Directors
------------------------------ (Principal Executive Officer)
Jay L. Schottenstein
/s/ Saul Schottenstein Vice Chairman of the Board of Directors
------------------------------
Saul Schottenstein
/s/ Martin P. Doolan Vice Chairman of the Board of Directors
------------------------------
Martin P. Doolan
/s/ Robert M. Wysinski Vice President, Chief Financial Officer,
------------------------------ Secretary, Treasurer, and Director
Robert M. Wysinski (Principal Financial Officer)
/s/ Richard L. Walters Vice President, Controller, Assistant
------------------------------ Treasurer, and Assistant Secretary
Richard L. Walters (Principal Accounting Officer)
/s/ Henry L. Aaron Director
------------------------------
Henry L. Aaron
/s/ Ari Deshe Director
------------------------------
Ari Deshe
/s/ Jon P. Diamond Director
------------------------------
Jon P. Diamond
/s/ Richard Gurian Director
------------------------------
Richard Gurian
/s/ Dr. Norman Lamm Director
------------------------------
Dr. Norman Lamm
/s/ David L. Nichols Director
------------------------------
David L. Nichols
/s/ Robert L. Shook Director
------------------------------
Robert L. Shook
/s/ Geraldine H. Schottenstein Director
------------------------------
Geraldine H. Schottenstein
E - 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 6,027
<SECURITIES> 0
<RECEIVABLES> 10,430
<ALLOWANCES> 0
<INVENTORY> 412,479
<CURRENT-ASSETS> 455,532
<PP&E> 377,402
<DEPRECIATION> 169,907
<TOTAL-ASSETS> 744,181
<CURRENT-LIABILITIES> 250,521
<BONDS> 144,168
0
0
<COMMON> 114,733
<OTHER-SE> 227,628
<TOTAL-LIABILITY-AND-EQUITY> 744,181
<SALES> 1,670,176
<TOTAL-REVENUES> 1,670,176
<CGS> 1,039,145
<TOTAL-COSTS> 579,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,728
<INCOME-PRETAX> 56,400
<INCOME-TAX> 22,932
<INCOME-CONTINUING> 33,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,468
<EPS-BASIC> 1.03
<EPS-DILUTED> 1.02
</TABLE>
