U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
Check the appropriate box:
[ X ] Annual report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
[Fee Required]
For the fiscal year ended June 30, 1997 .
[ ] Transition report under Section 13 or 15(d) of the
Exchange Act
[No Fee Required]
For the transition period from _______________ to
_______________.
Commission file number 1-12580 .
THE VERMONT TEDDY BEAR CO., INC.
(Exact name of small business issuer as specified in its
charter)
New York 03-0291679
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)
2236 Shelburne Road, Post Office Box 965
Shelburne, Vermont 05482
(802) 985-3001
(Address of principal executive offices)
Securities registered under Section 12(b) of the Exchange
Act:
Title of each class Name of each
exchange on which registered
Common Stock, par value $.05 per share NASDAQ National
Market System
Securities registered under Section 12(g) of the Exchange
Act:
Common Stock, per value $.05 per share
(Title of class)
<PAGE>
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during
the past 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 .
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this
form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year ended
June 30, 1997 were $16,489,483.
The aggregate market value of the voting stock held by non-
affiliates of the issuer, based on the average high and low
prices of such stock on August 1, 1997, as reported on
NASDAQ, was $8,082,422.
As of August 1, 1997, there were 5,172,750 shares of
the issuer's common stock issued and 5,160,750 shares
outstanding.
Documents Incorporated By Reference
The following documents, in whole or in part, are
specifically incorporated by reference in the indicated part
of this Annual Report on Form 10-KSB:
Proxy Statement for 1997 Annual Meeting of the issuer's
stockholders: Part III, Items 9, 10, 11 and 12.
Transitional Small Business Disclosure Format (check
one): Yes ; No X .
The Vermont Teddy Bear Co., Inc.
1997 Form 10-KSB Annual Report
Table of Contents
Page
Item 1. Description of Business
3
Item 2. Description of Property
8
Item 3. Legal Proceedings
<PAGE>
9
Item 4. Submission of Matters to a Vote of Security
Holders 9
Item 5. Market for Common Equity and Related
Stockholder Matters
9
Item 6. Management's Discussion and Analysis or Plan
of Operation
11
Item 7. Financial Statements
14
Item 8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure
14
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section
16(a) of the Exchange Act
15
Item 10. Executive Compensation
15
Item 11. Security Ownership of Certain Beneficial Owners
and Management 15
Item 12. Certain Relationships and Related Transactions
15
Item 13. Exhibits and Reports on Form 8-K
15
Signatures
20
Index to Financial Statements
21
Item 1. Description of Business
Founded in 1981 and incorporated in 1984, The Vermont
Teddy Bear Co., Inc. (the "Company"), with its principal
offices located at 2236 Shelburne Road, Shelburne, Vermont,
is a designer, manufacturer, and direct marketer of teddy
bears and related products.
Principal Distribution Methods
<PAGE>
The Company uses a variety of channels to market its
products, of which the largest is its Bear-Gram delivery
service, comprising 70.0 percent of net revenues for the
fiscal year ended June 30, 1997. Other principal avenues of
distribution include Company-owned retail stores, direct
mail catalogs, and licensing and wholesale agreements. The
Company's sales are heavily seasonal, with Valentine's Day,
Christmas, and Mother's Day as the Company's largest sales
seasons, respectively.
Primary Distribution Methods
for the twelve months ended June
30,
1997 1996 1995
Bear-Grams* 70.0% 75.8%
78.7%
Retail Operations 17.7% 12.9%
9.2%
Direct Mail 10.9% 7.2%
8.8%
Other Distribution 1.4% 4.1%
3.3%
* Excludes Bear-Gram revenues from retail
operations.
Bear-Grams are personalized teddy bears that are
delivered directly to recipients for special occasions such
as birthdays, anniversaries, weddings, and new births, as
well as holidays such as Valentine's Day, Christmas, and
Mother's Day. Orders for Bear-Grams are generally placed by
calling a toll-free telephone number (1-800-829-BEAR) and
speaking with Company sales representatives, called Bear
Counselors. The Company offers teddy bears in a variety of
sizes and colors, as well as approximately 100 different
teddy bear outfits to further personalize the Bear-Gram.
Orders placed by 4:00 pm can be shipped the same day;
packages are delivered primarily via United Parcel Service
by next-day air, second-day air, or ground delivery service.
The Bear-Gram has been the most significant factor in
the historical growth of the Company. Although Bear-Grams
were introduced on a small scale in 1985, the Company's
marketing effort throughout the 1980's focused primarily on
wholesaling teddy bears to specialty stores and direct
retail through its own outlets. Shortly before Valentine's
Day in 1990, the Company introduced radio advertising of its
Bear-Gram product on radio station WHTZ ("Z-100") in New
York City, positioning the Bear-Gram as a novel gift for
Valentine's Day and offering listeners a toll-free number
for customers to order from the Company's facility in
Vermont. This test proved to be successful, and the Bear-
Gram concept was expanded to other major radio markets
across the country. Primarily through Bear-Gram sales, the
Company increased its net revenues from approximately
<PAGE>
$351,000 in 1989 (the year prior to the initial New York
City Bear-Gram campaign) to a peak of $20,561,000 in 1994.
