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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-11752
ST. JOHN KNITS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2245070
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
17422 DERIAN AVENUE
IRVINE, CALIFORNIA 92614
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 863-1171
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON STOCK NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of Registrant's Common Stock held by
nonaffiliates as of January 28, 1998 was $614,943,847 based on 15,397,655
shares outstanding on such date and the closing sales price for the Common
Stock on such date of $39.9375 as reported on the New York Stock Exchange.
As of January 28, 1998, the Registrant had 16,714,548 shares of Common Stock
outstanding.
PART III incorporates information by reference from the Registrant's
definitive Proxy Statement for its 1998 Annual Meeting of Shareholders to be
filed with the Commission within 120 days of November 2, 1997.
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<PAGE>
PART I
ITEM 1. BUSINESS
St. John Knits, Inc. (the "Company") is a leading designer, manufacturer and
marketer of women's clothing and accessories, principally under the St. John
trade name. For thirty five years, the St. John name has been associated with
high quality and a specific look in knitwear characterized by vibrant colors
and classic, timeless styling. The St. John "look," combined with limited
production runs and selective distribution, has created an exclusive image,
engendering consumer loyalty. An expanding consumer base and repeat purchasers
have resulted in the Company's knitwear production being oversold to its
retail customers since 1986.
PRODUCTS
The Company's products are organized primarily into eight separate product
lines: Knitwear, Accessories, Sport, Griffith & Gray, Shoes, Coat Collection,
SJK and Fragrance.
KNITWEAR The Company organizes its St. John knitwear collection into four
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groups. The breadth of each group enables the Company to compete in most
segments of women's designer clothing. The Company's knitwear products are
sold as a collection of lifestyle clothing suitable for women's business,
evening and casual needs. St. John knitwear is a year-round product, not
confined to a single season or climate, due to its all-purpose weight. The
Company designs knitwear collections to encourage consumers to coordinate
outfits, resulting in multiple product purchases within a collection. Each
group is sufficiently comprehensive to stand alone, which allows for
flexibility in marketing and presentation.
Collection:
The Collection line consists of elegant ready-to-wear styles for which
the Company is best known. This line of daytime knit fashions includes
sophisticated dresses and suits that focus on a tailored look and are aimed
at active women engaged in all kinds of lifestyles. The Collection line
also includes jacket, pant, skirt, coat and sweater styles. All items in
the line are sold as separates, including two-piece suit styles.
Dressy:
The Dressy line consists of dresses, theater suits and dressy separates.
The basic look of the Dressy line is one of understated elegance enhanced
by innovative, often luxurious touches, such as layers of transparent
paillettes and sequins, embroidered sleeves or glittery collars and cuffs.
Basics:
The Basics line is comprised of the Company's seasonless products, such
as classic jackets, skirts and pants that are an integral part of women's
wardrobes, all in solid black, white or navy. The designs are so basic that
they can be combined with any number of styles from any of the Company's
product lines worn for daytime or dressed up for evening. Basics items are
made available for sale by the Company throughout the year. Since Basics
items are seasonless, they do not have fixed selling periods and retailers'
inventories of Basics products tend to be maintained throughout the year
and reordered as necessary.
Couture:
The Couture line is comprised of both a day and evening group. The day
group includes dresses and two-piece suits which are designed with elegant
embroidery and beautiful lining. The evening group consists of two-piece
suits and long gowns. Both groups are designed using colored paillettes and
sequins and are very exclusive with limited production quantities.
ACCESSORIES The Accessories line is comprised of fine fashion jewelry, silk
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scarves, suede belts and handbags. All accessories are color coordinated with
the various fashion collections, yet are designed to work equally well on
their own. Four collections of upscale jewelry are produced each year, from
gold earrings and chunky chokers to bracelets, chain necklaces and chain
belts.
1
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SPORT St. John Sport consists of a line of activewear which includes
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jackets, skirts, pants, tops and jeans. The line is primarily manufactured in
the Company's production facilities using woven fabrics purchased in Italy.
GRIFFITH & GRAY The Griffith & Gray line includes suits, coats, dresses,
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separates and eveningwear. Nearly one half of the line is manufactured in the
Company's production facilities, including various knit styles. The balance of
the line is manufactured by outside contractors located in Italy using high
quality European woven fabrics.
SHOES The St. John Shoe line consists of pumps, sling backs, loafers and
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boots, manufactured in Italy using the finest Italian leather. During fiscal
1997, the Company began distribution of the shoe line to most of its major
customers in the United States.
COAT COLLECTION The St. John Coat Collection consists primarily of faux fur
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coats in various styles and colors, manufactured in the Company's factories,
using fabric imported from Europe.
SJK The SJK line consists of dresses, skirts, pants, jackets and sweaters
---
which are simpler and priced from 30% to 50% lower than the Company's knit
product line. The new line began shipping during the fourth quarter of fiscal
1997. SJK will be distributed through the Company's major customers.
FRAGRANCE The Fragrance line includes perfume, eau de parfum, perfumed body
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mist, body cream, lotion, body powder and bath products. The signature
fragrance is marketed as an accessory to the St. John apparel line through
most of the Company's major customers and the Company's own retail stores.
During fiscal 1997, the Company signed a distribution agreement to allow
another company the rights to distribute the fragrance in the United States.
The following table details the approximate range of suggested retail prices
by product line. The suggested retail prices are indicative of individual item
prices.
<TABLE>
<CAPTION>
RANGE OF SUGGESTED
PRODUCT LINE SELECTED PRODUCTS RETAIL PRICES
--------------- ----------------------------------- ------------------
<C> <S> <C>
Knitwear
Collection Dresses, 2-Piece Suits, 3-Piece $350-$1,300
Suits, Jackets,
Pants, Skirts, Coats, Sweaters,
Separates
Dressy Dresses, Theater Suits, Dressy $650-$2,000
Separates
Basics Skirts, Jackets, Pants $160-$ 690
Couture Dresses, Gowns, Two-Piece Suits $900-$3,300
Accessories Jewelry, Scarves, Belts, Handbags $ 65-$ 450
Sport Jackets, Skirts, Pants, Tops, Jeans $120-$ 700
Griffith & Gray Suits, Coats, Dresses, Separates, $300-$1,200
Eveningwear
Shoes Pumps, Sling Backs, Loafers, Boots $220-$ 495
Coat Collection Faux Fur Coats $700-$1,300
SJK Dresses, Skirts, Pants, Jackets, $150-$ 600
Sweaters
Fragrance Perfume, Bath Products $ 25-$ 250
</TABLE>
2
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SALES BY DIVISION
The following is a comparison of the net sales by division for the past two
fiscal years:
<TABLE>
<CAPTION>
1997 1996
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(IN THOUSANDS)
<S> <C> <C>
Knitwear............................................... $173,550 $149,297
Company Owned Retail Stores............................ 64,154 51,334
Accessories............................................ 9,328 10,105
Sport.................................................. 8,545 9,457
Griffith & Gray........................................ 5,605 3,585
Shoes.................................................. 3,441 --
Coat Collection........................................ 2,440 1,982
SJK.................................................... 1,980 --
Fragrance.............................................. 1,725 2,762
Consolidated Subsidiaries.............................. 2,074 --
Sales Elimination...................................... (30,741) (25,571)
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Total Net Sales........................................ $242,101 $202,951
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</TABLE>
DESIGN
Marie St. John Gray is the Company's Chief Designer and provides leadership
and direction for all aspects of the design process. In 1991, Kelly Gray
assumed the responsibilities of Creative Director, and she was appointed
President of the Company in April 1996. She currently shares with Marie Gray
the responsibility of providing leadership and direction for the design staff.
Each product line of the Company has its own design team which reports to
either Marie or Kelly Gray.
MARKETING
The Company's products are distributed primarily through a select group of
specialty retailers and the Company's own retail boutiques. The Company
distributes its products to approximately 600 locations in the United States
and abroad. Three national specialty retailers, Saks Fifth Avenue, Neiman
Marcus and Nordstrom, each accounted for more than 10.0% of the Company's net
sales in fiscal 1997 (approximately 47% collectively), and have been customers
of the Company for approximately 25, 20 and 15 years, respectively. These
retailers generally purchase knitwear styles in each collection and carry a
representative display of every product line. Since the mid 1980s, the Company
has worked with these and certain other retailers to create in-store
boutiques, which are designated areas devoted exclusively to the Company's
products. Other significant customers of the Company include Jacobson's,
Macy's West, Lord & Taylor, Marshall Field's and Dayton Hudson.
During fiscal years 1997 and 1996, foreign sales accounted for approximately
7.6% and 6.6% of the Company's net sales, respectively. The Company
distributes its products directly in Canada, Europe and parts of Asia. In
Europe and parts of Asia, the Company uses independent sales representatives.
During fiscal 1997, the Company formed a majority owned subsidiary in Japan.
This new entity will distribute the Company's products within Japan. Prior to
the formation of this new entity, the Company used a distributor for its sales
into Japan.
The Company believes that most major retailers are continuing to consolidate
their women's apparel buying among a narrowing group of established brand name
vendors such as the Company. Further, the Company is viewed by most of its
major accounts as a core resource. This means that the Company's collection is
one of the top products in the store in terms of sales volume and is the focus
of management's attention and an important component to their profit
structure. A core resource is valued by its growth potential and ability to
make money for the store. As a core resource, the Company also receives
priority in display, advertising, promotion and high traffic locations for its
products.
The Company markets its Collection, Dressy and Couture lines along with its
Sport and Griffith & Gray lines twice a year, during the fall and
cruise/spring seasons. The SJK and Shoe lines are marketed four times per
3
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year, while the Coat Collection is marketed only once a year. The Company
markets its Basics, Accessories and Fragrance lines throughout the year. The
Company's product lines are sold in its Irvine, Dallas, New York and
Dusseldorf showrooms. The Company also markets its products in other foreign
countries using its outside sales representatives to show the lines at various
times throughout the year. Major accounts make their purchases in the Irvine
showroom so that members of the Company's senior management team can work
closely with these retailers to achieve the appropriate mix of merchandise.
Members of the senior management team are also present in Dallas, New York and
Dusseldorf to oversee sales during peak sales periods. Showings for the
Knitwear product line for the fall season generally occur in January with
delivery between May and October, and showings for the cruise/spring season
generally occur in August with delivery between November and April. Orders for
each of these six-month delivery periods normally are received within five
weeks of showings, and the goods are then made to order, thereby minimizing
inventory risk.
Detailed marketing plans are prepared on a yearly basis and are coordinated
with senior management of major retail customers. Plans are based on
purchases, expected sales growth and profitability, and consist of a blend of
advertising, promotion, in-store presentation and training of sales personnel.
The strategy of the Company is to not only sell its products at wholesale, but
to follow the sale through to the ultimate consumer. The Company believes that
this approach ensures steady, consistent growth by building its consumer base.
The retail account sales force consists of an outside sales team, showroom
personnel and customer service representatives. The outside sales team is
comprised of 35 field representatives employed by the Company who live and
work in key retail cities. They are experienced individuals with strong retail
or wholesale backgrounds, and they are directly accountable for the
performance of their assigned retail stores. The function of the outside sales
team is to establish and maintain in-store boutique presentations, to develop
close working relationships with store management, to develop key sales people
into St. John specialists, and to be skilled and knowledgeable trainers in
fashion, style and fit. The Company also has showroom personnel positioned at
its showrooms in Irvine, Dallas and New York who present the collection to
retail accounts. The Company's customer service representatives who are also
located at the showrooms maintain computerized shipping and order records and
keep daily or weekly information on each store's retail sales and styles sold.
The Company also believes it is necessary to have top sales people employed
by its retail customers' stores as designated St. John specialists. The
Company has developed programs through which the stores and the Company
sponsor the training of sales people at the Company's headquarters and
establish incentive goals for each sales person. Information from the
Company's sales force and communication with these specialists give the
Company firsthand knowledge of consumer reaction to style, fit and fashion.
The specialist programs vary and are tailored to the individual retail store.
The Company is involved in the hiring and the supervision of the specialists.
The St. John specialist position is viewed as highly desirable for its
management attention and rewards.
In keeping with its exclusive upscale image, the Company advertises in both
national and international fashion magazines. Management believes that this
advertising approach enhances the Company's image. The Company's advertising
features Kelly Gray as its Signature Model. The Company designs and produces
seasonal exclusive St. John catalogs, which are distributed at the discretion
of individual specialty retailers. Distribution is usually limited to target
repeat purchasers or those who meet the Company's consumer profile.
COMPANY OWNED STORES
In order to diversify its product distribution and enhance name recognition,
the Company began opening its own retail boutiques in 1989 and currently
operates eighteen such boutiques. During fiscal 1997, the Company relocated
its retail boutique locations in both Dallas and Palm Beach to new, larger
facilities. This move increased the square footage of the boutiques by 1,700
and 3,400 square feet, respectively. Subsequent to the end of fiscal 1997, the
Company opened its eighteenth boutique in Aspen, Colorado. The Company also
operates seven outlet stores for off-price inventory, which includes unsold
items from its boutiques, seconds and design samples. In fiscal years 1997 and
1996, Company owned retail boutiques and outlet stores represented 26.5% and
25.3% of net sales, respectively. The Company believes its retail boutiques
have not adversely affected sales of its products by specialty retailers.
4
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During fiscal 1997, the Company formed Amen Wardy Home Stores, LLC, a new
entity which is 51 percent owned. The new entity was established to operate
home furnishing boutiques under the name of Amen Wardy Home. The Amen Wardy
Home boutiques will sell upscale home furnishing and gift items. Two boutiques
were open prior to the end of fiscal 1997, including locations in Dallas and
Boston.
MANUFACTURING
The Company has developed a vertically integrated manufacturing process
which it believes is critical to its success. This process assures greater
quality control, enhances manufacturing flexibility and reduces the lead time
of the manufacturing cycle. The Company twists, dyes and knits its yarn, as
well as constructs, presses and finishes its knit products, in its six
facilities located in Southern California. The Company manufactures its
knitwear using the computer aided manufacturing capabilities of its electronic
knitting machines and a skilled labor force. The Company also manufactures its
own jewelry and hardware for its products. Since the Company manufactures
products primarily based on orders received from retailers, the Company
maintains limited inventories of finished goods. During fiscal 1997,
approximately 94% of the Company's products were manufactured at the Company's
own facilities, while the remaining 6% of the Company's products, consisting
principally of the Griffith & Gray and shoe product lines, as well as
handbags, scarves, belts and fragrance, were manufactured by outside
contractors primarily in Europe.
The basic raw materials for the Company's knitted apparel products consist
of wool originating from Australia and viscose rayon from Germany and Japan.
The manufacturing process begins when the wool and rayon are twisted together
on the Company's precision twisting machines. The twisted yarn is transferred
to the Company's dye house for dyeing. Yarn is dyed, based on garment orders
received. The dyed yarn is knitted to create apparel products on the Company's
computerized electronic knitting machines. The knitted pieces, or blankets,
are assembled and finished in the Company's linking, seaming and hand
finishing facilities. The Company's jewelry and hardware manufacturing plant
produces the buttons and buckles for garments, as well as bracelets, earrings,
necklaces, chokers, pins and other accessories. During fiscal 1997, the
Company began to manufacture more of its woven products in its manufacturing
facilities, including both the Sport and Coat Collection lines. In addition,
the Company manufactures blouses, jeans and certain scarves in its own
facilities.
The Company's production staff coordinates all apparel manufacturing. The
vertical integration and constant monitoring of the manufacturing process
allows for timely reaction to styles or groups of styles that are in high
demand. This response time would be more difficult if the Company had to rely
on outside contractors.
The Company's vertically integrated jewelry and hardware manufacturing
facility was completed in December 1991. This facility allows for extensive
product development by the Company's creative design team, quality control
over all phases of jewelry manufacturing and quick response to production
requirements. Subsequent to the end of fiscal 1997, the Company purchased land
and started construction on a new jewelry and hardware manufacturing facility
located in Mexico. The new facility will be completed during fiscal 1998 and
will give the Company additional manufacturing capacity as well as lower the
cost of certain jewelry and hardware components.
QUALITY CONTROL
The Company has achieved its quality reputation by vertically integrating
manufacturing processes and maintaining strict control over its operations.
The Company's expansion into dyeing, yarn twisting and jewelry and hardware
manufacturing was due primarily to the inability of outside suppliers to
provide products meeting the Company's standards on a consistent and timely
basis. The Company's comprehensive quality control program is designed to
ensure that all finished goods meet the Company's standards. During the
manufacturing processes, every garment is individually inspected.
As noted above, the Company does use outside contractors primarily for the
manufacturing of its shoes, handbags and woven products. The Company has
instituted procedures to maintain the quality of products manufactured by
outside contractors.
5
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SUPPLIERS
In the production of its knitwear, the Company uses the highest quality
wool, primarily from Australia. Generally, a wool commitment is taken with the
Company's primary U.S. spinner for a set quantity of wool based on the
Company's forecasted wool requirements for approximately one year. Other
spinners are available, both domestically and internationally, with comparable
pricing for spun Australian wool yarn. The Company also has yarn suppliers in
Europe and Asia. The Company generally maintains an inventory of twisted yarn
sufficient for approximately six weeks of production to protect it from
potential interruptions in the flow of raw materials. Rayon is available in
raw or dyed form from various European and Japanese suppliers. The Company
purchases fabric from various suppliers and has little difficulty in
satisfying its fabric requirements from Europe and Asia. Crystals, glass
beadings, pearls and raw materials used in manufacturing of paillettes are
purchased from certain suppliers in Europe. The Company believes there are
alternative sources for certain of these specialized items.
TRADEMARKS
The Company owns and utilizes several trademarks, principal among which are
St. John(R), Marie St. John(R), SJK(R), St. John Boutiques(R) and Griffith
Gray(R). The St. John(R) trademark is registered with the United States Patent
and Trademark Office and in several other major jurisdictions in the world.
The Company does not own the rights to sell its knitwear products under the
St. John(R) trademark in Japan. Sales of the Company's products in Japan are
made under the trademark Marie Gray for Best International(R), which is also
owned by the Company. The Company regards its trademarks and other proprietary
rights as valuable assets and believes that they have significant value in the
marketing of its products. The Company vigorously protects its trademarks
against infringement.
REGULATION
Federal, state and local regulations relating to the work place and the
discharge of materials into the environment are continually changing;
therefore, it is difficult to gauge the total future impact of such
regulations on the Company. However, the Company does not expect existing
government regulations to have a material effect on the Company's competitive
position, operating results or planned capital expenditures.
SUBSIDIARIES
St. John Knits International, Incorporated
St. John Knits International, Incorporated ("International") is a foreign
sales corporation for the Company. International was incorporated during
fiscal 1997 in Barbados as a "large FSC" under Section 922 of the Internal
Revenue Code of 1986, as amended. International participates in certain of the
Company's foreign operations.
Previously, the Company operated a "small FSC" under the name St. John Knits
International, Inc. This entity was dissolved during fiscal 1997.
St. John Company, Ltd.
St. John Company, Ltd. is a 51 percent owned subsidiary of the Company which
was incorporated during fiscal 1997 under the laws of Japan. St. John Company,
Ltd. is licensed by the Company to distribute the Company's products in Japan.
Amen Wardy Home Stores, LLC
Amen Wardy Home Stores, LLC ("Amen"), a Delaware limited liability company,
is a 51 percent owned subsidiary of the Company. Amen was formed during fiscal
1997 to operate retail home furnishing boutiques.
St. John Trademarks, Inc.
St. John Trademarks, Inc. is a wholly owned subsidiary of the Company. St.
John Trademarks, Inc. and the Company have entered into a partnership
organized under the laws of Luxembourg to hold certain of the Company's
proprietary rights.
6
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St. John--Varian Development Company
Effective April 3, 1995, the Company formed a joint venture with an
unrelated third party to acquire a 175,000 square foot building located in
Irvine, California. The Company and the third party each hold a 50% interest
in the partnership. The partnership leases the building to the Company under a
lease agreement expiring in 2010.
St. John--Italy, Inc.
St. John--Italy, Inc., a California corporation, is a wholly owned
subsidiary of the Company. St. John--Italy, Inc. was incorporated during
fiscal 1996 to operate as a branch in Italy. During fiscal 1997, the entity
began operating as a buying office for the Company.
St. John Knits AG
St. John Knits AG is a wholly owned subsidiary of the Company which was
incorporated during fiscal 1996 under the laws of Switzerland. St. John Knits
AG operates a research and development facility and buying office located in
Switzerland.
St. John de Mexico SA de CV
St. John de Mexico SA de CV is a wholly owned subsidiary of the Company
which was incorporated during fiscal 1997 under the laws of Mexico. St. John
de Mexico will operate as a manufacturing entity within Mexico to assist in
the production of the Company's jewelry and hardware components.
COMPETITION
The apparel industry is highly competitive. The Company's competitors
include apparel manufacturers of all sizes, some of which have greater
financial resources than the Company. The Company competes primarily on the
basis of fashion, price and quality. The Company believes its competitive
advantages include its reputation for producing high quality, fashionable
products while maintaining a consistency of design and style. This high
quality and consistent design has resulted in the St. John name becoming
highly recognized and firmly established.
The Company believes that its primary competition is not just other knitwear
manufacturers, but successful design houses such as Armani, Anne Klein,
Chanel, Donna Karan and Escada. The Company considers the risk of strong new
competitors to be limited due to barriers to entry such as significant start-
up costs and the long-term nature of supplier and customer relations. It has
been the Company's experience that during the past few years major retailers
have been increasingly unwilling to source products from suppliers who are not
well-capitalized or do not have established reputations for delivering quality
merchandise in a timely manner. However, there can be no assurances that
significant new competitors will not emerge in the future.
EMPLOYEES
At November 2, 1997, the Company had approximately 3,255 full-time
employees, including 7 in executive positions, approximately 210 in design and
sample production, 2,370 in production, 80 in quality control, 265 in retail,
85 in sales and advertising, and the balance in clerical and office positions.
The Company is not party to any labor agreements, and none of its employees
are represented by a union. The Company believes a significant number of its
employees are highly skilled and that turnover among these employees has been
minimal. The Company considers its relationship with its employees to be good
and has not experienced any interruption of its operations due to labor
disputes.
BACKLOG
At November 2, 1997, the Company had unfilled customer orders for the
cruise/spring season of approximately $97 million compared with approximately
$79 million as of November 3, 1996. Orders for the cruise/spring season are
generally shipped during November through April. The Company's experience has
been that the cancellations, rejections or returns of orders do not materially
reduce the amount of sales realized from its backlog.
7
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ITEM 2. PROPERTIES
The principal executive offices of the Company are located at 17422 Derian
Avenue, Irvine, California 92614.
COMPANY-OWNED PROPERTIES
The general location, use and approximate size of the Company-owned
properties are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
AREA IN
LOCATION USE SQUARE FEET
- ------------------------ ----------------------------------------------- -----------
<S> <C> <C>
Irvine, California...... Design Facility, Showroom, Sewing, Warehousing, 110,500
Shipping
Van Nuys, California.... Assembling, Sewing 27,900
San Ysidro, California.. Assembling 27,300
Irvine,
California/(1)/........ Under Construction 24,300
Irvine, California...... Knitting 20,500
</TABLE>
LEASED PROPERTIES
The general location, use, approximate size and lease expiration date of the
Company's principal leased properties are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
AREA IN EXPIRATION
LOCATION USE SQUARE FEET DATE
- ------------------------ -------------------------------------- ----------- ----------
<S> <C> <C> <C>
Irvine, Knitting, Sewing, Finishing, Shipping, 175,000 7/10
California/(2)/........ Administrative Offices
Irvine, California...... Corporate Headquarters, Showroom, 85,000 5/01
Twisting, Dyeing
Alhambra, California.... Assembling, Sewing 41,000 8/01
Santa Ana, California... Jewelry and Hardware Manufacturing 23,000 5/99
New York, New York...... Showroom 12,300 11/04
New York, 7,500 6/11
New York/(3)/.......... Retail Boutique
Beverly Hills, 7,000 3/06
California............. Retail Boutique
New York, New 6,200 6/01
York/(3)/.............. Retail Boutique
Chicago, Illinois....... Retail Boutique 6,000 9/04
Las Vegas, Nevada/(4)/.. Retail Boutique 5,500 1/08
Munich, Germany......... Retail Boutique 4,400 4/02
</TABLE>
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(1) The Company closed escrow on this property on October 30, 1997. Once
renovation is complete, this property will give the Company additional
office and manufacturing space.
(2) The Company leases this property from a general partnership in which the
Company holds a 50% interest.
(3) The square footage of the retail boutique located on 5th Avenue in New
York City is covered by these two leases.
(4) This lease was entered on December 10, 1997 for a new boutique location in
Las Vegas, Nevada. It is anticipated that the new boutique will open
during the second quarter of fiscal 1998.
The Company believes that there are facilities available for lease in the
event that either the productive capacities of the Company's manufacturing
facilities need to be expanded or a current lease of a manufacturing facility
expires. The Company also leases space for thirteen additional retail
boutiques, two additional showrooms, one additional administrative facility,
seven outlet stores, four Amen Wardy Home stores and a storage facility
(aggregating approximately 135,000 square feet).
The Company leases certain of its facilities from affiliates of the Company.
See "Certain Relationships and Related Transactions." The Company believes
that its existing facilities are well maintained and in good operating
condition.
8
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation which is individually or in the
aggregate material to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "SJK." The high and low trading prices of the Company's Common
Stock during each quarter of fiscal years 1997 and 1996, and the dividends
paid per share were as follows:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
---------------------- ----------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
- ------- ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Fourth............................ $49.19 $38.50 $0.025 $51.75 $39.38 $0.025
Third............................. $54.50 $38.75 $0.025 $48.50 $29.50 $0.025
Second............................ $45.50 $37.50 $0.025 $34.38 $22.88 $0.025
First............................. $48.13 $41.13 $0.025 $27.13 $23.19 $0.025
</TABLE>
All amounts have been adjusted for the 2-for-1 stock split which occurred
during the third quarter of fiscal 1996.
As of January 28, 1998, the closing sales price for the Company's Common
Stock, as reported on the New York Stock Exchange, was $39.9375.
During fiscal years 1997 and 1996, the Company paid in the aggregate $.10
per share in cash dividends to its shareholders. In addition, the Company
declared another quarterly dividend of $.025 per share on December 16, 1997 to
be paid in cash on February 14, 1998 to the shareholders of record on January
14, 1998. The Company's ability to pay other dividends will depend upon
limitations under applicable law and other factors the Board of Directors
deems relevant, including results of operations, financial condition and
capital and surplus requirements.
As of January 28, 1998, the number of holders of record of the Company's
Common Stock was approximately 350, and there were approximately 11,500
beneficial owners of the Company's Common Stock.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from the consolidated
financial statements of the Company which have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report included
elsewhere herein. This information should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto and Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NOVEMBER 2, NOVEMBER 3, OCTOBER 29, OCTOBER 30, OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $242,101 $202,951 $161,795 $127,953 $100,328
Cost of sales........... 99,545 88,871 74,252 59,179 48,590
-------- -------- -------- -------- --------
Gross profit............ 142,556 114,080 87,543 68,774 51,738
Selling, general and
administrative
expenses............... 84,545 68,385 54,550 43,288 32,959
-------- -------- -------- -------- --------
Operating income........ 58,011 45,695 32,993 25,486 18,779
Other income............ 713 1,355 803 340 272
-------- -------- -------- -------- --------
Income before income
taxes.................. 58,724 47,050 33,796 25,826 19,051
Income taxes............ 24,300 19,929 14,243 10,880 7,992
-------- -------- -------- -------- --------
Net income.............. $ 34,424 $ 27,121 $ 19,553 $ 14,946 $ 11,059
======== ======== ======== ======== ========
Net income per
share/(1)/............. $ 2.01 $ 1.59 $ 1.19 $ 0.91 $ 0.67
======== ======== ======== ======== ========
Dividends per
share/(1)(2)/.......... $ 0.10 $ 0.10 $ 0.10 $ 0.075 --
======== ======== ======== ======== ========
Weighted average shares
outstanding/(1)/....... 17,134 17,016 16,433 16,396 16,392
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 2, NOVEMBER 3, OCTOBER 29, OCTOBER 30, OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 69,693 $ 49,628 $38,130 $31,442 $22,280
Total assets............ 153,904 116,494 85,973 62,634 46,262
Total debt.............. -- -- -- -- --
Shareholders' equity.... 130,680 97,093 69,227 50,530 36,580
</TABLE>
- --------
(1) Net income per share, dividends per share and weighted average shares
outstanding have been adjusted for the 2-for-1 stock split which occurred
during the third quarter of fiscal 1996.
(2) During fiscal 1993, the Company paid a special cash dividend of $5,000,000
to all shareholders of record on February 8, 1993 (i.e., the shareholders
of the Company prior to its initial public offering). Due to the one-time
nature of this special cash dividend, it is not reflected as dividends per
share in this table.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes related thereto.
RESULTS OF OPERATIONS
The following table is derived from the Company's Consolidated Statements of
Income and sets forth, for the periods indicated, the results of operations as
a percentage of net sales:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
FISCAL YEAR ENDED
-----------------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0%
Cost of sales............................. 41.1 43.8 45.9
----- ----- -----
Gross profit.............................. 58.9 56.2 54.1
Selling, general and administrative ex-
penses................................... 34.9 33.7 33.7
----- ----- -----
Operating income.......................... 24.0 22.5 20.4
Other income.............................. 0.3 0.7 0.5
----- ----- -----
Income before income taxes................ 24.3 23.2 20.9
Income taxes.............................. 10.0 9.8 8.8
----- ----- -----
Net income................................ 14.3% 13.4% 12.1%
===== ===== =====
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 increased by $39,150,000, or 19.3% over fiscal
1996. This increase was principally attributable to (i) an increase in sales
to existing domestic retail customers of approximately $23,017,000, (ii) an
increase in sales by Company owned retail stores of approximately $12,820,000,
due in part to the expansion of the New York boutique, which was completed in
October 1996, and the addition of one retail boutique and two retail outlet
stores since the beginning of fiscal 1996 and (iii) an increase in sales to
international retail customers of $3,313,000. Net sales increased primarily as
a result of increased unit sales of various product lines.
Gross profit for fiscal 1997 increased by $28,476,000, or 25.0% as compared
with fiscal 1996, and increased as a percentage of net sales to 58.9% from
56.2%. This increase in the gross profit margin was primarily due to an
increase in the number of garments being produced and sold without a
corresponding increase in the production costs, due in part to the fixed
nature of certain costs.
Selling, general and administrative expenses for fiscal 1997 increased by
$16,160,000, or 23.6% over fiscal 1996, and increased as a percentage of net
sales to 34.9% from 33.7%. This increase was primarily due to (i) an increase
in promotion and advertising expenses related to an expansion of the Company's
advertising program, (ii) an increase in salaries due to the Company's
continued effort to build its sales and marketing team and (iii) an expansion
of the Company's sales to foreign customers which include, among other things,
import duty, sales commissions, and additional freight charges.
Operating income for fiscal 1997 increased by $12,316,000 or 27.0% over
fiscal 1996. Operating income as percentage of net sales increased to 24.0%
from 22.5% during the same period. This increase in operating income as a
percentage of net sales was due to the increase in the gross profit margin
which was partially offset by the increase in selling, general and
administrative expenses as a percentage of net sales.
Other income for fiscal 1997 decreased by $642,000 as compared with fiscal
1996. This decrease was primarily due to the receipt of a workers'
compensation insurance dividend of $316,000 during the first quarter of fiscal
1996, which related to the policy period ended December 31, 1994.
12
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 increased by $41,156,000, or 25.4% over fiscal
1995. This increase was principally attributable to (i) an increase in sales
to existing domestic retail customers of approximately $23,992,000, (ii) an
increase in sales by Company owned retail stores of approximately $12,503,000,
due in part to the addition of three retail boutiques and two retail outlet
stores since the beginning of fiscal 1995 and (iii) an increase in sales to
international retail customers of $4,661,000. Net sales increased primarily as
a result of increased unit sales of various product lines.
Gross profit for fiscal 1996 increased by $26,537,000, or 30.3% as compared
with fiscal 1995, and increased as a percentage of net sales to 56.2% from
54.1%. This increase in the gross profit margin was due to (i) an increase in
the number of garments being produced and sold without a corresponding
increase in the production costs, due in part to the fixed nature of certain
costs, and (ii) an increase in the gross profit margin recorded for the
Company owned retail stores ("Retail Division").
Selling, general and administrative expenses for fiscal 1996 increased by
$13,835,000, or 25.4% over fiscal 1995, yet stayed constant as a percentage of
net sales at 33.7%. The Company experienced a decrease in the selling, general
and administrative expenses as a percentage of net sales due to an increase in
the net sales during fiscal 1996 without a corresponding increase in selling,
general and administrative expenses, which was offset by (i) an increase in
advertising expense due to the expansion of the Company's advertising program,
(ii) an expansion of the Company's sales to foreign customers which include,
among other things, import duty, sales commissions, and additional freight
charges; and (iii) the higher selling, general and administrative expenses as
a percentage of sales reported by the Retail Division.
Operating income for fiscal 1996 increased by $12,702,000, or 38.5% over
fiscal 1995. Operating income as percentage of net sales increased to 22.5%
from 20.4% during the same period. This increase in operating income as a
percentage of net sales was due to the increase in the gross profit margin.
Other income for fiscal 1996 increased by $552,000 as compared with fiscal
1995. This increase was primarily due to the receipt of a workers'
compensation insurance dividend of $316,000 which related to the policy period
ended December 31, 1994. In addition, the Company reported higher interest
income due to the increase in its invested cash balances.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are to fund the Company's working
capital needs, primarily inventory and accounts receivable, and for the
purchase of property and equipment. During fiscal 1997, cash provided by
operating activities was $30,459,000. Cash provided by operating activities
was primarily generated by net income and an increase in accounts payable,
while cash used in operating activities was primarily used to fund the
increases in accounts receivable and inventories. Cash used in investing
activities was $21,542,000 during fiscal 1997. The principal use of cash in
investing activities was for (i) the construction of the new design center,
(ii) the purchase of 40 computerized knitting machines, (iii) the purchase of
1.8 acres of land including a 24,300 square foot building in Irvine,
California to be used for future expansion, (iv) the construction of
improvements for two new manufacturing facilities in Southern California and
(v) the construction of leasehold improvements for new boutique locations in
Dallas and Palm Beach.
During fiscal 1997, the Company purchased the trademark Marie Gray for Best
International(R) from its distributor in Japan. In addition, the Company
formed St. John Company, Ltd. in Japan to operate as a 51 percent owned
subsidiary to distribute the Company's products in Japan. The Company also
formed Amen Wardy Home Stores, LLC, which currently operates two home
furnishing stores under the name Amen Wardy Home.
13
<PAGE>
The Company anticipates purchasing property and equipment of approximately
$20,000,000 during 1998. The estimated $20,000,000 will be used principally
for (i) the purchase of computerized knitting machines, (ii) the purchase of
property and the construction of improvements for a jewelry manufacturing
facility in Mexico, (iii) upgrades to the Company's computer systems and (iv)
the construction of leasehold improvements for new boutique locations in both
Hawaii and Las Vegas.
As of November 2, 1997, the Company had approximately $69,693,000 in working
capital and $16,618,000 in cash and marketable securities. The Company's
principal source of liquidity is internally generated funds. The Company also
has a $25,000,000 bank line of credit ("Line of Credit"). Subsequent to the
end of fiscal 1997, the Company amended the Line of Credit to extend the
expiration date to March 1, 2000. The Line of Credit is unsecured and
borrowings thereunder bear interest at the Company's choice of the bank's
reference rate (8.5 percent at November 2, 1997) or an offshore rate plus 1.5
percent. As of November 2, 1997, no amounts were outstanding under the Line of
Credit. The Company invests its excess funds primarily in a money market fund,
investment grade commercial paper, adjustable rate tax deferred municipal
obligations collateralized by letters of credit issued by financial
institutions and tax exempt municipal bonds.
The Company believes it will be able to finance its working capital and
capital expenditure requirements on both a short-term and long-term basis with
internally generated funds.
The Company paid approximately $1,661,000 in dividends to its shareholders
during fiscal 1997. On December 16, 1997, the Company declared another
quarterly cash dividend of $0.025 per outstanding share to be paid on February
14, 1998 to shareholders of record on January 14, 1998. Future dividends by
the Company remain subject to limitations under applicable law and other
factors the Board of Directors deems relevant, including results of
operations, financial condition and capital requirements.
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements" for a listing of the
consolidated financial statements and supplementary data filed with this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1998 Annual Meeting of Shareholders to be
filed with the Commission within 120 days of November 2, 1997, under the
captions "Election of Directors" and "Executive Officers," and is incorporated
herein by this reference as if set forth in full herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1998 Annual Meeting of Shareholders to be
filed with the Commission within 120 days of November 2, 1997 under the
captions "Executive Compensation and Other Information," "Election of
Directors," "Compensation Report," and "Company Stock Price Performance," and
is incorporated herein by this reference as if set forth in full herein.
14
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1998 Annual Meeting of Shareholders to be
filed with the Commission within 120 days of November 2, 1997 under the
caption "Security Ownership of Certain Beneficial Owners and Management," and
is incorporated herein by this reference as if set forth in full herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1998 Annual Meeting of Shareholders to be
filed with the Commission within 120 days of November 2, 1997 under the
caption "Certain Transactions," and is incorporated herein by this reference
as if set forth in full herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements--See "Index to Consolidated
Financial Statements"
2. Consolidated Financial Statement Schedule--See "Index to Consolidated
Financial Statements"
3. Exhibits--See "Exhibit Index"
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the last
quarter of the fiscal year ended November 2, 1997.
15
<PAGE>
ST. JOHN KNITS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................................. 17
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at November 2, 1997 and November 3, 1996.... 18
Consolidated Statements of Income for the years ended November 2, 1997,
November 3, 1996 and October 29, 1995.................................. 19
Consolidated Statements of Shareholders' Equity for the years ended
November 2, 1997, November 3, 1996 and October 29, 1995................ 20
Consolidated Statements of Cash Flows for the years ended November 2,
1997, November 3, 1996 and October 29, 1995............................ 21
Notes to Consolidated Financial Statements.............................. 22
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Account........................... 30
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To St. John Knits, Inc.:
We have audited the accompanying consolidated balance sheets of ST. JOHN
KNITS, INC. (a California corporation) and subsidiaries as of November 2, 1997
and November 3, 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended November 2, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of St. John Knits, Inc. and subsidiaries as of November 2, 1997 and
November 3, 1996, and the results of their operations and their cash flows for
each of the three years in the period ended November 2, 1997 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Orange County, California
December 17, 1997
17
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 2, NOVEMBER 3,
A S S E T S 1997 1996
----------- ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 14,266,564 $ 6,186,057
Investments....................................... 2,351,765 4,222,516
Accounts receivable, net.......................... 36,572,423 28,093,606
Inventories....................................... 30,736,980 23,619,054
Deferred income tax benefit....................... 5,793,961 5,493,961
Other............................................. 2,591,742 1,269,382
------------ ------------
Total current assets............................ 92,313,435 68,884,576
Property and equipment:
Machinery and equipment........................... 35,903,659 29,930,228
Leasehold improvements............................ 25,351,868 22,636,537
Buildings......................................... 11,572,917 --
Furniture and fixtures............................ 5,434,754 4,427,249
Land.............................................. 3,536,606 3,461,103
Construction in progress.......................... 4,225,573 6,797,018
------------ ------------
86,025,377 67,252,135
Less--Accumulated depreciation and amortization... 28,222,633 23,351,904
------------ ------------
57,802,744 43,900,231
------------ ------------
Other assets........................................ 3,787,396 3,709,316
------------ ------------
$153,903,575 $116,494,123
============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $ 10,034,396 $ 5,404,401
Accrued expenses.................................. 10,504,934 11,508,469
Income taxes payable.............................. 2,081,242 2,344,000
------------ ------------
Total current liabilities....................... 22,620,572 19,256,870
------------ ------------
Minority interest................................... 602,910 --
------------ ------------
Deferred income tax liability....................... -- 143,941
------------ ------------
Commitments (Note 7)
Shareholders' equity:
Preferred Stock, no par value: Authorized--
2,000,000 shares, issued and outstanding--none... -- --
Common Stock, no par value: Authorized--40,000,000
shares, issued and outstanding--16,634,548 and
16,599,064 shares, respectively.................. 502,799 502,799
Additional paid-in capital........................ 18,929,541 18,085,151
Cumulative Translation Adjustment................. (19,351) --
Retained earnings................................. 111,267,104 78,505,362
------------ ------------
130,680,093 97,093,312
------------ ------------
$153,903,575 $116,494,123
============ ============
</TABLE>
See accompanying notes.
18
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 29,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales.............................. $242,100,843 $202,951,000 $161,794,890
Cost of sales.......................... 99,545,173 88,870,838 74,252,002
------------ ------------ ------------
Gross profit........................... 142,555,670 114,080,162 87,542,888
Selling, general and administrative
expenses.............................. 84,544,884 68,385,089 54,550,191
------------ ------------ ------------
Operating income....................... 58,010,786 45,695,073 32,992,697
Other income........................... 712,694 1,355,234 803,455
------------ ------------ ------------
Income before income taxes............. 58,723,480 47,050,307 33,796,152
Income taxes........................... 24,299,829 19,928,645 14,242,838
------------ ------------ ------------
Net income............................. $ 34,423,651 $ 27,121,662 $ 19,553,314
============ ============ ============
Net income per share................... $ 2.01 $ 1.59 $ 1.19
============ ============ ============
Dividends per share.................... $ 0.10 $ 0.10 $ 0.10
============ ============ ============
Weighted average common shares
and equivalents outstanding........... 17,133,631 17,015,991 16,432,884
============ ============ ============
</TABLE>
See accompanying notes.
19
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK
------------- -------------------
NUMBER NUMBER ADDITIONAL CUMULATIVE
OF OF PAID-IN TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS TOTAL
------ ------ ---------- -------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 30, 1994.. -- -- 16,413,536 $502,799 $14,899,340 $ -- $ 35,127,550 $ 50,529,689
Dividends declared
($.10 per share)........ -- -- -- -- -- -- (1,643,816) (1,643,816)
Shares issued upon
exercise of options
including tax benefit... -- -- 55,198 -- 788,053 -- -- 788,053
Net income............... -- -- -- -- -- -- 19,553,314 19,553,314
---- ---- ---------- -------- ----------- -------- ------------ ------------
Balance, October 29, 1995.. -- -- 16,468,734 502,799 15,687,393 -- 53,037,048 69,227,240
Dividends declared
($.10 per share)........ -- -- -- -- -- -- (1,653,348) (1,653,348)
Shares issued upon
exercise of options
including tax benefit... -- -- 130,330 -- 2,397,758 -- -- 2,397,758
Net income............... -- -- -- -- -- -- 27,121,662 27,121,662
---- ---- ---------- -------- ----------- -------- ------------ ------------
Balance, November 3, 1996.. -- -- 16,599,064 502,799 18,085,151 -- 78,505,362 97,093,312
Dividends declared
($.10 per share)........ -- -- -- -- -- -- (1,661,909) (1,661,909)
Shares issued upon
exercise of options
including tax benefit... -- -- 35,484 -- 844,390 -- -- 844,390
Foreign currency
translation adjustment.. -- -- -- -- -- (19,351) -- (19,351)
Net income............... -- -- -- -- -- -- 34,423,651 34,423,651
---- ---- ---------- -------- ----------- -------- ------------ ------------
Balance November 2, 1997... -- -- 16,634,548 $502,799 $18,929,541 $(19,351) $111,267,104 $130,680,093
==== ==== ========== ======== =========== ======== ============ ============
</TABLE>
See accompanying notes.
20
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 29,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ 34,423,651 $ 27,121,662 $ 19,553,314
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization.... 8,858,703 7,042,376 5,312,723
Net increase in deferred income
tax benefit..................... (300,000) (1,925,194) (2,726,482)
Loss on disposal of property and
equipment....................... 215,810 42,792 237,401
Partnership losses............... 351,165 224,368 145,714
Minority interest in income of
consolidated subsidiaries....... 602,910 -- --
Increase in accounts receivable.. (8,478,817) (6,969,300) (4,760,170)
Increase in inventories.......... (7,117,926) (8,710,012) (4,176,690)
(Increase) decrease in other
current assets.................. (1,322,360) (1,022,146) 46,471
(Increase) decrease in other
assets.......................... 6,700 (1,501,100) (41,860)
Increase in accounts payable..... 4,629,995 923,607 357,644
Increase (decrease) in accrued
expenses........................ (1,004,422) 2,343,116 1,325,607
Increase (decrease) in income
taxes payable................... (262,758) (729,125) 2,740,807
Decrease in deferred income tax
liability....................... (143,941) -- --
------------ ------------ ------------
Net cash provided by operating
activities.................... 30,458,710 16,841,044 18,014,479
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of property and
equipment......................... 84,641 60,294 60,351
Purchase of property and
equipment......................... (22,751,076) (21,400,369) (17,571,067)
Purchase of trademarks............. (747,928) -- --
Purchase of short-term
investments....................... (204,959) (347,006) (244,551)
Sale of short-term investments..... 2,075,710 2,524,182 --
Capital contributions to
partnership....................... (67,108) (995,869) --
Capital distributions from
partnership....................... 68,500 44,500 41,000
------------ ------------ ------------
Net cash used in investing
activities.................... (21,542,220) (20,114,268) (17,714,267)
------------ ------------ ------------
Cash flows from financing activities:
Dividends paid..................... (1,661,022) (1,650,090) (1,232,097)
Issuance of common stock........... 844,390 2,397,758 788,053
------------ ------------ ------------
Net cash provided by (used in)
financing activities.......... (816,632) 747,668 (444,044)
------------ ------------ ------------
Effect of exchange rate changes...... (19,351) -- --
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... 8,080,507 (2,525,556) (143,832)
Beginning balance, cash and cash
equivalents......................... 6,186,057 8,711,613 8,855,445
------------ ------------ ------------
Ending balance, cash and cash
equivalents......................... $ 14,266,564 $ 6,186,057 $ 8,711,613
============ ============ ============
Supplemental disclosures of cash flow
information:
Cash received during the year for
interest income................... $ 988,272 $ 717,099 $ 559,548
============ ============ ============
Cash paid during the year for:
Interest expense................. $ 46,954 $ -- $ 1,438
============ ============ ============
Income taxes..................... $ 24,526,911 $ 20,565,267 $ 13,991,651
============ ============ ============
</TABLE>
See accompanying notes.
21
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND OCTOBER 29, 1995
1. COMPANY BACKGROUND AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of St. John
Knits, Inc. (St. John) and its subsidiaries. St. John and its subsidiaries are
collectively referred to herein as "the Company." All interdivisional and
intercompany transactions and accounts have been eliminated. The Company is a
leading designer, manufacturer and marketer of women's clothing and
accessories. The Company's products are distributed primarily through
specialty retailers and the Company's own retail boutiques.
During fiscal 1997 the Company formed St. John Company, Ltd. in Japan to
operate as a 51 percent owned subsidiary to distribute the Company's products
in Japan. The Company also formed Amen Wardy Home Stores, LLC, which is also
51 percent owned and currently operates two home furnishing boutiques under
the name Amen Wardy Home. The operations of both entities are included in the
accompanying consolidated financial statements.
2. SUMMARY OF ACCOUNTING POLICIES
a. Definition of Fiscal Year
The Company utilizes a 52-53 week fiscal year whereby the fiscal year ends
on the Sunday nearest to October 31. Accordingly, fiscal years 1997, 1996 and
1995 ended on November 2, November 3 and October 29, respectively. Fiscal
years 1997 and 1995 were comprised of 52 weeks, and fiscal year 1996 was
comprised of 53 weeks.
b. Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
c. Revenue Recognition
Revenue on sales to specialty retailers is recognized when the goods are
shipped. The Company establishes liabilities for estimated returns and
allowances at the time of shipment. The Company also provides for estimated
discounts when recording sales. Retail sales are recognized at the point of
sale. The Company establishes liabilities for estimated returns at the retail
stores. Accounts receivable are shown net of allowances for discounts and
uncollectible accounts of $2,543,000 and $905,000 in fiscal year 1997, and
$1,938,000 and $750,000 in fiscal year 1996, respectively.
d. Inventories
Inventories are valued at the lower of cost or market. During fiscal 1997
the Company elected to change its method of accounting for its inventory from
the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method.
This change did not have a material effect on the financial statements for any
year presented. Therefore, the cumulative effect ($363,000) was reflected in
the fiscal year 1997 financial statements as a reduction of cost of goods
sold.
22
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND OCTOBER 29, 1995
Inventories are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials..................................... $10,362,158 $ 7,510,657
Work in process................................... 6,451,053 6,828,142
Finished products................................. 13,923,769 9,642,902
----------- -----------
Inventories at FIFO............................... 30,736,980 23,981,701
LIFO reserve...................................... -- (362,647)
----------- -----------
$30,736,980 $23,619,054
=========== ===========
</TABLE>
e. Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation using the straight-line method to provide for the retirement of
property and equipment at the end of their estimated useful lives, which range
from three to thirty-nine years.
f. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include all liquid debt instruments purchased with a maturity of three months
or less.
g. Foreign Exchange Transactions and Contracts
The Company enters into foreign exchange contracts as a hedge against
exchange rate risk on the collection of certain accounts receivable
denominated in a foreign currency. Market value gains and losses are
recognized as the contracts mature, and exchange adjustments resulting from
foreign currency transactions are offset by exchange gains or losses
recognized from such contracts. All amounts are translated into U.S. dollars
at current exchange rates when recorded.
h. Income Taxes
The Company utilizes the liability method of accounting for income taxes
required by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
i. Earnings per Share
Earnings per share for fiscal years 1997, 1996 and 1995 were calculated
based on the weighted average number of common and equivalent shares
outstanding during the periods. Equivalent shares were determined by using the
treasury stock method, which assumes that all dilutive securities were
exercised and that the proceeds received were applied to repurchase
outstanding shares at the average market price during the period.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which is required to be adopted by the Company
during fiscal 1998. At that time, the Company will be required to change the
method used to compute earnings per share and to restate all prior periods
presented. Under the new requirements, primary earnings per share will be
replaced with basic earnings per share. Basic earnings per share excludes the
dilutive effect of common stock equivalents, including stock options. Had
earnings per share been calculated under the provisions of the new standard,
basic earnings per share would have increased to $2.07, $1.63 and $1.19 for
fiscal years 1997, 1996 and 1995, respectively. Diluted earnings per share
would remain the same as net income per share as reflected in the accompanying
Consolidated Statements of Income.
23
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND OCTOBER 29, 1995
j. Two-for-one Stock Split
On March 12, 1996, the Board of Directors declared a two-for-one common
stock split which was distributed on May 6, 1996 to shareholders of record at
the close of business on April 8, 1996. All share and per share data included
in the consolidated financial statements and accompanying notes have been
adjusted to reflect the stock split.
k. Foreign Currency Translation
The Company translates the financial statements of its foreign subsidiaries
from the local (functional) currencies to U.S. dollars in accordance with SFAS
No. 52. Substantially all assets and liabilities of the Company's foreign
subsidiaries are translated at year-end exchange rates, while revenue and
expenses are translated at average exchange rates prevailing during the year.
Adjustments for foreign currency translation fluctuations are excluded from
net income and are deferred as a separate component of consolidated
shareholders' equity.
l. Advertising and Promotion
All costs associated with advertising and promotion of the Company's
products are expensed as incurred.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximate fair value.
Investments consist primarily of municipal bonds with maturity dates of less
than six months and other short-term investments with carrying amounts which
approximate fair value.
The Company holds various foreign exchange contracts. At November 2, 1997,
the Company had contracts maturing through November 10, 1998 to sell 10.9
million deutsche marks and 670,000 British pounds at rates ranging from 1.55
to 1.71 deutsche marks to the U.S. dollar and 1.62 to 1.66 U.S. dollars to the
British pound. At November 3, 1996, the Company had contracts maturing through
April 30, 1997 to sell 2.4 million deutsche marks at rates ranging from 1.47
to 1.48 deutsche marks to the U.S. dollar.
The estimated fair values of the Company's foreign exchange contracts are as
follows:
<TABLE>
<CAPTION>
NOVEMBER 2, 1997 NOVEMBER 3, 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Foreign exchange contracts............... -- $(94,040) -- $(44,927)
</TABLE>
During fiscal 1996, the Company adopted SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments." It
is the Company's policy to reduce the effects of fluctuations in foreign
currency exchange rates associated with its sale of goods denominated in
foreign currency by entering into forward contracts. The Company enters into
contracts to sell foreign currencies in the future only to protect the U.S.
dollar value of certain investments and future foreign currency transactions.
The Company does not engage in speculation. The gains and losses on these
contracts are included in income and offset the foreign exchange gains and
losses on the underlying transactions.
24
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND OCTOBER 29, 1995
4. ACCRUED EXPENSES
Accrued expenses for fiscal years 1997 and 1996 are comprised of the
following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Wages and benefits................................ $ 4,013,350 $ 2,978,650
Workers' compensation............................. 796,382 455,539
Insurance......................................... 250,000 716,028
Profit-sharing plan contribution.................. 500,000 500,000
Promotional and advertising allowance............. 1,741,896 1,952,423
Other............................................. 3,203,306 4,905,829
----------- -----------
$10,504,934 $11,508,469
=========== ===========
</TABLE>
5. INCOME TAXES
The provision for income taxes for fiscal years 1997, 1996 and 1995, consists
of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................ $18,878,088 $16,434,369 $13,250,535
State.............................. 5,335,096 4,277,275 3,718,785
----------- ----------- -----------
24,213,184 20,711,644 16,969,320
Deferred provision (benefit)......... 86,645 (782,999) (2,726,482)
----------- ----------- -----------
$24,299,829 $19,928,645 $14,242,838
=========== =========== ===========
</TABLE>
The components of the deferred income tax provision (benefit) for fiscal
years 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
Allowance for uncollectible accounts.............. $ 57,083 $ --
Inventory adjustments to market................... 609,067 (1,286,168)
Accrued expenses.................................. (429,750) 374,841
Depreciation...................................... (149,755) 128,328
--------- -----------
$ 86,645 $ (782,999)
========= ===========
</TABLE>
25
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND OCTOBER 29, 1995
The components of the Company's deferred income tax benefit (liability) as
of November 2, 1997 and November 3, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Tax basis adjustments to inventory................. $1,952,210 $1,542,210
Allowance for uncollectible accounts............... 364,583 307,500
Inventory adjustments to market.................... 2,952,273 2,753,206
Accrued expenses................................... 524,895 891,045
---------- ----------
$5,793,961 $5,493,961
========== ==========
Deferred tax liabilities:
Depreciation....................................... $ -- $ (182,780)
Other.............................................. -- 38,839
---------- ----------
$ -- $ (143,941)
========== ==========
</TABLE>
The reported provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to the income before provision
for income taxes for fiscal years 1997, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income tax provision computed at
statutory rate..................... $20,553,218 $16,467,607 $11,828,653
State taxes, net of federal
benefit............................ 3,549,834 2,844,192 2,262,653
Other............................... 196,777 616,846 151,532
----------- ----------- -----------
Tax provision....................... $24,299,829 $19,928,645 $14,242,838
=========== =========== ===========
</TABLE>
6. BENEFIT PLANS
The Company is self-insured for a portion of its medical benefits programs.
Amounts charged to expense for health benefits were $3,110,000, $3,137,000 and
$3,114,000 for fiscal years 1997, 1996 and 1995, respectively, and were based
on actual and estimated claims incurred. The current liability for health
benefits is included in current liabilities on the accompanying consolidated
balance sheets. The Company maintains excess insurance coverage on an
individual and an aggregate basis.
The Company maintains a qualified profit-sharing plan for the benefit of all
eligible employees. This plan contemplates the sharing of profits annually at
the discretion of the Board of Directors and is funded by cash contributions.
The contribution to this plan was $500,000, in each of the fiscal years 1997,
1996 and 1995.
The Company has one stock option plan, the 1993 St. John Knits, Inc. Stock
Option Plan (the "Plan"). Options granted under the Plan may be either
incentive or nonstatutory stock options. The Company accounts for the Plan
under Accounting Principles Board Opinion No. 25, under which no compensation
cost has been recognized for fiscal years 1997 and 1996.
SFAS No. 123 "Accounting for Stock-Based Compensation" was issued in 1995
and, if fully adopted, changes the methods for recognition of cost on plans
similar to that of the Company. Adoption of SFAS No. 123 is optional for
employee stock option grants, however pro forma disclosure as if the Company
had adopted the cost recognition method is required. Had compensation cost for
stock options awarded under the
26
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND OCTOBER 29, 1995
Plan been determined consistent with SFAS No. 123, the Company's net income
and earnings per share would have reflected the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<C> <S> <C> <C>
Net income: As reported................. $34,423,651 $27,121,662
Pro forma................... $33,605,519 $27,085,063
Net income per share: As reported................. $2.01 $1.59
Pro forma................... $1.96 $1.59
</TABLE>
The Company may grant up to 1,600,000 options under the Plan. The Company
has granted 1,098,000 options through November 2, 1997. The options are
primarily issued at fair market value with exercise prices equal to the
Company's stock price at the date of grant. Options generally vest over three
years; are exercisable in whole or in installments; and expire ten years from
date of grant.
The following is a summary of the activity in the Plan for fiscal years
1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ------------------ -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year.................. 681,472 $ 9.45 784,470 $ 8.81 812,668 $ 8.58
Granted......................................... 197,000 42.27 28,000 23.04 39,000 16.65
Exercised....................................... (35,484) 8.50 (130,330) 8.50 (55,198) 8.50
Forfeited....................................... -- -- (668) 8.50 (12,000) 20.17
------- ------ -------- ------ ------- ------
Outstanding, end of year........................ 842,988 $17.16 681,472 $ 9.45 784,470 $ 8.81
======= ====== ======== ====== ======= ======
Exercisable, end of year........................ 668,644 $11.28 625,458 $ 8.68 469,110 $ 8.57
Weighted average fair value of options granted.. $17.93 $ 8.80
</TABLE>
The following is a detail of the stock options outstanding at November 2,
1997, including weighted average contractual life and exercise price
information:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
-------------------------
RANGE OF OPTIONS OPTIONS REMAINING EXERCISE
EXERCISE PRICES OUTSTANDING EXERCISABLE CONTRACTUAL LIFE PRICE
--------------- ----------- ----------- ---------------- --------
<S> <C> <C> <C> <C>
$8.50 586,988 584,977 5.38 $ 8.50
$15.06 to $23.25 59,000 33,667 7.78 19.52
$39.13 to $45.75 197,000 50,000 9.49 42.27
---------------- ------- ------- ---- ------
$8.50 to $45.75 842,988 668,644 6.51 $11.28
=============== ======= ======= ==== ======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes pricing model with the following assumptions used for the
grants in fiscal years 1997 and 1996: weighted average risk-free interest rate
of 6.32% and 5.45%; weighted average volatility of 31.0% and 29.1%; expected
life of 6 years; and weighted average dividend yield of 0.2373% and 0.4341%.
Options granted in 1997 and 1996 have a weighted average contractual life of
9.48 and 8.23 years, respectively.
27
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND OCTOBER 29, 1995
7. COMMITMENTS
The Company has entered into various leases for manufacturing, showroom,
warehouse, retail and office locations, including leases with related parties
(Note 9). The leases expire at various dates through the year 2011 and certain
leases contain renewal options. Rental expense under these leases was
approximately $9,474,000, $8,094,000 and $6,554,000 in fiscal years 1997, 1996
and 1995, respectively.
The following is a schedule of future minimum rental payments required under
noncancellable operating leases as of November 2, 1997:
<TABLE>
<S> <C>
1998........................................................... $10,463,000
1999........................................................... 10,323,000
2000........................................................... 10,274,000
2001........................................................... 9,203,000
2002........................................................... 7,199,000
Thereafter..................................................... 37,277,000
-----------
$84,739,000
===========
</TABLE>
The Company has various employment contracts with certain key employees,
which expire at various times through June 1, 1999. These agreements provide
for total annual compensation aggregating $3,545,000 and the payment of
severance benefits upon the termination of employment.
As of November 2, 1997 and November 3, 1996, the Company's commitments to
purchase wool yarn were approximately $11,847,000 and $11,047,000
respectively. In addition, the Company currently has a commitment to purchase
22 computerized knitting machines at a total cost of approximately $2,326,000.
8. LINE OF CREDIT
The Company has a line of credit agreement with a bank. The agreement
provides for a $25,000,000 line of credit that matures March 1, 2000.
Borrowings under the line bear interest at the bank's reference rate
(8.5 percent at November 2, 1997) or an offshore rate plus 1.5 percent. The
agreement contains covenants, which, among other matters, restrict capital
expenditures, dividends, investments, loans and advances and require the
maintenance of certain financial ratios. No amounts were due under this line
of credit at either November 2, 1997 or November 3, 1996. Letters of credit
outstanding under the line of credit totaled $330,931 and $506,000 at November
2, 1997 and November 3, 1996, respectively.
9. RELATED-PARTY TRANSACTIONS
The Company leases its corporate headquarters/manufacturing facility and one
other manufacturing facility from partnerships in which a shareholder of the
Company is a significant partner. The annual payments on these leases were
approximately $884,000, $966,000 and $902,000 in fiscal years 1997, 1996 and
1995, respectively. The leases expire at various dates during fiscal year 2001
and are included in the future minimum rental payments disclosure (Note 7).
The Company periodically rents personal property provided by a company that
is owned by a shareholder. Rental payments for the use of such equipment were
approximately $30,000, $37,000 and $3,000 in fiscal years 1997, 1996 and 1995,
respectively.
28
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND OCTOBER 29, 1995
At November 2, 1997 and November 3, 1996, the Company held a 50 percent
ownership interest in a partnership which leases transportation equipment to
the Company. The holder of the other 50 percent ownership interest is a
corporation which is wholly-owned by one of the Company's shareholders. During
fiscal 1996, the Company made net capital contributions to the partnership of
approximately $951,000. At November 2, 1997 and November 3, 1996, the
Company's investment in this partnership, net of partnership losses, was
approximately $1,270,000 and $1,622,000, respectively, and is included on the
accompanying consolidated balance sheets within the caption "Other Assets."
During fiscal years 1997, 1996 and 1995, the Company made lease payments to
the partnership of $840,000, $572,000 and $240,000, respectively. During the
same years, the Company reported net losses from the activities of the
partnership of $351,000, $224,000 and $146,000, respectively.
10. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
A substantial portion of the Company's sales are made to three major
customers. These three customers accounted for 17, 15 and 15 percent of net
sales during fiscal 1997, 18, 15 and 15 percent of net sales during fiscal
1996 and 21, 16 and 15 percent during fiscal 1995. The loss of any one of
these customers could have an adverse affect on the Company's business.
The Company sells primarily to specialty apparel retailers; thus, the risk
of collection losses is concentrated in this industry. Management believes
that the Company's credit and collection policies are adequate to prevent
significant collection losses and that the allowance for uncollectible
accounts is adequate at November 2, 1997 and November 3, 1996.
11. RESULTS BY QUARTER (UNAUDITED)
The unaudited results by quarter for fiscal years 1997 and 1996 are shown
below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Year ended November 2, 1997
Net sales.................................... $56,175 $59,563 $54,811 $71,552
Gross profit................................. 31,756 35,871 32,163 42,767
Net income................................... 7,383 8,874 7,201 10,965
Net income per share......................... 0.43 0.52 0.42 0.64
Year ended November 3, 1996
Net sales.................................... $45,259 $50,028 $46,525 $61,139
Gross profit................................. 24,577 27,640 26,485 35,378
Net income................................... 5,687 6,784 6,015 8,636
Net income per share......................... 0.35 0.40 0.35 0.50
</TABLE>
29
<PAGE>
SCHEDULE II
ST. JOHN KNITS, INC.
VALUATION AND QUALIFYING ACCOUNT
FOR THE FISCAL YEARS ENDED NOVEMBER 2, 1997,
NOVEMBER 3, 1996 AND OCTOBER 29, 1995
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
FISCAL YEAR EXPENSES DEDUCTIONS FISCAL YEAR
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for Uncollectible
Accounts:
Fiscal year ended November 2,
1997......................... $750,000 $369,987 $214,987 $905,000
Fiscal year ended November 3,
1996......................... $750,000 $ 88,547 $ 88,547 $750,000
Fiscal year ended October 29,
1995......................... $550,000 $216,821 $ 16,821 $750,000
</TABLE>
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: January 28, 1997
ST. JOHN KNITS, INC. (Registrant)
/s/ ROBERT E. GRAY
By:__________________________________
Robert E. Gray
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT E. GRAY Chairman of the Board January 28, 1998
- ------------------------------- and Chief Executive
Robert E. Gray Officer (Principal
Executive Officer)
/s/ MARIE ST. JOHN GRAY Vice Chairman of the January 28, 1998
- ------------------------------- Board, Chief Designer
Marie St. John Gray and Secretary
/s/ KELLY A. GRAY Director and President January 28, 1998
- -------------------------------
Kelly A. Gray
/s/ ROGER G. RUPPERT Director, Senior Vice January 28, 1998
- ------------------------------- President-Finance and
Roger G. Ruppert Chief Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
/s/ DAVID A. KRINSKY Director January 28, 1998
- -------------------------------
David A. Krinsky
/s/ RICHARD A. GADBOIS, III Director January 28, 1998
- -------------------------------
Richard A. Gadbois, III
</TABLE>
31
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
3.1 Articles of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
10.1 Lease Amendment Agreement dated April 1, 1997 between the
Company and G.M. Properties (increasing the space of the
corporate headquarters, warehousing and manufacturing
facility) (incorporated by reference to Exhibit 10.3 of
the Company's Quarterly Report on Form 10-Q for the
quarter ended May 4, 1997 (File No. 1-11752))
10.2 Retail Lease dated August 8, 1995 by and between the
Company and Wilshire Roxbury Enterprises, a California
Limited Partnership (Beverly Hills Boutique)(4)
10.3 Agreement of Lease dated as of December 31, 1995 by and
between the Company and Rolex Realty Company, Inc. (New
York Boutique)(4)
10.4 Lease dated June 1, 1986 between G.M. Properties and the
Company (Corporate Headquarters)(1)
10.5 Industrial Real Estate Lease dated November 13, 1985
between the Alhambra Partners, a California Limited
Partnership, and the Company, together with Amendment No.
1 to Industrial Real Estate Lease dated November 13, 1985
and Option to Extend Term dated November 13, 1985
(Assembling, Sewing)(1)
10.6 Agreement of Lease dated March 1, 1991 by and between the
Company and Broadway and 41st Associates Limited
Partnership, as amended by letter agreements dated March
4, 1991, November 6, 1991, and November 7, 1991, and as
further amended by Lease Extension and Modification
Agreement dated October 22, 1993 (New York Showroom)(1)
10.7 Agreement of Lease dated October 22, 1993 by and between
the Company and Broadway and 41st Associates Limited
Partnership (New York Showroom)(2)
*10.8 Description of Directors Compensation Plan(5)
10.9 Agreement of Lease dated January 11, 1991 by and between
Rolex Realty Company, Inc. and the Company together with
Lease Modification Agreement dated January 11, 1991 and
Second Lease Modification Agreement dated April 12, 1991
(New York Boutique)(1)
10.10 Amended and Restated Agreement of Limited Partnership of
SJA 1&2, Ltd. dated October 31, 1993 by and between the
Company and Ocean Air Charters, Inc.(2)
*10.11 Employment Agreement dated as of June 1, 1995 between the
Company and Robert E. Gray(4)
*10.12 Employment Agreement dated as of January 1, 1998 between
the Company and Marie St. John Gray(6)
10.13 Product Design and Development Agreement dated August 5,
1997 among the Company, Amen Wardy, Sr. and Amen Wardy,
Jr. (incorporated by reference to Exhibit 10.5 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997 (File No. 1-11752))
*10.14 Employment Agreement dated as of January 1, 1998 between
the Company and Kelly A. Gray(6)
*10.15 First Amendment to Employment Agreement dated May 2, 1997
between the Company and Robert E. Gray (incorporated by
reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q for the quarter ended May 4, 1997
(File No. 1-11752))
*10.16 Employment Agreement dated as of January 1, 1998 between
the Company and Roger G. Ruppert(6)
*10.17 Employment Agreement dated as of January 1, 1998 between
the Company and Karla R. Guyer(6)
10.18 St. John Knits, Inc. Employees' Profit Sharing Plan dated
as of August 21, 1995(4)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
10.19 Aircraft Lease dated April 1, 1997 by and between the
Company and Ocean Air Charters, Inc. as Trustee of the
SJA 1&2, Ltd. Trust (Lease for Company airplane)
(incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended May 4, 1997 (File No. 1-11752))
*10.20 1993 Stock Option Plan(1)
*10.21 Form of Indemnity Agreement by and between the Company
and each of its directors and officers(1)
10.22 Agreement to Form Partnership and Escrow Instructions
dated November 7, 1994 by and between the Company and
Varian Associates, a California General Partnership(3)
10.23 Wool Yarn Purchase Agreement dated September 19, 1996, by
and between the Company and the Kent Manufacturing
Company(5)
10.24 Agreement effective as of September 1, 1993 by and among
the Company, Escada A.G. and Amira Verwaltungs A.G.
(assumption of lease by the Company)(2)
10.25 Lease dated September 26, 1994 by and between the Company
and La Salle National Bank, as Trustee under Trust
Agreement dated October 8, 1974, known as Trust Number
48163 (Chicago Boutique)(3)
10.26 Distribution Agreement dated June 11, 1997 by and between
the Company and Gary Farn, Ltd. (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ended August 3, 1997
(File No. 1-11752))
10.27 Business Loan Agreement dated December 15, 1995 by and
between the Company and Bank of America National Trust
and Savings Association(4)
10.28 General Partnership Agreement of St. John-Varian
Development Company dated April 3, 1995 by and between
the Company and Varian Associates, a California General
Partnership(4)
10.29 Lease Agreement dated April 3, 1995 by and between the
Company and St. John-Varian Development Company
(Knitting, Sewing, Finishing, Shipping, Administrative
Offices)(4)
10.30 Joint Venture Agreement dated July 17, 1997 between the
Company and Commercial Development Co., Ltd.
(incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997 (File No. 1-11752))
10.31 Agreement for Purchase and Sale of Real Property and
Joint Escrow Instruction dated as of January 15, 1996
between the Company and Baxter Healthcare Corporation
(Storage)(5)
10.32 Lease Extension Agreement dated February 6, 1996 between
the Company and G.M. Properties (extending the lease for
the Company's current Corporate Headquarters)(5)
*10.33 Employment Agreement dated July 22, 1996 between the
Company and David Frankel(5)
10.34 Lease Extension Agreement dated as of September 1, 1996
between the Company and Alhambra Partners (extending the
lease for one of the Company's Assembling and Sewing
facilities)(5)
10.35 License and Distribution Agreement dated as of August 1,
1997 between the Company and St. John Co., Ltd.
(incorporated by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997 (File No. 1-11752))
10.36 Agreement for Purchase and Sale of Real Property and
Joint Escrow Instruction dated as of March 12, 1996 by
and between the Company and Baxter Healthcare Corporation
(Design/Manufacturing)(5)
10.37 Amendment No. 1 to Business Loan Agreement dated as of
April 26, 1996 by and between the Company and Bank of
America National Trust and Savings Association(5)
*10.38 Amendment No. I to the St. John Knits, Inc. 1993 Stock
Option Plan(5)
10.39 Asset Purchase Agreement dated as of August 29, 1996
among the Company, Jakob Schlaepfer & Co. AG and Jakob
Schlaepfer, Inc.(5)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
10.40 Amendment No.2 to Business Loan Agreement between the
Company and Bank of America National Trust and Savings
Association(5)
10.41 Manufacturing and Supply Agreement dated as of November
9, 1996 by and between the Company and Calzaturificio
M.A.B. S.p.A.(5)
10.42 Limited Liability Company Agreement for Amen Wardy Home
Stores, LLC dated August 5, 1997, among the Company, AWH
Direct, LLC, Amen Wardy, Sr., Amen Wardy, Jr., Amen Wardy
Home, Inc., Bob Hightower and Amen Wardy Home Stores, LLC
(incorporated by reference to Exhibit 10.4 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997 (File No. 1-11752))
10.43 Sales Representative Agreement dated November 13, 1996 by
and between the Company and Hilda Chang(5)
*10.44 Consulting Agreement dated as of December 1, 1997 between
the Company and Robert C. Davis(6)
10.45 Wool Yarn Purchase Agreement dated August 27, 1997 by and
between the Company and Kent Manufacturing Company(6)
10.46 Wool Yarn Purchase Agreement dated September 1, 1997 by
and between the Company and Kent Manufacturing Company(6)
10.47 Amendment No. 3 to Business Loan Agreement between the
Company and Bank of America National Trust and Savings
Association(6)
10.48 Lease Agreement dated December 10, 1997 by and between
the Company and Forum Developers Limited Partnership, A
Nevada Limited Partnership (Las Vegas Boutique)(6)
10.49 Amendment No. 4 to Business Loan Agreement between the
Company and Bank America National Trust and Savings
Association(6)
10.50 Unit Price Construction Agreement between St. John de
Mexico, S.A. de C.V. and Administration Tijuana
Industrial, S.A. de C.V.(6)
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants(6)
27.1 Financial Data Schedule(6)
</TABLE>
- --------
(1) Incorporated by reference to Exhibit of same number to the Company's
Registration Statement on Form S-1, as amended (file no. 33-57128) on file
with the Securities and Exchange Commission.
(2) Incorporated by reference to Exhibit of same number to the Company's
Report on Form 10-K for the Fiscal Year ended October 31, 1993 on file
with the Securities and Exchange Commission.
(3) Incorporated by reference to Exhibit of same number to the Company's
Report on Form 10-K for the Fiscal Year ended October 30, 1994 on file
with the Securities and Exchange Commission.
(4) Incorporated by reference to Exhibit of same number to the Company's
Report on Form 10-K for the Fiscal Year ended October 29, 1995 on file
with the Securities and Exchange Commission.
(5) Incorporated by reference to Exhibit of same number to the Company's
Report on Form 10-K for the Fiscal Year ended November 3, 1996 on file
with the Securities and Exchange Commission.
(6) Filed herewith.
* A management contract or compensatory plan or arrangement.
34
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated as of January 1,
1998, between St. John Knits, Inc., a California corporation ("Company"), and
Marie St. John Gray ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
I.1 Employment. The Company hereby employs Executive, and Executive
----------
agrees to serve as the Company's Vice Chairman, Chief Designer and Secretary
during the term of this Agreement, and shall serve at the discretion of the
Company's Board of Directors. Executive agrees to devote substantially her full
business time and attention and best efforts to the affairs of the Company
during the term of this Agreement.
I.2 Term. The employment of Executive by the Company under the terms
----
and conditions of this Agreement will commence as of January 1, 1998 and will
continue for a period of one (1) year unless renewed or terminated sooner in
accordance with the provisions hereof.
I.3 Termination of Prior Agreement. Immediately upon the
------------------------------
commencement of Executive's employment pursuant to the terms of this Agreement,
that certain Employment Agreement by and between Executive and the Company dated
as of January 1, 1997, shall terminate and shall be of no further force or
effect.
ARTICLE II
COMPENSATION
------------
II.1 Annual Salary. During the employment of Executive, the Company
-------------
shall pay to Executive a base salary at the annual rate of $500,000 (the "Base
Salary"). The Base Salary shall be payable in substantially equal semi-monthly
installments.
II.2 Reimbursement of Expenses. Executive shall be entitled to
-------------------------
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are
1
<PAGE>
incurred and accounted for in accordance with the policies and procedures
established by the Company.
II.3 Automobile Allowance. The Company shall pay directly, or
--------------------
reimburse Executive for, all reasonable costs and expenses incurred by Executive
in connection with the operation and maintenance of an automobile.
II.4 Benefits. Executive shall be entitled to participate in and be
--------
covered by all health, insurance, pension and other employee plans and benefits
currently established for the employees of the Company (collectively referred to
as the "Company Benefit Plans") on at least the same terms as other employees of
the Company, subject to meeting applicable eligibility requirements.
II.5 Vacations and Holidays. During Executive's employment with the
----------------------
Company, Executive shall be entitled to an annual vacation leave of five (5)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
---------------------------------
III.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
III.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
2
<PAGE>
pertaining to the proprietary information of the Company.
III.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
III.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (l) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days has elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
III.5 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
III.6 Survival of Obligations. Executive agrees that the terms of
-----------------------
this Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
3
<PAGE>
ARTICLE IV
TERMINATION
-----------
IV.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
-----
(i) personal dishonesty or willful misconduct by Executive;
(ii) a breach of Executive's fiduciary duties to the Company
which involves personal profit or benefit to Executive;
(iii) willful violation and conviction of any law, rule or
regulation (other than traffic violations or similar offenses) or of
any final cease and desist order issued by any financial institution
regulatory authority against the Company; or
(iv) a material breach of this Agreement by Executive.
(b) Good Reason. "Good Reason" shall mean voluntary termination
-----------
as a result of:
(i) the assignment to Executive of duties inconsistent with
the position and status of Executive as set forth in this Agreement
without Executive's prior written consent;
(ii) a substantial alteration in the nature, status or
prestige of Executive's responsibilities or a change in Executive's
title or reporting level from that set forth in this Agreement;
(iii) the relocation of the Company's executive offices or
principal business location to a point more than fifty (50) miles from
the location of such offices or businesses as of the date of this
Agreement;
(iv) a reduction by the Company of Executive's Base Salary; or
(v) a failure by the Company to obtain from any successor,
before the succession takes place, an agreement to assume and perform
this Agreement.
(c) Disability. "Disability" shall mean a physical or mental
----------
incapacity as a result of which Executive becomes unable to continue the
proper performance of her duties hereunder (reasonable absences because of
sickness
4
<PAGE>
for up to two (2) consecutive months excepted; provided, however, that any
new period of incapacity or absence shall be deemed to be part of a prior
period of incapacity or absence if the prior period terminated within
ninety (90) days of the beginning of the new period of incapacity or
absence and the incapacity or absence is determined by the Company's Board
of Directors, in good faith, to be related to the prior incapacity or
absence). A determination of Disability shall be subject to the
certification of a qualified medical doctor agreed to by the Company and
Executive or in the event of Executive's incapacity to designate a doctor,
Executive's legal representative. In the absence of agreement between the
Company and Executive, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall
make the determination as to Disability.
IV.2 Termination by Company. The Company may terminate Executive's
----------------------
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
IV.3 Termination by Executive. Executive may terminate her
------------------------
employment hereunder upon thirty (30) days' written notice to the Company. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
IV.4 Death or Disability of Executive. Executive's employment
--------------------------------
hereunder shall terminate immediately upon the death or Disability of Executive.
IV.5 Severance Benefits Received Upon Termination.
--------------------------------------------
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement pursuant to Section 4.3 other
than for Good Reason, then the Company shall pay Executive her Base Salary
through the Effective Date of such termination plus credit for any vacation
earned but not taken, and the Company shall thereafter have no further
obligations to Executive under this Agreement.
(b) If Executive's employment is terminated by the Company
without Cause, or Executive terminates this Agreement for Good Reason, then
the Company shall provide Executive:
(i) salary continuation in an amount equal
5
<PAGE>
to Executive's then Base Salary for a period equal to the longer of
the remainder of the term of this Agreement or six (6) months, said
sum to be paid semi-monthly in equal installments at the times salary
payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period equal to the
longer of the remainder of the term of this Agreement or six (6)
months, subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent health insurance benefits will
be in accordance with COBRA.
(c) If Executive's employment is terminated by the Company as a
result of Disability, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to one month for each full year
Executive has been employed by the Company, up to a maximum of
eighteen (18) months, said sum to be paid monthly in equal
installments at the times salary payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period of one month
for each full year Executive has been employed by the Company, up to a
maximum of eighteen (18) months, subject to any employee contribution
provisions as defined in the Company Benefit Plans. Subsequent health
insurance benefits will be in accordance with COBRA.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall provide Executive's spouse or
estate health insurance coverage as then in effect for Executive, her
spouse and dependent children for a period of six (6) months, subject to
any employee contribution provisions as defined in the Company Benefit
Plans. Health insurance benefits subsequent to the salary continuation
period will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
------------------
V.1 Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
6
<PAGE>
If to the Company: St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
With a copy to: David A. Krinsky, Esq.