Total revenues were $16,489,000 for the twelve months ended
June 30, 1997.
Since 1990, the Company has expanded its Bear-Gram
radio marketing strategy beyond New York City, to include
other metropolitan areas and syndicated radio programs
carried by stations across the United States. During the
twelve-month period ended June 30, 1997, the Company
regularly placed advertising on a total of 50 radio stations
in ten of the twenty largest market areas in the United
States, as well as on one syndicated network. For
Valentine's Day, the Company's peak Bear-Gram sales season,
the Company advertised on 105 radio stations in eleven
different markets, as well as on one syndicated network.
The following table shows the Company's largest markets
and most frequent reasons given by customers for purchasing
the Company's Bear-Grams:
Percentage of Bear-Grams for the
twelve months ended June 30,
1997 1996 1995
Markets
New York City 40.8% 35.5% 38.6%
Boston 13.2% 9.5%
9.5%
Philadelphia 11.6% 8.9%
7.3%
Chicago 8.9% 7.3% 8.5%
Los Angeles 5.8% 4.0%
3.8%
Reasons for Purchases
Valentine's Day 22.1% 20.8% 19.2%
Birthdays 11.6% 13.4% 15.0%
New Births 10.3% 12.8%
9.9%
Get Wells 9.7% 12.0% 10.4%
Christmas 5.6% 8.6% 10.4%
Included in Bear-Gram revenues are sales from the
Company's internet website, www.vtbear.com. More than
195,000 "hits" were recorded during the twelve months ended
June 30, 1997, its first full year of operation. Radio
advertisements are frequently tagged with a reference to the
web site, which, in turn, provides visual support for the
radio advertising. The Company has achieved initial success
with on-line ordering, which began in April 1997.
In the year ahead, the Company plans to develop a small
number of new radio markets, including Minneapolis, Dallas,
and Milwaukee, examine opportunities to consolidate radio
<PAGE>
advertising buys through annual contracts with major
stations, and further develop and promote its internet
website.
In an effort to diversify the Company's distribution
channels, the Company has placed a greater emphasis on other
forms of marketing, including Company-owned retail stores.
In aggregate, retail stores were second only to Bear-
Grams in their contribution to sales in the fiscal year
ended June 30, 1997, at 17.7 percent of net revenues. The
Company actively promotes family tours of its teddy bear
factory and store in Shelburne, located ten miles south of
Burlington, Vermont, which drew over 129,000 visitors in the
twelve-month period ended June 30, 1997, and has drawn more
than 261,000 visitors since moving to its current factory in
July 1995. In an effort to make a visit to the factory more
entertaining and draw additional traffic, the Company has
implemented the Make A Friend For Life bear assembly area,
where visitors can participate in the creation of their own
teddy bear.
In July 1996, the Company opened a second retail store,
located on Route 16 in North Conway, New Hampshire. The
Company chose the North Conway location because of the
summer, foliage, and ski-season traffic passing through the
area. Given the retail environment of North Conway, the
Company sells a mix of full-price and discount/close-out
items. In November 1997, the Company opened its third
retail store on Madison Avenue in New York City, between
54th and 55th streets. The New York store benefits from New
York Bear-Gram radio advertising, and is located in an area
that receives a blend of business and tourist traffic. In
August 1997, the Company opened its fourth location in
Freeport, Maine, in the former Bartol Library on Main
Street, which is proximate to L.L. Bean and other retailers.
The Company intends to judiciously examine other store
locations in the year ahead as financial resources permit.
The Company also generates revenues from direct mail
initiatives. For the fiscal year ended June 30, 1997,
direct mail accounted for 10.9 percent of net revenues. The
Company introduced its first catalog for Christmas of 1992,
and has accumulated an in-house mailing list in excess of
1,400,000 names. During the twelve months ended June 30,
1997, more than 63 million circulated pages were mailed to
prospective customers. The Company intends to decrease the
number of circulated pages in the year ahead, primarily
through a reduction in the renting and exchanging of
additional names from other catalogs, which have not
historically responded as well as the Company's in-house
mailing list.
Competitive Business Conditions
<PAGE>
The Company competes with a number of companies that
sell teddy bears in the United States, including, but not
limited to, Steiff of Germany, Dakin, North American Bear,
and Gund. The Company also competes with a number of
sellers of flowers, balloons, candy, cakes, and other gift
items, which can be ordered by phone for special occasions
and delivered by express service in a manner similar to
Bear-Grams. Many of these competitors have greater
financial, sales, and marketing resources than the Company.