O'Melveny & Myers LLP
610 Newport Center Drive
Suite 1700
Newport Beach, CA 92660
If to Executive: Marie St. John Gray
17522 Armstrong Ave.
Irvine, CA 92614
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
V.2 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
V.3 Beneficial Interests. This Agreement shall inure to the benefit
--------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to her
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
V.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
V.5 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
V.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
7
<PAGE>
V.7 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
V.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
V.9 Assignment. This Agreement and the rights, duties, and
----------
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
V.10 Arbitration. Any controversy, dispute, claim or other matter in
-----------
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
8
<PAGE>
(c) Except as otherwise provided in Section 5.7 hereof, the
costs and fees of the arbitration shall be allocated by the arbitrators.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
St. John Knits, Inc.,
a California corporation
By: /s/ BOB GRAY
----------------------------
Bob Gray,
Chief Executive Officer
"Executive"
/s/ MARIE ST. JOHN GRAY
--------------------------------
Marie St. John Gray
9
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated as of January 1,
1998, between St. John Knits, Inc., a California corporation ("Company"), and
Kelly A. Gray ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
I.1 Employment. The Company hereby employs Executive, and Executive
----------
agrees to serve as the Company's President during the term of this Agreement,
and shall serve at the discretion of the Company's Board of Directors.
Executive agrees to devote substantially her full business time and attention
and best efforts to the affairs of the Company during the term of this
Agreement.
I.2 Term. The employment of Executive by the Company under the terms
----
and conditions of this Agreement will commence as of January 1, 1998 and will
continue for a period of one (1) year unless renewed or terminated sooner in
accordance with the provisions hereof.
I.3 Termination of Prior Agreement. Immediately upon the
------------------------------
commencement of Executive's employment pursuant to the terms of this Agreement,
that certain Employment Agreement by and between Executive and the Company dated
as of January 1, 1997, shall terminate and shall be of no further force or
effect.
ARTICLE II
COMPENSATION
------------
II.1 Annual Salary. During the employment of Executive, the Company
-------------
shall pay to Executive a base salary at the annual rate of $400,000 (the "Base
Salary"). The Base Salary shall be payable in substantially equal semi-monthly
installments.
II.2 Reimbursement of Expenses. Executive shall be entitled to
-------------------------
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are
1
<PAGE>
incurred and accounted for in accordance with the policies and procedures
established by the Company.
II.3 Automobile Allowance. The Company shall pay directly, or
--------------------
reimburse Executive for, all reasonable costs and expenses incurred by Executive
in connection with the operation and maintenance of an automobile.
II.4 Benefits. Executive shall be entitled to participate in and be
--------
covered by all health, insurance, pension and other employee plans and benefits
currently established for the employees of the Company (collectively referred to
as the "Company Benefit Plans") on at least the same terms as other employees of
the Company, subject to meeting applicable eligibility requirements.
II.5 Vacations and Holidays. During Executive's employment with the
----------------------
Company, Executive shall be entitled to an annual vacation leave of three (3)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
II.6 Modeling Fee. The Company shall pay to Executive an amount at
------------
the annual rate of Two Hundred Fifty Thousand Dollars ($250,000) for her
position as Signature Model of the Company; such amount shall be payable in
twelve substantially equal monthly installments.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
---------------------------------
III.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
III.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
2
<PAGE>
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
III.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
III.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (l) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days has elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
III.5 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
III.6 Survival of Obligations. Executive agrees that the terms of
-----------------------
this Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
3
<PAGE>
ARTICLE IV
TERMINATION
-----------
IV.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
-----
(i) personal dishonesty or willful misconduct by Executive;
(ii) a breach of Executive's fiduciary duties to the Company
which involves personal profit or benefit to Executive;
(iii) willful violation and conviction of any law, rule or
regulation (other than traffic violations or similar offenses) or of
any final cease and desist order issued by any financial institution
regulatory authority against the Company; or
(iv) a material breach of this Agreement by Executive.
(b) Good Reason. "Good Reason" shall mean voluntary termination
-----------
as a result of:
(i) the assignment to Executive of duties inconsistent with
the position and status of Executive as set forth in this Agreement
without Executive's prior written consent;
(ii) a substantial alteration in the nature, status or
prestige of Executive's responsibilities or a change in Executive's
title or reporting level from that set forth in this Agreement;
(iii) the relocation of the Company's executive offices or
principal business location to a point more than fifty (50) miles from
the location of such offices or businesses as of the date of this
Agreement;
(iv) a reduction by the Company of Executive's Base Salary;
or
(v) a failure by the Company to obtain from any successor,
before the succession takes place, an agreement to assume and perform
this Agreement.
(c) Disability. "Disability" shall mean a physical or mental
----------
incapacity as a result of which Executive becomes unable to continue the
proper performance of her duties hereunder (reasonable absences because of
sickness
4
<PAGE>
for up to two (2) consecutive months excepted; provided, however, that any
new period of incapacity or absence shall be deemed to be part of a prior
period of incapacity or absence if the prior period terminated within
ninety (90) days of the beginning of the new period of incapacity or
absence and the incapacity or absence is determined by the Company's Board
of Directors, in good faith, to be related to the prior incapacity or
absence). A determination of Disability shall be subject to the
certification of a qualified medical doctor agreed to by the Company and
Executive or in the event of Executive's incapacity to designate a doctor,
Executive's legal representative. In the absence of agreement between the
Company and Executive, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall
make the determination as to Disability.
IV.2 Termination by Company. The Company may terminate Executive's
----------------------
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
IV.3 Termination by Executive. Executive may terminate her
------------------------
employment hereunder upon thirty (30) days' written notice to the Company. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
IV.4 Death or Disability of Executive. Executive's employment
--------------------------------
hereunder shall terminate immediately upon the death or Disability of Executive.
IV.5 Severance Benefits Received Upon Termination.
--------------------------------------------
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement pursuant to Section 4.3 other
than for Good Reason, then the Company shall pay Executive her Base Salary
through the Effective Date of such termination plus credit for any vacation
earned but not taken, and the Company shall thereafter have no further
obligations to Executive under this Agreement.
(b) If Executive's employment is terminated by the Company
without Cause, or Executive terminates this Agreement for Good Reason, then
the Company shall provide Executive:
(i) salary continuation in an amount equal
5
<PAGE>
to Executive's then Base Salary for a period equal to the longer of
the remainder of the term of this Agreement or six (6) months, said
sum to be paid semi-monthly in equal installments at the times salary
payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period equal to the
longer of the remainder of the term of this Agreement or six (6)
months, subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent health insurance benefits will
be in accordance with COBRA.
(c) If Executive's employment is terminated by the Company as a
result of Disability, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to one month for each full year
Executive has been employed by the Company, up to a maximum of
eighteen (18) months, said sum to be paid monthly in equal
installments at the times salary payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period of one month
for each full year Executive has been employed by the Company, up to a
maximum of eighteen (18) months, subject to any employee contribution
provisions as defined in the Company Benefit Plans. Subsequent health
insurance benefits will be in accordance with COBRA.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall provide Executive's spouse or
estate health insurance coverage as then in effect for Executive, her
spouse and dependent children for a period of six (6) months, subject to
any employee contribution provisions as defined in the Company Benefit
Plans. Health insurance benefits subsequent to the salary continuation
period will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
------------------
V.1 Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
6
<PAGE>
If to the Company: St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
With a copy to: David A. Krinsky, Esq.
O'Melveny & Myers LLP
610 Newport Center Drive
Suite 1700
Newport Beach, CA 92660
If to Executive: Kelly A. Gray
17522 Armstrong Ave.
Irvine, CA 92614
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
V.2 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
V.3 Beneficial Interests. This Agreement shall inure to the benefit
--------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to her
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
V.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
V.5 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
V.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
7
<PAGE>
V.7 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
V.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
V.9 Assignment. This Agreement and the rights, duties, and
----------
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
V.10 Arbitration. Any controversy, dispute, claim or other matter in
-----------
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 5.7
8
<PAGE>
hereof, the costs and fees of the arbitration shall be allocated by the
arbitrators.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
St. John Knits, Inc.,
a California corporation
By: /s/ BOB GRAY
-----------------------
Bob Gray,
Chief Executive Officer
"Executive"
/s/ KELLY A. GRAY
----------------------------
Kelly A. Gray
9
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated as of January 1,
1998, between St. John Knits, Inc., a California corporation ("Company"), and
Roger Ruppert ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
I.1 Employment. The Company hereby employs Executive, and Executive
----------
agrees to serve as the Company's Senior Vice President-Finance and Chief
Financial Officer during the term of this Agreement, and shall serve at the
discretion of the Company's Board of Directors. Executive agrees to devote
substantially his full business time and attention and best efforts to the
affairs of the Company during the term of this Agreement.
I.2 Term. The employment of Executive by the Company under the terms
----
and conditions of this Agreement will commence as of January 1, 1998 and will
continue for a period of one (1) year unless renewed or terminated sooner in
accordance with the provisions hereof.
I.3 Termination of Prior Agreement. Immediately upon the
------------------------------
commencement of Executive's employment pursuant to the terms of this Agreement,
that certain Employment Agreement by and between Executive and the Company dated
as of January 1, 1997, shall terminate and shall be of no further force or
effect.
ARTICLE II
COMPENSATION
------------
II.1 Annual Salary. During the employment of Executive, the Company
-------------
shall pay to Executive a base salary at the annual rate of $220,000 (the "Base
Salary"). The Base Salary shall be payable in substantially equal semi-monthly
installments.
II.2 Reimbursement of Expenses. Executive shall be entitled to
-------------------------
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or
1
<PAGE>
in the service of, the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by the
Company.
II.3 Automobile Allowance. The Company shall pay directly, or
--------------------
reimburse Executive for, all reasonable costs and expenses incurred by Executive
in connection with the operation and maintenance of an automobile.
II.4 Benefits. Executive shall be entitled to participate in and be
--------
covered by all health, insurance, pension and other employee plans and benefits
currently established for the employees of the Company (collectively referred to
as the "Company Benefit Plans") on at least the same terms as other employees of
the Company, subject to meeting applicable eligibility requirements.
II.5 Vacations and Holidays. During Executive's employment with the
----------------------
Company, Executive shall be entitled to an annual vacation leave of three (3)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
---------------------------------
III.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
III.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take
2
<PAGE>
any document, data, or other material of any nature containing or pertaining to
the proprietary information of the Company.
III.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
III.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (l) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days has elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
III.5 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
III.6 Survival of Obligations. Executive agrees that the terms of
-----------------------
this Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
3
<PAGE>
ARTICLE IV
TERMINATION
-----------
IV.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
-----
(i) personal dishonesty or willful misconduct by Executive;
(ii) a breach of Executive's fiduciary duties to the Company
which involves personal profit or benefit to Executive;
(iii) willful violation and conviction of any law, rule or
regulation (other than traffic violations or similar offenses) or of
any final cease and desist order issued by any financial institution
regulatory authority against the Company; or
(iv) a material breach of this Agreement by Executive.
(b) Good Reason. "Good Reason" shall mean voluntary termination
-----------
as a result of:
(i) the assignment to Executive of duties inconsistent with
the position and status of Executive as set forth in this Agreement
without Executive's prior written consent;
(ii) a substantial alteration in the nature, status or
prestige of Executive's responsibilities or a change in Executive's
title or reporting level from that set forth in this Agreement;
(iii) the relocation of the Company's executive offices or
principal business location to a point more than fifty (50) miles from
the location of such offices or businesses as of the date of this
Agreement;
(iv) a reduction by the Company of Executive's Base Salary;
or
(v) a failure by the Company to obtain from any successor,
before the succession takes place, an agreement to assume and perform
this Agreement.
(c) Disability. "Disability" shall mean a physical or mental
----------
incapacity as a result of which Executive becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness
4
<PAGE>
for up to two (2) consecutive months excepted; provided, however, that any
new period of incapacity or absence shall be deemed to be part of a prior
period of incapacity or absence if the prior period terminated within
ninety (90) days of the beginning of the new period of incapacity or
absence and the incapacity or absence is determined by the Company's Board
of Directors, in good faith, to be related to the prior incapacity or
absence). A determination of Disability shall be subject to the
certification of a qualified medical doctor agreed to by the Company and
Executive or in the event of Executive's incapacity to designate a doctor,
Executive's legal representative. In the absence of agreement between the
Company and Executive, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall
make the determination as to Disability.
IV.2 Termination by Company. The Company may terminate Executive's
----------------------
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
IV.3 Termination by Executive. Executive may terminate his
------------------------
employment hereunder upon thirty (30) days' written notice to the Company. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
IV.4 Death or Disability of Executive. Executive's employment
--------------------------------
hereunder shall terminate immediately upon the death or Disability of Executive.
IV.5 Severance Benefits Received Upon Termination.
--------------------------------------------
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement pursuant to Section 4.3 other
than for Good Reason, then the Company shall pay Executive his Base Salary
through the Effective Date of such termination plus credit for any vacation
earned but not taken, and the Company shall thereafter have no further
obligations to Executive under this Agreement.
(b) If Executive's employment is terminated by the Company
without Cause, or Executive terminates this Agreement for Good Reason, then
the Company shall provide Executive:
(i) salary continuation in an amount equal
5
<PAGE>
to Executive's then Base Salary for a period equal to the longer of
the remainder of the term of this Agreement or six (6) months, said
sum to be paid semi-monthly in equal installments at the times salary
payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, his spouse and dependent children for a period equal to the
longer of the remainder of the term of this Agreement or six (6)
months, subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent health insurance benefits will
be in accordance with COBRA.
(c) If Executive's employment is terminated by the Company as a
result of Disability, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to one month for each full year
Executive has been employed by the Company, up to a maximum of
eighteen (18) months, said sum to be paid monthly in equal
installments at the times salary payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, his spouse and dependent children for a period of one month
for each full year Executive has been employed by the Company, up to a
maximum of eighteen (18) months, subject to any employee contribution
provisions as defined in the Company Benefit Plans. Subsequent health
insurance benefits will be in accordance with COBRA.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall provide Executive's spouse or
estate health insurance coverage as then in effect for Executive, his
spouse and dependent children for a period of six (6) months, subject to
any employee contribution provisions as defined in the Company Benefit
Plans. Health insurance benefits subsequent to the salary continuation
period will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
------------------
V.1 Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
6
<PAGE>
If to the Company: St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
With a copy to: David A. Krinsky, Esq.
O'Melveny & Myers LLP
610 Newport Center Drive
Suite 1700
Newport Beach, CA 92660
If to Executive: Roger G. Ruppert
2722 Michelson
Irvine, CA 92612
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
V.2 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
V.3 Beneficial Interests. This Agreement shall inure to the benefit
--------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
V.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
V.5 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
V.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
7
<PAGE>
V.7 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
V.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
V.9 Assignment. This Agreement and the rights, duties, and
----------
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
V.10 Arbitration. Any controversy, dispute, claim or other matter in
-----------
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 5.7
8
<PAGE>
hereof, the costs and fees of the arbitration shall be allocated by the
arbitrators.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
St. John Knits, Inc.,
a California corporation
By: /s/ BOB GRAY
--------------------------------------------------
Bob Gray,
Chief Executive Officer
"Executive"
/s/ ROGER G. RUPPERT
------------------------------------------------------
Roger G. Ruppert
9
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated as of January 1,
1998, between St. John Knits, Inc., a California corporation ("Company"), and
Karla R. Guyer ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
I.1 Employment. The Company hereby employs Executive, and Executive
----------
agrees to serve as the Company's Senior Vice President-Marketing during the term
of this Agreement, and shall serve at the discretion of the Company's Board of
Directors. Executive agrees to devote substantially her full business time and
attention and best efforts to the affairs of the Company during the term of this
Agreement.
I.2 Term. The employment of Executive by the Company under the terms
----
and conditions of this Agreement will commence as of January 1, 1998 and will
continue for a period of one (1) year unless renewed or terminated sooner in
accordance with the provisions hereof.
I.3 Termination of Prior Agreement. Immediately upon the
------------------------------
commencement of Executive's employment pursuant to the terms of this Agreement,
that certain Employment Agreement by and between Executive and the Company dated
as of January 1, 1997, shall terminate and shall be of no further force or
effect.
ARTICLE II
COMPENSATION
------------
II.1 Annual Salary. During the employment of Executive, the Company
-------------
shall pay to Executive a base salary at the annual rate of $225,000 (the "Base
Salary"). The Base Salary shall be payable in substantially equal semi-monthly
installments.
II.2 Reimbursement of Expenses. Executive shall be entitled to
-------------------------
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are
1
<PAGE>
incurred and accounted for in accordance with the policies and procedures
established by the Company.
II.3 Automobile Allowance. The Company shall provide Executive with
--------------------
an automobile for use by Executive in the performance of Executive's duties
hereunder. The Company shall also pay directly, or reimburse Executive for, all
reasonable costs and expenses incurred by Executive in connection with the
operation and maintenance of the automobile.
II.4 Benefits. Executive shall be entitled to participate in and be
--------
covered by all health, insurance, pension and other employee plans and benefits
currently established for the employees of the Company (collectively referred to
as the "Company Benefit Plans") on at least the same terms as other employees of
the Company, subject to meeting applicable eligibility requirements.
II.5 Vacations and Holidays. During Executive's employment with the
----------------------
Company, Executive shall be entitled to an annual vacation leave of three (3)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
---------------------------------
III.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
III.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of
2
<PAGE>
Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
III.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
III.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (l) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days has elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
III.5 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
III.6 Survival of Obligations. Executive agrees that the terms of
-----------------------
this Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
3
<PAGE>
ARTICLE IV
TERMINATION
-----------
IV.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
-----
(i) personal dishonesty or willful misconduct by Executive;
(ii) a breach of Executive's fiduciary duties to the Company
which involves personal profit or benefit to Executive;
(iii) willful violation and conviction of any law, rule or
regulation (other than traffic violations or similar offenses) or of
any final cease and desist order issued by any financial institution
regulatory authority against the Company; or
(iv) a material breach of this Agreement by Executive.
(b) Good Reason. "Good Reason" shall mean voluntary termination
-----------
as a result of:
(i) the assignment to Executive of duties inconsistent with
the position and status of Executive as set forth in this Agreement
without Executive's prior written consent;
(ii) a substantial alteration in the nature, status or
prestige of Executive's responsibilities or a change in Executive's
title or reporting level from that set forth in this Agreement;
(iii) the relocation of the Company's executive offices or
principal business location to a point more than fifty (50) miles from
the location of such offices or businesses as of the date of this
Agreement;
(iv) a reduction by the Company of Executive's Base Salary;
or
(v) a failure by the Company to obtain from any successor,
before the succession takes place, an agreement to assume and perform
this Agreement.
(c) Disability. "Disability" shall mean a physical or mental
----------
incapacity as a result of which Executive becomes unable to continue the
proper performance of her duties hereunder (reasonable absences because of
sickness
4
<PAGE>
for up to two (2) consecutive months excepted; provided, however, that any
new period of incapacity or absence shall be deemed to be part of a prior
period of incapacity or absence if the prior period terminated within
ninety (90) days of the beginning of the new period of incapacity or
absence and the incapacity or absence is determined by the Company's Board
of Directors, in good faith, to be related to the prior incapacity or
absence). A determination of Disability shall be subject to the
certification of a qualified medical doctor agreed to by the Company and
Executive or in the event of Executive's incapacity to designate a doctor,
Executive's legal representative. In the absence of agreement between the
Company and Executive, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall
make the determination as to Disability.
IV.2 Termination by Company. The Company may terminate Executive's
----------------------
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
IV.3 Termination by Executive. Executive may terminate her
------------------------
employment hereunder upon thirty (30) days' written notice to the Company. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
IV.4 Death or Disability of Executive. Executive's employment
--------------------------------
hereunder shall terminate immediately upon the death or Disability of Executive.
IV.5 Severance Benefits Received Upon Termination.
--------------------------------------------
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement pursuant to Section 4.3 other
than for Good Reason, then the Company shall pay Executive her Base Salary
through the Effective Date of such termination plus credit for any vacation
earned but not taken, and the Company shall thereafter have no further
obligations to Executive under this Agreement.
(b) If Executive's employment is terminated by the Company
without Cause, or Executive terminates this Agreement for Good Reason, then
the Company shall provide Executive:
(i) salary continuation in an amount equal
5
<PAGE>
to Executive's then Base Salary for a period equal to the longer of
the remainder of the term of this Agreement or six (6) months, said
sum to be paid semi-monthly in equal installments at the times salary
payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period equal to the
longer of the remainder of the term of this Agreement or six (6)
months, subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent health insurance benefits will
be in accordance with COBRA.
(c) If Executive's employment is terminated by the Company as a
result of Disability, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to one month for each full year
Executive has been employed by the Company, up to a maximum of
eighteen (18) months, said sum to be paid monthly in equal
installments at the times salary payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period of one month
for each full year Executive has been employed by the Company, up to a
maximum of eighteen (18) months, subject to any employee contribution
provisions as defined in the Company Benefit Plans. Subsequent health
insurance benefits will be in accordance with COBRA.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall provide Executive's spouse or
estate health insurance coverage as then in effect for Executive, her
spouse and dependent children for a period of six (6) months, subject to
any employee contribution provisions as defined in the Company Benefit
Plans. Health insurance benefits subsequent to the salary continuation
period will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
------------------
V.1 Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
6
<PAGE>
If to the Company: St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
With a copy to: David A. Krinsky, Esq.
O'Melveny & Myers LLP
610 Newport Center Drive
Suite 1700
Newport Beach, CA 92660
If to Executive: Karla R. Guyer
17422 Derian Ave.
Irvine, CA 92614
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
V.2 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
V.3 Beneficial Interests. This Agreement shall inure to the benefit
--------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to her
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
V.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
V.5 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
V.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
7
<PAGE>
V.7 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
V.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
V.9 Assignment. This Agreement and the rights, duties, and
----------
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
V.10 Arbitration. Any controversy, dispute, claim or other matter in
-----------
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 5.7
8
<PAGE>
hereof, the costs and fees of the arbitration shall be allocated by the
arbitrators.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
St. John Knits, Inc.,
a California corporation
By: /s/ BOB GRAY
----------------------------------------
Bob Gray,
Chief Executive Officer
"Executive"
/s/ KARLA R. GUYER
--------------------------------------------
Karla R. Guyer
9
<PAGE>
EXHIBIT 10.44
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is entered into as of December
1, 1997, by and between St. John Knits, Inc., a California corporation (the
"Company"), and Robert C. Davis (the "Consultant").
BACKGROUND
Prior to April 24, 1996, the Consultant was President, Chief Operating
Office, Assistant Secretary and a Director of the Company. The Consultant
resigned on that date to pursue personal interests; however, subsequent to that
date through the present, he has continued to perform limited services to the
Company under the terms of a Consulting Agreement dated April 24, 1996. That
Agreement terminated on November 19, 1997. The Company desires to maintain
access to the Consultant and his opinion, advice and knowledge concerning the
business of the Company. The Consultant and the Company desire to enter into
this Agreement to assure the Company of the services of the Consultant from
December 1, 1997 through November 30, 1998 (the "Term").
AGREEMENT
In consideration of the mutual covenants, term and conditions set forth
herein, the parties agree as follows:
1. DUTIES OF CONSULTANT. The Consultant agrees to advise and consult with
--------------------
the Company as reasonably requested by the Company from time to time
during the Term. The Consultant agrees to perform such services
conscientiously and to the best of his ability.
2. COMPENSATION.
------------
(a) In consideration of Consultant's duties under Section 1, the Company
shall pay Consultant in the aggregate $75,000 payable in twelve
substantially equal amounts at the end of each month during the Term;
the first payment payable on December 31, 1997 and the last payment
payable on November 30, 1998. The Company also shall reimburse
Consultant for all reasonable out-of-pocket expenses paid by the
Consultant during the Term in the performance of his services
hereunder, upon Consultant's presentation of expense statements or
vouchers or such other supporting information as the Company
customarily requires in accordance with its outside services billing
practices.
(b) Notwithstanding the provisions of Section 2 (a) above, if during the
Term the Consultant is employed by another corporation, partnership or
other entity, the Consultant shall no longer receive any payments under
this Agreement other than a prorated amount for any portion of a period
prior to the date the Consultant was so employed.
1
<PAGE>
3. INDEPENDENT CONTRACTOR. The Consultant acknowledges that he is being
----------------------
engaged on an independent contractor basis hereunder, and that the
Consultant will not be eligible for benefits generally available to the
employees of the Company. No compensation to be paid to the Consultant
for his consulting services under this Agreement will be subject to any
withholding or deductions required by local, state or federal law with
respect to employees.
4. NO REPRESENTATION OF THE COMPANY. The Consultant agrees that he will
--------------------------------
not (i) enter into any agreements, arrangements or undertakings binding
or on behalf of the Company or for the benefit of the Company or (ii)
make representations that he has authority to act for or represent that
he is engaged by the Company in any capacity other than as a
consultant during the Term, except as authorized by an executive
officer of the Company in writing.
5. CONFIDENTIALITY. The Consultant acknowledges that he will have access
---------------
to, and that there will be disclosed to him, information of a
confidential and/or trade secret nature that has great value to and
that constitutes a substantial basis and foundation upon which the
business of the Company is predicated ("Confidential Information").
During the Term and thereafter, the Consultant shall keep all
Confidential Information in confidence and shall not disclose any
Confidential Information to any other person, except (i) to the
Company's personnel on a "need-to-know" basis and other persons
designated in writing by an executive officer of the Company, (ii) to
the extent such disclosure may by required by law, (iii) if such
information hereafter becomes lawfully obtainable from other sources,
or (iv) to the extent such duty as to confidentiality is waived in
writing by an executive officer of the Company. Without the express
written consent of an executive officer of the Company, the Consultant
shall not use or permit to be used any Confidential Information for the
gain or benefit of any party outside of the Company or for the
Consultant's personal gain or benefit outside the scope of the
Consultant's engagement by the Company. The Consultant agrees to
deliver promptly to the Company on termination of this Agreement, or
at any other time that the Company may so request, all memoranda,
notes, records, reports, and other documents (and all copies thereof)
relating to Confidential Information and/or the business of the Company
that he obtained while employed by or otherwise serving or acting on
behalf of the Company or any of its subsidiaries.
6. INDEMNIFICATION OF THE CONSULTANT. The Company shall indemnify and hold
---------------------------------
harmless the Consultant from and against any and all claims, expenses
and liabilities (including, without limitation, attorneys' fees and
costs of investigation and defense) he may incur by reason of the
Consultant providing services to or for the Company by virtue of this
Agreement so long as Consultant acted in good faith and in a manner
Consultant reasonably believed to be in the best interests of the
Company.
7. MISCELLANEOUS. Except for that Mutual Release Agreement between the
-------------
Company and Consultant dated April 24, 1996 and Article III and Article
V
2
<PAGE>
(other than Sections 5.6 and 5.8 thereof) of the Consultant's
Employment Agreement with the Company, dated as of January 1, 1996 (the
"Employment Agreement"), this Agreement supersedes all prior agreements
between the parties concerning employment or consulting arrangements
with the Company which are hereby terminated in their entirety (except
for Article III and Article V (other than Sections 5.6 and 5.8 thereof)
of the Employment Agreement which shall survive), and constitutes the
entire agreement between the parties with respect thereto. This
Agreement may be modified only with a written instrument duly executed
by each of the parties. No waiver by any party of any breach of this
Agreement will be deemed to be a waiver of any preceding or succeeding
breach. The Consultant acknowledges and agrees that the Company's
remedy at law for any breach of the Consultant's obligations hereunder
would be inadequate, and agrees and consents that temporary and
permanent injunctive relief may be granted in any proceeding which may
be brought to enforce any provision of this Agreement.
EXECUTED as of the date first mentioned above, at Orange County,
California.
ST. JOHN KNITS, INC.
a California corporation
By: /s/ BOB GRAY
---------------------------------
Name: Bob Gray
Title: Chief Executive Officer
ROBERT C. DAVIS
/s/ ROBERT C. DAVIS
--------------------------------------
3
<PAGE>
EXHIBIT 10.45
THE KENT MANUFACTURING COMPANY
ORDER NO. 2902 P.O. BOX 67 -- PHONE 803-878-6367 SALESMAN 60-5895
------ FAX 803-878-2723 ---------
PICKENS, S.C. 29671
SOLD TO DATE August 27, 1997
-----------------
Novita Yarns Ltd. TERMS 1.5% 30, Net 60
Div. of St. John Knit CUSTOMER P.O.
17422 Derian Avenue CONTRACT NO. 2902
Irvine, CA 92713
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
QUANTITY COUNT GRADE DESCRIPTION PRICE -------------------------------------
1,000,000 lbs. 1/21 - 100% 64 Australian Wool -------------------------------------
Natural yarn on cones $7.92/lb. -------------------------------------
-------------------------------------
-------------------------------------
FOB Pickens, SC -------------------------------------
-------------------------------------
Ship to: above -------------------------------------
-------------------------------------
Delivery: Follow Contract 2603 -------------------------------------
-------------------------------------
SHIPPING INSTRUCTIONS -------------------------------------
The terms of this contract shall be at terms noted above from date of -------------------------------------
invoice. No redating. -------------------------------------
On specifications for slub or package dyed yarns of less than 1,000 lbs. -------------------------------------
to a color the seller shall charge small lot premium. -------------------------------------
This order will become a contract only when confirmed in writing by the -------------------------------------
seller and buyer or, in any event, when buyer accepts whole or partial -------------------------------------
delivery. The contract shall be deemed dated as of the date of such -------------------------------------
confirmation or acceptance. -------------------------------------
The undersigned buyer hereby orders the above goods upon the terms as -------------------------------------
stated, including the term and conditions printed on the back of this -------------------------------------
contract and forming a part hereof. -------------------------------------
Please sign in duplicate and return both copies to The Kent Manufacturing -------------------------------------
Company. -------------------------------------
-------------------------------------
Accepted by purchaser: Acknowledged by seller: -------------------------------------
-------------------------------------
- -------------------------------- THE KENT MANUFACTURING COMPANY -------------------------------------
- -------------------------------- -------------------------------------
PER /s/ BOB GRAY PER /s/ JAN HENDRICKS -------------------------------------
---------------------------- ------------------------------ -------------------------------------
BOB GRAY JAN HENDRICKS
</TABLE>
<PAGE>
EXHIBIT 10.46
THE KENT MANUFACTURING COMPANY
ORDER NO. 2906 P.O. BOX 67 -- PHONE 803-878-6367 SALESMAN 60-5895
------ FAX 803-878-2723 ---------
PICKENS, S.C. 29671
SOLD TO DATE September 1, 1997
-----------------
Novita Yarns Ltd. TERMS 1.5% 30, Net 60
Div. of St. John Knit CUSTOMER P.O.
17422 Derian Avenue CONTRACT NO. 2906
Irvine, CA 92713
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
QUANTITY COUNT GRADE DESCRIPTION PRICE -------------------------------------
200,000 lbs. 1/21 - 100% 62 Australian Wool Natural yarn -------------------------------------
on cones $5.73/lb. -------------------------------------
-------------------------------------
-------------------------------------
FOB Pickens, SC -------------------------------------
-------------------------------------
Ship to: above -------------------------------------
-------------------------------------
Delivery: 16,000 lbs./month -------------------------------------
-------------------------------------
SHIPPING INSTRUCTIONS -------------------------------------
The terms of this contract shall be at terms noted above from date of -------------------------------------
invoice. No redating. -------------------------------------
On specifications for slub or package dyed yarns of less than 1,000 lbs. -------------------------------------
to a color the seller shall charge small lot premium. -------------------------------------
This order will become a contract only when confirmed in writing by the -------------------------------------
seller and buyer or, in any event, when buyer accepts whole or partial -------------------------------------
delivery. The contract shall be deemed dated as of the date of such -------------------------------------
confirmation or acceptance. -------------------------------------
The undersigned buyer hereby orders the above goods upon the terms as -------------------------------------
stated, including the term and conditions printed on the back of this -------------------------------------
contract and forming a part hereof. -------------------------------------
Please sign in duplicate and return both copies to The Kent Manufacturing -------------------------------------
Company. -------------------------------------
-------------------------------------
Accepted by purchaser: Acknowledged by seller: -------------------------------------
-------------------------------------
- -------------------------------- THE KENT MANUFACTURING COMPANY -------------------------------------
- -------------------------------- -------------------------------------
PER /s/ BOB GRAY PER /s/ JAN HENDRICKS -------------------------------------
---------------------------- ------------------------------ -------------------------------------
BOB GRAY JAN HENDRICKS
</TABLE>
<PAGE>
EXHIBIT 10.47
================================================================================
[LOGO OF BANK OF AMERICA] AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 3 TO BUSINESS LOAN AGREEMENT
This Amendment No. 3 (the "Amendment") dated as of August 25, 1997, is
---------
between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") and
ST. JOHN KNITS, INC. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of December 15, 1995, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
-----------
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
----------
2.1 Paragraph 7.2(b) of the Agreement is deleted in its entirety.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
-------------------
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ST. JOHN KNITS, INC.
X /s/ ARTHUR P. CARTER X /s/ ROGER G. RUPPERT
-------------------- --------------------
BY: ARTHUR P. CARTER BY: ROGER G. RUPPERT
TITLE: VICE PRESIDENT TITLE: SENIOR VICE
PRESIDENT-FINANCE
AND CHIEF FINANCIAL
OFFICER
- -------------------------------------------------------------------------------
AmendL (10/92) 015834-40119
-1-
<PAGE>
EXHIBIT 10.48
LEASE
-----
BY AND BETWEEN
--------------
FORUM DEVELOPERS LIMITED PARTNERSHIP,
a Nevada Limited Partnership
AND
ST. JOHN KNITS, INC.
<PAGE>
FORUM AT CAESARS
----------------
LEASE
-----
THIS LEASE made this 10th day of December, 1997 by and between FORUM
DEVELOPERS LIMITED PARTNERSHIP, a Nevada Limited Partnership, ("Landlord"), and
ST. JOHN KNITS, INC., ("Tenant");
WHEREAS, Landlord occupies the land on which a shopping complex
(hereinafter called "Shopping Complex") is to be located under a certain Ground
Lease by and between Caesars Palace Realty Corp., a Nevada Corporation, as
landlord ("Ground Lessor"), and Landlord, as tenant, made as of June 1, 1990
(the "Ground Lease"), as the same may be amended from time to time, and
WHEREAS, Tenant desires to sublease from Landlord and Landlord desires to
sublease to Tenant certain retail space within the Shopping Complex pursuant to
the terms and provisions of this Lease.
WITNESSETH THAT, in consideration of the rents, covenants and agreements
hereinafter set forth, such parties enter into the following agreement:
ARTICLE I
---------
EXHIBITS
--------
The exhibits listed below and attached to this Lease are incorporated
herein by this reference:
EXHIBIT "A" Legal description of real estate to be developed by the
Landlord as a Shopping Complex. The Shopping Complex with
existing and future improvements, together with the rights
granted pursuant to that certain Parking Agreement and Grant
of Reciprocal Easements and Declaration of Covenants dated as
of June 1, 1990, and recorded July 6, 1990 as Instrument
00864 in the Official Records of the Recorder of Clark
County, Nevada (hereinafter "REA") in connection with the
property ("Hotel Parcel") more particularly described on
Exhibit A-1 hereto, being hereinafter called the "Center".
The Hotel Parcel is immediately adjacent to the Shopping
Complex and includes, but is not limited to a hotel ("Hotel")
and the Adjacent Land, which includes the temple entrance
feature ("Temple") constructed on that portion of the
Adjacent Land designated on Exhibit "H" and a parking
facility ("Parking Facility") constructed by the Ground
Lessor on the property designated on Exhibit "H". The
Adjacent Land is the Hotel Parcel excluding the land within
the outer perimeter of the Hotel buildings and related
structures thereon, such as, but not limited to, stadiums and
tennis courts, as they may exist from time to time and also
excludes the Airspace within and below the Temple, as the
term "Airspace" is defined in the Ground Lease.
EXHIBIT "B" Plot Plan of that area of the Center upon which is located
the space herein leased to Tenant. This Exhibit is provided
for informational purposes only, and shall not be deemed to
be a warranty, representation or agreement by Landlord that
the Center or buildings and/or any stores will be exactly as
indicated on the Exhibit, or that the other tenants which may
be drawn on said Exhibit will be occupants in the Center.
Landlord reserves unto itself the unlimited right to modify
the configuration of the Shopping Complex at any time for the
purpose of incorporating additional buildings within the
Center, provided, however, such configuration will not
materially interfere with tenant's use and enjoyment of the
premises.
EXHIBIT "C" Description of Landlord's and Tenant's Work.
EXHIBIT "C-1" Estimate of Schedule of Costs.
EXHIBIT "D" Rules and Regulations applicable to Tenant.
EXHIBIT "E" Caesar's Logo.
EXHIBIT "F" Facility Names.
EXHIBIT "G" Map of Adjacent Land.
Notwithstanding Exhibits A or B or anything else in this Lease contained,
Landlord reserves the right to change or modify and add to or subtract from the
size and dimensions of the Center or any part thereof, the number, location and
dimensions of buildings and stores, the size and configuration of the parking
areas, entrances, exits and parking aisle alignments, dimensions of hallways,
malls and corridors, the number of floors in any building, the location, size
and number of tenants' spaces and kiosks which may be erected in or fronting on
any mall or otherwise, the identity, type and location of other stores and
tenants, and the size, shape, location and arrangement of Common Areas
(hereinafter defined), and to design and decorate any portion of the Center as
it desires, but the general character of the Center and the approximate location
of the Premises (as hereinafter defined) in relation to Hotel shall not be
substantially changed.
-1-
<PAGE>
ARTICLE II
----------
LEASED PREMISES AND TERM
------------------------
Section 2.1. Leased Premises.
- ----------- ---------------
Landlord hereby leases to Tenant and Tenant hereby rents from Landlord the
space (in the Center) designated as Space N-11 outlined in red on Exhibit "B"
(hereinafter called "the Premises"), irregularly shaped. but measured to the
center line of all party or common walls, to the exterior faces of all other
walls and to the building line where there is no wall. containing approximately
5,558 square feet (hereinafter called the "Store Floor Area"). The parties agree
that Landlord's determination of the Store Floor Area shall be final, binding
and conclusive unless within thirty (30) days after receipt of Landlord's
determination Tenant disputes such determination in which case the parties shall
joint select an independent architect whose decision shall be final, binding and
conclusive. Mezzanine areas shall be excluded from the computation of Tenant's
Store Floor Area.
Section 2.2. Roof and Walls.
- ----------- ---- ---------
Landlord shall have the exclusive right to use all or any part of the roof,
side and rear walls of the Premises for any purpose, including but not limited
to erecting signs or other structures on or over all or any part of the same,
erecting scaffolds and other aids to the construction and installation of the
same, and installing, maintaining, using, repairing and replacing pipes, ducts,
conduits and wires leading through, to or from the Premises and serving other
parts of the Center in locations which do not materially interfere with Tenant's
use of the Premises. Tenant shall have no right whatsoever in the exterior of
exterior walls or the roof of the Premises.
Section 2.3. Lease Term.
- ----------- ----------
The term of this Lease (hereinafter called "Lease Term") shall commence
upon the earlier of (a) the day following the last day allowed herein to Tenant
for completion of Tenant's Work (hereinafter defined) hereinafter called
"Required Completion Date," or (b) the day on which Tenant opens for business,
the applicable date being hereinafter called "Commencement Date." The term of
this Lease shall end on the last day of the tenth (10th) Lease Year (hereinafter
defined) after the Commencement Date unless sooner terminated as herein
provided.
Section 2.4. Lease Year Defined.
- ------------ ------------------
"Lease Year," as used herein, means a period of twelve (12) consecutive
months during the Lease Term commencing on February 1 of any calendar year, the
first Lease Year commencing on the first day of the first February occurring on
or after the Commencement Date. "Partial Lease Year" means that portion of the
Lease Term prior to the first Lease Year.
Section 2.5. Relocation of Premises. INTENTIONALLY DELETED.
- ----------- ----------------------
ARTICLE III
-----------
LANDLORD'S AND TENANT'S WORK
----------------------------
Section 3.1. Landlord's Work.
- ----------- ---------------
Landlord shall at its expense construct the Premises in substantial
accordance with plans and specifications prepared or to be prepared by
Landlord's architect, incorporating in such construction all work described in
Exhibit "C" hereto as being required of Landlord (hereinafter called "Landlord's
Work").
Section 3.2. Tenant's Work.
- ----------- -------------
All work not provided herein to be done by Landlord shall be performed by
Tenant (hereinafter called "Tenant's Work") including but not limited to all
work designated as Tenant's Work in Exhibit "C," and Tenant shall do and perform
at its expense all Tenant's Work diligently and promptly and in accordance with
the following provisions.
Section 3.3. Tenant's Obligations Before Commencement Date.
- ----------- ---------------------------------------------
As soon as reasonably possible hereafter, Landlord shall deliver to Tenant
a Tenant Information Package (including a dimensioned drawing of the Premises
and a copy of the Tenant Information Handbook). Within sixty (60) days after the
execution date of this Lease, Tenant will make a Preliminary Submittal (as
defined in the Tenant Information Package). Within ten (10) days after receipt
of the Preliminary Submittal, Landlord shall notify Tenant of any
nonconformities with Exhibit "C", the Tenant Information Handbook or other
failure to meet with Landlord's approval. Tenant shall within 15 days after
receipt of any such notice submit Final Construction Documents based upon the
Preliminary Submittal and incorporating Landlord's comments thereto. Landlord
shall notify Tenant of its approval or disapproval of the Final Construction
Documents within 10 days after receipt. Upon approval, Landlord shall return one
(1) set of approved Final Construction Documents to Tenant and the same shall
become a part hereof by this reference as Exhibit "C-2". Approval of
construction documents by Landlord shall not constitute the assumption of any
responsibility by Landlord for their accuracy of sufficiency, or compliance with
applicable codes and Tenant shall be solely responsible for such construction
documents. Tenant shall not commence any of Tenant's Work until Landlord has
approved Exhibit "C-2", unless prior Landlord approval has been obtained in
writing.
Landlord shall use all reasonable efforts to deliver possession of the
Premises to Tenant, with Landlord's Work substantially completed and to ensure
that the existing tenant has vacated on or before January 7, 1998 , but in no
event later than February 7, 1998("Delivery Date"). Landlord shall not be deemed
to have delivered possession of the Premises unless Landlord has substantially
completed Landlord's Work as set forth in Exhibit "C" and the existing tenant
has vacated. Landlord's Work shall be deemed
-2-
<PAGE>
"substantially complete when all Landlord's Work, except for "punch list" items,
have been completed and the Premises is ready for the commencement of Tenant's
Work. "Punch list" items shall mean items of Landlord's Work not yet completed
the absence or completion of which will not materially interfere with the
commencement or continuation of Tenant's Work or the conduct of Tenant's
business. On or before December 24, 1997, Landlord shall give Tenant written
notice of Landlord's then current estimate of the Delivery Date ("Projected
Delivery Date"). Landlord shall confirm, adjust or update the Projected Delivery
Date by written notice to Tenant given no later than thirty (30) days prior to
the Delivery Date.
Tenant shall complete Tenant's Work by the date that is one hundred twenty
(120) days following the Delivery Date, which day shall be the Required
Completion Date. Except as set forth above, Tenant hereby releases Landlord and
its contractors from any claim whatsoever for damages against Landlord or its
contractors for any delay in the date on which the Premises shall be ready for
delivery to Tenant or for any delay in commencing or completing any work
Landlord is to perform or is authorized by Tenant to perform under Exhibit "C",
or with respect to the Center.
Section 3.4. Failure of Tenant to Perform. INTENTIONALLY DELETED.
- ----------- ----------------------------
Section 3.5. Condition of Premises.
- ----------- ---------------------
Tenant's taking possession of the Premises shall be conclusive evidence of
Tenant's acceptance thereof in good order and satisfactory condition. Tenant
shall have the right within sixty (60) days of the date Tenant takes possession
of the Premises for commencement of Tenant's Work to submit to Landlord a punch
list of incomplete or defective construction within its Premises and Landlord
will perform such punch list to the extent the listed items were Landlord's
responsibility under Exhibit "C" and were not performed by Landlord in
accordance therewith. Landlord will remain responsible for latent defects in its
work throughout the term of this Lease. Tenant agrees that no representations
respecting the existence or non-existence of Hazardous Materials (hereinafter
defined) in, at, under or abutting the Premises or the environment has been made
by Landlord or its agents to Tenant unless the same are contained herein. Tenant
also agrees that no representations respecting the condition of the Premises, no
warranties or guarantees, expressed or implied, INCLUDING, WITHOUT LIMITATION,
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
with respect to workmanship or any defects in material, and no promise to
decorate, alter, repair or improve the Premises either before or after the
execution hereof, have been made by Landlord or its agents to Tenant unless the
same are contained herein.
ARTICLE IV
----------
RENT
----
Section 4.1. Minimum and Percentage Rent.
- ----------- ---------------------------
Tenant covenants and agrees to pay to Landlord, without notice or demand,
at Landlord's address for notice (Landlord's and Tenant's notice addresses being
the addresses specified in Section 24.7 hereof), as rent for the Premises:
(i) A Minimum Annual Rent of $100.00 per square foot of Store Floor
Area, or Five Hundred Fifty-Five Thousand Eight Hundred and
00/100 Dollars ($555,800.00) per annum (based upon the
approximated Store Floor Area set forth in Section 2.1 hereof),
payable in equal monthly installments, in advance upon the first
day of each and every month commencing upon the Commencement Date
and continuing thereafter through and including the last month of
the third (3rd) Lease Year of the Lease Term (such monthly
installment being hereinafter called "Minimum Monthly Rent"); and
A Minimum Annual Rent of $120.00 per square foot of Store Floor
Area, or Six Hundred Sixty-Six Thousand Nine Hundred Sixty and
00/100 Dollars ($666,960.00) per annum (based upon the
approximated Store Floor Area set forth in Section 2.1 hereof),
payable in equal monthly installments, in advance upon the first
day of each and every month commencing upon the fourth (4th)
Lease Year of the Lease Term and continuing thereafter through
and including the last month of the fifth (5th) Lease Year of the
Lease Term (such monthly installment being hereafter called
"Minimum Monthly Rent"); and
A Minimum Annual Rent of $140.00 per square foot of Store Floor
Area, or Seven Hundred Seventy-Eight Thousand One Hundred Twenty
and 00/100 Dollars ($778,120.00) per annum (based upon the
approximated Store Floor Area set forth in Section 2.1 hereof),
payable in equal monthly installments, in advance upon the first
day of each and every month commencing upon the sixth (6th) Lease
Year of the Lease Term and continuing thereafter through and
including the last month of the tenth (10th) Lease Year of the
Lease Term (such monthly installment being hereafter called
"Minimum Monthly Rent"); and
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<PAGE>
(ii) The amount by which eight percent (8%) of Gross Sales
(hereinafter defined) during each Lease Year or Partial Lease
Year exceeds the Minimum Monthly Rent for such period
(hereinafter called "Percentage Rent").
When Store Floor Area is determined in accordance with Section 2.1, the
Minimum Annual Rent and Minimum Monthly Rent shall be deemed automatically
increased or decreased (by no more than three percent [3%]) based upon the Store
Floor Area as thus determined, and any overpayments or underpayments of Minimum
Monthly Rent to Landlord shall be adjusted accordingly.
Section 4.2. Miscellaneous Rent Provisions.
- ------------ -----------------------------
Any rent or other amounts to be paid by Tenant which are not paid within
ten (10) days after receipt of written notice that the same is past due shall
bear interest as of the first day of the month on which any sum is due and owing
at a rate equal to two percent (2%) over the prime rate announced by Citibank,
N.A. If the Commencement Date is other than the first day of a month, Tenant
shall pay on the Commencement Date a prorated partial Minimum Monthly Rent for
the period prior to the first day of the next calendar month, and thereafter
Minimum Monthly Rent payments shall be made not later than the first day of each
calendar month. For purposes of this Lease, a "Major Tenant" is herein defined
as a single tenant occupying at least 25,000 contiguous square feet of Store
Floor Area.
Section 4.3. Percentage Rent.
- ------------ ---------------
Tenant shall (i) not later than the twenty-fifth (25th) day after the close
of each calendar month, deliver to Landlord a written statement certified under
oath by Tenant or an officer of Tenant, showing Gross Sales made in such
calendar month; and (ii) not later than 60 days after the end of each Lease Year
or Partial Lease Year, deliver to Landlord a statement of Gross Sales for such
Lease Year or Partial Lease Year the correctness of which is certified to by
Tenant's chief financial officer. If Tenant fails to prepare and deliver any
statement of Gross Sales required hereunder, within the time or times specified
above and the same continues for more than thirty (30) days after written notice
thereof from Landlord, Landlord shall have the right, in addition to the rights
and remedies set forth in this Lease (a) to collect from Tenant a sum which
shall be $100.00 per calendar day for each day that Gross Sales reports are not
so submitted, and (b) to estimate Tenant's Gross Sales for any non-reported
period and bill Tenant's Percentage Rent accordingly. Landlord reserves the
right, at Landlord's option, to adjust Percentage Rent billings when actual
Gross Sales reports are received. The statement or statements shall be prepared
by Landlord or its agents and shall be conclusive and binding on Tenant.
Percentage Rent shall become due and payable in each Lease Year on the
twenty-fifth (25th) day of the month immediately following the month during
which eight percent (8%) of Gross Sales exceed the Minimum Annual Rent payable
by Tenant for such Lease Year, and thereafter shall be paid monthly on all
additional Gross Sales made during the remainder of such Lease Year, such
payments to be made concurrently with the submission by Tenant to Landlord of
the written statement of monthly Gross Sales as provided for herein. Within
thirty (30) days after the later of (i) the due date for Tenant's annual report
of Gross Sales, or (ii) the date of Landlord's receipt of such annual report, if
Tenant has paid Landlord for such Lease Year or Partial Lease Year Percentage
Rent greater than Tenant is obligated to pay for such period, Landlord shall
refund such excess, and if Tenant has paid less than the Percentage Rent
required to be paid for such period, tenant shall pay Landlord such difference.
Tenant will preserve for at least three (3) years all original books and
records disclosing information pertaining to Gross Sales and such other
information respecting Gross Sales as Landlord requires, including, but not
limited to, sales slips, sales checks, sales tax returns, bank deposit records,
sales journals and other supporting data. Landlord and its agents shall have the
right on an annual basis (meaning no more than one [1] time per year) during
business hours to examine and audit such books and records preserved by Tenant.
If such examination or audit discloses a liability for Percentage Rent 3% or
more in excess of the Percentage Rent paid by Tenant for any annual period and
at least $500.00 is owed as a result of such audit, or if Tenant's Gross Sales
cannot be verified due to the insufficiency or inadequacy of Tenant's records,
Tenant shall promptly pay Landlord the cost of said audit. Tenant shall, in any
event, pay to Landlord the amount of any deficiency in rents which is disclosed
by such audit plus interest at two percent (2%) over the prime rate announced by
Citibank, N.A. as of the first day of the month on which any sum was due and
owing.
Ground Lessor shall have the right at all times, during business hours, to
examine and audit Tenant's books and records or otherwise to verify any amounts
paid by Tenant to Landlord pursuant to this Lease.
Section 4.4. Gross Sales Defined.
- ------------ -------------------
As used herein, Gross Sales means the sale prices of all goods, wares and
merchandise sold and the charges for all services performed by Tenant or any
other person or entity in, at, or from the Premises for cash, credit or
otherwise, without reserve or deduction for uncollected amounts, including but
not limited to sales and services (i) where the orders originate in, at or from
the Premises, regardless from whence delivery or performance is made, (ii)
pursuant to mail, telephone, telegraph or otherwise received or filled at the
Premises, (iii) resulting from transactions originating in,
-4-
<PAGE>
at or from the Premises, and deposits not refunded to customers when retained by
Tenant. Excluded from Gross Sales shall be: (i) exchanges of merchandise between
Tenant's stores made only for the convenient operation of Tenant's business and
not to consummate a sale made in, at or from the Premises, (ii) returns to
manufacturers, (iii) refunds or credits to customers (but only to the extent
included in Gross Sales), (iv) sales of fixtures, machinery and equipment after
use in Tenant's business in the Premises, (v) sales, excise or similar tax
imposed by governmental authority and collected from customers and paid out by
Tenant, (vi) the amount of gift certificates, or like vouchers, until and unless
the same are converted into a sale by redemption in a store operated by Tenant
(in which instance, for purposes hereof, the sale shall be counted at the store
where such certificate or voucher was redeemed, and not at the store where it
was purchased, if different), (vii) the amounts of discounts allowed pursuant to
established discount policies benefiting Tenant's employees, (viii) the amounts
of all finance charges, service charges, late payments, annual fees, transaction
charges, interest or other such charges, however denominated, paid by customers
of the Tenant (a) in connection with the extension of credit and (b) in addition
to the price paid for goods and services sold and/or provided by Tenant from the
Premises, (ix) the amounts of all receipts from alteration or similar services
and workroom operations, including, but not limited to, such operations
performed by subcontractors, licensees and/or concessionaires performing such
services on behalf of Tenant, (x) the amounts of delivery charges, including but
not limited to, parcel post, freight and express charges, to the extent such
charges are actually charges to customers of the Tenant and are in addition to
the price of the merchandise sold, (xi) the amounts of register overages and
shortages, uncollected bad checks and fraudulent purchases, (xii) the amount of
revenues, if any, of any valet or other parking service operated by or for the
benefit of Tenant, so long as such service is provided primarily as an
accommodation to customers of Tenant, and not primarily for profit, (xiii) the
amount of any sale of merchandise by one operating division or affiliate of
Tenant to another, in contemplation of any substantial seasonal markdown, where
such merchandise is thereupon removed from the Premises, (xiv) the amount of any
bulk sale at or below wholesale prices, (xv) the amount of any donation or sale
at substantial discount to any charitable organization, (xvi) the net costs of
special promotions, (xvii) trunk sales, (xviii) credits or payments in
settlement of claimed losses, (xix) punitive damages or treble damages received
in antitrust litigation, (xx) receipts from public telephones and vending
machines used solely by employees of Tenant, (xxi) Tenant's accounts receivable,
previously included in Gross Sales in any lease Year, which have been determined
to be uncollectible for federal income tax purposes during the Lease Year;
provided, however, that if such accounts are actually collected in a later Lease
Year, the amount shall be included in the Gross Sales for such later Lease Year,
(xxii) rents, subrents or other consideration received in connection with an
assignment, sublease, license, concession or other transfer of any portion of
the store, provided the Gross Sales of all licensees, sublessees and
concessionaires are included in Gross Sales. No other taxes shall be deducted
from Gross Sales.
Section 4.5. Taxes.
- ----------- -----
A. Definition. Landlord shall pay or cause to be paid, before delinquent, all
----------
Taxes (as hereinafter defined) assessed or imposed upon the Center and the
Shopping Complex (and any other Real Estate Taxes which Landlord may be
obligated to pay in respect of the Adjacent Land) which become due or payable
during the Lease Term. As used in this Section 4.5 the term Taxes shall mean and
include all property taxes, both real and personal, public and governmental
charges and assessments, including all extraordinary or special assessments, or
assessments against any of Landlord's personal property now or hereafter located
in the Center, all costs and expenses including, but not limited to consulting,
appraisal and attorneys' fees incurred by Landlord in contesting or negotiating
with public authorities (Landlord having the sole authority to conduct such a
contest or enter into such negotiations) as to any of the same and all sewer,
water and other utility taxes and impositions, but shall not include taxes on
Tenant's business in the Premises, machinery, equipment, inventory or other
personal property or assets of Tenant, Tenant agreeing to pay, before
delinquency, all taxes upon or attributable to such excluded items without
apportionment.
Taxes shall not include interest and penalties due on delinquent Taxes.
B. Tenant's Share. Tenant shall pay to Landlord, as Additional Rent, its
--------------
proportionate share of all Taxes upon the Center and the Shopping Complex (and
any other Taxes which Landlord may be obligated to pay in respect of the
Adjacent Land) which become due or payable during the Lease Term, such
proportionate share to be prorated for periods at the beginning and end of the
Lease Term which do not constitute full tax months or years. Tenant's
proportionate share of any such Taxes shall be that portion of such Taxes which
bears the same ratio to the total Taxes as the Store Floor Area bears to the
average rentable floor area rented or occupied in the Shopping Complex
(hereinafter called "Rentable Floor Area") as of the Commencement Date or the
first day of the calendar year in which such taxes are due or payable. The floor
area of (i) a Major Tenant, (ii) any tenant in a free standing Premises who is
obligated to pay real estate taxes specifically upon specific improvements or
specific parcel of land, and (iii) Common Areas, as hereinafter defined, shall
not be included in the Rentable Floor Area, and any contributions to Taxes
received by Landlord from such tenants shall be deducted from Taxes prior to the
calculation of Tenant's proportionate share.
The ratio described in the preceding paragraph shall not be utilized if the
"rentable floor area rented or occupied" is less than eighty-five percent (85%)
of the rentable floor area in the Shopping Complex If the "rentable floor area
rented or occupied" is less than eighty-five percent (85%), the pro rata share
of Tenant shall be determined by the ratio the Store Floor Area bears to eighty-
five percent (85%) of the rentable floor area in the Shopping Complex.
C. Payment by Tenant. Tenant's proportionate share of Taxes shall be paid in
-----------------
monthly installments commencing with the Commencement Date, in amounts initially
and reasonably estimated by Landlord, one (1) such installment
-5-
<PAGE>
being due on the first day of each full or partial month of each full or partial
calendar year during the Lease Term. Such monthly installments shall increase or
decrease upon notice from Landlord given after the actual or anticipated amounts
of Taxes due or payable in a particular calendar year are determined. Following
the close of each full or partial calendar year during the Lease Term, the
actual amount of Taxes due or payable shall be computed by Landlord and any
excess paid by Tenant during such calendar year over the actual amount (in a
format to be determined by Landlord) Tenant is obligated to pay hereunder shall
be credited to Tenant or refunded at Tenant's request, and within thirty (30)
days after written notice from Landlord any deficiency owed shall be paid in
full by Tenant. Tenant acknowledges and stipulates that Landlord has made no
representation or agreement of any kind as to the total dollar amount of such
Taxes, actual or estimated, or Tenant's dollar share thereof.
D. Other Taxes. Tenant's proportionate share of any governmental tax or charge
-----------
(other than income tax) levied, assessed, or imposed on account of the payment
by Tenant or receipt by Landlord, or based in whole or in part upon, the rents
in this Lease reserved or upon the Center or the value thereof shall be paid by
Tenant.
E. Larger Parcel. If the land under the Center is a part of a larger parcel of
-------------
land for assessment purposes (the "Larger Parcel"), the taxes and assessments
allocable to the land in the Center for the purpose of determining Taxes under
this Section shall be deemed a fractional portion of the taxes and assessments
levied against the Larger Parcel, the numerator of which is the acreage in the
Center and the denominator of which is the acreage in the Larger Parcel.
Section 4.6. Sprinkler System.
- ------------ ----------------
Landlord has installed and will maintain a sprinkler system in the Premises
and Tenant shall pay to Landlord as additional rent thirty cents (3Oc) per
-----------------
square foot of Store Floor Area per Lease Year, prorated for Partial Lease
Years, in equal monthly installments in advance on the first day of each full
calendar month during the Lease Term.
Section 4.7. Additional Rent.
- ------------ ---------------
All amounts required or provided to be paid by Tenant under this Lease
other than Minimum Annual Rent and Percentage Rent shall be deemed additional
rent and Minimum Annual Rent, Percentage Rent and additional rent shall in all
events be deemed rent.
Section 4.8. Landlord's Expenses.
- ------------ -------------------
If, after twenty (20) days prior written notice and the failure of Tenant
to cure within such period, Landlord pays any monies or incurs any expense to
correct a breach of this Lease by Tenant or to do anything in this Lease
required to be done by Tenant, or incurs any expense (including, but not limited
to, reasonable attorneys' fees and court costs), as a result of Tenant's failure
to perform any of Tenant's obligations under this Lease, all amounts so paid or
incurred shall, on notice to Tenant, be considered additional rent payable in
full by Tenant with the first Minimum Monthly Rent installment thereafter
becoming due and payable, and may be collected as by law provided in the case of
rent.
Section 4.9. Mezzanine Rent.
- ------- ---- --------------
If a sales or display mezzanine is constructed in the Premises, then
commencing on the first day of the month following the later of (a) the month in
which such mezzanine is constructed, or (b) the date Tenant opens for business,
and on the first day of each and every month thereafter throughout the remainder
of the Lease Term, Tenant shall pay to Landlord, an Annual Mezzanine Rent of
$25.00 per square foot of mezzanine space constructed in the Premises, per
annum, payable in equal monthly installments in advance. Landlord represents
that this Annual Mezzanine Rent is no greater than the Annual Mezzanine Rent
being charged to other tenants in the Phase II expansion of the Shopping
Complex.
ARTICLE V
---------
PARKING AND COMMON AREAS AND FACILITIES
---------------------------------------
Section 5.1. Common Areas.
- ------- ---- ------------
All parking areas, access roads and facilities furnished, made available or
maintained by Landlord in or near the Center, including employee parking areas,
truck ways, driveways, loading docks and areas, delivery areas, multistory
parking facilities, package pickup stations, elevators, escalators, pedestrian
sidewalks, malls, including the enclosed mall (as indicated for identification
purposes on Exhibit "B"), courts and ramps, landscaped areas, retaining walls,
stairways, bus stops, first-aid and comfort stations, lighting facilities,
sanitary systems, utility lines, water filtration and treatment facilities,
those areas within and adjacent to the Center for ingress and egress to and from
the Center including, without limitation, the Temple, and the tunnel/roadway
system under the Center, which from time to time may be provided by Landlord or
others for the convenience, use or benefit of the tenants of the Center,
Landlord, Ground Lessor. the owners and occupants of the Hotel and their
respective concessionaires, agents, employees, customers, invitees and
licensees, those areas, if any, upon which temporary or permanent off-site
utility systems or parking facilities serving the Center may from time to time
be located and other areas and improvements provided by Landlord for the general
use in common of tenants and their customers and department stores (if any) in
the Center (all herein called "Common Areas") shall at all times be subject to
the exclusive control and management of Landlord or the Owner of the Hotel
Parcel (as defined in the REA), and Landlord or such Owner shall have the right,
from time to time, to establish, modify and enforce reasonable rules,
regulations and requirements with respect to all Common Areas
-6-
<PAGE>
which rules and regulations shall be uniformly applied in a reasonable and non-
discriminatory manner. Tenant agrees to comply with, and to cause its employees
and contractors to comply with, all rules, regulations and requirements set
forth in Exhibit "D" attached hereto and all reasonable amendments thereto and
any and all rules, regulations, requirements and amendments thereto adopted
pursuant to the REA. Tenant acknowledges that the Shopping Complex shall only
have exterior pedestrian access through the Hotel and the Temple and, further,
that the Temple may provide only ingress to, but not egress from the Center.
Landlord and the Owner of the Hotel Parcel shall have the right from time
to time to: change or modify and add to or subtract from the sizes, locations,
shapes and arrangements of parking areas entrances, exits, parking aisle
alignments and other Common Areas; designate parking areas for Ground Lessor,
Landlord, the owner of the Hotel Parcel and/or their employees and tenants
and/or tenants of Landlord, and/or limit the total number of such employee
spaces; restrict parking by Tenant's employees to designated areas (which may be
at the far rear of the Adjacent Land); construct surface, sub-surface or
elevated parking areas and facilities; establish and from time to time change
the level or grade of parking surfaces; add to or subtract from the buildings in
the Center; eliminate such access as may from time to time be available between
the Center and the Hotel or any retail or commercial business in an adjoining or
neighboring building; and do and perform such other acts in and to said Common
Areas as Landlord in its sole discretion, reasonably applied, deems advisable
for the use thereof by tenants and their customers or as such Owner is permitted
to do pursuant to the REA. Tenant acknowledges that owners of other areas in and
adjoining the Shopping Complex may similarly alter, enlarge, reduce or relocate
the improvements from time to time located thereon. Tenant further acknowledges
that this Section 5.1 shall be for the benefit of and directly enforceable by
Landlord and the Owner of the Hotel Parcel.
In the event that Landlord determines, in its sole discretion, to provide
parking or transportation facilities for the Center, Landlord may charge a fee
to users thereof and may impose and enforce such rules and regulations
concerning the use thereof (including a prohibition of use by Tenant's
employees) as Landlord may in its discretion deem desirable, provided that any
fee will be waived for users receiving a validation from the casino on the Hotel
Parcel. Landlord shall have the right at any and all times to utilize portions
of Common Areas for promotions, exhibits, entertainments, product and other
shows, displays, the leasing of kiosks or food facilities, or such other uses as
may in Landlord's judgment tend to attract the public or benefit the Center but
in no event shall such kiosks or food facilities be located within ten feet
(10') of the front lease line of the Premises. Except as specifically otherwise
provided in any Operating Agreement the Owner of the Hotel Parcel may do such
other acts in and to the Hotel and those Common Areas located on the Adjacent
Land as in its reasonable judgment may be desirable, including, but not limited
to, the conversion of portions thereof to other uses. In exercising its rights
pursuant to this Section, Landlord shall not materially adversely affect access
to or visibility of the Premises.
Section 5.2. Use of Common Areas.
- ------------ -------------------
Tenant and its business invitees, employees and customers shall have the
nonexclusive right, in common with Landlord, the Ground Lessor, the owner of the
Hotel Parcel and all others to whom Landlord, the Ground Lessor or any other
party under the REA which is entitled to grant such rights has granted or may
hereafter grant rights, to use the Common Areas for ingress, egress and parking
subject to such reasonable regulations as Landlord or such other person may from
time to time impose and the rights of Landlord set forth above. Tenant and
Tenant's customers shall also have a non-exclusive right to walk through the
Hotel in order to gain ingress to and egress from the Shopping Complex.
Pedestrian access between the Shopping Complex and the Hotel shall be solely
through that connecting point so designated on Exhibit "B-1" hereto. Tenant
shall pay Landlord, upon demand, $10.00 for each day on which a car of Tenant, a
concessionaire, employee or agent of Tenant is parked outside any area
designated by Landlord for employee parking. Tenant authorizes Landlord to cause
any such car to be towed from the Common Areas and Tenant shall reimburse
Landlord for the cost thereof upon demand, and otherwise indemnify and hold
Landlord harmless with respect thereto. Tenant shall abide by all reasonable
rules and regulations and cause its concessionaires, officers, employees,
agents, customers and invitees to abide thereby. Landlord or the Owner of the
Hotel Parcel may at any time close temporarily (for only so long a period of
time as may be absolutely necessary) any Common Areas to make repairs or
changes, prevent the acquisition of public rights therein, discourage
noncustomer parking, or for other reasonable purposes. Tenant shall furnish
Landlord license numbers and descriptions of cars used by Tenant and its
concessionaires, officers and employees. Tenant shall not interfere with
Landlord's or other permitted users' rights to use any part of the Common Areas.
ARTICLE VI
----------
COST AND MAINTENANCE OF COMMON AREAS
------------------------------------
Section 6.1. Expense of Operating and Maintaining the Common Facilities.
- ------------ ----------------------------------------------------------
Landlord will operate, manage, maintain and repair or cause to be operated,
managed, maintained or repaired, the Common Areas of the Center including, but
not limited to, all parking facilities and the Temple, to the extent the same is
not done by any Major Tenant. "Landlord's Common Area Costs" shall mean all
costs of operating and maintaining the Common Areas in a manner deemed by
Landlord appropriate to operate the Shopping Complex in a first class manner and
for the best interests of tenants and other occupants in the Center. Included
among the costs and expenses which constitute Landlord's Common Area Costs, but
not limited thereto, shall be, at the option of Landlord, all costs and expenses
of protecting, operating, managing the Center, repairing, repaving, lighting,
cleaning, painting, striping, insuring (including but not limited to fire and
extended coverage insurance on Common Areas, insurance protecting Landlord
against liability for personal injury, death and property damage and workers'
compensation insurance), removing of debris, police protection, security and
security patrol, fire protection, regulating traffic, inspecting, repairing and
maintaining of machinery and equipment used in the
-7-
<PAGE>
operation of the Common Areas, including heating, ventilating and air
conditioning machinery and equipment, providing heating, ventilating and air
conditioning for the interior Common Areas initially determined and thereafter
adjusted in the manner described in Section 7.2 herein, cost and expense of
inspecting, maintaining, repairing and replacing storm and sanitary drainage
systems, sprinkler and other fire protection systems, electrical, gas, water,
telephone and irrigation systems, cost and expense of installing, maintaining,
repairing and replacing the enclosed mall, the exterior of the buildings in the
Center, including, but not limited to floors, roofs, skylights, escalators,
elevators, walls, stairs and signs, cost and expense of installing, maintaining
and repairing burglar or fire alarm systems on the Center, if installed, cost
and expense of landscaping and shrubbery, cost and expense of maintaining and
operating or causing to be maintained and operated atriums, the Temple and other
areas used for access between the Shopping Complex and neighboring or adjoining
buildings and real or personal property or other taxes incurred by Landlord in
respect thereof, whether said facilities or areas are located in the Shopping
Complex or in an adjoining or neighboring building, expenses of utilities,
maintenance and operation of any valet and/or self-park parking facilities which
Landlord determines to provide either within or outside the Shopping Complex and
any transportation services provided for the Shopping Complex, whether in
connection with such parking facilities or otherwise, and all other areas,
structures, facilities and buildings used in the maintenance or operation of the
Shopping Complex whether located within or outside of the Shopping Complex,
expenses reimbursable by Landlord to the Ground Lessor or Owner of the Hotel
Parcel under the Ground Lease or the REA, and administrative and overhead costs
equal to fifteen percent (15%) of all of the foregoing and all other of
Landlord's Common Area Costs. EXCLUDED FROM LANDLORD'S COMMON AREA COSTS SHALL
BE GROUND RENTS, BROKERAGE FEES, ADVERTISING FEES, ATTORNEY FEES AND COST OF
REPAIRS OR REPLACEMENTS COVERED BY THE INSURANCE LANDLORD IS REQUIRED TO CARRY
UNDER THIS LEASE. NOTWITHSTANDING THE FOREGOING, NO CAPITAL EXPENDITURES SHALL
BE INCLUDED IN TENANT'S SHARE OF LANDLORD'S COMMON AREA COSTS EXCEPT TO THE
EXTENT THAT ANY SUCH CAPITAL EXPENDITURES ARE DEPRECIATED BY LANDLORD IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
Section 6.2. Tenant to Bear Pro Rata Share of Expenses.
- ----------- -----------------------------------------
Tenant will pay Landlord, in addition to all other amounts in this Lease
provided, such portion of Landlord's Common Area Costs for each calendar year
during the Lease Term which bears the same ratio to the total of Landlord's
Common Area Costs as the Store Floor Area at the commencement of such calendar
year bears to the average rentable floor area rented or occupied by tenants in
the Shopping Complex ("Rentable Floor Area"). The floor area of (i) a Major
Tenant, (ii) any tenant in a freestanding Premises who is obligated to maintain
specific areas or a specific parcel of land, and (iii) Common Areas, as
hereinafter defined, shall not be included in the Rentable Floor Area, and any
contributions to Common Area Costs received by Landlord from such tenants shall
be deducted from Common Area Costs prior to the calculation of Tenant's
proportionate share.
THE RATIO DESCRIBED IN THE PRECEDING PARAGRAPH SHALL NOT BE UTILIZED IF THE
"RENTABLE FLOOR AREA RENTED OR OCCUPIED" IS LESS THAN EIGHTY-FIVE PERCENT (85%)
OF THE RENTABLE FLOOR AREA IN THE SHOPPING COMPLEX. IF THE "RENTABLE FLOOR AREA
RENTED OR OCCUPIED" IS LESS THAN EIGHTY-FIVE PERCENT (85%), THE PRO RATA SHARE
OF TENANT SHALL BE DETERMINED BY THE RATIO THE STORE FLOOR AREA BEARS TO
EIGHTY-FIVE PERCENT (85%) OF THE RENTABLE FLOOR AREA IN THE SHOPPING COMPLEX.
Tenant's share of Landlord's Common Area Costs shall be paid in monthly
installments in amounts REASONABLY estimated from time to time by Landlord, one
(1) such installment being due on the first day of each month of each calendar
year. After the end of each calendar year the total Landlord's Common Area Costs
for such year (and at the end of the Lease Term, the total Landlord's Common
Area Costs for the period since the end of the immediately next preceding
calendar year) shall be determined by Landlord and Tenant's share paid for such
period shall immediately, upon such determination, be adjusted by REFUND of any
excess or payment of any deficiency.
ARTICLE VII
-----------
UTILITIES AND SERVICES
----------------------
Section 7.1. Utilities.
- ----------- ---------
Tenant shall not install any equipment which can exceed the capacity of any
utility facilities serving the Center and if any equipment installed by Tenant
requires additional utility facilities, the same shall be installed at Tenant's
expense in compliance with all code requirements and plans and specifications
which must be approved in writing by Landlord. Tenant shall be solely
responsible for and promptly pay all charges for use or consumption of sewer,
gas, electricity, water and all other utility services. Subject to the
applicable rules and regulations of the Nevada Public Service Commission,
Landlord may make electrical service available to the Premises as provided in
Exhibit "C," and so long as Landlord continues to provide such electrical
service Tenant agrees to purchase the same from Landlord and reimburse Landlord
for the electrical service (based upon Landlord's determination from time to
time of Tenant's consumption of electricity), as additional rent, on the first
day of each month in advance (and prorated for partial months), commencing on
the Commencement Date at the same cost as IS charged to LANDLORD from time to
time by the utility company which furnishES such services to the CENTER. Subject
to the applicable rules and regulations of the Nevada Public Service Commission,
Landlord may supply water and other utilities to the Premises, and so long as
Landlord continues to provide water or such other utilities Tenant shall
reimburse Landlord for same at the same cost as IS charged to LANDLORD by the
utility company which furnishES such service to the CENTER.
- 8 -
<PAGE>
Subject to the applicable rules and regulations of the Nevada Public Service
Commission, Landlord may provide a shared tenant telephone service to the
Premises and so long as Landlord continues to provide such telephone service
Tenant agrees to purchase the same from Landlord and reimburse Landlord for the
telephone service at Landlord's cost.
Landlord may make additional services, including but not limited to, pest
control, cleaning, and security, available to the Premises and, in such event,
Tenant shall utilize such services, at Tenant's expense, provided said services
are competitively priced.
Tenant shall operate its heating and air conditioning so that the
temperature in the Premises will be the same as that in the adjoining mall, and
set Tenant's thermostat at the same temperature as that thermostat in the mall
which is nearest the Premises. Tenant shall be responsible for the installation,
maintenance, repair and replacement of air conditioning, heating and
ventilation systems within and specifically for the Premises, including all
components such as air handling units, air distribution systems, motors,
controls, grilles, thermostats, filters and all other components. Tenant shall
operate ventilation so that the relative air pressure in the Premises will be
the same as or less than that in the adjoining mall as required by the Landlord.
In the event Tenant requires the use of telecommunication services,
including, but not limited to, credit card verification and/or other data
transmission, then Tenant shall contract for such services with one of the
service providers available at the Center.
Section 7.2. Air Conditioning of Premises.
- ----------- ----------------------------
Landlord will provide and maintain a system of condensed water to the
Premises installed at a point determined by Landlord. Tenant agrees to purchase
the condensed water services from Landlord and pay Landlord annually therefor as
additional rent, in equal monthly installments, in advance of the first day of
each month the current Adjusted HVAC Plant Charge (which shall consist of the
Minimum Charge of $0.59 per square foot of Store Floor Area per year, adjusted
-----
in the manner hereinafter provided).
The Adjusted HVAC Plant Charge shall be recalculated from time to time on
dates selected by the Landlord (but no less often than annually, each time the
Landlord's utility costs are changed, and/or each time field verification
indicates that Tenant's use of the system has changed.)
The current Adjusted HVAC Plant Charge shall be calculated by multiplying
the Minimum Charge by a series of adjusting multipliers as follows:
Adjusted HVAC Plant Charge = Minimum Charge x M\\1\\ x M\\2\\ x M\\3\\ x M\\4\\
(a) M\\1\\ = Capacity Multiplier
----------------------------
The capacity multiplier shall be the greater of 1 or the
multiplier arrived at by applying the following formula:
M\\1\\ = 1 + [0.9 [BTUH/30 - 1]]
The factor "BTUH" shall mean BTUH/per Sq. Ft. of Store Floor Area and shall
be the calculated peak design total heat gain as determined in accordance with
ASHRAE procedures. Tenant's outdoor air or exhaust that is derived via the
Landlord's system, and total heat gain from the roof, lights, fan motors and
other items, shall be included in calculating the BTUH/per Sq. Ft. factor of
this section for purposes of determining the capacity multiplier. The peak total
heat gain shall be calculated using the same sun time hour as is used by
Landlord in determining the peak building heat gain. (Typically 1600 hours).
(b) M\\2\\ = Hours Multiplier
-------------------------
The hours multiplier shall be the greater of 1 or the multiplier
arrived at by applying the following formula:
M\\2\\ = 1 + [Extra Hours/Regular Hours]
The term "Extra Hours" shall mean Tenant's hours use of system
during times other than the originally established regular weekly hours of the
Center. The term "Regular Hours" shall mean the established regular weekly
hours of the Center.
(c) M\\3\\ = Utility Cost Multiplier
--------------------------------
The utility cost multiplier shall be the multiplier arrived at by
applying the following formula:
M\\3\\ = 1 + [0.9 [Current Cost/Original Cost - 1]]
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<PAGE>
The term "Current Cost" shall mean "Utility Cost" based on rates in
effect on the selected date. The term "Original Cost" shall mean Utility Cost
based on rates in effect on August 1, 1996. The term "Utility Cost" shall mean
the cost to Landlord of the utilities necessary for furnishing media to the
Premises, including all charges made to Landlord by the public utilities
furnishing the same and based on the original consumption and demands estimated
for the Central HVAC System and building.
(d) M\\1\\=Maintenance Cost Multiplier
----------------------------------
The Maintenance Cost Multiplier shall be the greater of 1 or the
multiplier arrived at by applying the following formula:
M\\4\\=1 + [0.1 [Current CPI/Original CPI - 1]]
The term "Current CPI" shall mean the "Consumer Price Index" on the
selected date. The term "Original CPI" shall mean the "Consumer Price Index" for
December 1, 1996. The term "Consumer Price Index" as used in this Section 7.2
and in Section 14.1 herein shall mean the Consumer Price Index All Items for All
Urban Consumers (CPI-U, 1982-4=100)" published by the Bureau of Labor Statistics
of the U.S. Department of Labor. If the publication of the Consumer Price Index
of the U.S. Bureau of Labor Statistics is discontinued, comparable statistics on
the purchasing power of the consumer dollar published by a responsible financial
periodical selected by Landlord shall be used for making such computations.
Section 7.3. Enforcement and Termination.
- ------------ ---------------------------
Landlord shall not be liable to Tenant in damages or otherwise if any
utilities or services, whether or not furnished by Landlord hereunder, are
interrupted or terminated because of repairs, installation or improvements, or
any cause beyond Landlord's reasonable control, nor shall any such termination
relieve Tenant of any of its obligations under this Lease provided, however, if
due to Landlord's negligence such utilities or services are interrupted or
terminated and not restored within forty-eight (48) hours from the time of such
interruption or termination then the Tenant shall have the right to abate the
payment of Minimum Monthly Rent until such date as such utilities or services
are restored. Tenant shall operate the Premises in such a way as shall not waste
fuel, energy or natural resources. Landlord may cease to furnish any one or more
of said utilities or services to Tenant without liability for the same, provided
Landlord will upon such cessation make arrangements for the furnishing of said
utilities or services by the customary providers in the area and no
discontinuance of any utilities or services shall constitute a constructive
eviction.
ARTICLE VIII
------- ----
CONDUCT OF BUSINESS BY TENANT
-----------------------------
Section 8.1. Use of Premises.
- ----------- ---------------
The Premises shall be occupied and used by Tenant solely for the purpose of
conducting therein the business of the retail sale of fine women's ready to wear
and accessories bearing the St. John label, and Tenant shall not use or permit
or suffer the use of the Premises for any other business or purpose. This Lease
does not grant any exclusive use rights to Tenant and in no event shall this
Lease grant any exclusive use rights with respect to the Hotel Parcel or with
respect to any merchandise currently or in the future sold at the store located
in the Center leased to and operated by Ground Lessor.
Section 8.2. Prompt Occupancy and Use.
- ------------ ------------------------
Tenant will occupy the Premises upon the Commencement Date and thereafter
continuously operate and conduct in 100% of the Premises during each hour of the
entire Lease Term when Tenant is required under this Lease to be open for
business the business permitted under Section 8.1 hereof, with a full staff and
full stock of merchandise, using only such minor portions of the Premises for
storage and office purposes as are reasonably required. Tenant shall not be
required to use any mezzanine areas in the Premises. The parties agree that:
Landlord has relied upon Tenant's occupancy and operation in accordance with the
foregoing provisions; because of the difficulty or impossibility of determining
Landlord's damages which would result from Tenant's violation of such
provisions, including but not limited to damages from loss of Percentage Rent
from Tenant and other tenants, and diminished saleability, mortgageability and
economic value, Landlord shall be entitled to liquidated damages if it elects to
pursue such remedy; therefore for any day that Tenant does not fully comply with
the provisions of this Section 8.2 the Minimum Annual Rent, prorated on a daily
basis, shall be increased by 1/365th of the previous twenty-four (24) month
average of Monthly Rent and Percentage Rent payable by Tenant, such increased
sum representing the damages which the parties agree Landlord will suffer by
Tenant's noncompliance. In addition to all other remedies, Landlord shall have
the right to obtain specific performance by Tenant upon Tenant's failure to
comply with the provisions of this Section 8.2. Tenant, upon ten (10) days prior
written notice to Landlord, may close up to five (5) days per year.
Section 8.3. Conduct of Business.
- ------------ -------------------
Such business shall be conducted (a) under the name ST. JOHN KNITS or such
--------------
other name if adopted by a majority of Tenant's stores or such name of any
other label now or hereafter owned by Tenant unless another name is previously
approved in writing by the Landlord; and (b) in such manner as shall
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assure the transaction of a maximum volume of business in and at the Premises.
Tenant's store shall be and remain open from 11:00 A.M. until 11:00 P.M. each
day of the week.
Section 8.4. Operation by Tenant.
- ----------- -------------------
Tenant covenants and agrees that it will: not place or maintain any
merchandise, vending machines or other articles in any vestibule or entry of the
Premises or outside the Premises; not permit any gaming or gaming devices in the
Premises; store garbage, trash, rubbish and other refuse in rat-proof and
insect-proof containers inside the Premises, and remove the same frequently and
regularly and, if directed by Landlord, by such means and methods and at such
times and intervals as are designated by Landlord, all at Tenant's expense: not
permit any sound system audible, or objectionable advertising medium visible,
outside the Premises; keep all mechanical equipment free of vibration and noise
and in good working order and condition; not commit or permit waste or a
nuisance upon the Premises; not permit or cause odors to emanate or be dispelled
from the Premises; not solicit business in the Common Areas nor distribute
advertising matter to, in or upon any Common Areas; not permit the loading or
unloading or the parking or standing of delivery vehicles outside any area
designated therefor, nor permit any use of vehicles which will interfere with
the use of any Common Areas; comply with all laws, recommendations, ordinances,
rules and regulations of governmental, public, private and other authorities and
agencies (which do not require structural repairs unless due to Tenant's
particular use of the Premises), including those with authority over insurance
rates, with respect to the use or occupancy of the Premises, and including but
not limited to the Williams-Steiger Occupational Safety and Health Act; light
the show windows of the Premises and all signs each night of the year for not
less than one (1) hour after the Premises is permitted to be closed; not permit
any noxious, toxic or corrosive fuel or gas, dust, dirt or fly ash on the
Premises; not place a load on any floor in the Center which exceeds the floor
load per square foot which such floor was designed to carry.
Section 8.5. Storage.
- ----------- -------
Tenant shall store in the Premises only merchandise which Tenant intends to
sell at, in or from the Premises, within a reasonable time after receipt
thereof, display props, additional store fixtures, and items necessary for the
conduct of business.
Section 8.6. Painting, Decorating, Displays, Alterations.
- ----------- -------------------------------------------
Tenant will not paint, decorate or change the architectural treatment of
any part of the exterior of the Premises nor any part of the interior of the
Premises visible from the exterior nor make any structural alterations,
additions or changes in the Premises without Landlord's written approval
thereto, and will promptly remove any paint, decoration, alteration, addition or
changes applied or installed without Landlord's approval and restore the
Premises to an acceptable condition or take such other action with respect
thereto as Landlord directs, in the Premises except Tenant may, without the
necessity of obtaining Landlord's consent, paint, remodel, redecorate or
otherwise make non-structural changes to the interior of the Premises provided
that the total cost of such painting, remodeling, redecorating of such other
non-structural changes does not exceed $50,000.00 in any Lease Year.
Tenant will install and maintain at all times, subject to the other
provisions of this Section 8.6, merchandise displays in any show windows on the
Premises; the arrangement, style, color and general appearance thereof and of
displays in the interior of the Premises which are visible from the exterior,
including, but not limited to, window displays, advertising matter, signs,
merchandise and store fixtures, shall be maintained in keeping with the
character and standards of the Center.
Section 8.7. Other Operations.
- ----------- ----------------
If during the Lease Term Tenant directly or indirectly operates, manages or
has any interest whatsoever in any other store or business operated for a
purpose or business similar to or in competition with all or part of the
business permitted under Section 8.1 hereof within a radius of fifteen (15)
miles of the Center but excluding (a) sales in department stores, or (b) sales
in outlet stores carrying different lines and names or merchandise from a prior
season or year, or (c) sales of merchandise not then sold in the Premises, it
will injure Landlord's ability and right to receive Percentage Rent (such
ability and right being a major consideration for this Lease and the
construction of the Center). Accordingly, if Tenant operates, manages or has
such interest in any such store or business within such radius, 100% of all
sales made from any such other store or business shall be included in the
computation of Gross Sales for the purpose of determining Percentage Rent under
this Lease as though said Gross Sales had actually been made at, in or from the
Premises. Landlord shall have all rights of inspection of books and records with
respect to such stores or businesses as it has with respect to the Premises; and
Tenant shall furnish to Landlord such reports with respect to Gross Sales from
such other store or business as it is herein required to furnish with respect to
the Premises.
Section 8.8. Emissions and Hazardous Materials.
- ----------- ---------------------------------
Tenant shall not, without the prior written consent of Landlord, cause or
permit, knowingly or unknowingly, any Hazardous Material (hereinafter defined)
to be brought or remain upon, kept, used, discharged, leaked, or emitted in or
about, or treated at the Premises or the Center. As used in this Lease,
"Hazardous Material(s)" shall mean any hazardous, toxic or radioactive
substance, material, matter or waste which is or becomes regulated by any
federal, state or local law, ordinance, order, rule, regulation, code or any
other governmental restriction or requirement, and shall include asbestos,
petroleum products and the terms "Hazardous Substance" and "Hazardous Waste" as
defined in the Comprehensive Environmental Response, Compensation and Liability
Act, as amended 42 U.S.C. (S) 9601 et seq., ("CERCLA"), and the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. (S) 6901 et seq. ("RCRA")
To obtain Landlord's consent, Tenant shall prepare an "Environmental Audit" for
Landlord's review. Such Environmental Audit shall list: (1) the name(s) of each
Hazardous Material and a Material Safety Data Sheet (MSDS) as required by the
Occupational Safety and Health Act; (2) the volume proposed to be used, stored
and/or treated at the Premises
- 11 -
<PAGE>
(monthly); (3) the purpose of such Hazardous Material; (4) the proposed on-
premises storage location(s); (5) the name(s) of the proposed off-premises
disposal entity; and (6) an emergency preparedness plan in the event of a
release. Additionally, the Environmental Audit shall include copies of all
required federal, state, and local permits concerning or related to the proposed
use, storage, or treatment of any Hazardous Material(s) at the Premises. Tenant
shall submit a new Environmental Audit whenever it proposes to use, store or
treat a new Hazardous Material at the Premises or when the volume of existing
Hazardous Materials to be used, stored, or treated at the Premises expands by
ten percent (10%) during any thirty (30) day period. If Landlord in its
reasonable judgment finds the Environmental Audit acceptable, then Landlord
shall deliver to Tenant Landlord's written consent. Notwithstanding such
consent, Landlord may revoke its consent upon: (1) Tenant's failure to remain in
full compliance with applicable environmental permits and/or any other
requirements under any federal, state, or local law, ordinance, order, rule,
regulation, code or any other governmental restriction or requirement (including
but not limited to CERCLA and RCRA related to environmental safety, human
health, or employee safety); (2) the Tenant's business operations pose or
potentially pose a human health risk to other Tenants; or (3) the Tenant expands
its use, storage, or treatment of any Hazardous Material(s) in a manner
inconsistent with the safe operation of a shopping center. Should Landlord
consent in writing to Tenant bringing, using, storing or treating any Hazardous
Material(s) in or upon the Premises or the Center, Tenant shall strictly obey
and adhere to any and all federal, state or local laws, ordinances, orders,
rules, regulations, codes or any other governmental restrictions or requirements
(including but not limited to CERCLA and RCRA which in any way regulate, govern
or impact Tenant's possession, use, storage, treatment or disposal of said
Hazardous Material(s)). In addition, Tenant represents and warrants to Landlord
that (1) Tenant shall apply for and remain in compliance with any and all
federal, state or local permits in regard to Hazardous Materials; (2) Tenant
shall report to any and all applicable governmental authorities any release of
reportable quantities of any Hazardous Material(s) as required by any and all
federal, state or local laws, ordinances, orders, rules, regulations, codes or
any other governmental restrictions or requirements; (3) Tenant, within five (5)
days of receipt, shall send to Landlord a copy of any notice, order, inspection
report, or other document issued by any governmental authority relevant to the
Tenant's compliance status with environmental or health and safety laws; and (4)
Tenant shall remove from the Premises all Hazardous Materials at the termination
of this Lease.
In addition to, and in no way limiting, Tenant's duties and obligations as
set forth in Section 11.6 of this Lease, should Tenant breach any of its duties
and obligations as set forth in this Section 8.8 of this Lease, or if the
presence of any Hazardous Material(s) on the Premises results in contamination
of the Premises, the Center, any land other than the Center, the atmosphere, or
any water or waterway (including groundwater), or if contamination of the
Premises or of the Center by any Hazardous Material(s) otherwise occurs for
which Tenant is otherwise legally liable to Landlord for damages resulting
therefrom, Tenant shall indemnify, save harmless and, at Landlord's option and
with attorneys approved in writing by Landlord, defend Ground Lessor, Landlord,
Owner of the Hotel Parcel, and their contractors, agents, employees, partners,
officers, directors, and mortgagees, if any, from any and all claims, demands,
damages, expenses, fees, costs, fines, penalties, suits, proceedings, actions,
causes of action, and losses of any and every kind and nature (including,
without limitation, diminution in value of the Premises or the Center, damages
for the loss or restriction on use of the rentable or usable space or of any
amenity of the Premises or the Center, damages arising from any adverse impact
on marketing space in the Center, and sums paid in settlement of claims and for
attorney's fees, consultant fees and expert fees, which may arise during or
after the Lease Term or any extension thereof as a result of such
contamination). This includes, without limitation, costs and expenses, incurred
in connection with any investigation of site conditions or any cleanup,
remedial, removal or restoration work required by any federal, state or local
governmental agency or political subdivision because of the presence of
Hazardous Material(s) on or about the Premises or the Center, or because of the
presence of Hazardous Material(s) anywhere else which came or otherwise emanated
from Tenant or the Premises. Without limiting the foregoing, if the presence of
any Hazardous Material(s) on or about the Premises or the Center caused or
permitted by Tenant results in any contamination of the Premises or the Center,
Tenant shall, at its sole expense, promptly take all actions and expense as are
necessary to return the Premises and/or the Center to the condition existing
prior to the introduction of any such Hazardous Material(s) to the Premises or
the Center; provided, however, that Landlord's approval of such actions shall
first be obtained in writing. Landlord represents and warrants that as of the
effective date of this Lease Landlord has not caused any Hazardous Material to
be brought, kept, used, discharged, leaked or emitted in or about or treated at
the Premises or Shopping Complex, and Landlord agrees to indemnify Tenant
against any loss or liability resulting from any breach of this warranty and
representation. This representation and warranty shall be deemed repeated as
true as of the "Commencement Date".
Section 8.9. Sales and Dignified Use.
- ----------- -----------------------
No public or private auction or any fire, "going out of business,"
bankruptcy or similar sales or auctions shall be conducted in or from the
Premises and the Premises shall not be used except in a dignified and ethical
manner consistent with the general high standards of merchandising in the Center
and not in a disreputable or immoral manner or in violation of national, state
or local laws.
Section 8.10. Gaming Authorities.
- ------------ ------------------
If at any time (i) Tenant or any person associated in any way with Tenant
is denied a license, found unsuitable, or is denied or otherwise unable to
obtain any other Approval (as defined herein) with respect to the Premises, the
Center or the Hotel by the Nevada Gaming Commission or any other agency or
subdivision of the State of Nevada, the State of New Jersey or any other agency
or subdivision thereof or any other government regulating gaming (collectively
"Gaming Authorities"), is required by any Gaming Authority to apply for an
Approval and does not apply within any required time limit, as the same may be
extended by such Gaming Authority, withdraws any application for Approval other
than upon a determination by the applicable Gaming Authority that such Approval
is not required, and if the result of the foregoing has or would have an adverse
effect on Landlord or Ground Lessor or any Affiliate (as defined herein) of
Landlord or Ground Lessor or does or would materially delay obtaining any
Approval; or (ii) any Gaming
- 12 -
<PAGE>
Authority commences of threatens to commence any suit or proceeding against
Landlord or Ground Lessor or any Affiliate of Landlord or Ground Lessor or to
terminate or deny any Approval of Landlord or Ground Lessor or any Affiliate of
Landlord or Ground Lessor as a result of Tenant or any person associated with
Tenant (all of the foregoing events described in (i) and (ii) above are
collectively referred to as a "Denial"), Landlord or Ground Lessor may terminate
this Lease by written notice to Tenant; provided, however that if Landlord or
Ground Lessor exercises its right to terminate this Lease pursuant to this
Section solely as the result of an association of Tenant or any person
associated with Tenant which is not the subject of a Denial, this Lease shall
not terminate if Tenant ends such association within thirty (30) days of such
notice of termination or within such longer period of time, if any, as the
Gaming Authority gives for terminating such association. Tenant and all such
persons associated with Tenant shall promptly, and in all events within any time
limit established by law, regulation or such Gaming Authority, furnish each
Gaming Authority any information requested by such Gaming Authority and shall
otherwise fully cooperate with all Gaming Authorities. A person shall be deemed
associated with Tenant if that person directly or indirectly owns any equity
interest in Tenant, any equity interest in such person is directly or indirectly
owned by Tenant, any equity interest in such person is directly or indirectly
owned by a person directly or indirectly having any equity interest in Tenant
(all of the foregoing are hereinafter referred to as "Tenant Affiliates"), such
person is employed by Tenant or a Tenant Affiliate, is an officer, director or
agent of Tenant or a Tenant Affiliate, has any contractual relationship with
Tenant or a Tenant Affiliate, furnishes services or property to Tenant or a
Tenant Affiliate, or has the power to exercise a significant influence over
Tenant or a Tenant Affiliate. Tenant represents to Landlord that neither Tenant,
nor, to the best of Tenant's knowledge, any person associated with Tenant, is
unwilling to file all necessary applications to obtain whatever Approvals may be
required of such persons in connection with this lease. To the best of Tenant's
knowledge, neither Tenant nor any person associated with Tenant has ever engaged
in any conduct or practices which any of the foregoing persons should reasonably
believe would cause such person or entity to be denied any Approval. The term
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person or any officer, director, trustee or general
partner of either of such persons. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities or by agreement or otherwise. "Approval" means
any license, finding of suitability or any other approval or permit by or from
the Gaming Authorities. Tenant is aware that Ground Lessor has the right to
terminate the Ground Lease should any matter occur with respect to Landlord
which would permit the Ground Lessor or Landlord to terminate this Lease
pursuant to this Section 8.10 if such matter occurred with respect to Tenant.
Section 8.11. Entertainment Uses.
- ------------- ------------------
In the event that Tenant or any subtenant in the Center presents
entertainment covered by the Labor Agreement between the Hotel and the
International Alliance of Theatrical Stage Employees and Moving Picture Machine
Operators of the United States and Canada, Local 720, Las Vegas, Nevada ("Labor
Agreement") or the Center is determined to be covered by the Labor Agreement,
for any activity presented by or on behalf of Tenant or any subtenant in the
Center, Tenant shall, and shall require any such subtenants to, comply with all
wages, benefits, terms and conditions of employment contained in the Labor
Agreement that may be imposed upon Tenant and its subtenants, by virtue of the
Labor Agreement. . Nothing in this Section 8.11 shall be deemed to permit Tenant
or any subtenant to present any entertainment except as specifically otherwise
permitted in this Lease. Nothing herein shall be deemed to imply that the
parties hereto believe that the Labor Agreement is applicable to the Center.
ARTICLE IX
------- --
MAINTENANCE OF LEASED PREMISES
------------------------------
Section 9.1. Maintenance by Landlord.
- ------------ -----------------------
Landlord shall keep or cause to be kept the foundations, roof and
structural portions of the walls of the Premises in good order, repair and
condition except for damage thereto due to the acts or omissions of Tenant, its
agents, employees or invitees. Landlord shall commence required repairs as soon
as reasonably practicable after receiving written notice from Tenant thereof.
This Section 9.1 shall not apply in case of damage or destruction by fire or
other casualty or condemnation or eminent domain, in which events the
obligations of Landlord shall be controlled by Article XVI and XVII. Except as
provided in this Section 9.1 Landlord shall not be obligated to make repairs,
replacements or improvements of any kind upon the Premises, or to any equipment,
merchandise, stock in trade, facilities or fixtures therein, all of which shall
be Tenant's responsibility, but Tenant shall give Landlord prompt written notice
of any accident, casualty, damage or other similar occurrence in or to the
Premises or the Common Areas of which Tenant has knowledge.
Section 9.2. Maintenance by Tenant.
- ------------ ---------------------
Tenant shall at all times keep the Premises (including all entrances and
vestibules) and all partitions, window and window frames and mouldings, glass,
store fronts, doors, door openers, fixtures, equipment and appurtenances thereof
(including lighting, heating, electrical, plumbing, ventilating and air
conditioning fixtures and systems and other mechanical equipment and
appurtenances serving the Premises) and all parts of the Premises, and parts of
Tenant's Work not on the Premises, not required herein to be maintained by
Landlord, in good order, condition and repair and clean, orderly, sanitary and
safe, damage by unavoidable casualty excepted, (including but not limited to
doing such things as are necessary to cause the Premises to comply with
applicable laws, ordinances, rules, regulations and orders of governmental and
public bodies and agencies (not requiring structural repairs unless due to
Tenant's particular use of the Premises), such as but not limited to the
Williams-Steiger Occupational Safety and Health Act). If replacement of
equipment, fixtures and appurtenances thereto is necessary, Tenant shall replace
the same with new or
-13-
<PAGE>
completely reconditioned equipment, fixtures and appurtenances, and repair all
damages done in or by such replacement. If Tenant fails to perform its
obligations hereunder, Landlord without notice may, but shall not be obligated
to, perform Tenant's obligations or perform work resulting from Tenant's acts,
actions or omissions and add the cost of the same to the next installment of
Minimum Monthly Rent due hereunder to be repaid in full.
Section 9.3. Surrender of Premises.
- ----------- ---------------------
At the expiration or earlier termination of the Lease Term, Tenant shall
surrender the Premises in the same condition as they were required to be in on
the Required Completion Date, reasonable wear and tear and damage by unavoidable
casualty excepted, and deliver all keys for, and all combinations on locks,
safes and vaults in, the Premises to Landlord at Landlord's notice address as
specified in Section 24.7 or, at Landlord's option, to the office of the
Center's general manager.
ARTICLE X
---------
SIGNS, AWNINGS, CANOPIES, FIXTURES, ALTERATIONS
-----------------------------------------------
Section 10.1. Fixtures. INTENTIONALLY DELETED.
- ------------ --------
Section 10.2. Removal and Restoration by Tenant.
- ------------ ---------------------------------
All alterations, changes and additions and all improvements, including
leasehold improvements, made by Tenant, or made by Landlord on Tenant's behalf,
whether part of Tenant's Work or not and whether or not paid for wholly or in
part by Landlord, shall remain Tenant's property for the Lease Term. Any
alterations, changes, additions and improvements shall immediately upon the
termination of this Lease become Landlord's property, be considered part of the
Premises, and not be removed at or prior to the end of the Lease Term without
Landlord's written consent. If Tenant fails to remove any shelving, decorations,
equipment, trade fixtures or personal property from the Premises prior to the
end of the Lease Term, AND IF TENANT FAILS TO DO SO they shall become Landlord's
property and Tenant shall repair or pay for the repair of any damage done to the
Premises resulting from removing same but not for painting or redecorating the
Premises.
Section 10.3. Tenant's Liens.
- ------------ --------------
A. Tenant shall not suffer any mechanics' or materialmen's lien to
be filed against the Premises or the Center by reason of work, labor, services
or materials performed or furnished to Tenant or anyone holding any part of the
Premises under Tenant. Tenant agrees that it will make full and prompt payment
of all sums necessary to pay for the costs of all repairs and permitted
alterations, improvements, changes and other work done by or for the benefit of
Tenant in or to the Premises and further agrees to indemnify and save harmless
Landlord from and against any and all costs and liabilities incurred by Landlord
against any and all construction, mechanics', materialmen's laborers' and other
statutory or common law liens arising out of or from such work, or the cost
thereof, which may be asserted, claimed or charged against all or any part of
the Premises or the Center. Notwithstanding anything to the contrary set forth
in this Lease, the interest of Landlord in all or any part of the Premises or
the Center shall not be subject to any liens of any kind for improvements or
work made or done by or at the instance, or for the benefit, of Tenant
improvements or work made or done by or at the instance, or for the benefit, of
Tenant whether or not the same shall be made or done by or at the permission or
by agreement between Tenant and Landlord, and it is agreed that in no event
shall Landlord, or the interest of Landlord in the Premises or the Center, or
any portion thereof, be liable for or subjected to construction, mechanics',
materialmen's, laborers' or other statutory or common law liens for improvements
or work made or done by or at the instance of Tenant, or concerning which Tenant
is responsible for payment under the terms hereof or otherwise, and all persons
dealing with or contracting with Tenant or any contractor of Tenant are hereby
put on notice of these provisions. In the event any notice, claim or lien shall
be asserted or recorded against the interest of Landlord in the Premises or the
Center, or any portion thereof, on the account of or extending from any
improvement or work made or done by or at the instance, or for the benefit, of
Tenant, or any person claiming by, through or under Tenant, or from any
improvement or work the cost of which is the responsibility of Tenant, then
Tenant agrees to have such notice, claim or lien canceled, discharged, BONDED
OVER, released or transferred to other security in accordance with applicable
Nevada statutes within THIRTY (30) days after notice OF THE FILING THEREOF to
Tenant by Landlord, and in the event Tenant fails to do so, Tenant shall be
considered in default under this Lease with like effect as if Tenant shall have
failed to pay an installment of rent when due and within any applicable grace
period provided for the payment thereof. In the event of Tenant's failure to
release of record any such lien within the aforesaid period, Landlord may remove
said lien by paying the full amount thereof or by bonding or in any other manner
Landlord deems appropriate, without investigating the validity thereof, and
irrespective of the fact that Tenant may contest the propriety or the amount
thereof, and Tenant, upon demand, shall pay Landlord the amount so paid out by
Landlord in connection with the discharge of said lien, together with interest
thereon at the rate set forth in Section 4.2 herein and reasonable expenses
incurred in connection therewith, including reasonable attorneys' fees, which
amounts are due and payable to Landlord as additional rent on the first day of
the next following month. Nothing contained in this lease shall be construed as
a consent on the part of Landlord to subject Landlord's estate in the Premises
to any lien or liability under the lien laws of the State of Nevada. Tenant's
obligations to observe and perform any of the provisions of this Section 10.3
shall survive the expiration of the Lease Term or the earlier termination of
this Lease.
B. Tenant shall not create or suffer to be created a security
interest or other lien against any improvements, additions or other construction
made by Tenant in or to the Premises or against any equipment or fixtures
installed by Tenant therein (other than Tenant's property), and should any
security interest be created in breach
- 14 -
<PAGE>
of the foregoing, Landlord shall be entitled to discharge the same by exercising
the rights and remedies afforded it under paragraph A of this Section.
C. Upon Tenant's opening in the Premises, Tenant shall furnish to Landlord
lien waivers from the general contractor, sub-contractors and materialmen who
provided work, labor, services or material to Tenant in excess of $7500.00.
ARTICLE XI
----------
INSURANCE
---------
Section 11.1. By Landlord.
- ------------- -----------
Landlord shall carry public liability insurance on those portions of the
Common Areas included in the Center providing coverage of not less than
$5,000,000.00 against liability for bodily injury including death and personal
injury for any one (1) occurrence and $1,000,000.00 property damage insurance,
or combined single limit insurance in the amount of $5,000,000.00.
Landlord shall also carry insurance for fire, extended coverage, vandalism,
malicious mischief and other endorsements deemed advisable by Landlord, insuring
all improvements on the Center, including the Premises and all leasehold
improvements thereon and appurtenances thereto (excluding Tenant's merchandise,
trade fixtures, furnishings, equipment, personal property and excluding plate
glass) with full replacement cost endorsement with such deductibles as Landlord
deems advisable, such insurance coverage to include improvements provided by
Tenant as set forth in Exhibit "C" and "C-2" as Tenant's Work (excluding wall
covering, floor covering, carpeting and drapes) and Landlord's Work as defined
in Exhibit "C"; Tenant agrees to pay Landlord, as additional rent, the lesser of
(a) Tenant's pro rata share per year of the actual cost of Landlord's insurance
premiums for the insurance described above or (b) thirty cents (3Oc) per year
------------------
for each square foot of Store Floor Area payable in equal installments on the
first day of every calendar month during the Lease Term, as Tenant's share of
the cost of the premiums for such insurance described above in this sentence. At
the end of the first Partial Lease Year and each Lease Year thereafter, the
amount thus to be paid by Tenant shall be adjusted upward or downward in direct
ratio to the increase or decrease in the cost of the premiums paid by Landlord
for such insurance coverage.
Section 11.2. By Tenant.
- ------------- ---------
Tenant agrees to carry public liability insurance on the Premises during
the Lease Term, covering the Tenant and naming the Landlord, Ground Lessor and
Owner of the Hotel Parcel as an additional named insured with terms and
companies satisfactory to Landlord, for limits of not less than $5,000,000.00
for bodily injury, including death, and personal injury for any one (1)
occurrence, $1,000,000.00 property damage insurance or a combined single limit
of $5,000,000.00. Tenant's insurance will include contractual liability coverage
recognizing this Lease, products and completed operations liability and
providing that Landlord and Tenant shall be given a minimum of thirty (30) days
written notice by the insurance company prior to cancellation, termination or
change in such insurance. Tenant also agrees to carry insurance against fire and
such other risks as are from time to time required by Landlord, including, but
not limited to, a standard "All-Risk" policy of property insurance protecting
against all risk of physical loss or damage, including without limitation,
sprinkler leakage coverage and plate glass insurance covering all plate glass in
the Premises (including store fronts), in amounts not less than the actual
replacement cost, covering all of Tenant's merchandise, trade fixtures,
furnishing, wall covering, floor covering, carpeting, drapes, equipment and all
items of personal property of Tenant located on or within the Premises. Tenant
may self-insure for any loss or damage of the type covered by standard all risk
insurance with respect to Tenant's property described in the preceding sentence,
provided that the net worth of Tenant, or Tenant's parent is never less than
$8,000,000.00. Tenant shall provide Landlord with certificates or, at Landlord's
request, copies of the policies, evidencing that such insurance is in full force
and effect and stating the terms thereof. The minimum limits of the
comprehensive general liability policy of insurance shall in no way limit or
diminish Tenant's liability under Section 11.6 hereof and shall be subject to
increase every fifth (5th) year based on customary amounts of liability
insurance then maintained by tenants in the Las Vegas metropolitan area at any
time, and from time to time. Within ten (10) days after demand therefor by
Landlord, Tenant shall furnish Landlord with evidence that it has complied with
such demand.
Notwithstanding anything to the contrary contained within this Lease,
Tenant's obligation to carry the insurance provided herein may be maintained by
Tenant under a blanket policy or policies provided, however, that Landlord shall
be named as an additional named insured thereunder as its interest may appear
and that the minimum amount of total insurance afforded by such blanket policy
which shall be allocable to the Premises shall be no less than the amounts of
insurance required by this Section 11.2 and the protection afforded to Landlord
under such policy shall be no less than that which would have been afforded
under a separate policy or policies relating only to the Premises.
Section 11.3. Mutual Waiver of Subrogation Rights.
- ------------- ---------------- ------------------
Landlord and Tenant and all parties claiming under 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 on the Premises or in connection with property on or
activities conducted on the Premises to the extent of such insurance coverage or
required coverage, and waive any right of subrogation which might otherwise
exist in or accrue to any person on account thereof to the extent of such
insurance coverage or required coverage and evidence such waiver by endorsement
to the required insurance policies, provided that such release shall not operate
in any case where the effect is to invalidate or increase the cost of such
insurance coverage (provided, that
- 15-
<PAGE>
in the case of increased cost the other party shall have the right, within
thirty (30) days following written notice, to pay such increased cost, thereby
keeping such release and waiver in full force and effect).
Section 11.4. Waiver.
- ------------- ------
Unless caused by the negligence of Landlord, its agents or employees, or
the failure of Landlord to comply with any of its contractual obligations under
this Lease, Landlord, its agents and employees, shall not be liable for, and
Tenant waives all claims for, damage, including but not limited to consequential
damages, to person, property or otherwise, sustained by Tenant or any person
claiming through Tenant resulting from any accident or occurrence in or upon any
part of the Center including, but not limited to, claims for damage resulting
from: (a) any equipment or appurtenances becoming out of repair; (b) Landlord's
failure to keep any part of the Center in repair; (c) injury done or caused by
wind, water, or other natural element; (d) any defect in or failure of plumbing,
heating or air conditioning equipment, electric wiring or installation thereof,
gas, water, and steam pipes, stairs, porches, railings or walks; (e) broken
glass; (f) the backing up of any sewer pipe or downspout; (g) the bursting,
leaking or running of any tank, tub, washstand, water closet, waste pipe, drain
or any other pipe or tank in, upon or about the Premises; (h) the escape of
steam or hot water; (i) water, snow or ice upon the Premises; (1) the falling of
any fixture, plaster or stucco; (k) damage to or loss by theft or otherwise of
property of Tenant or others; (1) acts or omissions of persons in the Premises,
other tenants in the Center, occupants of nearby properties, or any other
persons; and (m) any act or omission of owners or occupants or occupants of
adjacent or contiguous property, or of Landlord, its agents or employees. All
property of Tenant kept in the Premises shall be so kept at Tenant's risk only
and Tenant shall save Landlord harmless from claims arising out of damage to the
same, including subrogation claims by Tenant's insurance carrier, unless caused
by the negligence of Landlord, its agents or employees.
Section 11.5. Insurance - Tenant's Operation.
- ------------- ------------------------------
Tenant will not do or suffer to be done anything which will contravene
Landlord's insurance policies or prevent Landlord from procuring such policies
in amounts and companies selected by Landlord. If anything done, omitted to be
done or suffered to be done by Tenant in, upon or about the Premises other than
that which is permitted to be done hereunder, shall cause the rates of any
insurance effected or carried by Landlord on the Premises or other property to
be increased beyond the regular rate from time to time applicable to the
Premises, Tenant will pay the amount of such increase promptly upon Landlord's
demand and Landlord shall have the right to correct any such condition at
Tenant's expense. In the event that this Lease so permits and Tenant engages in
the preparation of food or packaged foods or engages in the use, sale or storage
of inflammable or combustible material, Tenant shall install chemical
extinguishing devices (such as ansul) approved by Underwriters Laboratories and
Factory Mutual Insurance Company and the installation thereof must be approved
by the appropriate local authority. Tenant shall keep such devices under service
as required by such organizations. If gas is used in the Premises, Tenant shall
install gas cut-off devices (manual and automatic).
Section 11.6. Indemnification.
- ------- ----- ---------------
Tenant shall save harmless, indemnify (to the maximum extent permitted by
law), and at such indemnitee's option, defend Landlord, Ground Lessor, Owner of
the Hotel Parcel and their respective agents and employees, and mortgagees, if
any, from and against any and all liability, liens, claims, demands, damages,
expenses, fees (including attorneys' fees), costs, fines, penalties, suits,
proceedings, actions and causes of action of any and every kind and nature
arising or growing out of or in any way connected with Tenant's use, occupancy,
management or control of the Premises or Tenant's operations, conduct or
activities in the Center, unless due to the negligence of any of the
aforementioned parties, its agents or employees.
ARTICLE XII
------- ---
OFFSET STATEMENT, ATTORNMENT SUBORDINATION
------------------------------------------
Section 12.1. Offset Statement.
- ------------- ----------------
Within ten (10) days after Landlord's written request Tenant shall deliver,
executed in recordable form a declaration to any person designated by Landlord
(a) ratifying this Lease; (b) stating the commencement and termination dates;
and (c) certifying (i) that this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended (except by such writings as
shall be stated), (ii) that all conditions under this Lease to be performed by
Landlord have been satisfied (stating exceptions, if any), (iii) that no
defenses or offsets against the enforcement of this Lease by Landlord exist (or
stating those claimed): (iv) as to advance rent, if any, paid by Tenant, (v) the
date to which rent has been paid, (vi) as to the amount of security deposited
with Landlord, and such other information as Landlord reasonably requires.
Persons receiving such statements shall be entitled to rely upon them. Upon
request, Tenant shall be entitled to a reciprocal statement.
Section 12.2. Attornment.
- ------------- ----------
A. Tenant shall, in the event of a sale or assignment of Landlord's
interest in the Premises or the building in which the Premises is located or
this Lease or the Center, or if the Premises or such building comes into the
hands of a mortgagee or any other person whether because of a mortgage
foreclosure, exercise of a power of sale under a mortgage, or otherwise, attorn
to the purchaser or such mortgagee or other person and recognize the same as
Landlord hereunder. Tenant shall execute, at Landlord's request, any attornment
agreement required by any mortgagee or other such person to be executed,
containing such provisions as such mortgagee or other person requires.
B. In the event of a termination of the Ground Lease prior to the
expiration of the Lease Term (other than upon a termination by reason of
condemnation or the election of Landlord to terminate and not reconstruct as
- 16-
<PAGE>
provided in Article XVI hereof except a termination of the Ground Lease as a
result of condemnation or casualty and the election of Ground Lessor to
recognize this Lease), Tenant shall attorn to Ground Lessor or its successors or
assigns and then, provided that Tenant has so attorned, except as otherwise
provided herein, Ground Lessor shall recognize the attornment of Tenant and
thereby allow the continuation of this Lease in effect on the same terms and
conditions as set forth herein, but as a direct lease, subject to the payment,
when due, of all rentals payable for any period after termination of the Ground
Lease and compliance on the part of Tenant with each and every term and
condition of this Lease; provided however, that this Lease shall be in
compliance with the provisions of Section 12.8 of the Ground Lease and otherwise
permitted thereunder. Notwithstanding anything to the contrary contained herein:
(i) Ground Lessor shall not be required to recognize the attornment of any
tenant of the Shopping Complex under a lease not on an arm's length basis; (ii)
Ground Lessor shall not be liable or subject to offset for any matter accruing
prior to termination of the Ground Lease, (iii) Ground Lessor shall not be
required to recognize any prepaid rent, security deposits or other items except
to the extent actually received by Ground Lessor and in any event, not more than
one (1) month's rent, plus the Security Deposit, if any, not to exceed two (2)
months' rent, theretofore actually prepaid by Tenant to Landlord. Within ten
(10) days of any demand therefor by Ground Lessor, if Tenant is entitled to have
this Lease recognized by Ground Lessor, then Tenant will execute and deliver to
Ground Lessor and/or its designee, a recordable certificate stating that Tenant
has attorned to Ground Lessor, that attached thereto is a true, complete and
correct copy of this Lease, that this Lease is unmodified and in full force and
effect, such defenses or offsets as may be claimed by Tenant, if any, the date
to which all rentals have been paid, and such other information concerning this
Lease, the Premises and Tenant as Ground Lessor or its designee may request.
Ground Lessor's recognition of Tenant's attornment shall be conditioned upon
Tenant's compliance with all of the terms, covenants and conditions of this
Section 12.2. In the event that this Lease does not comply with the standards
herein for automatic recognition by Ground Lessor of Tenant's attornment, then
such attornment may be terminated by Ground Lessor without cause upon ninety
(90) days written notice given at any time after the date of the termination of
the Ground Lease.
Section 12.3. Subordination.
- ------------- -------------
A. Mortgage. This Lease shall be secondary, junior and inferior at all
--------
times to the lien of any mortgage and to the lien of any deed of trust or other
method of financing or refinancing (hereinafter collectively referred to as
"mortgage") now or hereafter existing against all or a part of the Center, and
to all renewals, modifications, replacements, consolidations and extensions
thereof, and Tenant shall execute and deliver all documents requested by any
mortgagee or security holder to effect such subordination, provided the
mortgagee or security holder agrees in writing that if Landlord defaults under
the mortgage, said mortgagee or security holder shall not disturb Tenant's
possession while Tenant is not in default hereunder. If Tenant fails to execute
and deliver any such document requested by a mortgagee or security holder to
effect such subordination, Landlord is hereby authorized to execute such
documents and take such other steps as are necessary to effect such
subordination on behalf of Tenant as Tenant's duly authorized irrevocable agent
and attorney-in-fact. If Landlord is unable to obtain a non-disturbance
agreement for Tenant on or before the date Landlord delivers possession of the
Premises to Tenant, then Tenant shall have the right, within thirty (30) days
after such delivery date, to terminate this Lease.
B. Construction, Operation and Reciprocal Easement Agreements. This
----------------------------------------------------------
Lease is subject and subordinate to one (1) or more construction, operation,
reciprocal easement or similar agreements (hereinafter referred to as "Operating
Agreements") including but not limited to the REA entered into or hereafter to
be entered into between Landlord and other owners or lessees of real estate
(including but not limited to owners and operators of department stores) within
or near the Center (which Operating Agreements have been or will be recorded in
the official records of the County wherein the Center is located) and to any and
all easements and easement agreements which may be or have been entered into
with or granted to any persons heretofore or hereafter, whether such persons are
located within or upon the Center or not, and Tenant shall execute such
instruments as Landlord requests to evidence such subordination.
Section 12.4. Ground Lease.
- ------------- ------------
Tenant acknowledges and agrees that this Lease is subject to the terms of
the Ground Lease, including, but not limited to, Section 5 with respect to the
use of the Center and in particular, Section 5.11 dealing with competing
businesses and Section 5.15 dealing with gaming. Tenant further agrees to comply
with and be bound by all of the terms, covenants and conditions of the Ground
Lease and in the event of any conflict between the terms and conditions of this
Lease on the one hand and those of the Ground Lease on the other, the terms and
conditions of the Ground Lease shall control. Landlord represents that the terms
of this Lease are not in conflict with the terms of the Ground Lease.
Section 12.5. Failure to Execute Instruments.
- ------------- ------------------------------
Tenant's failure to execute instruments or certificates provided for in
this Article XII within fifteen (15) days after the mailing by Landlord of a
written request shall be a default under this Lease.
ARTICLE XIII
-----------
ASSIGNMENT, SUBLETTING AND CONCESSIONS
--------------------------------------
Section 13.1. Consent Required.
- ------------- ----------------
Tenant shall not sell, assign, this Lease or any interest therein, nor
sublet all or any part of the Premises, nor license concessions nor lease
departments therein, without Landlord's prior written consent in each instance,
which consent shall not be unreasonably withheld or delayed. Consent by Landlord
to any assignment or subletting shall not waive the necessity for consent to any
subsequent assignment or subletting. This prohibition shall include a
prohibition against any subletting or assignment by operation of law. If this
Lease is assigned or the Premises or any part sublet or occupied by anybody
other than Tenant, Landlord may collect rent from the unauthorized assignee,
subtenant or occupant and apply the same to the rent herein reserved, but no
such
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<PAGE>
assignment, subletting, occupancy or collection of rent shall be deemed a waiver
of any restrictive covenant contained in this Section 13.1 or the acceptance of
the unauthorized assignee, subtenant or occupant as tenant, or a release of
Tenant from the performance by Tenant of any covenants on the part of Tenant
herein contained. Any assignment (a) as to which Landlord has consented; or (b)
which is required by reason of a final nonappealable order of a court of
competent jurisdiction; or (c) which is made by reason of and in accordance with
the provisions of any law or statute, including, without limitation, the laws
governing bankruptcy, insolvency or receivership shall be subject to all terms
and conditions of this Lease, and shall not be effective or deemed valid unless,
at the time of such assignment:
1. Each assignee or sublessee shall agree, in a written agreement
reasonably satisfactory to Landlord, to assume and abide by all of
the terms and provisions of this Lease except Tenant may propose
another "high end" use (other than the uses set forth in Section 8.1
or 8.3) to which Landlord will not unreasonably withhold or delay its
consent; and
2. Each assignee or sublessee has submitted a current financial
statement, audited by a certified public accountant, showing a net
worth and working capital in amounts determined by Landlord to be
reasonably sufficient to assure the future performance by such
assignee or sublessee of Tenant's obligations hereunder; and
3. Each assignee or sublessee has submitted, in writing, evidence
reasonably satisfactory to Landlord of substantial retailing
experience in shopping centers of comparable size to the Center and in
the sale of merchandise and services permitted under Article VIII of
this Lease; and
4. The business reputation of each assignee or sublessee shall meet or
exceed generally acceptable commercial standards; and
5. The use of the Premises by each assignee or sublessee shall not
violate, or create any potential violation of applicable laws, codes
or ordinances, nor violate any other agreements affecting the
Premises, Landlord or other tenants in the Center.
6. Tenant shall pay Landlord an Assignment Fee as reimbursement to
Landlord for administrative and legal expenses incurred by Landlord in
connection with any assignment or subletting. The Assignment Fee
initially will be One Thousand and 00/100 Dollars ($1,000.00) and
shall increase by One Hundred and 00/100 Dollars ($100.00) at the end
of each full Lease Year of the Lease Term.
In the event of any assignment or subletting as provided above, there shall
be paid to Landlord, in addition to the Minimum Annual Rent and other charges
due Landlord pursuant to this Lease, such additional consideration as shall be
attributable to the right of use and occupancy of the Premises, whenever the
same is receivable by Tenant, together with, as additional rent, fifty percent
(50%) of the excess, if any, of the rent and other charges payable by the
assignee or sublessee over the Minimum Annual Rent and other charges payable
under the Lease to Landlord by Tenant pursuant to this Lease after Tenant has
recouped all its expenses in connection therewith e.g. attorneys fees, brokerage
fees, advertising expenses, alterations and the unamortized value of Tenant's
leasehold improvements. Such additional rent shall be paid to Landlord
concurrently with the payments of Minimum Annual Rent required under this Lease,
and Tenant shall remain primarily liable for such payments. Notwithstanding any
assignment or subletting, Tenant shall remain fully liable on this Lease and for
the performance of all terms, covenants and provisions of this Lease.
Neither Tenant nor any other person having an interest in the possession,
use, occupancy or utilization of the Premises shall enter into any lease,
sublease, license, concession, assignment or other agreement for use, occupancy
or utilization for space in the Premises which provides for rental or other
payment for such use, occupancy, or utilization based in whole or in part on the
net income or profits derived by any person from the party leased, used,
occupied or utilized (other than an amount based on a fixed percentage or
percentages of receipts or sales), and that any such proposed lease, sublease,
license, concession, assignment or other agreement shall be absolutely void and
ineffective as a conveyance of any right or interest in the possession, use,
occupancy or utilization of any part of the Premises.
Section 13.2. Change in Ownership.
- ------------- -------------------
If Tenant or the guarantor of this Lease, if any, is a corporation the
stock of which is not traded on any national securities exchange (as defined in
the Securities Exchange Act of 1934, as amended) or over the counter, then the
following shall constitute an assignment of this Lease for all purposes of this
Article XIII: the sale, issuance, or transfer, cumulatively or in one
transaction, of any voting stock, by Tenant or the guarantor of this Lease or
the stockholders of record of either as of the date of this Lease, which results
in a change in the voting control of Tenant or the guarantor of this Lease,
except any such transfer by inheritance or testamentary disposition. If Tenant
or the guarantor of this Lease, if any, is a joint venture, partnership or other
association, then for all purposes of this Article XIII, the sale, issuance or
transfer, cumulatively or in one transaction, of either voting control or of a
twenty-five percent (25%) interest, or the termination of any joint venture,
partnership or other association, shall constitute an assignment, except any
such transfer by inheritance or testamentary disposition.
Notwithstanding anything to the contrary contained in this Article XIII,
Tenant shall have the right, without the necessity of obtaining Landlord's
consent, and without the following being deemed an assignment under this
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<PAGE>
Article (a) to make a public offering of the stock of Tenant or of any company
which directly or indirectly controls Tenant (b) to effect a merger,
consolidation or reorganization of Tenant and another corporation provided
that the surviving corporation has a net worth at least equal to Tenant's net
worth immediately prior to such merger, consolidation or reorganization.
Section 13.3. Restrictions on Assignment.
- ------------- --------------------------
Notwithstanding anything to the contrary contained herein in no event may
Tenant assign this Lease or allow the Premises to be used for the purpose of a
jewelry store (which includes any jewelry department with greater than 300
square feet of sales area), a Cartier store or a service establishment other
than a bank, shoe repair, travel agency, real estate agency or insurance agency.
Notwithstanding anything to the contrary contained herein, any assignment
or sublease of the Premises for the purpose of any restaurant other than a
Signature Restaurant (as defined herein) or a restaurant currently operated on
the Premises and permitted pursuant to the terms of this Lease shall be subject
to Ground Lessor's right of first negotiation contained in Section 5.13 of the
Ground Lease and shall not be effective without Landlord's and Ground Lessor's
prior written approval. A "Signature Restaurant" means a restaurant other than a
"fast food" chain, that is unique and/or not practicably capable of being
duplicated because of: (i) its existing highly favorable reputation; (ii) the
highly favorable reputation in the restaurant community of its chef, (iii) the
highly favorable reputation of the restaurant developer with either the
restaurant community or with a reasonably sophisticated public; or (iv) a
combination of elements that together would beneficially complement the aura of
the Center.
Section 13.4. Right of Recapture.
- ------------ ------------------
Tenant shall notify Landlord in writing (the "Availability Notice") if
Tenant wishes to assign this Lease or sublease all or any portion of the
Premises which Availability Notice shall contain, among other things, the date
Tenant anticipates that the assignment or sublease will take effect. If Tenant
does not give Landlord the Availability Notice before delivering a transfer
notice (a ""Transfer Notice"), the Transfer Notice shall also be the
Availability Notice. Landlord shall have the option, by written notice to Tenant
(the "Recapture Notice") given within ten (10) business days after receiving any
Availability Notice, to recapture the applicable portion of the Premises. A
timely Recapture Notice terminates this Lease and Tenant's obligations regarding
the recaptured portion of the Premises for the remaining term of this Lease as
of the date specified in the Availability Notice except for Tenant's obligations
incurred prior to the date specified in the Availability Notice. The Recapture
Notice shall be void, however, if Tenant notifies Landlord, within ten (10)
business days after receipt of the Recapture Notice, that Tenant withdraws the
Availability Notice or Transfer Notice. If Landlord declines or fails timely to
elect to recapture as provided above, Landlord shall have no right to recapture
the Premises unless Landlord receives a new Availability Notice, which new
Availability Notice shall be required if Tenant has failed to consummate an
assignment or sublease within a period of ninety (90) days from the date
specified in the prior Availability Notice. Either party may require written
confirmation of the amendments to this Lease necessitated by Landlord's
recapture.
If Landlord terminates this Lease as to only a portion of the Premises
pursuant to this Section 13.4, then the Minimum Annual Rent and additional rent
shall be adjusted by Landlord in proportion to the area of the Premises affected
by such partial termination. If Landlord exercises any its rights under this
Section 13.4, Landlord may thereafter lease the Premises or any portion thereof
to Tenant's proposed assignee or subtenant, as the case may be, without any
liability to Tenant. Landlord's rights under this Section 13.4 shall apply to
any further subletting or assignment notwithstanding Landlord's consent to any
proposed assignment or sublease. If Tenant subleases or assigns any interest in
the Premises without the consent of Landlord as required herein, Landlord shall
be entitled, without waiving any of Landlord's other rights or remedies
hereunder, to all economic consideration received by Tenant as a result thereof.
ARTICLE XIV
------- ---
MARKETING FUND AND ADVERTISING
------------------------------
Section 14.1. Provisions Relating to Marketing Fund. INTENTIONALLY DELETED.
- ------------- --------------------------------------
Section 14.2. Advertising. INTENTIONALLY DELETED.
- ------- ----- ------------
Section 14.3. Media Fund.
- ------- ----- ----------
Landlord may, at its option, create and maintain a Media Fund, the
exclusive purpose of which shall be to pay all costs and expenses associated
with the purchase of electronic, print or outdoor advertising for the promotion
of the Center. In the event Landlord does create and maintain the Media Fund,
Tenant agrees to contribute to such Fund, beginning upon the later to occur of
(a) the Commencement Date or (b) the date the Media Fund is created, a sum equal
to the greater of (a) $3.00 per square foot of Store Floor Area or (b)
-----
$2,000.00, during each calendar year of the Lease Term (hereinafter referred to
as "Media Fund Charge"), payable in equal monthly installments, in advance, on
the first day of each and every month (pro rated for partial months).
The Media Fund Charge shall be adjusted annually by a percentage equal to
the percentage increase or decrease in the electronic, print and outdoor
advertising rates of the media used for advertising and promotions in the
preceding calendar year in the media market in which the Center is located,
provided, however that said charge shall
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<PAGE>
not be less than as originally set forth herein. Within ninety (90) days
following the close of each calendar year. Landlord shall furnish Tenant a
statement for the preceding calendar year showing the amounts expended by
Landlord for media advertising. Landlord shall obtain Tenant's consent (which
may be withheld in its sole and absolute discretion) before using Tenant's
trade name and a brief description of Tenant's business in connection with any
media advertising purchased pursuant to this Section.
Section 14.4. Promotion.
- ------------- ----------
Tenant shall refer to the Center under the name "(The) Forum at Caesars" or
"Forum Shops at Caesars" as Landlord may elect (the "Name", except that should
Ground Lessor or any Affiliate or Ground Lessor delete the word "Caesars" from
the name of the Hotel, the new name of the Hotel shall be substituted for
"Caesars" in the Name) in designating the location of the Premises in all
newspaper and other advertising and in all other references to the location of
the Premises, and list this location first in such advertising and include in
all its newspaper advertising during the thirty (30) day period prior to the
Commencement Date the designation in bold type that the Tenant is opening for
business in the Center. Notwithstanding anything to the contrary contained
herein, Tenant may not use the name, picture or representation of the Hotel,
except that, to the extent that Ground Lessor has permitted the name of the
Hotel to be used as part of the Name, such name shall be used in referring to
the Center. The rights granted herein to the Name do not include the right to
use any of the "Caesars" trademarks and/or service marks, including but not
limited to "Caesars Palace," nor shall Tenant be permitted to use the Name in
any manner other than as the name and address of the Center. In particular, but
not by way of limitation, Tenant shall not have the right to use the Name to
market or make any product that has the Name on the product. The Caesar's logo
style, illustrated in Exhibit F attached hereto and made a part hereof, shall be
used by Tenant whenever Tenant is entitled to use the Name hereunder, except
that, when the Name is being used solely as an address, another style may be
used. However, the Greco-Roman style of such logo shall not otherwise be used by
Tenant except as part of the Name. All signage and literature of or on behalf of
Tenant using the Name shall be submitted to Landlord and Ground Lessor for their
prior written approval as to form and content, such approval to be at the
reasonable discretion of Landlord and Ground Lessor. Landlord and Ground Lessor
shall either approve such usage or provide the reasons for disapproval within
twenty (20) days of such submission. Landlord's and Ground Lessor's failure to
disapprove within such twenty (20) day period shall be deemed approval. Neither
Landlord nor Ground Lessor makes any representation of any kind and gives no
warranty of any kind, express or implied, as to the right of Tenant to use the
Name or any portion thereof. It is expressly agreed and understood by the
parties hereto that any claim by any third party regarding the Name shall be the
sole and complete responsibility of Tenant and neither Landlord nor Ground
Lessor shall have any obligation of any kind, including, but not limited to, any
obligation to defend Tenant or to assist Tenant in its defense of any action
with said third party. Further, Tenant shall have no rights to register the Name
or take any action against third parties regarding an alleged infringement of
the Name or any part thereof. The rights granted to Tenant pursuant to this
Section 14.4 shall terminate upon termination of the Ground Lease, the
expiration of the Lease Term or the earlier termination for breach of this Lease
or Landlord's cessation of the use of the Name or termination of Landlord's
right to use the Name as provided in the Ground Lease. The rights granted herein
shall not be assigned or sublicensed to any third party, other than in
accordance with the provisions of this Section 14.4 or to the assignee or
sublessee of Tenant's interest in this Lease pursuant to a permitted assignment
or sublease. Should Landlord or Ground Lessor reasonably determine that any
advertising by Tenant adversely affects the image, reputation or operation of
the Center or Hotel, or promotes any competitor of Ground Lessor or its
Affiliates in the gaming and/or hotel business, Tenant shall cease such
advertising promptly upon receipt of notice to do so from Landlord or Ground
Lessor. Tenant shall not use with respect to the Center a name the same or
substantially the same as a name then used by Ground Lessor or its Affiliates at
the Hotel (or any other facility owned and operated by Ground Lessor or its
Affiliates on June 30, 1989, which names are listed on Exhibit F attached hereto
and made a part hereof). The prohibitions set forth in this Section 14.4 are for
the benefit of and directly enforceable by Ground Lessor.
ARTICLE XV
----------
SECURITY DEPOSIT
----------------
Section 15.1. Amount of Deposit. INTENTIONALLY DELETED.
- ------------- ------------------
ARTICLE XVI
-----------
DAMAGE AND DESTRUCTION
----------------------
If the Premises are hereafter damaged or destroyed or rendered partially
untenantable for their accustomed use by fire or other casualty insured under
the coverage which Landlord is obligated to carry pursuant to Section 11.1
hereof, Landlord shall promptly repair the same to substantially the condition
which they were in immediately prior to the happening of such casualty
(excluding stock in trade, fixtures, furniture, furnishings, carpeting, floor
covering, wall covering, drapes, ceiling and equipment), and from the date of
such casualty until the Premises are so repaired and restored, the Minimum
Monthly Rent payments payable hereunder shall abate in such proportion as the
part of said Premises thus destroyed or rendered untenantable bears to the total
Premises; provided, however, that Landlord shall not be obligated to repair and
restore if such casualty is not covered by the insurance which Landlord is
obligated to carry pursuant to Section 11.1 hereof or is caused directly or
indirectly by the negligence of Tenant, its agents, employees and invitees and
no portion of the Minimum Monthly Rent and other payments payable hereunder
shall abate, and provided, further, that Landlord shall not be obligated to
expend for any repair or restoration an amount in
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<PAGE>
excess of the insurance proceeds recovered therefor, and provided, further, that
if the Premises be damaged, destroyed or rendered untenantable for their
accustomed uses by fire or other casualty to the extent of more than fifty
percent (50%) of the cost to replace the Premises during the last three (3)
years of the Lease Term, then Landlord or Tenant shall have the right to
terminate this Lease effective as of the date of such casualty by giving to the
other, within sixty (60) days after the happening of such casualty, written
notice of such termination. If such notice be given, this Lease shall terminate
and Landlord shall promptly repay to Tenant any rent theretofore paid in advance
which was not earned at the date of such casualty. Any time that Landlord
repairs or restores the Premises after damage or destruction, then Tenant shall
promptly repair or replace its stock in trade, fixtures, furnishings, furniture,
carpeting, wall covering, floor covering, drapes, ceiling and equipment to the
same condition as they were in immediately prior to the casualty, and if Tenant
has closed its business, Tenant shall promptly reopen for business upon the
completion of such repairs. If in the event of a fire or casualty Landlord fails
to repair and restore the Premises within ninety (90) days after the fire or
casualty, then Tenant may, as Tenant's sole remedy for failure to rebuild,
cancel and terminate this Lease at any time thereafter unless prior to the
exercise of such right by Tenant, Landlord substantially completes the repair or
restoration.
Notwithstanding anything to the contrary set forth herein, in the event all
or any portion of the Center shall be damaged or destroyed by the fire or other
cause (notwithstanding that the Premises may be unaffected thereby), to the
extent the cost of restoration thereof would exceed fifty percent (50%) of the
amount it would have cost to replace the Center in its entirety at the time such
damage or destruction occurred, then Landlord may terminate this Lease by giving
Tenant thirty (30) days prior notice of Landlord's election to do so, which
notice shall be given, if at all, within ninety (90) days following the date of
such occurrence. In the event of the termination of this Lease as aforesaid,
this lease shall cease thirty (30) days after such notice is given, and the rent
and other charges hereunder shall be adjusted as of that date.
ARTICLE XVII
------------
EMINENT DOMAIN
--------------
Section 17.1. Condemnation.
- ------------ ------------
If ten percent (10%) or more of the Store Floor Area or fifty percent (50%)
or more of the Center shall be acquired or condemned by right of eminent domain
for any public or quasi public use or purpose, or if an Operating Agreement is
terminated as a result of such an acquisition or condemnation, then Landlord or
Tenant at its election may terminate this Lease by giving notice to the other of
its election, and in such event rentals shall be apportioned and adjusted as of
the date of termination. If the Lease shall not be terminated as aforesaid, then
it shall continue in full force and effect, and Landlord shall within a
reasonable time after possession is physically taken (subject to delays due to
shortage of labor, materials or equipment, labor difficulties, breakdown of
equipment, government restrictions, fires, other casualties or other causes
beyond the reasonable control of Landlord) repair or rebuild what remains of the
Premises for Tenant's occupancy; and a just proportion of the Minimum Annual
Rent shall be abated, according to the nature and extent of the injury to the
Premises until such repairs and rebuilding are completed, and thereafter for the
balance of the Lease Term.
Section 17.2. Damages.
- ------------ -------
Landlord reserves, and Tenant assigns to Landlord, all rights to damages on
account of any taking or condemnation or any act of any public or quasi public
authority for which damages are payable. Tenant shall execute such instruments
of assignment as Landlord requires, join with Landlord in any action for the
recovery of damages, if requested by Landlord, and turn over to Landlord any
damages recovered in any proceeding. If Tenant fails to execute instruments
required by Landlord, or undertake such other steps as requested, Landlord shall
be deemed the duly authorized irrevocable agent and attorney-in-fact of Tenant
to execute such instruments and undertake such steps on behalf of Tenant.
However, Landlord does not reserve any damages payable for trade fixtures
installed by Tenant at its own cost which are not part of the realty or for
moving expenses or for the unamortized value of Tenant's leasehold improvements.
ARTICLE XVIII
-------------
DEFAULT BY TENANT
-----------------
Section 18.1. Right to Re-Enter.
- ------------ -----------------
The following shall be considered for all purposes to be defaults under and
breaches of this Lease: (a) any failure of Tenant to pay any rent or other
amount within ten (10) days after written notice that the same is past due
hereunder; (b) any failure by Tenant to perform or observe any other of the
terms, provisions, conditions and covenants of this Lease for more than ten (10)
days after written notice of such failure or such additional time as is
reasonably required provided Tenant promptly commences to cure and diligently
pursues the same to completion; (c) a determination by Landlord that Tenant has
submitted any intentionally and willfully false report required to be furnished
hereunder; (d) anything done by Tenant upon or in connection with the Premises
or the construction of any part thereof which directly or indirectly interferes
in any way with, or results in a work stoppage in connection with, construction
of any part of the Center or any other tenant's space; (e) if Tenant abandons or
vacates or does not do business in the Premises when required to do so under
this Lease for more
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<PAGE>
than ten (10) consecutive business days, or (f) this Lease or Tenant's interest
herein or in the Premises or any improvements thereon or any property of Tenant
are executed upon or attached; or (g) the Premises come into the hands of any
person other than expressly permitted under this Lease. In any such event, and
with ten (10) days grace period, Landlord, in addition to all other rights or
remedies it may have, shall have the right thereupon or at any time thereafter
to terminate this Lease, and shall have the right, either before or after any
such termination, to re-enter and take possession of the Premises, remove all
persons and property from the Premises, store such property at Tenant's expense,
and sell such property if necessary to satisfy any deficiency in payments by
Tenant as required hereunder, all with notice but without process if tenant has
vacated the premises.
Section 18.2. Right to Relet.
- ------------ --------------
If Landlord re-enters the Premises as above provided, or if it takes
possession pursuant to legal proceedings or otherwise, it may either terminate
this Lease, but Tenant shall remain liable for all obligations arising during
the balance of the original stated term as hereafter provided as if this Lease
had remained in full force and effect, or it may, from time to time, without
terminating this Lease, make such alterations and repairs as it deems advisable
to relet the Premises, and relet the Premises or any part thereof for such term
or terms (which may extend beyond the Lease Term) and at such rentals and upon
such other terms and conditions as Landlord in its sole discretion deems
advisable; upon each such reletting all rentals received by Landlord therefrom
shall be applied, first, to any indebtedness other than rent due hereunder from
Tenant to Landlord; second, to pay any costs and expenses of reletting,
including brokers and attorneys' fees and costs of alterations and repairs;
third, to rent due hereunder, and the residue, if any, shall be held by
Landlord and applied in payment of future rent as it becomes due hereunder.
If rentals received from such reletting during any month are less than that
to be repaid during that month by Tenant hereunder, Tenant shall immediately pay
any such deficiency to Landlord. No re-entry or taking possession of the
Premises by Landlord shall be construed as an election to terminate this Lease
unless a written notice of such termination is given by Landlord.
Notwithstanding any such reletting without termination, Landlord may at any
time thereafter terminate this Lease for any prior breach or default. If
Landlord terminates this Lease for any breach, or otherwise takes any action on
account of Tenant's breach or default hereunder, in addition to any other
remedies it may have, it may recover from Tenant all damages incurred by reason
of such breach or default, including deficiency in rent, expenses of repairing
the Premises to their condition as of the commencement date, reasonable
attorneys' fees, all of which shall be immediately due and payable by Tenant to
Landlord. In determining the rent payable by Tenant hereunder subsequent to
default, the Minimum Annual Rent for each year of the unexpired portion of the
Lease Term shall equal the average Minimum Annual and Percentage Rents which
Tenant was obligated to pay from the commencement of the Lease Term to the time
of default, or during the preceding three (3) full calendar years, whichever
period is shorter. Landlord shall use reasonable efforts to mitigate its damages
hereunder.
Section 18.3. Counterclaim.
- ------------ ------------
If Landlord commences any proceedings for non-payment of rent (Minimum
Annual Rent, Percentage Rent or additional rent), Tenant will not interpose any
counterclaim of any nature or description in such proceedings. This shall not,
however, be construed as a waiver of Tenant's right to assert such claims in a
separate action brought by Tenant. The covenants to pay rent and other amounts
hereunder are independent covenants and Tenant shall have no right to hold back,
offset or fail to pay any such amounts for default by Landlord or any other
reason whatsoever, it being understood and acknowledged by Tenant that Tenant's
only recourse is to seek an independent action against Landlord.
Section 18.4. Waiver of Rights of Redemption. INTENTIONALLY DELETED.
- ------------ ------------------------------
Section 18.5. Waiver of Trial by Jury.
- ------------ -----------------------
To the extent permitted by applicable law, Tenant hereby waives trial by
jury in any action, proceeding or counterclaim brought by either party against
the other on any matter whatsoever arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant created hereby, Tenant's use
or occupancy of the Premises or any claim or injury or damage.
Section 18.6. Bankruptcy.
- ------------ ----------
A. Assumption of Lease. In the event Tenant shall become a Debtor
-------------------
under Chapter 7 of the Bankruptcy Code ("Code") or a petition for reorganization
or adjustment of debts is filed concerning Tenant under Chapters 11 or 13 of the
Code, or a proceeding is filed under Chapter 7 and is transferred to Chapters 11
or 13, the Trustee or Tenant,
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<PAGE>
as Debtor and as Debtor-In-Possession, may not elect to assume this Lease
unless, at the time of such assumption, the Trustee or Tenant has:
1. Cured or provided Landlord "Adequate Assurance" (as defined below)
that:
(a) Within ten (10) days from the date of such assumption the
Trustee or Tenant will cure all monetary defaults under this
Lease and compensate Landlord for any actual pecuniary loss
resulting from any existing default, including without
limitation, Landlord's reasonable costs, expenses, accrued
interest as set forth in Section 4.2 of the Lease, and
attorneys' fees incurred as a result of the default;
(b) Within thirty (30) days from the date of such assumption the
Trustee or Tenant will cure all non-monetary defaults under this
Lease capable of being cured within such time frame; and
(c) The assumption will be subject to all of the provisions of this
Lease.
2. For purposes of this Section 18.6, Landlord and Tenant acknowledge
that, in the context of a bankruptcy proceeding of Tenant, at a
minimum "Adequate Assurance" shall mean:
(a) The Trustee or Tenant has and will continue to have sufficient
unencumbered assets after the payment of all secured obligations
and administrative expenses to assure Landlord that the Trustee
or Tenant will have sufficient funds to fulfill the obligations
of Tenant under this Lease, and to keep the Premises stocked
with merchandise and properly staffed with sufficient employees
to conduct a fully-operational, actively promoted business in
the Premises; and
(b) The Bankruptcy Court shall have entered an Order segregating
sufficient cash payable to Landlord and/or the Trustee or Tenant
shall have granted a valid and perfected first lien and security
interest and/or mortgage in property of Trustee or Tenant
acceptable as to value and kind to Landlord, to secure to
Landlord the obligation of the Trustee or Tenant to cure the
monetary and/or non-monetary defaults under this Lease within
the time periods set forth above; and
(c) The Trustee or Tenant at the very least shall deposit a sum, in
addition to the Security Deposit, equal to one (1) month's rent
to be held by Landlord (without any allowance for interest
thereon) to secure Tenant's future performance under the Lease.
B. Assignment of Lease. If the Trustee or Tenant has assumed the Lease
-------------------
pursuant to the provisions of this Section 18.6 for the purpose of assigning
Tenant's interest hereunder to any other person or entity, such interest may be
assigned only after the Trustee, Tenant or the proposed assignee have complied
with all of the terms, covenants and conditions of Section 13.1 herein,
including, without limitation, those with respect to additional rent and the use
of the Premises only as permitted in Article VIII herein; Landlord and Tenant
acknowledging that such terms, covenants and conditions are commercially
reasonable in the context of a bankruptcy proceeding of Tenant. Any person or
entity to which this Lease is assigned pursuant to the provisions of the Code
shall be deemed without further act or deed to have assumed all of the
obligations arising under this Lease on and after the date of such assignment.
Any such assignee shall upon request execute and deliver to Landlord an
instrument confirming such assignment.
C. Adequate Protection. Upon the filing of a petition by or against Tenant
-------------------
under the Code, Tenant, as Debtor and as Debtor-in-Possession, and any Trustee
who may be appointed agree to adequately protect Landlord as follows:
(1) To perform each and every obligation of Tenant under this Lease until
such time as this Lease is either rejected or assumed by Order of the
Bankruptcy Court; and
(2) To pay all monetary obligations required under this Lease, including
without limitation, the payment of Minimum Monthly Rent, and such
other additional rent charges payable hereunder which is considered
reasonable compensation for the use and occupancy of the Premises; and
(3) Provide Landlord a minimum 30 days prior written notice, unless a
shorter period is agreed to in writing by the parties, of any
proceeding relating to any assumption of this Lease or any intent to
abandon the Premises, which abandonment shall be deemed a rejection of
this Lease; and
(4) To perform to the benefit of Landlord otherwise required under the
Code.
The failure of Tenant to comply with the above shall result in an automatic
rejection of this Lease.
D. Accumulative Rights. The rights, remedies and liabilities of Landlord
-------------------
and Tenant set forth in this Section 18.6 shall be in addition to those which
may now or hereafter be accorded, or imposed upon, Landlord and Tenant by the
Code.
-23-
<PAGE>
ARTICLE XIX
-----------
DEFAULT BY LANDLORD
-------------------
Section 19.1. Default Defined. Notice.
Landlord in no event be charged with default in any of its obligations
hereunder unless and until Landlord shall have failed to perform such
obligations within thirty (30) days (or such additional time as is reasonably
required to correct any such default) after written notice as set forth in
Section 24.7 to Landlord by Tenant, specifically describing such failure.
Section 19.2. Notice to First Mortgagee.
If the holder of the first mortgage covering the Premises shall have given
written notice to Tenant of the address to which notices to such holder are to
be sent, Tenant shall hive such holder written notice simultaneously with any
notice given to Landlord of any default of Landlord, and if Landlord fails to
cure any default asserted in said notice within the time provided above, Tenant
shall notify such holder in writing of the failure to cure, and said holder
shall have the right but not the obligation, within thirty (30) days after
receipt of such second notice, to cure such default before Tenant may take any
action by reason of such default.
ARTICLE XX
----------
TENANT'S PROPERTY
-----------------
Section 20.1. Taxes on Leasehold.
Tenant shall be responsible for and shall pay before delinquent all
municipal, county, federal or state taxes whether enacted now or in the future
coming due during or after the Lease Term against Tenant's interest in this
Lease or against personal property of any kind owned or placed in, upon or about
the Premises by Tenant.
Section 20.2. Assets of Tenant
Tenant shall have the right to grant purchase money security interests in
its furniture, fixtures, equipment and other personal property.
ARTICLE XXI
-----------
ACCESS BY LANDLORD
------------------
Section 21.1. Right of Entry.
Landlord and Ground Lessor and their agents and employees shall have the
right to enter the Premises from time to time at reasonable times upon twenty-
four (24) hours prior written notice, including but not limited to, the right of
immediate entry at any time in the case of an emergency or to protect access to
the Hotel, to examine the same and show them to prospective purchasers and other
persons and to post notices as Landlord or Ground Lessor may deem reasonably
necessary or appropriate for protection of Landlord or Ground Lessor, their
interests or the Premises. Landlord and Ground Lessor and their respective
agents and employees shall have the further right to enter the Premises from
time to time at reasonable times upon twenty-four (24) hours prior written
notice to make such repairs, alterations, improvements or additions to the
Premises or other portions of the Center or Hotel Parcel as Landlord or the
Ground Lessor deems desirable. Rent shall not abate while any such repairs,
alterations, improvements, or additions are being made, provided, however,
Landlord shall use reasonable efforts to minimize interference with Tenant's
business. During the six (6) months of the Lease Term, Landlord may exhibit the
Premises to prospective tenants. In addition, during any apparent emergency,
Landlord, Ground Lessor or their agents may enter the Premises forcibly without
liability therefor and without in any manner affecting Tenant's obligations
under this Lease. Nothing herein contained, however, shall be deemed to impose
upon Landlord any obligation, responsibility or liability whatsoever, for any
care, maintenance or repair except as otherwise herein expressly provided or to
impose upon Ground Lessor any obligation, responsibility or liability
whatsoever, for any care, maintenance or repair.
-24-
<PAGE>
ARTICLE XXII
------- ----
HOLDING OVER, SUCCESSORS
------------------------
Section 22.1. Holding Over.
- ------------- ------------
If Tenant holds over or occupies the Premises beyond the Lease Term (it
being agreed there shall be no such holding over or occupancy without Landlord's
written consent), Tenant shall pay Landlord for each day of such holding over a
sum equal to the greater of (a) twice the Minimum Monthly Rent prorated for the
number of days of such holding over, or (b) Minimum Annual Rent plus Percentage
Rent prorated for the number of days of such holding over, plus, whichever of
(a) or (b) is applicable, a prorata portion of all other amounts which Tenant
would have been required to pay hereunder had this Lease been in effect. If
Tenant holds over with or without Landlord's written consent Tenant shall occupy
the Premises on a tenancy at sufferance but all other terms and provisions of
this Lease shall be applicable to such period.
Section 22.2. Successors.
- ------------- ----------
All rights and liabilities herein given to or imposed upon the respective
parties hereto shall bind and inure to the several respective heirs, successors,
administrators, executors and assigns of the parties and if Tenant is more than
one (1) person, they shall be bound jointly and severally by this Lease except
that no rights shall inure to the benefit of any assignee or subtenant of Tenant
unless the assignment or sublease was approved by Landlord in writing as
provided in Section 13.1 hereof. Landlord, at any time and from time to time,
may make an assignment of its interest in this Lease and, in the event of such
assignment, Landlord and its successors and assigns (other than the assignee of
Landlord's interest in this Lease) shall be released from any and all liability
thereafter accruing hereunder.
ARTICLE XXIII
------- -----
QUIET ENJOYMENT
---------------
Section 23.1. Landlord's Covenant.
- ------------- -------------------
If Tenant pays the rents and other amounts herein provided, observes and
performs all the covenants, terms and conditions hereof, Tenant shall peaceably
and quietly hold and enjoy the Premises for the Lease Term without interruption
by Landlord or any person or persons claiming by, through or under Landlord,
subject, nevertheless, to the terms and conditions of this Lease, the Ground
Lease, and any Operating Agreement made between Landlord and persons owning or
occupying all or any portion of the Adjacent Land or any buildings adjacent to
the Center.
ARTICLE XXIV
------------
MISCELLANEOUS
-------------
Section 24.1. Waiver.
- ------------ ------
No waiver by Landlord or Tenant of any breach of any term, covenant or
condition hereof shall be deemed a waiver of the same or any subsequent breach
of the same or any other term, covenant or condition. The acceptance of rent by
Landlord shall not be deemed a waiver of any earlier breach by Tenant of any
term, covenant or condition hereof, regardless of Landlord's knowledge of such
breach when such rent is accepted. No covenant, term or condition of this Lease
shall be deemed waived by Landlord or Tenant unless waived in writing.
Section 24.2. Accord and Satisfaction.
- ------------- -----------------------
Landlord is entitled to accept, receive and cash or deposit any payment
made by Tenant for any reason or purpose or in any amount whatsoever, and apply
the same at Landlord's option to any obligation of Tenant and the same shall not
constitute payment of any amount owed except that to which Landlord has applied
the same. No endorsement or statement on any check or letter of Tenant shall be
deemed an accord and satisfaction or otherwise recognized for any purpose
whatsoever. The acceptance of any such check or payment shall be without
prejudice to Landlord's right to recover any and all amounts owed by Tenant
hereunder and Landlord's right to pursue any other available remedy.
Section 24.3. Entire Agreement.
- ------- ----- ----------------
There are no representations, covenants, warranties, promises, agreements,
conditions or undertakings, oral or written, between Landlord and Tenant other
than herein set forth. Except as herein otherwise provided, no subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
Landlord or Tenant unless in writing, signed by them and approved by Landlord's
mortgagee.
Section 24.4. No Partnership.
- ------------- --------------
Landlord does not, in any way or for any purpose, become a partner,
employer, principal, master , agent or joint venturer of or with Tenant.
Section 24.5. Force Majeure.
- ------- ----- ----- -------
If either party hereto shall be delayed or hindered in or prevented from
the performance of any act required hereunder by reason of strikes, lockouts,
labor troubles, inability to procure material, failure of power, restrictive
governmental laws or regulations, riots, insurrection, war or other reason of a
like nature not the fault of the party
-25 -
<PAGE>
delayed in performing work or doing acts required under this Lease, the period
for the performance of any such act shall be extended for a period equivalent to
the period of such delay. Notwithstanding the foregoing, the provisions of this
Section 24.5 shall at no time operate to excuse Tenant from the obligation to
open for business on the Commencement Date, except in the event of an industry
wide strike, nor any obligations for payment of Minimum Annual Rent, Percentage
Rent, additional rent or any other payments required by the terms of this Lease
when the same are due, and all such amounts shall be paid when due.
Section 24.6. Submission of Lease
------------- -------------------
Submission of this Lease to Tenant does not constitute an offer to lease;
this Lease shall become effective only upon execution and delivery thereof by
Landlord and Tenant. The effective date of this Lease shall be the date filled
in on Page 1 hereof by Landlord, which shall be the date of execution by the
last of the parties to execute the Lease.
Section 24.7. Notices.
- ------------- -------
All notices from Tenant to Landlord required or permitted by any provision
of this agreement shall be directed to Landlord as follows:
FORUM DEVELOPERS LIMITED PARTNERSHIP
c/o M.S. Management Associates Inc.
National City Center
115 W. Washington Street
Indianapolis, Indiana 46204
Prior to the Commencement Date such notices shall only be effective if
given to Landlord at the address shown above and to Landlord at the address
shown below:
FORUM DEVELOPERS LIMITED PARTNERSHIP
c/o M.S. Management Associates Inc.
Construction Department
National City Center
115 W. Washington Street
Indianapolis, Indiana 46204
All notices from Landlord to Tenant required or permitted hereunder shall
be directed as follows, namely:
ST. JOHN KNITS
2722 Michelson Drive
Irvine, California 92612
All notices from Tenant to Ground Lessor required or permitted hereunder
shall be directed, until further notice, as follows:
Caesars Palace Realty Corp.
1801 Century Park East, Suite 2600
Los Angeles, California 90067
Attn: General Counsel
All notices to be given hereunder by any person shall be written and sent
by registered or certified mail, return receipt requested, postage pre-paid or
by an express mail delivery service, addressed to the person intended to be
notified at the address set forth above. Any person may, at any time, or from
time to time, notify the other persons named herein in writing of a substitute
address for that above set forth, and thereafter notices shall be directed to
such substitute address. Notice given as aforesaid shall be sufficient service
thereof and shall be deemed given as of the date received, as evidenced by the
return receipt of the registered or certified mail or the express mail delivery
receipt, as the case may be. A duplicate copy of all notices from Tenant shall
be sent to any mortgagee as provided for in Section 19.2.
Section 24.8. Captions and Section Numbers.
- ------------- -----------------------------
This Lease shall be construed without reference to titles of Articles and
Sections, which are inserted only for convenience of reference.
Section 24.9. Number and Gender.
- ------------- -----------------
The use herein of a singular term shall include the plural and use of the
masculine, feminine or neuter genders shall include all others.
Section 24.10. Objection to Statements.
- -------------- -----------------------
Notwithstanding the provisions of Section 24.1, Tenant's failure to object
to any statement, invoice or billing rendered by Landlord within a period of
ninety (90) days after receipt thereof shall constitute Tenant's acquiescence
with respect thereto and shall render such statement, invoice or billing an
account stated between Landlord and Tenant.
-26-
<PAGE>
Section 24.11. Representation by Corporate Tenant.
If Tenant is or will be a corporation, the persons executing this Lease on
behalf of Tenant hereby covenant and warrant that Tenant is a duly qualified
corporation authorized to do business in the State of Nevada, that all franchise
and corporate taxes have been paid to date and all future forms, reports, fees
and other documents necessary to comply with applicable laws will be filed when
due, and the person signing this Lease on behalf of the corporation is an
officer of Tenant, and is duly authorized to sign and execute this Lease.
Section 24.12. Joint and Several Liability.
If Tenant is a partnership or other business organization the members of
which are subject to personal liability, the liability of each such member
shall be deemed to be joint and several.
Section 24.13. Limitation of Liability.
Anything to the contrary herein notwithstanding, no general or limited
partner of the Landlord, or any general or limited partner of any partner of the
Landlord, or any shareholder of any corporate partner of any partner of the
Landlord, or any other holder of any equity interest in the Landlord, or in any
entity comprising the Landlord or its partners, shall be personally liable with
respect to any of the terms, covenants, conditions and provisions of this Lease,
or the performance of Landlord's obligations under this Lease, nor shall
Landlord or any of said constituent parties have any liability to Tenant for any
consequential damages such as, but not limited to, lost profits. The liability
of Landlord for Landlord's obligations under this Lease shall be limited to
Landlord' interest in the Center, and Tenant shall look solely to the interest
of Landlord, its successors and assigns, in the Center, for the satisfaction of
each and every remedy of Tenant against Landlord. Tenant shall not look to any
of Landlord's other assets seeking either to enforce Landlord's obligations
under this Lease, or to satisfy any money or deficiency judgment for Landlord's
failure to perform such obligations, such exculpation of personal liability is
and shall be absolute and without any exception whatsoever.
The term "Landlord" shall mean only the owner at the time in question of
the present Landlord's interest in the Center. In the event of a sale or
transfer of the Center (by operation of law or otherwise) or in the event of the
making of a lease of all or substantially all of the Center, or in the event of
a sale or transfer (by operation of law or otherwise) of the leasehold estate
under any such lease, the grantor, transferor or lessor, as the case may be,
shall be and hereby is (to the extent of the interest or portion of the Center
or leasehold estate sold, transferred or leased) automatically and entirely
released and discharged, from and after the date of such sale, transfer or
leasing of all liability with respect of the performance of any of the terms of
this Lease on the part of Landlord thereafter to be performed; provided that the
purchaser, transferee or lessee (collectively, "Transferee") shall be deemed to
have assumed and agreed to perform, subject to the limitations of this Section
(and without further agreement between the other parties hereto, or among such
parties and the Transferee) and only during and in respect of the Transferee's
period of ownership of the Landlord's interest under this Lease, all of the
terms of this Lease on the part of Landlord to be performed during such period
of ownership, it being intended that Landlord's obligations hereunder shall, as
limited by this Section, be binding on Landlord, its successors and assigns only
during and in respect of their respective, successive periods of ownership.
Section 24.14. Broker's Commission.
Each party represents and warrants that it has caused or incurred no claims
for brokerage commissions or finder's fees in connection with the execution of
this Lease, and each party shall indemnify and hold the other harmless against
and from all liabilities arising from any such claims caused or incurred by it
(including without limitation, the cost of attorney's fees in connection
therewith).
Section 24.15. Partial Invalidity.
If any provision of this Lease or the application thereof to any person or
circumstance shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such provision to persons or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby and each provision of this Lease shall be valid and enforceable
to the fullest extent permitted by law.
Section 24.16. Applicable Law.
This Lease shall be construed under the laws of the State of Nevada.
Section 24.17. Mortgagee's Approval.
If any mortgagee of the Center requires any modification of the terms and
provisions of this Lease as a condition to such financing as Landlord may
desire, then Landlord shall have the right to cancel this Lease if Tenant fails
or refuses to approve and execute such modification(s) within thirty (30) days
after Landlord's request therefor, provided said request is made at least thirty
(30) days prior to delivery of possession. Upon such cancellation by Landlord,
this Lease shall be null and void and neither party shall have any liability
either for damages or otherwise to the other by reason of such cancellation. In
no event, however, shall Tenant be required to agree, and Landlord shall not
have any right of cancellation for Tenant's refusal to agree, to any
modification of the provisions of this Lease relating to: the amount of rent or
other charges reserved herein; the size and/or location of the Premises; the
duration and/or Commencement Date of the Lease Term; or reducing the
improvements to be made by Landlord to the Premises prior to delivery of
possession.
Section 24.18. Reservation of Air Rights.
There has been no representation or warranty by the Landlord and Tenant
acknowledges that there is no inducement or reliance to lease the Premises on
the basis that the existing access to light, air and views from the Premises
would continue unabated. Tenant acknowledges and understands that it shall have
no rights to the airspace above the Premises and the Center and those rights
shall be the sole property of Landlord. Landlord shall not have the right to
construct, cause to be constructed or permit the construction of mezzanines over
the Premises.
-27-
<PAGE>
Section 24.19. Delay in Delivery.
Notwithstanding anything to the contrary contained in this Lease, Landlord
shall not be liable in any manner to Tenant for damages or any other claim
resulting from failure to deliver the Premises or for any delay in commencing or
completing any work Landlord is to perform or is authorized by Tenant to perform
under Exhibit "C", or with respect to the Center, and Tenant hereby waives all
such liability provided that in the event that the Commencement Date shall not
have occurred within three (3) years after the effective date of this Lease
(unless such failure shall be due to Tenant's fault), then this Lease shall
automatically become null and void (except that items which have been
theretofore accrued and not yet paid shall remain outstanding), and both parties
hereto shall be relieved of all obligations hereunder, in which event each party
will, at the other's request, execute an instrument in recordable form
containing a release and surrender of all right, title and interest in and to
this Lease.
Section 24.20. Unrelated Business Taxable Income.
A. If at any time and from time to time during the term of this
Lease, Landlord is advised by its counsel or counsel to a tax exempt partner of
the managing partner of Landlord that any provision of this Lease, including
without limitation the provisions relating to the payment of rent and additional
rent, or the absence of any provision might give rise to unrelated business
taxable income within the meaning of sections 512 of the Internal Revenue Code
of 1986, as amended, or the regulations issued thereunder, or may jeopardize the
tax-exempt status of any partner in Landlord or any partner in a partnership
that is a partner in Landlord, or may prevent any such partner from obtaining
such tax-exempt status, then this Lease may be unilaterally amended by Landlord
in such manner as shall meet the requirements specified by counsel for Landlord
and Tenant agrees that it will execute all documents or instruments necessary to
effect such amendments, provided that no such amendment shall result in Tenant
having to pay in the aggregate more on account of its occupancy of the Premises
than it would be required to pay under the terms of this Lease, or having to
receive fewer services or services of lesser quality than it is presently
entitled to receive under the Lease or to change its business operations at the
premises.
B. Any services which Landlord is required to furnish pursuant
to the provisions of this Lease may, at Landlord's option, be furnished from
time to time, in whole or in part, by employees of Landlord or the managing
agent of the Project or its employees or by one or more third persons hired by
Landlord of the managing agent of the Project. Tenant agrees that upon
Landlord's written request it will enter into direct agreements with the
managing agent of the Project or other parties designated by Landlord for the
furnishing of any such services required to be furnished by Landlord herein, in
form and content approved by Landlord, provided, however, that no such contract
shall result in Tenant having to pay in the aggregate more money on account of
its occupancy of the Premises under the terms of this Lease, or having to
receive fewer services or services of a lesser quality than it is presently
entitled to receive under this Lease or to change its business operations at
the premises.
Section 24.21. Contingency. INTENTIONALLY DELETED.
Section 24.22. Prior Lease.
Landlord and Tenant acknowledge a lease dated January 15, 1992 covering
Room G-22 (approximately 1,654 square feet) in the Forum at Caesars Shopping
Center between Tenant and Landlord. Landlord and Tenant agree that the lease
dated January 15, 1992 will automatically terminate and be of no further effect
on the earlier of (i) the commencement date of this Lease, or (ii) May 1, 1998
provided that such May 1, 1998 shall be extended day for day for each day after
January 7, 1998 that Landlord has not made the Premises available to Tenant for
commencement of Tenant's work. Tenant shall vacate Room G-22 on such applicable
date.
Section 24.23. Most Favored Nations Clause.
Notwithstanding anything contained in this lease to the contrary, Tenant's
charge on a per square foot basis for real estate taxes under Section 4.5, HVAC
plant charge under Section 7.2, common area costs under Section 6.2, insurance
under section 11.1, marketing fund and media fund under Article XIV shall be no
greater than the lowest charge on a per square foot basis for such items
assessed to any other tenant in the Center occupying the same or a lesser square
footage as the Premises.
-28-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease
as of the day and year first above written.
(LANDLORD)
FORUM DEVELOPERS LIMITED PARTNERSHIP, a
Nevada Limited Partnership
By: SDG FORUM ASSOCIATES, LIMITED
PARTNERSHIP, a Delaware Limited
Partnership, General Partner
By: SDG FORUM DEVELOPERS, INC., a
Delaware Corporation, General Partner
By: /s/ DAVID SIMON
------------------------------------
David Simon, Chief Executive Officer
(TENANT) ST. JOHN KNITS, INC.
If Corporation
By: /s/ DAN DEMILLE
------------------------------
Attest: /s/ MARYLEA ALEXANDER
--------------------------
-29-
<PAGE>
FORUM AT CAESARS
EXHIBIT "A"
THAT PORTION OF LOT ONE(1) OF CAESARS PALACE, A COMMERCIAL SUBDIVISION OF A
PORTION OF SECTIONS 16, 17, 20, AND 21, TOWNSHIP 21 SOUTH, RANGE 61 EAST,
M.D.M., CLARK COUNTY, NEVADA, AS SHOWN BY MAP THEREOF, RECORDED MAY 30, 1990, IN
BOOK 46, PAGE 22 OF PLATS, IN THE OFFICE OF THE CLARK COUNTY RECORDER, CLARK
COUNTY, NEVADA, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHEAST CORNER (SE COR) OF THE SOUTHEAST QUARTER (SE 1/4) OF
SAID SECTION 17; THENCE NORTH 01 DEGREE 13'O4" WEST, ALONG THE EASTERLY LINE
THEREOF, 1318.54 FEET TO THE NORTHEAST CORNER (NE COR) OF THE SOUTHEAST QUARTER
(SE 1/4) OF THE SOUTHEAST QUARTER (SE 1/4) THEREOF; THENCE CONTINUING ALONG SAID
EAST LINE NORTH 01 DEGREE 13'13" WEST, 310.27 FEET; THENCE NORTH 88 DEGREES
48'56" WEST, ALONG A LINE BEING PARALLEL WITH AND 310.00 FEET NORTH (MEASURED AT
RIGHT ANGLES) FROM THE NORTH LINE OF THE SOUTH HALF (S 1/2) OF THE SOUTHEAST
QUARTER (SE 1/4) OF SAID SECTION 17, A DISTANCE OF 197.00 FEET TO THE POINT OF
--------
BEGINNING; THENCE SOUTH 12 DEGREES 56'31" EAST, 195.40 FEET; THENCE SOUTH 43
- ---------
DEGREES 10'41" EAST, 4.40 FEET; THENCE SOUTH 48 DEGREES 16'53" WEST, 266.67
FEET; THENCE NORTH 41 DEGREES 43'O7" WEST, 37.49 FEET; THENCE NORTH 88 DEGREES
23'56" WEST, 146.68 FEET; THENCE SOUTH 01 DEGREE 36'04" WEST, 77.25 FEET; THENCE
NORTH 88 DEGREES 23' 56" WEST, 23.67 FEET; THENCE SOUTH 01 DEGREE 36'04" WEST,
23.23 FEET; THENCE NORTH 85 DEGREES 36'32" WEST, 62.08 FEET; THENCE SOUTH 01
DEGREE 36'04" WEST, 119.26 FEET; THENCE SOUTH 71 DEGREES 41'31" WEST, 171.29
FEET; THENCE SOUTH 81 DEGREES 17'01" WEST, 67.95 FEET; THENCE NORTH 18 DEGREES
18'28" WEST, 31.33 FEET; THENCE NORTH 34 DEGREES 37'32" WEST, 62.24 FEET; THENCE
NORTH 18 DEGREES 18'28" WEST, 166.68 FEET; THENCE NORTH 63 DEGREES 18'28" WEST,
67.75 FEET; THENCE SOUTH 71 DEGREES 41'32" WEST, 14.09 FEET; THENCE SOUTH 16
DEGREES 18'08" WEST, 38.57 FEET; THENCE NORTH 88 DEGREES 48'56" WEST, 598.04
FEET; THENCE NORTH 01 DEGREE 11'04" EAST, 379.01 FEET; THENCE SOUTH 88 DEGREES
48'56" EAST, 254.00 FEET; THENCE SOUTH 01 DEGREE 11'04" WEST, 62.00 FEET; THENCE
SOUTH 88 DEGREES 48'56" EAST, 234.00 FEET; THENCE NORTH 01 DEGREE 11'04" EAST,
29.69 FEET; THENCE SOUTH 88 DEGREES 48'56" EAST, 131.74 FEET; THENCE SOUTH 57
DEGREES 10'29" EAST, 33.19 FEET; THENCE NORTH 71 DEGREES 41'32" EAST, 173.83
FEET; THENCE SOUTH 63 DEGREES 18'28" EAST, 63.64 FEET; THENCE NORTH 71 DEGREES
41'32" EAST, 124.75 FEET; THENCE NORTH 01 DEGREE 36'04" EAST 30.67 FEET; THENCE
SOUTH 88 DEGREES 23'56" EAST, 155.90 FEET; THENCE NORTH 01 DEGREE 36'04" EAST,
21.08 FEET; THENCE SOUTH 88 DEGREES 48'56" EAST, 299.93 FEET TO THE POINT OF
--------
BEGINNING.
- ---------
CONTAINING 12.9809 ACRES MORE OR LESS
PAGE 1
<PAGE>
[SITE PLAN FOR THE FORUM SHOPS AT CAESARS]
EXHIBIT "A"
PAGE 2
<PAGE>
FORUM AT CAESARS
EXHIBIT "A-1"
CAESARS PALACE, A COMMERCIAL SUBDIVISION OF A PORTION OF SECTIONS 16, 17, 20 AND
21, T.21 S., R. 61 E., M.D.M., CLARK COUNTY, NEVADA. AS SHOWN BY MAP THEREOF,
RECORDED MAY 30, 1990, IN BOOK 46, PAGE 22 OF PLATS, OFFICIAL RECORDS, OFFICE OF
THE CLARK COUNTY RECORDER, CLARK COUNTY, NEVADA, EXCEPTING THEREFROM THE REAL
PROPERTY DESCRIBED IN EXHIBIT A.
EXHIBIT "A-1"
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[SITE PLAN FOR CAESARS PALACE FORUM EXPANSION PLAN]
EXHIBIT "B"
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DESCRIPTION OF LANDLORD'S WORK AND OF TENANT'S WORK
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1. WORK BY LANDLORD AT LANDLORD'S EXPENSE - The following work is to be
performed exclusively by Landlord at Landlord's sole expense:
A. COMMON AREA. This may include, without limitation, the sidewalks,
parking areas, access roads, driveways, landscaped areas (interior and
exterior), truck serviceways, pedestrian bridges, interior corridors,
loading areas, the enclosed mall, all seating areas, courts, stairs,
ramps, elevators, escalators, comfort and first-aid stations, public
restrooms, retaining walls, drainage systems, water and sewage
systems, trash disposal facilities, and lighting facilities designated
by Landlord as part of Common Area.
B. STRUCTURE. The structural framing, columns, beams and roof deck shall
be constructed of non-combustible framing in accordance with national,
state and local building codes.
C. ROOF. The roof assembly shall consist of a weather-resistant layer,
thermal insulation and structural components.
D. EXTERIOR WALLS. Exterior walls shall be of non-combustible
construction and a finish of suitable nature and/or appropriate
materials having a finished appearance and decorative quality designed
by Landlord's Architect.
E. CEILINGS. The Premises will be left open to the structural systems
overhead. Public areas in the Center will be provided with either
acoustical lay-in ceiling, finished drywall or other surface as
determined by Landlord. Service areas may be exposed to structure.
F. UTILITIES. Subject to the provisions of Article VII of the Lease to
which this Exhibit is attached:
1. HVAC Systems. A heating, ventilating and/or air-conditioning
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system will be provided for the Common Area with a closed loop
water system for Tenant areas.
2. Plumbing. Sanitary sewer and domestic water will be installed at
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a point to be determined by Landlord.
3. Fire Protection. A fire protection system will be installed for
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the Common Area with capacity to service tenant areas.
4. Natural Gas. A distribution system will be installed for food
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service process loads at point(s) to be determined by Landlord.
5. Electrical Service. An electrical distribution system will be
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installed at building locations as determined by Landlord.
6. Communication Services. Communication and broadcast/data
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communication services will be provided to specified building
locations as determined by Landlord.
7. Life Safety Systems. A life safety system will be provided for
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the Common Area with the capacity to service tenant areas.
EXHIBIT "C"
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II. WORK BY LANDLORD AT TENANT'S EXPENSE - The following work is to be
performed by the Landlord at Tenant's expense, the estimated cost of which
is set forth in the Schedule of Costs attached hereto as Exhibit "C-1".
A. FLOOR SLAB. A reinforced concrete slab will be provided for
approximately the first two feet of the space. Uncompacted granular
fill shall be provided for the balance of the space.
B. PARTITIONS AND DOORS. Partitions, which may include doors, shall be
provided to define the Premises.
1. Demising. These partitions shall extend from the floor slab to
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the underside of the deck, shall be of exposed studs, and the
cost of providing and installing such assemblies shall be
reimbursed at a rate of one-half (l/2) Landlord's cost.
2. Common Area Separation. These partitions shall extend from the
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floor slab to the underside of the deck, shall be of exposed
masonry, or shall be of metal studs with a finished surface on
the Common Area side at Landlord's option.
3. Storefront Separation. Landlord may be required by code or local
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governing ordinances to install some portion of the storefront
partition separating the Premises from Common Area prior to
delivery of the space to Tenant for completion of Tenant's Work.
4. Doors. Landlord shall have the right to install a door and frame
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with construction hardware.
C. NEUTRAL PIER. A vertical neutral pier may be installed at the
storefront line between stores. One neutral pier may be charged to
each tenant.
D. UTILITIES AND SERVICES. Subject to the provisions of Article VII of
the Lease to which this Exhibit is attached:
1. HVAC Systems. Closed-loop supply and return tap(s) may be
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installed with connection identified as applicable. Smoke
evacuation system will be installed. A toilet exhaust system will
be installed to serve areas without direct roof access or to
minimize roof access with connection point identified as
applicable.
2. Plumbing. A master sanitary vent system may be installed to serve
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areas without direct roof access with connection point identified
as applicable.
3. Fire Protection. An automatic fire sprinkler system based on a
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standard grid will be installed throughout the Premises in
compliance with the requirements of Factory Mutual Engineering,
local and state agencies.
4. Electrical Service. Electrical conduit (without wire) will be
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installed to the Premises and electrical switch at Landlord's
distribution panel and meter will be provided.
5. Communication Services. Empty conduit for communication services
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shall be stubbed into only landlocked tenant spaces from nearest
service corridor.
E. STOREFRONT BARRICADES. Landlord shall have the right to install the
temporary storefront or barricade shielding the interior of the
Premises from the Mall.
EXHIBIT "C"
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III. WORK BY TENANT AT TENANT'S EXPENSE - The following work required to
complete and place the Premises in finished condition ready to open for
business is to be performed by the Tenant at the Tenant's own expense and
shall be in addition to any work described in the Tenant Information
Handbook. Tenant's Work includes, but is not limited to, the following:
A. GENERAL PROVISIONS: All work done by Tenant shall be governed in all
respects by, and be subject to the following:
1. Payment and Performance Bonds. Landlord shall have the right to
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require Tenant to furnish payment and performance bonds or other
security in form satisfactory to Landlord for the prompt and
faithful performance of Tenant's Work, assuring completion of
Tenant's Work and conditioned that Landlord will be held harmless
from payment of any claim either by way of damages or liens on
account of bills for labor or material in connection with Tenant's
Work.
2. Tenant's Work Standards. All Tenant's Work shall conform to
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applicable statutes, ordinances, regulations, codes, all
requirements of Factory Mutual Insurance Company, all rating
bureaus, and the Tenant Information Handbook which contains the
basic architectural, electrical and mechanical information
necessary for the preparation of Tenant's Plans, and which by this
reference is incorporated into and made a part of this Lease.
Tenant shall obtain and convey to Landlord all approvals, tests,
and inspections with respect to electrical, HVAC, plumbing and
telephone work, all as may be required by any agency or utility
company. Landlord reserves the right to require changes in
Tenant's Work when necessary by reason of the aforementioned
standards.
3. Landlord Approvals. No approval by Landlord shall be deemed valid
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unless in writing and signed by Landlord.
4. Space Verification. Tenant shall be obligated to have its
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architect, store planner, engineer or contractor conduct an on-
site verification of all dimensions and field conditions prior to
proceeding with Tenant's Work.
5. Insurance Requirements. Prior to commencement of Tenant's Work
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and until completion thereof, or commencement of the Lease Term,
whichever is the last to occur, Tenant shall effect and maintain
Builder's Risk Insurance covering Landlord, Landlord's general
contractor, Tenant, Tenant's contractors and Tenant's
subcontractors, as their interest may appear against loss or
damage by fire, vandalism and malicious mischief and such other
risks as are customarily covered by a standard "All Risk" policy
of insurance protecting against all risk of physical loss or
damage to all Tenant's Work in place and all materials stored at
the site of Tenant's Work, and all materials, equipment, supplies
and temporary structures of all kinds incidental to Tenant's Work,
and equipment, all while forming a part of or contained in such
improvements or temporary structures, or while on the Premises or
within the Center, all to the actual replacement cost thereof at
all times on a completed value basis. In addition, Tenant agrees
to indemnify and hold Landlord harmless against any and all claims
for injury to persons or damage to property by reason of the use
of the Premises for the performance of Tenant's Work, and claims,
fines, and penalties arising out of any failure of Tenant or its
agents, contractors and employees to comply with any law,
ordinance, code requirement, regulations or other requirement
applicable to Tenant's Work and Tenant agrees to require all
contractors and subcontractors engaged in the performance of
Tenant's Work to effect and maintain and deliver to Tenant and
Landlord, certificates evidencing the existence of, and covering
Landlord, Tenant and Tenant's contractors, prior to commencement
of Tenant's Work and until completion thereof, the following
insurance coverages:
a. Workmen's Compensation and Occupational Disease Insurance in
accordance with laws of the State in which the property is
located and Employer's Insurance to the limit of $100,000.00.
b. Commercial General Liability Insurance affording protection
for bodily injury, death, personal injury and property
damage, and including coverage for contractual liability,
independent contractors, completed operations and products
liability with limits of not less than $3,000,000.00 combined
single limit per occurrence.
c. Comprehensive Automobile Liability Insurance, including
coverage for "nonowned" automobiles, for property damage,
bodily injury, including death resulting therefrom with
limits of not less than $1,000,000.00 for any one occurrence
combined single limit.
d. Owners and Contractors Protective Liability coverage for an
amount not less than $1,000,000.00.
EXHIBIT "C"
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6. Tenant agrees that the contract of every contractor, subcontractor,
mechanic, journeyman, laborer, material supplier or other person or entity
performing labor upon, or furnishing materials or equipment to, the
Premises in connection with Tenant's Work shall contain the following
provision:
"Contractor acknowledges that this provision is required under Tenant's
lease of the premises to be improved under this Contract (Lease Premises)
from Forum Developers Limited Partnership (Lease). In consideration of
Tenant's engagement of Contractor to perform the work hereunder, and as an
inducement to Tenant to enter into this Contract with Contractor,
Contractor acknowledges, covenants and agrees that any mechanic's lien
which it may hereafter file, claim, hold or assert with respect to the work
hereunder (i) shall attach only to Tenant's interest in the Lease Premises
under the Lease and (ii) shall be subject, subordinate and inferior to the
lien of any mortgage(s) now or hereafter held upon and against the Forum
Developers Limited Partnership by any lender(s) now or hereafter providing
funds for the financing for the Forum Developers Limited Partnership,
notwithstanding that any such mortgage(s) may be recorded after the
commencement of the work hereunder and that Contractor's mechanic's lien
otherwise might be entitled to priority over any such mortgage(s). For such
purposes, Contractor also shall execute, acknowledge and deliver a separate
subordination agreement upon request by Tenant, Forum Developers Limited
Partnership, or any such lender(s), prior to making any application or
request for payment hereunder and as a condition precedent to Contractor's
right to receive any payment hereunder. Contractor likewise shall cause the
liens and lien rights of all subcontractors, sub-subcontractors,
materialmen, suppliers, laborers and all other persons furnishing work,
labor, materials, equipment and services on or in connection with the Lease
Premises to be limited to the Tenant's interest in the Lease Premises under
the Lease and to be subordinated to such mortgage(s), and Contractor shall
obtain and deliver to Tenant a similar subordination agreement duly
executed and acknowledged by each such subcontractor, sub-subcontractor,
materialman, supplier, laborer and other person prior to making any
application or request for payment hereunder and as a condition precedent
to Contractor's right to receive any payment hereunder. Contractor shall
indemnify, defend and hold harmless Tenant, Forum Developers Limited
Partnership, Forum Developers' lessor, the Owner of Caesars Palace Hotel
and such lender(s) from and against any and all loss, costs, damage,
expense (including, without limitation, reasonable attorney fees),
liability, suits, actions and judgments arising or resulting from
Contractor's failure to cause all such mechanic's and materialmen's liens
to be limited to Tenant's interest in the Lease Premises under the Lease
and to be subordinated to said mortgage(s) as herein provided, in addition
to all other indemnities contained herein with respect to such liens."
Tenant shall indemnify, defend and hold harmless Landlord, Ground Lessor,
the Owner of the Hotel Parcel and such lender(s) from and against any and
all loss, costs, damage, expense (including, without limitation, reasonable
attorney fees), liability, suits, action and judgments arising or resulting
from Tenant's failure to cause all such mechanic's and materialmen's liens
to be limited to Tenant's interest in the Premises under this Lease and to
be subordinated to said mortgage(s) as herein provided, in addition to all
other indemnities contained herein with respect to such liens.
7. If Landlord or Ground Lessor in the sole and absolute discretion of either
of them determines that the Center, the Hotel or the Adjacent Land or the
businesses conducted thereon would otherwise be adversely affected, any or
all work shall be done by recognized union labor.
8. Damage Deposit. Prior to commencement of construction in the Premises,
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Tenant or its agent shall deliver a $1,000.00 damage deposit in the form of
a cashier's check made payable to Forum Developers Limited Partnership.
Landlord shall have the right to use all or any part of said damage deposit
as reimbursement for any damage caused by Tenant or its contractors to any
mall finishes.
9. Temporary Services. Any temporary services required by Tenant during its
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construction period, including, but not limited to, HVAC, plumbing,
electrical service, security, and dumpster service for trash removal shall
be secured by Tenant or Tenant's agent at $1.76 per square foot of the
Premises.
10. Impact Fees. Tenant shall pay impact fees assessed by applicable
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governmental authorities having jurisdiction or reimburse Landlord for
impact fees paid on the Tenant's behalf.
11. Construction Rules. Tenant will abide by and cause its contractors,
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subcontractors, agents and employees to abide by rules and regulations
published by Landlord from time to time, including, but not limited to,
those pertaining to parking, toilet facilities, safety conduct, delivery of
materials and supplies, employee egress to the Center, trash storage or
collection or removal, and cooperation with Landlord's architect, general
contractor and subcontractors or other agents.
EXHIBIT "C"
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12. Reasonable Easement. Landlord specifically reserves the rights (and
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Tenant shall permit Landlord or its employees, agents or contractors
reasonable access to the Premises for the purpose of exercising such
rights), to install, maintain, repair and replace in the ceiling space
and/or under the concrete slab in the Premises, all such electrical,
plumbing, HVAC and other system components that may be required to
service the Common Areas or other tenants in the Center. Adequate
access panels or doors shall be incorporated into Tenant's Work for
inspection, service and replacement of both Landlord and Tenant
equipment.
B. STORE DESIGN AND CONSTRUCTION. This shall include, without limitation,
design and consulting fees, storefront and signing, interior partitions,
all interior finishes, visual merchandising and fixturing, furnishings and
equipment, lighting, plumbing, HVAC, mechanical and electrical systems
interface, all as described herein and in the Tenant Information Handbook.
In connection with Tenant's Work, Tenant shall file all drawings, plans and
specifications, pay all fees and obtain all permits and applications from
applicable governmental authorities having jurisdiction.
1. Architectural Theme. Design guidelines will be enforced to maintain
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the integrity of the architectural theme of the Common Area.
2. Roof. Tenant shall provide any required supports, blocking,
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temporary flashing, counterflashing or other work necessary to
complete installation of Tenant's equipment on Landlord's roof. Cant
strips and weatherproofing shall be done only by contractor designated
by Landlord. Tenant will be required to supplement existing
construction to achieve assembly ratings, thermal values or additional
criteria as required by Tenant's Work.
3. Floor Slab. Where required, tenants shall provide 3000 PSI concrete
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slab with welded wire mesh reinforcing.
4. Ceiling. All interior finishes beyond the exposed structural system
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will be installed by Tenant. Ceilings may be required by the Landlord
to maintain assembly ratings and building system functions.
5. Walls and Doors. Tenant shall furnish and install 5/8" fire-rated
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gypsum board, taped, floated, airtight against the deck above on the
interior of all common partitions in the Premises. Where required by
Landlord, Tenant shall provide transfer air openings to match the
rating of the partition. All other interior partitions in the Premises
shall be constructed of non-combustible materials in accordance with
applicable code requirements. Where required, Tenant shall provide
and install an exit door with hardware to Landlord's specifications
between the Premises and Common Area or to the service courts. Tenant
will be responsible for repair, maintenance and replacement of exit
doors from the time Tenant's contractor commences Tenant's Work in the
Premises. If panic hardware is required, it shall be provided by
Tenant.
6. Utilities and Services. Tenant is responsible for all connections to
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the following utilities to make a complete, approved and operating
system:
a. HVAC System. Tenant will provided a water-source heat pump or
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condenser water air conditioning unit. The system shall include
toilet, process, kitchen and thermal exhaust.
b. Plumbing. Tenant will complete waste, grease waste, water and
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vent systems utilizing Landlord-supplied utilities.
c. Fire Protection. Modifications to the automatic fire sprinkler
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system will be performed by contractor designated by Landlord.
This work may include, but not be limited to, the cost of
relocating, re-sizing, adding sprinkler mains or heads, draining
the system and fire watch during system down-time.
d. Natural Gas. If available, gas will be used only for food
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service process loads. Tenant shall make all necessary
arrangements for service to the Premises and complete the
installation.
e. Electrical. Tenant shall furnish and pull required wiring in
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empty conduit provided by Landlord to a specified electrical
room. Tenant shall install all electrical improvements within
the Premises. Tenant shall employ contractor designated by
Landlord to complete all connections to Landlord switchgear and
for fuse installation. Tenant shall furnish the required fuse.
Tenant shall provide necessary components and devices so that
HVAC systems may be interlocked with Landlord's energy management
system.
EXHIBIT "C"
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f. Communication Services. Tenant shall make all necessary
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arrangements with available vendor(s) for communication services
to the Premises. Special applications will require Landlord's
written approval prior to proceeding with the work.
g. Life Safety Systems. Tenant shall provide all required life
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safety system components necessary to comply with code and
complete Landlord's monitoring and alarm systems. Installations
shall be performed by contractor designated by Landlord.
7. Special Equipment. Tenant shall provide, as required, alarm systems
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or other protective devices, public address system, conveyors, time
clocks, delivery door buzzers, fire extinguishers, dry chemical fire
protection systems or any other equipment peculiar to Tenant's
business needs.
8. Signing. Tenant will not erect any signs except in conformity with the
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following:
a. Tenant's signs and graphics shall be located within the limits of
the storefront, shall not project more than six inches beyond the
Lease Line, and shall not exceed eighteen-inches in height.
b. Decals or graphics on storefront glass subject to the approval of
Landlord.
c. Promotional paper items such as signs, stickers, banners or
flags, are prohibited.
d. Except as otherwise approved in writing by Landlord, only one
storefront identification sign for Tenant will be permitted with
the enclosed mall areas, except that corner tenants may have two
such signs.
e. Tenant shall not install any roof-top sign or pylon signs.
C. CLOSE-OUT REQUIREMENTS. Tenant's Work shall be deemed completed at such
time as Tenant, at its sole expense and without cost to Landlord, shall
provide:
1. Proof of Payment. Furnish evidence satisfactory to Landlord that
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all of Tenant's Work has been completed and paid for in full (and that
such work has been accepted by Landlord), including the costs for
Tenant's Work that may have been done by Landlord and the costs for
any other work done by Landlord which Landlord may be entitled to
payment in accordance with the provisions of this Exhibit "C", the
Tenant Information Handbook, or elsewhere in the Lease, that any and
all liens therefor that have been or might be filed have been
discharged of record or waived, and that no security interests
relating thereto are outstanding.
2. Tenant's Affidavit. Furnish an affidavit from Tenant listing all
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contractors and any material suppliers in the employ of said Tenant
who have provided goods or services for the completion of Tenant's
Work in the Premises.
3. Tenant Contractor's Affidavit. Furnish an affidavit from Tenant's
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general contractor listing all parties who have furnished materials or
labor or services to that contractor for completion of Tenant's Work
in the Premises.
4. Certificate of Occupancy. Furnish all certificates and other
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approvals with respect to Tenant's Work that may be required from any
governmental authority and any board of fire underwriter's or similar
body for the use and occupancy of the Premises.
5. Record Drawings. Furnish Landlord with one set of reproducible record
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drawings of the Premises showing any changes made during construction.
6. Estoppel Certificate. Furnish a Tenant-executed estoppel certificate
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as may be required by Landlord or Landlord's mortgagee.
EXHIBIT "C"
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<PAGE>
FORUM SHOPS EXPANSION
Las Vegas, Nevada
LIST OF TENANT CHARGEBACKS - AS OF MAY 24, 1995
$15.00/S.F.
(Items and price per square foot subject to change.)
A. Electrical Conduit (labor and material)
Empty conduit sized to accommodate copper conductors of an ampacity based
upon Tenant's electrical load calculations. Electrical conduit from
Landlord distribution panel and stubbed to tenant space including hangers
and fittings.
B. Electrical Switch/Fuse
Electrical switch/fuse disconnects installed by Landlord in Landlord
distribution panel. Final electrical connection to be performed by
Landlord at Tenant's cost. Sized to accommodate Tenant's electrical load
calculations.
C. Telephone Conduit
3/4" empty conduit installed to "landlocked" Tenant space (space not
adjacent to a service corridor or outside wall). Tenant shall provide
additional work required to complete phone installation.
D. Fire Protection
Building sprinkler system installed in Tenant spaces by Landlord at a
standard grid spacing of 130 s.f. per head or in a spacing as determined
by Landlord's insurer. All revisions to system by Tenant.
E. Mechanical Chase
Chase for toilet exhaust, plumbing vents, and make-up air intake installed
to "landlocked" Tenant space (space not adjacent to roof, corridor or
outside wall). Chase shall be of metal studs to roof deck with a finished
surface on the common area (interior) side only.
F. Exterior Tenant Doors
Doors for Tenants penetrating an exterior wall.
G. Demising Partitions
Metal stud demising walls 6" 20 ga o.c. installed to roof deck - no
drywall.
H. Neutral Piers
A decorative neutral pier shall be installed between Tenant spaces.
I. Concrete Floor Slabs
4" granular fill - no slab shall be provided.
J. Temporary Board-Ups
Temporary barricade in front of unoccupied Tenant spaces 3 5/8" metal
studs @ 24" o.c. with 1/2" drywall taped, finished, and painted. 4"
painted wood base will be applied.
K. Fire Separation at Storefront
Fire/smoke drywall separation wall above Tenant storefront from bulkhead
to underside of deck - as required by code.
L. Gas Line (Restaurant Tenants Only)
Gas line from Landlord distribution point and stubbed to Tenant space.
EXHIBIT "C-1"
<PAGE>
RULES AND REGULATIONS
1. Tenant shall advise and cause its vendors to deliver all merchandise before
noon on Mondays through Fridays, not at other times.
2. All deliveries are to be made to designated service or receiving areas and
Tenant shall request delivery trucks to approach their service or receiving
areas by designated service routes and drives.
3. Tractor trailers which must be unhooked or parked must use steel plates
under dolly wheels to prevent damage to the asphalt paving surface. In
addition, wheel blocking must be available for use. Tractor trailers are to
be removed from the loading areas after unloading. No parking or storing of
such trailers will be permitted in the Center.
4. Except for small parcel packages, no deliveries will be permitted through
the malls unless Tenant does not have a rear service door. In such event,
prior arrangements must be made with the Resident Mall Supervisor for
delivery. Merchandise being received shall immediately be moved into
Tenant's Premises and not be left in the service or receiving areas.
5. Tenant is responsible for storage and removal of its trash, refuse and
garbage. Tenant shall not dispose of the following items in drains, sinks
or commodes: plastic products (plastic bags, straws, boxes); sanitary
napkins; tea bags; cooking fats, cooking oils; any meat scraps or cutting
residue; petroleum products (gasoline, naptha, kerosene, lubricating oils);
paint products (thinner, brushes); or any other item which the same are not
designed to receive. All Store Floor Area of Tenant, including vestibules,
entrances and returns, doors, fixtures, windows and plate glass, shall be
maintained in a safe, neat and clean condition.
6. Other than as permitted under the provisions of Exhibit "C," Tenant shall
not permit or suffer any advertising medium to be placed on mall walls, on
Tenant's mall or exterior windows, on standards in the mall, on the
sidewalks or on the parking lot areas or light poles. No permission,
expressed or implied, is granted to exhibit or display any banner, pennant,
sign, and trade or seasonal decoration of any size, style or material
within the Center, outside the Premises.
7. Tenant shall not permit or suffer the use of any advertising medium which
can be heard or experienced outside of the Premises, including, without
limiting the generality of the foregoing, flashing lights, searchlights,
loud speakers, phonographs, radios or television. No radio, television, or
other communication antenna equipment or device is to be mounted, attached,
or secured to any part of the roof, exterior surface, or anywhere outside
the Premises, unless Landlord has previously given its written consent.
8. Tenant shall not permit or suffer merchandise of any kind at any time to be
placed, exhibited or displayed outside its Premises, nor shall Tenant use
the exterior sidewalks or exterior walkways of its Premises to display,
store or place any merchandise. No sale of merchandise by tent sale, truck
load sale or the like, shall be permitted on the parking lot or other
common areas.
9. Tenant shall not permit or suffer any portion of the Premises to be used
for lodging purposes.
10. Tenant shall not, in or on any part of the Common Area:
(a) Vend, peddle or solicit orders for sale or distribution of any
merchandise, device, service, periodical, book, pamphlet or other
matter whatsoever.
(b) Exhibit any sign, placard, banner, notice or other written material,
except for activities as approved in writing by Landlord and only in
such areas as approved.
(c) Distribute any circular, booklet, handbill, placard or other material,
except for activities as approved in writing by Landlord and only in
such areas as approved.
(d) Solicit membership in any organization, group or association or
contribution for any purpose.
(e) Create a nuisance.
(f) Use any Common Areas (including the enclosed mall) for any purpose
when none of the other retail establishments within the Center is open
for business or employment, except for activities as approved in
writing by Landlord and only in such areas as approved.
(g) Throw, discard or deposit any paper, glass or extraneous matter of any
kind except in designated receptacles, or create litter or hazards of
any kind.
(h) Deface, damage or demolish any sign, light standard or fixture,
landscaping materials or other improvement within the Center, or the
property of customers, business invitees or employees situated within
the Center.
EXHIBIT "D"
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[LOGO OF CAESARS PALACE]
EXHIBIT "E"
<PAGE>
FORUM AT CAESARS
FACILITY NAMES
EXHIBIT "F"
DINING/LOUNGE
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Palace Court
Primavera
Bacchanal
Spanish Steps Steak & Seafood House
Ah'So Restaurant
Empress Court
Cafe' Roma
The Palatium
Post-Time Snack Bar
Cleopatra's Barge
Olympic Lounge
Galleria Bar
Discus Bar
Palace Court Lounge
Ah'So Lounge
Empress Court Lounge
Neptune Bar
Palatium Bar
Primavera Lounge
Spanish Steps Lounge
Forum Lounge
The Olympiad Race and Sports Book
Caesars Palace Poker Room
Omnimax Theatre
Caesars Adventure Arcade
Olympic Casino
Palace Court Casino
Forum Casino
Caesars Palace Sports Pavilion
Caesars Palace Sports Shop
Brahma Shrine
Garden of the Gods
Cleopatra's Beauty Salon & Spa
Circus Maximum Showroom
Caesars Exclusively Shops
Champagne Brunch
Appian Way
The World of Caesar
Olympiad Plaza (the area under the exterior of the Omnimax)
The Olympiad Club Parking
II Palazzo
Olympic Tower
Centurion Tower
Romas Tower
Via Suites
Villa Suites
Olympic Tower Suites
Caesars Boulevard
Diana's Dome
The Piazza
Colosseum Complex
Emperors Complex
(convention rooms, if needed)
Caligula
Vitellius
Vespesian
Julius
Augustus
Tiberius
Claudius
EXHIBIT "F"
PAGE -1-
<PAGE>
Nero
Galba
Titus
Forum I
Forum II
Magestium
Regalium
Senate I
Senate II
Senate III
Romulus
Remus
Colosseum I
Colosseum II
Colosseum III
Colosseum IV
Colosseum V
Colosseum VI
Colosseum VII
Restaurants Entertainment
- ----------- -------------
Le Posh Cascade Showroom
The Broiler Room Caesars Cabaret
Empress Court Caesars Outdoor Arena
Primavera
Cafe Roma
Evergreen Buffet
Post Time Snack Bar
Bars/Lounges Other
- ------------ -----
Fireside Lounge Sweet Suite (Dessert Shop)
Spooner Bar Caesars Spa
Post Time Bar Caesars Tahoe Convention Center
Promenade
Race and Sports Book
Arcade (video games for "kids")
Caesars Exclusively
Caesars Yogurt Palace
EXHIBIT "F"
Page -2-
<PAGE>
[SITE PLAN FOR CAESARS PALACE HOTEL AND CASINO]
EXHIBIT "G"
<PAGE>
EXHIBIT 10.49
================================================================================
[LOGO OF BANK OF AMERICA] AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 4 TO BUSINESS LOAN AGREEMENT
This Amendment No. 4 (the "Amendment") dated as of January 21, 1998 is
----------
between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") and
ST. JOHN KNITS, INC. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of December 15, 1995, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
-----------
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
----------
2.1 In Paragraph 1.2 of the Agreement, the date "MARCH 1, 2000" is
substituted for the date "MARCH 1, 1999."
2.2 Subparagraph 6.6(a) of the Agreement is amended to read in its
entirety as follows:
"(a) sufficiently complete to give the Bank accurate knowledge of
the Borrower's (and any guarantor's) financial condition,
including all material contingent liabilities."
2.3 A new Paragraph 6.14 is added to the Agreement, which reads in
its entirety as follows:
"6.14 YEAR 2000 COMPLIANCE. The Borrower has conducted a
comprehensive review and assessment of the Borrower's computer
applications and made inquiry of the Borrower's key suppliers,
vendors and customers with respect to the "year 2000 problem"
(that is, the risk that computer applications may not be able to
properly perform date-sensitive functions after December 31, 1999)
and, based on that review and inquiry, the Borrower does not
believe the year 2000 problem will result in a material adverse
change in the Borrower's business condition (financial or
otherwise), operations, properties or prospects, or ability to
repay credit."
2.4 Subparagraph 7.2(a) of the Agreement is amended to read in its
entirety as follows:
"(a) Within 120 days of the Borrower's fiscal year end, the
Borrower's annual financial statements. These financial
statements must be audited (with an opinion not qualified
due to possible failure to take all appropriate steps to
successfully address year 2000 system issues) by a Certified
Public Accountant ("CPA") acceptable to the Bank. The
statements shall be prepared on a consolidated basis."
2.5 Subparagraph 7.19(c) of the Agreement is amended to read in its
entirety as follows:
"(c) enter into any consolidation, merger, or other combination,
or become a partner in a partnership, a member of a joint
venture, or a member of a limited liability company."
2.6 Article 8 of the Agreement is amended to read in its entirety as
follows:
"8. HAZARDOUS WASTE INDEMNIFICATION. The Borrower will indemnify
and hold harmless the Bank from any loss or liability directly or
indirectly arising out of the use, generation, manufacture,
production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will
apply whether the hazardous substance is on, under or about the
Borrower's property or
________________________________________________________________________________
AmendL (10/92) 017983-10037
-1-
<PAGE>
operations or property leased to the Borrower. The indemnity
includes but is not limited to attorneys' fees (including the
reasonable estimate of the allocated cost of in-house counsel and
staff). The indemnity extends to the Bank, its parent,
subsidiaries and all of their directors, officers, employees,
agents, successors, attorneys and assigns. `Hazardous substances'
means any substance, material or waste that is or becomes
designated or regulated as `toxic,' `hazardous,' `pollutant,' or
`contaminant' or a similar designation or regulation under any
federal, state or local law (whether under common law, statute,
regulation or otherwise) or judicial or administrative
interpretation of such, including without limitation petroleum or
natural gas. This indemnity will survive repayment of the
Borrower's obligations to the Bank."
2.7 Paragraph 9.8 of the Agreement is amended to read in its entirety
as follows:
"9.8 MATERIAL ADVERSE CHANGE. A material adverse change occurs,
or is reasonably likely to occur, in the Borrower's (or any
guarantor's) business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the
credit."
2.8 Paragraph 10.7 of the Agreement is amended to read in its entirety
as follows:
"10.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for
any reasonable costs and attorneys' fees incurred by the Bank in
connection with the enforcement or preservation of any rights or
remedies under this Agreement and any other documents executed in
connection with this Agreement, and in connection with any
amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding,
the prevailing party is entitled to recover costs and reasonable
attorneys' fees incurred in connection with the lawsuit or
arbitration proceeding, as determined by the court or arbitrator.
In the event that any case is commenced by or against the Borrower
under the Bankruptcy Code (Title 11, United States Code) or any
similar or successor statute, the Bank is entitled to recover
costs and reasonable attorneys' fees incurred by the Bank related
to the preservation, protection, or enforcement of any rights of
the Bank in such a case. As used in this paragraph, "attorneys'
fees" includes the allocated costs of the Bank's in-house
counsel."
3. CONDITIONS. This Amendment will be effective when the Bank receives
----------
the following items, in form and content acceptable to the Bank:
3.1 A Corporate Resolution to Obtain Credit executed by the Borrower
in the amount of Twenty Five Million Dollars ($25,000,000).
3.2 Evidence that the execution, delivery and performance by the
Borrower (and any guarantor) of this Agreement and any instrument
or agreement required under this Agreement have been duly
authorized.
4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
-------------------
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ST. JOHN KNITS, INC.
/s/ ARTHUR P. CARTER /s/ ROGER G. RUPPERT
X_________________________________ X___________________________________
BY: ARTHUR P. CARTER BY: ROGER G. RUPPERT
TITLE: VICE PRESIDENT TITLE: SENIOR VICE PRESIDENT-FINANCE
AND CHIEF FINANCIAL OFFICER
________________________________________________________________________________
AmendL (10/92) 017983-10037
-2-
<PAGE>
EXHIBIT 10.50
UNIT PRICE CONSTRUCTION AGREEMENT ENTERED INTO BY AND BETWEEN ST. JOHN DE
MEXICO, S.A. DE C.V. REPRESENTED BY MR. RANDEE J. LAWRENCE, HEREINAFTER REFERRED
TO AS THE "OWNER"; AND ADMINISTRACION TIJUANA INDUSTRIAL, S.A. DE C.V.
REPRESENTED BY MR. PABLO RAFAEL CARRILLO BARRON, HEREINAFTER REFERRED TO AS THE
"CONTRACTOR"
RECITALS
I. The representative of Owner declares:
a) That Owner is a corporation organized and existing in accordance with
the laws of the United Mexican States;
b) That his principal is in the process of acquiring the ownership of lots
113-A and 113-B, block 18. (the "Property");
c) That his principal needs the Contractor to build on the Property an
industrial building measuring 5,751.11 square meters or 61,904.43 square
feet and other improvements. For such purposes, Contractor has provided
its principal with a work estimate consisting of a catalog of unit price
concepts and matrix attached hereto as exhibit "A" ("Work Estimate").
d) That the building and said improvements are described in detail in the
plans, drawings, blueprints and specifications attached hereto as
exhibit "B", (the "Specifications"), which building and improvements
shall hereinafter be referred to as the "Work"; and;
e) That his principal has granted and delivered to him sufficient powers
and appropriate directions for the execution of this agreement, and
that such powers and directions have not since been modified, limited
nor revoked.
II. The representative of Contractor declares:
a) That Contractor is a company duly incorporated under the applicable
laws of the United Mexican States, as evidenced in Public Instrument
52,543, book 903, before Notary Public Number 3 for the Municipality of
Tijuana, Mr. Xavier Ibanez Herrera, duly recorded before the Public
Registry of Property and Commerce of Tijuana, Baja California on
September 29, 1988, registry number 20,279 page 413, Book XLIII-II
auxiliary Commerce Section.
<PAGE>
b) That it is within Contractor's corporate purposes to execute and
perform this agreement and provide urbanization, engineering and
general construction services, and that it has the necessary
authorizations, registrations and licenses to operate as a contractor;
c) That Contractor has the experience, the know-how and the material and
human resources that are necessary and adequate to duly execute and
manage the Work;
d) That Contractor has resources of its own sufficient to fulfill all
labor obligations due to its workers in connection with the Work; and
e) That his principal has granted and delivered to him sufficient powers
and appropriate directions for the execution of this agreement, and
that such powers and directions have not since been modified, limited
nor revoked.
CLAUSES
ONE. SCOPE OF WORK.
1.1 Contractor agrees to perform all tasks and all other on-site work required
to construct the Work on the Property. Contractor shall furnish all labor,
materials, tools, equipment, transportation and all other goods and
services necessary for the performance of the Work.
TWO. SPECIFICATIONS.
2.1 The Work shall be performed in strict compliance with the technical
specifications and quality standards set forth in the blueprints, drawings
and specifications contained in Exhibit "B" hereof, as well as in
accordance with such other specifications and standards as may be indicated
by Owner from time to time in the manner set forth in this agreement
(hereinafter the "Specifications"), as well as on such written instructions
issued by the individual who will be in charge of supervising the Work,
herein contracted by Owner.
THREE. WORK SCHEDULE AND LOG.
3.1 Contractor shall perform the Work in strict accordance with the work
schedule (hereinafter the "Schedule") set forth in Exhibit "C" hereof.
Contractor shall keep an
2
<PAGE>
accurate daily log of the progress of the Work (hereinafter the "Log") and
shall submit to Owner a copy thereof, on a daily basis. The Log shall
reflect progress of the Work with respect to the Schedule and shall be
sufficiently detailed as to enable Owner to compare the actual with the
scheduled progress of the Work at all times throughout the performance of
the Work. The Log shall further contain a record of any observations,
clarifications, variations or corrections made by Contractor or by Owner,
in the performance of the Work, in respect of the Specifications.
FOUR. PRICE OF THE WORK.
4.1 Owner shall pay to Contractor the resulting amount according to the
concepts, volumes and unit prices conforming with the work progress for
which Contractor shall present, for its weekly revision and authorization,
the estimates supported with the volume generators in the formats so
indicated by Owner.
4.2 The total price of this operation is $1,931,912.99 (one million nine
hundred and thirty one thousand nine hundred and twelve 99/100) dollars,
United States of America currency, plus the Value Added Tax (v.a.t.), and
it is based upon the estimated volume of work as of this date.
4.3 The ruling unit prices are the ones presented by Contractor for the Work
bidding, pursuant to Exhibit "B" and cannot be subject to change, unless a
written agreement is made on the part of Owner.
4.4 Owner shall pay, as advance payment the amount of $772,765.20 (seven
hundred and seventy two thousand seven hundred and sixty five 20/100 )
dollars, United States of America currency, that shall be proportionately
amortized according to the amounts of the payable estimates presented by
Contractor.
4.5 The balance, less a holdback of 5% of the balance, shall be paid in equal
monthly installments over the course of construction of the Work. Such
holdback amount will be paid to Contractor upon completion and acceptance
of the Work by Owner.
FIVE. PAYMENT OF THE PRICE.
5.1 Contractor shall provide Owner, against payment for any concept, the
invoices corresponding to the total estimate value, which shall meet all
tax requirements as requested by Mexican Law. The payments shall be paid
accordingly to the Schedule.
3
<PAGE>
In the event contractor has a delay in the performance of the jobs, the
payments shall be withhold.
5.2 Acceptance of the final payment by Contractor, shall be considered as
Contractor's acceptance of its assumed responsibility regarding each and
all claims that may arise against Owner in connection with Work and with
the present agreement.
SIX. RESPONSIBILITY FOR SPECIFICATIONS.
6.1 Contractor shall be responsible for the proper design, engineering and
supervision of the Work, in accordance with the Specifications, and in
accordance with all applicable federal, state and local legal requirements,
and common local industry practices for capacity, strength, vibration and
function. Contractor shall be solely responsible for defining the
Specifications and represents to Owner that same are true and correct, and
in conformity with all industry standards and in compliance with all
applicable legal requirements.
SEVEN. OWNERSHIP OF SPECIFICATIONS.
7.1 Owner shall be the sole and exclusive owner of the drawings, plans,
blueprints and any other documents containing the Specifications, including
all the information contained therein, which shall constitute proprietary
information. Contractor shall provide Owner, at the time the Work is
accepted by Owner upon its completion, with one final set updated according
to the actual performance of Work, printed in Mylar, of all reproducible
drawings and specifications.
EIGHT. QUALITY OF WORK, LABOR AND MATERIALS.
8.1 All work, labor and materials employed, provided or utilized by Contractor
or its sub-contractors in the performance of the Work, shall be of the
highest quality available, or of any lesser quality authorized in the
Specifications, provided, however, that in no event may Contractor or its
sub-contractors employ, provide or utilize work techniques, labor or
materials that fail to meet the quality requirements or other
specifications set forth by the current or applicable construction laws,
regulations, ordinances or guidelines in force in Mexico.
NINE. NO AGENCY OR REPRESENTATION.
4
<PAGE>
9.1 Contractor shall not be considered a representative or agent of Owner,
provided, however, that Contractor may act on behalf of Owner in the
obtainment of permits and the procurement of materials, to the extent
therefore necessary and in such other specific cases as approved in
writing by Owner.
TEN. REQUIRED PERMITS AND REGISTRATIONS.
10.1 Contractor shall obtain at its expense all required licenses,
authorizations and permits, including, without limitation, the
corresponding construction license from the municipal government of
Tijuana, Baja California. Likewise, Contractor shall properly file all
required registration applications before the corresponding governmental
agencies, including, without limitation the registration of the Work with
the Mexican Institute of Social Security. All such licenses,
authorizations, permits and registrations shall clearly show Owner as the
owner of the Work.
10.2 Owner will promptly deliver to Contractor all information and documents
held by same, which result necessary for the filing, processing and
obtainment of the above referred permits, licenses, authorizations and
registrations.
10.3 The originals of said permits, licenses, authorizations and registrations
shall be delivered to Owner upon final acceptance of the Work.
ELEVEN. START AND COMPLETION DATE.
11.1 Contractor shall initiate performance of the Work immediately upon
execution hereof and of reception of advance payment ("Initiation Date"),
and shall complete same in the manner herein required within six (6)
months from the Initiation Date. The date of expiration of the above
referred six months term shall be referred to hereinafter as the
"Completion Date". If in the reasonable opinion of the Owner it becomes
necessary that Contractor operates night shifts or weekends and holidays,
or that it hires additional labor force, in order to complete the Work by
the Completion Date, Contractor shall operate the necessary night shifts,
weekends or holidays, or hire such additional labor force as is therefore
necessary, without additional cost to Owner, unless such additional
efforts are necessary as a result of modifications to the Specifications
authorized by Owner or are otherwise attributable to Owner, or are
necessary because of a Work delay which is excused pursuant to the
following paragraph.
5
<PAGE>
11.2 If the performance of the Work is delayed due to actions or omissions of
Owner, or to acts of god, such as fire, flood, rain, wind or others beyond
the control and without the fault or negligence of Contractor which
temporarily prevent the performance of the Work, the Completion Date shall
be set back the same number of days during which said actions, omissions,
or acts of god prevented the performance of the Work. Contractor shall not
be entitled to demand payment of damages or increased costs suffered due
to the delays above mentioned, except for delays caused by actions or
omissions of Owner. The supervision and inspection of the Work by the
Owner, and the requirement of corrections to non conformities with the
Specifications shall not be deemed to constitute a delay due to Owner.
11.3 The modifications to the Specifications directed or requested by Owner
shall not constitute a reason for setting back the Completion Date in the
manner above indicated, unless such is agreed to at the time said
modifications are communicated to Contractor.
TWELVE. MODIFICATIONS TO SPECIFICATIONS.
12.1 At any time during the performance of the Work, Owner may direct or
request Contractor to modify the Specifications as it deems appropriate
and necessary. The Price shall be adjusted in accordance with the increase
or reduction in Contractor's accruable fees, labor, materials and sub-
contracting expenses resulting from the modification and considering the
time impact on the Completion Date. Such modifications shall be notified
to Contractor by a Change Order drafted in the manner set forth in Exhibit
"C" hereof. No changes shall be made to the Specifications without the
written approval of the Owner.
THIRTEEN. CONTRACTOR'S SUPERVISION OF THE WORK.
13.1 Contractor shall supervise and direct the Work using its best skill and
attention in order to make sure that all work techniques, materials and
labor used in the performance of the Work comply with the terms of this
agreement.
13.2 To the above effects, Contractor shall keep at the Work site during the
performance of the Work a competent superintendent, satisfactory to Owner.
In case a superintendent proves unsatisfactory to Owner, same shall be
promptly replaced by Contractor, upon written request by Owner. The
superintendent or its assistants, shall not be changed without 30 days
notice to Owner in writing.
6
<PAGE>
FOURTEEN. OWNER'S INSPECTION OF THE WORK.
14.1 Contractor shall allow Owner to inspect the Work at any time, without need
of prior notice, in order to verify performance of the Work in accordance
with the terms hereof. Such supervision shall not relieve Contractor of
any responsibility or liability deriving herefrom in connection with the
performance of the Work.
FIFTEEN. CORRECTIONS.
15.1 Should any part of the Work or the materials utilized in its performance
be found by Owner to be defective, damaged or in any way non conforming
with the Specifications, Owner shall immediately notify Contractor
thereof, and Contractor shall, immediately or as soon as it is
practicable, remove, replace, reconstruct or refinish, as appropriate and
at the sole reasonable discretion of the Owner, the defective, damaged or
non conforming materials or portion of the Work. Such correction shall be
entirely at the expense of Contractor and shall not originate the
Completion Date to be set back.
15.2 In the event Contractor fails to correct the Work as provided in the
preceding paragraph, Owner may, upon five (5) days written notice to
Contractor, order Contractor to stop performance of any part or all of the
Work and may correct or have corrected the corresponding deficiencies. In
such event, Owner shall deduct the actual cost thereof from the Price.
Such correction by Owner shall not imply a waiver of its rights to any
other remedies available under this agreement.
SIXTEEN. HAZARDOUS MATERIALS AND WASTE.
16.1 Contractor shall not make use of hazardous materials in the performance of
the Work and, in the event that any hazardous wastes or residues are
generated in the performance of the Work, it shall, a) handle and dispose
of same in full compliance with all legal and technical provisions
providing for handling and disposal of such wastes, and b) shall perform
or have performed all cleaning work necessary in order to ensure that the
Work is delivered entirely free from any such contamination and is in full
compliance with the applicable environmental requirements. Contractor
shall further hold harmless and indemnify Owner from and against any
claim, lawsuit, judgment, administrative procedure or penalty in
connection thereof.
7
<PAGE>
SEVENTEEN. LABORATORY TESTS.
17.1 Contractor shall, at its own cost, hire laboratory services to perform
any tests deemed convenient, provided, however, that the results thereof
shall not be binding or conclusive under this agreement. Owner must be
notified at least twenty four hours in advance of the performance of any
such tests. All Work required to be tested and thereafter buried
underground or otherwise concealed, shall be tested before being buried
or covered and the test conditions shall be applied for a sufficient
length of time to permit adequate inspection. Contractor shall furnish
Owner complete written test results and data, as soon as same are
available. In the event the test results indicate that the part of the
Work tested fails to conform with the Specifications, Contractor shall
immediately make the corrections thus necessary, without need of a
written or verbal request from Owner.
EIGHTEEN. INSURANCE.
18.1 Owner shall obtain at Owner's expense, all risk coverage for the full
cost of the Work in US Dollars and for the sum legally required, which
shall provide at least, coverage for the following:
18.1.1 All risks of physical damage including but not limited to fire, broad
coverage risks, (but excluding earthquake and flood) for the term of
construction, including the materials, components and equipment of
Owner, for the full cost of replacement of the construction effected up
to the date of the damage;
18.2 Contractor shall obtain at Owner's expense the following insurance
coverage's:
18.2.1 General public liability including comprehensive automobile insurance
showing owned, non-owned and hired automobile coverage, in an amount
equal to or greater than US$2,000,000.00 (two million and no 00/100)
dollars, United States of America currency, per occurrence, to insure
Owner and Contractor at all times from any claims resulting from injury
or death to any person or persons, or damages to property caused in
whole or in part by actions or omissions of Contractor, Owner or any of
Contractor's sub-contractors, suppliers or any other party directly or
indirectly employed or hired by Contractor or its sub-contractors in
connection with the performance of the Work, or any other activity
associated or related with the Work, or
8
<PAGE>
acts of God or force majeure, as provided by the Civil Code for the
State of Baja California and the Federal Labor Law of the Mexican
Republic.
18.2.2 The above-referred insurance policy shall be in the name of Owner and
the Contractor and issued by an insurance company satisfactory to
Contractor and Owner authorized to do business in Mexico.
18.2.3 As evidence that Contractor has contracted on behalf of Owner the
insurance as required above, it shall within 5 (five) days after the
execution hereof, deliver to Owner appropriate certificates of insurance
issued by the insurance company evidencing that Contractor has duly
obtained the insurance required hereunder, and that such insurance is
primary as respects any claims, losses or liability arising directly or
indirectly from the insured's operations.
18.3 Contractor shall not start the Work until after the above-referred
insurance certificates have been delivered by Contractor and sub-
contractors and the insurance has been approved by Owner and Contractor.
Approval of the insurance by the Owner shall not relieve or reduce the
liability of Contractor hereunder. Owner shall be named as an insured
and all policies shall provide that Owner is to receive 30 (thirty) days
prior written notice of cancellation of such policy or material change
in coverage therein. In the event of casualty, Owner and Contractor
shall promptly initiate adjustment procedures with the respective
insurance company and the proceeds paid thereby will be distributed
among the parties hereto in accordance to their respective interests as
they appear herein.
18.4 Contractor shall not be obligated to provide insurance coverage for any
employees nor for the equipment of the Owner at the Work site.
NINETEEN. LIABILITY FOR DAMAGES.
19.1 Contractor shall be liable for all losses or damages to all Work, to the
property of Owner, or to third parties' property, as well as for injury
or death of its own, and of Owner's employees, agents or any other
persons, while they are on the site of the Work or on the Property
during the performance of the Work, or in adjacent areas, when such
damages, injuries or deaths are caused in whole or in part by any acts
or omissions of the Contractor, including the Contractor's own
negligence or failure to provide appropriate safety measures and
adaptations.
TWENTY. GUARANTEE.
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<PAGE>
20.1 Unless otherwise specified under the various headings herein, all
workmanship and materials used in the performance of the Work, as well as
all fixtures and equipment furnished by Contractor and installed under
this agreement, shall be absolutely guaranteed by Contractor for a period
of one (l) year after their final acceptance in writing by Owner. This
Guarantee shall be effective notwithstanding any additional guarantees
obtained by Owner from the manufacturers or suppliers of any materials,
fixtures and equipment. Any imperfections or defects which may develop or
be discovered in the workmanship or materials used, or in the fixtures or
equipment furnished by the Contractor during such 1 (one) year period
shall be immediately repaired or replaced, at Owner's option, by the
Contractor, at Contractor's expense.
20.2 All such repair or replacement work is also hereby absolutely guaranteed
for a period of 1 (one) year from the date of the correction thereof. It
is understood and agreed that Contractor shall supply Owner with a written
guarantee of all Work covered under this agreement and such guarantee will
contain the date upon which said Work was accepted by Owner and the date
upon which the guarantee shall expire.
TWENTY ONE. CONSTRUCTION DRAWINGS.
21.1 Based on actual field measurements, Contractor shall keep a complete set
of drawings and specifications at the Work site, which drawings shall be
maintained current and up to date to reflect any changes due to field
conditions and to modifications to the Specifications requested by Owner.
Such set of reproducible mylar drawings and specifications shall be
delivered to Owner upon termination of the Work, as a record of the Work
done.
21.2 Contractor shall prepare a complete set of drawings as a record of the
Work done from marked up drawings, specifications and changes due to field
conditions and alterations requested by the Owner. These drawings shall be
prepared on reproducible mylar, and must be delivered within 60 (sixty)
days after termination of the Work.
TWENTY TWO. BONDS.
22.1 Upon execution of this Agreement, and before receiving the advance
payment, Contractor shall post an advance payment bond equal to the full
amount of the advance payment required under this Agreement. Such advance
payment bond shall be issued by a bonding company and shall be on terms
reasonably acceptable
10
<PAGE>
to Owner. The terms shall include a guaranty of the obligation of
Contractor to complete the Work in accordance with this Agreement.
22.2 On acceptance of the Work by Owner and prior to payment of the holdback
amount, Contractor shall obtain and provide to Owner a performance bond
in the amount of 10% of the contract amount covering the warranty period
and warranty provisions set forth in this Agreement.
22.3 All bonds provided herein shall be issued by bonding companies holding a
Standard & Poor rating of "B" or better or as otherwise approved by
Owner.
TWENTY THREE. RESPONSIBILITIES OF THE PARTIES.
23.1 In addition to the fulfillment of the obligations set forth elsewhere in
this agreement, the parties shall have the following responsibilities:
23.1.1 Contractor shall indemnify and hold Owner harmless from and against all
losses, demands, claims, payments, suits, actions, recoveries and
judgments of any nature brought against it by reason of any acts or
omissions of Contractor, its agents or employees, or of any of its sub-
contractors, their agents or employees, in the execution of the Work,
including, without limitation, the use, discharge, storage or disposal
of any toxic substance or hazardous material or residue.
23.1.2 Owner shall indemnify and hold Contractor harmless from and against all
losses, demands, claims, payments, suits, actions, recoveries and
judgments of any nature brought against it by reason of any acts or
omissions of Owner, its agents or employees.
23.1.3 Contractor shall forever protect and defend Owner in the full and free
use and enjoyment of any and all right to any invention, machines, or
devices which may be used as part of the Work, either in the
construction or use after completion, against all suits of all persons
and shall pay all royalties and license fees necessary for the use and
enjoyment of such inventions, machines, or devices.
23.1.4 Contractor shall further save and hold Owner harmless, from and against
any and all claims, demands, losses, suits, payments, actions,
recoveries or judgments brought against Owner by any of Contractor's
sub-contractors.
TWENTY FOUR. LABOR RESPONSIBILITY.
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<PAGE>
24.1 Nothing contained in this agreement or its exhibits shall create or be
deemed to create a labor relationship between Owner and Contractor's
employees. Contractor has represented to Owner that it has the sufficient
elements of its own which will allow it to fully comply with all labor
responsibilities in regard of its personnel and shall, during the
performance of the Work and the duration of this agreement, continue to
maintain such sufficient elements of its own. Contractor assumes all labor
responsibility for all personnel assigned to or contracted for the
performance of the Work, and agrees to strictly comply with all its
obligations as employer with respect to said personnel under the Federal
Labor Law, the Mexican Institute of Social Security Law, the National
Institute of the Fund for Workers Housing Law and all regulations and
ordinances issued under any applicable law. Contractor agrees to indemnify
and hold Owner harmless in the event of any labor claim filed by any
worker or employee of Contractor or its sub-contractors as well as any
claim filed by the Mexican Institute of Social Security or the Institute
of the National Fund for Workers Housing due to the failure of Contractor
to make payment of the respective dues and taxes.
24.2 Contractor shall appoint Owner as the owner of the Work in the respective
registration notice it files with the Mexican Institute of Social
Security, and Contractor shall provide to Owner the original of said
notice upon final acceptance of the Work.
TWENTY FIVE. SUBCONTRACTORS.
25.1 Contractor shall be fully and solely responsible towards Owner for all
acts and omissions of its sub-contractors and of persons either directly
or indirectly employed by them, as well as for acts and omissions of
persons directly employed by it.
25.2 Nothing contained in this agreement or its exhibits shall create a
contractual or labor relationship between Owner and any of Contractor's
sub-contractors. Contractor is not authorized to make any commitment on
behalf of Owner, unless such is previously authorized in writing.
25.3 Contractor agrees to make that all sub-contractors agree to observe and
fulfill all applicable terms and obligations arising hereof.
25.4 Contractor shall not delegate to any of its sub-contractors the
responsibilities and obligations corresponding to the Contractor under
this agreement.
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25.5 Contractor shall cause that all provisions contained herein in regard to
warranty, insurance, changes and modifications in the Work, formal
acceptance of the Work and the right to inspect by the Owner, be
included in the agreements entered with each one of the sub-contractors.
TWENTY SIX. CLAIMS.
26.1 Immediately upon the delivery of the final payment or of the retained
percentage, Contractor shall deliver to Owner a complete release and
waiver of lien by Contractor of all claims arising out of this agreement
or payments due to government agencies such as IMSS, Hacienda, STPS,
SAR, INFONAVIT, among others, or receipts for the full value of the Work
in lieu thereof, together with an affidavit stating that the receipts
include all the labor and materials for which a claim could be filed.
Neither the final payment nor any part of the retained percentage shall
be deemed due if the above release and waiver, or receipts, are not
delivered.
TWENTY SEVEN. INSPECTION AND FINAL ACCEPTANCE.
27.1 Prior to acceptance of the completed Work, Owner shall be entitled to
inspect the Work in the following manner:
27.1.1 The Work shall be subject to inspection and test by Owner during its
construction and at all other times and places, including without
limitation the plants and offices of Contractor, and of its sub-
contractors and suppliers.
27.1.2 The Work shall be subject to one final inspection and acceptance. Such
final inspection in full or in part shall be made within 15 (fifteen)
working days after notice of the completion of the Work by Contractor.
27.1.3 After the final inspection is performed, Owner will accept in writing
those areas or systems of the building that have been completed
according to Specifications. At the same time, a "punch list" will be
prepared containing pending or defective items that are to be completed
or repaired within the following 30 (thirty) days. Failure to include
any items on the punch list will not alter the responsibility of
Contractor to complete the Work pursuant to the Specifications.
27.1.4 Within three (3) working days after any inspection requested by
Contractor is performed, Owner shall inform Contractor in writing of any
defects or imperfections of the portion of the Work inspected.
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27.1.5 Upon request of Contractor, completed defined portions of the Work or
"punch list" items will be subject to inspection by Owner within 3
(three) working days after Owner is notified of their termination, which
partial inspections shall be in accordance with the same terms,
conditions and effects as set for the final inspection. Such partial
inspections will not release Contractor from its guarantee obligation
under Clause Twenty above.
27.1.6 At the time final inspection is performed and the Work is accepted by
Owner, Owner will cancel the bond referred to in clause twenty two,
paragraph 22.1, and Contractor shall deliver to Owner the last bond
mentioned in paragraph 22.2 covering 10% (Ten percent) of the Price with
a term of 1 (one) year to guarantee against construction defects. At
such time, Owner will accept the Work in writing and it shall release
and deliver to Contractor the amount retained.
TWENTY EIGHT. COMPLETION OF THE WORK
28.1 Contractor guarantees that the Work will be completed by the Completion
Date, at which time the industrial building and other improvements
requested by Owner will be fully completed in accordance with the
Specifications and all of its systems and installations will be fully
operable, with the interior of the building finished, in such manner
that it allows Owner to install, test and operate its equipment and
machinery, and test the production of the products it intends to
manufacture.
TWENTY NINE. CONTRACTOR'S RIGHT TO TERMINATE CONTRACT.
29.1 Should Owner fail to pay Contractor any approved payment within 15
(fifteen) days after is due, then Contractor, upon 5 (five) days written
notice to Owner may stop the Work or terminate this Agreement and
recover form Owner payment for all Work executed and reasonable profit.
Owner shall have the right, however, to pay Contractor's invoice, or
approved portion thereof, during the five (5) day period following
written notice thereof, and, in such event, this Agreement shall not be
terminated.
29.2 Should the Work be stopped by a governmental agency or other state or
public office or by any act of negligence of Owner through no fault of
Contractor, Contractor's time for completion of the Work shall be
extended by a like time and such extension shall be evidenced in writing
signed by Owner and Contractor.
THIRTY. OWNER'S RIGHT TO TERMINATE CONTRACT.
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30.1 Owner, at its discretion, may terminate the agreement at any time by
giving written notice thereof to Contractor at least 15 (fifteen) days
prior to the effective date of termination. Upon receipt of notice of
termination, Contractor shall terminate all work under the agreement on
the date specified in such notice and shall a) terminate all orders and
subcontracts chargeable to the performance of this Contract, which may
be terminated without additional cost; b) terminate and settle, subject
to approval by Owner, other orders and subcontracts where the cost of
settlement will be less than the costs which would be incurred if such
orders and Subcontracts were to be completed and c) transfer to Owner,
in accordance with Owner's directions, all materials, supplies, work in
process, facilities, equipment, machinery or tools acquired by
Contractor in connection with the performance of the Work and for which
Contractor is to be reimbursed hereunder, and all drawings, working
drawings, sketches, specifications and information accumulated for use
in the performance of the Work. Contractor shall, if directed by Owner
and to the extent stated in the notice of termination, do such work as
may be necessary to preserve the Work in progress and to protect
material, plant and equipment on the Work or in transit thereto.
30.2 Upon termination of this agreement and compliance by Contractor, all in
accordance with the provisions of the preceding paragraph, Owner shall
pay to Contractor in discharge of all of its obligations under this
agreement, only for a) such portion of the Work as the Contractor and
its subcontractors shall have completed, plus b) the cost to the
Contractor for materials which have been delivered to the plant site of
the Owner up to the effective date of termination, plus c) the cost to
Contractor of materials to be used in the performance of this agreement
for which bona fide irrevocable orders have been placed by Contractor
prior to the effective date of termination, which have not been
terminated and settled hereunder, provided that such materials are
delivered to Owner within a reasonable period of time after the
effective date of termination, plus d) the cost to Contractor of
termination and settling orders and subcontracts in accordance with this
provision, and plus e) the cost to Contractor of complying with Owner's
directions relative to the preservation of the Work in progress and the
protection of materials, plant and equipment on the work or in transit
thereto. Owner shall have a credit against the aggregate of items a)
through e) above, for the amounts therefore paid by Owner to or for the
account of the Contractor, pursuant to other provisions of this
agreement.
30.3 The payment to be made for any such completed portion of the Work shall
be in the proportion that the completed portion of the Work bears to the
entire Work provided for in this Contract, which portion shall be
determined by the Owner. "Cost to the Contractor" as used herein, shall
include field and home furniture, equipment and
15
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business machines and payment of office utility costs directly
applicable to this agreement and not otherwise reimbursed hereunder.
However, Owner shall be under no obligation to pay Contractor for
overhead or anticipated profits on any portion of the Work not
completed. Such costs and expenses shall be subject to audit by Owner.
The sum of all amounts payable under this clause plus the sum of all
amounts previously paid under this agreement shall in no event exceed
the Price.
30.4 The only claim of Contractor against Owner for loss, damage or
otherwise, on account of such termination by the Owner, shall be for the
compensation and payment in accordance with the above provisions.
30.5 In any and all subcontracts entered into between Contractor and its
subcontractors, in any and all other commitments and obligations which
Contractor may undertake or incur, all in connection with the Work under
this agreement, Contractor shall make provisions consistent with this
Clause relative to the termination of the agreement by Owner and the
payment of obligations in connection therewith. Owner shall be under no
obligation to compensate Contractor under the provisions of this Clause
if this agreement is terminated because of default or breach by
Contractor.
30.6 Should the Contractor at any time a) fall into a bankruptcy, makes a
general assignment for the benefit of creditors, makes or permits the
appointment of a receiver for all or a substantial part of its property,
or fails or refuses to prosecute the Work as provided for herein or b)
fails to perform any other requirement of this agreement and does not
cure or begins to cure such failure within ten (10) working days after
written notice thereof is given by Owner, Owner shall have the right, at
its option and without prejudice to any other remedies available to
same, to take possession, for the purposes of completing the Work, of
Owners materials, tools, equipment and appliances at the site, and
either complete or employ any other person or persons to complete the
Work. In case of such termination of the employment of Contractor,
Contractor shall not be entitled to any further payment until the Work
has been fully completed and accepted by Owner, at which time, a) if the
unpaid balance of the Price exceeds the expense (including, but not
limited to, the cost of completing the Work) sustained by Owner on
account of Contractor's default, Owner shall pay the amount of such
excess to Contractor, and b) if such unpaid balance is less than the
expense sustained by Owner, Contractor shall pay the amount of such
difference to Owner.
THIRTY ONE. HOLD HARMLESS.
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31.1 If for any reason Contractor fails to meet all permitting requirements
or to comply with any laws, regulations, ordinances or guidelines
applicable to its performance of the Work, Contractor shall be
responsible for the payment of any fines or penalties imposed upon
Owner, as well as of all losses, costs and expenses derived from the
suspension of the Work by any governmental agency, and it hereby agrees
to indemnify and hold Owner harmless from and against any and all such
fines, penalties or losses, including any liens on the Work or on the
Property and other expenses that Owner may incur as a result thereof.
THIRTY TWO. TEMPORARY FACILITIES AND UTILITIES.
32.1 Contractor shall provide at its expense all temporary facilities and
utilities required for completion of the Work in accordance with the
Specifications, which shall include, without limitation:
32.1.1 Temporary construction roads, ramps and approaches, and maintain them in
a serviceable condition for use by all persons performing Work in
connection with this agreement.
32.1.2 Main ladders and runways for the performance of the Work. Subcontractors
shall provide additional ladders and runways as required for the
performance of their own work.
32.1.3 Field offices and other temporary structures such as offices,
construction and storage sheds, that Contractor and its subcontractors
may require. When directed by Owner, Contractor shall remove the
temporary structures from the Property if same are not necessary to
continue with the Work.
THIRTY THREE. RECEIPTS FOR TAXES AND EXPENSES.
33.1 Immediately upon Owner's request, Contractor shall deliver to Owner true
copies of all receipts or other adequate evidence, satisfactory to
Owner, of payment of all of Contractor's taxes, and social security and
labor assessments related to the performance of the Work. Further,
Contractor shall, immediately upon Owner's request, furnish Owner with
receipts or other adequate evidence, satisfactory to Owner, of payment
of the subcontractors' fees, purchases of materials, rental of equipment
and any other expenses associated with the performance of the Work.
THIRTY FOUR. REPRESENTATIVES.
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34.1 Owner designates Dan DeMille and Randee Lawrence as its authorized
representatives, in order to represent Owner before Contractor for all
matters pertaining to the performance of the Work. Any duly accredited
employee, agent or representative of the designated Owner's
representatives shall be entitled to be at any time at the site of the
Work and shall have access to all areas of same, including, without
limitation, the Contractor's on-site offices, with the purposes of
inspecting the Work and signing the Log on a daily basis, as evidence
that such Log is true and current, and duly notified to Owner in
accordance herewith. Owner's authorized representatives shall record any
observations regarding the work progress and performance in both the
Contractor's and the Owner's copies of the Log.
34.2 Contractor designates Miguel A. Granados as its appointed representative
before Owner.
THIRTY FIVE. EXHIBITS.
35.1 All exhibits of this agreement are attached hereto, duly signed by the
parties' representatives and are thus an integral part hereof.
THIRTY SIX. ASSIGNMENT.
36.1 This agreement is binding to both parties hereto, its successors,
assigns and legal representatives. Neither party may assign this
agreement as a whole or in part without the written consent of the
other, nor shall Contractor assign any monies due or to become due
hereunder without the previous written consent of Owner. However, Owner
may assign this agreement to any of its parent companies, subsidiaries,
or affiliates without the consent of Contractor.
THIRTY SEVEN. JURISDICTION AND APPLICABLE LAW.
37.1 For all matters pertaining to the interpretation, fulfillment or
performance of this agreement, the parties submit to the Laws and courts
of the city of Tijuana, Baja California, thereby waiving any other venue
and Jurisdictions they may otherwise be entitled to due to their current
or future addresses, or to any other reason whatsoever.
THIRTY EIGHT. VERSIONS.
38.1 This agreement is executed in two versions. One in the English language
and the other in the Spanish language. Both versions are intended to be
of identical content,
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meaning and purpose. However, in case of controversy as to their
content, meaning or purpose, the Spanish version shall prevail.
THIRTY NINE. NOTICES.
39.1 All notices required or desired to be given under this Contract shall be
in writing and delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, addressed as follows:
TO OWNER: TO CONTRACTOR:
Blvd. Agua Caliente 4558-403 Blvd. Acapulco 14700
Col. Aviacion, 22420 Parque Industrial Pacifico, 22670
Tijuana, Baja California, Mexico Tijuana, Baja California, Mexico.
39.2 Or to such other address as any of the parties may, from time to time
designate in writing and mutually notify in the manner above set forth.
Tijuana, Baja California, December 11, 1997
The Contractor The Owner
By: Mr. /s/ RAFAEL CARRILLO- BARRON By: Mr. /s/ RANDEE J. LAWRENCE
--------------------------- ----------------------
Mr. Rafael Carrillo- Barron Mr. Randee J. Lawrence
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-76376.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Orange County, California
December 17, 1997
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