On occasion, the Company has also become aware of
competitors, seeking to market the sale of teddy bears in a
manner similar to Bear-Grams, as evidenced by the marketing
of "Pooh-Grams" by certain subsidiaries of Disney
Enterprises, Inc., which began in late 1996. On May 16,
1997, The Vermont Teddy Bear Co., Inc. filed suit, seeking
injunctive relief and unspecified damages for infringement
of its Bear-Gram trademark. On September 9, 1997, the two
companies entered into an agreement to resolve their
dispute, whereby Disney will continue to offer its Pooh-Gram
products and services but will voluntarily limit its use of
the Pooh-Gram mark in certain advertising. Vermont Teddy
Bear, in turn, will be allowed to offer certain Winnie The
Pooh merchandise for sale in its mail order catalog but will
not offer such merchandise in conjunction with its Bear-Gram
program.
There are no material barriers to entry into this
market, and accordingly, there can be no assurance that
other companies will not seek to compete directly with the
Company. Other companies that manufacture or source their
product off-shore may be able to sell comparable products at
retail prices below those currently offered by the Company.
Principal Products
From its inception, the Company's focus has been to
design and manufacture the best teddy bears made in America,
using quality American materials and labor. The Company
believes that, apart from its own manufactured product, most
of the teddy bears sold in the United States are
manufactured in foreign countries, and that the Company is
the largest manufacturer of teddy bears made in the United
States. The Company has sought to respond to customer
demand for American-made products by manufacturing its bears
in the United States using American materials, with the
exception of mohair and a "super plush" fabric on its
premium bears, which are obtained from European suppliers.
The Company produces many different sizes of bears, ranging
from 11" to 72" tall, in six standard colors. Virtually all
of the Company's teddy bears have moveable joints, a feature
associated with traditional, high-quality teddy bears.
<PAGE>
Additionally, approximately 100 different bear outfits are
manufactured, including ballerina bears, birthday bears,
bride and groom bears, business bears, nurse bears, and
sports bears. A percentage of the outfits are outsourced to
overseas contractors. The Company intends to monitor this
process carefully and examine the benefits and drawbacks of
overseas outfit manufacturing.
In addition to its own manufactured product, the
Company sells items related to teddy bears, as well as
merchandise from other manufacturers featuring the logo of
The Vermont Teddy Bear Company. Items such as apparel,
jewelry, and ornaments are available primarily in the
Company's retail stores and to a lesser extent through its
direct mail catalog. The Company also sells stuffed toys
that have been manufactured by other companies, such as Gund
and Steiff of Germany. The Company believes that these
product strategies will continue in the future, as the
Company actively re-positions itself to merchandise all
things related to teddy bears, including products from other
stuffed toy manufacturers.
Sources and Availability of Materials, Supplies, and
Production
Raw materials for the Company's bears and outfits are
obtained from several domestic suppliers. The Company
presently purchases certain of its raw materials from single
suppliers, but believes that alternate sources of supply are
available at competitive prices, should conditions warrant.
Fabric for all teddy bears is cut at the Company's Shelburne
factory, prior to sewing. Sewing of bear parts (arms, legs,
bodies, and heads) is done by employees, as well as by
homeworkers and subcontractors. Once individual parts are
sewn, they are returned to the factory for mechanical
stuffing. The bears are assembled by attaching the stuffed
parts to the bears with plastic joints, hand-stuffing the
bodies, and hand-stitching the backs. The Company also
produces outfits for the bears, which are then "dressed" to
meet customer requests.
Patents, Trademarks, and Licenses
The Company's name in combination with its original
logo is a registered trademark in the United States. In
addition, the Company also owns the registered trademarks in
the United States for "The Vermont Teddy Bear Company,"
"Bear-Gram" and "Teddy Bear-Gram." The Company also owns
the registered service marks "Bear Counselor," "Vermont
Bear-Gram" and "Racer Ted," and has applications pending to
register the Company's second and third Company logos,
"Vermont Baby Bear," "Vermont Bear-Gram," "Make-A-Friend-
<PAGE>
For-Life," "The Great American Teddy Bear," "All-American
Teddy Bear," "Beau and Beebee," "Bear Bottoms," and "The
Acme Moving Picture Group" and "Acme Cartoon Company." The
Company also uses the trade names "Vermont Teddy Wear" and
"Wilderness Bear."
The Company has continuously used the mark "Bear-Gram"
since April 1985. Its initial application to register that
mark, filed June 13, 1990, was rejected by the United States
Patent and Trademark Office due, among other things to prior
registration of the mark "Bear-A-Grams," which was issued to
another company on June 7, 1988. Accordingly, the Company
reapplied to register "Bear-Gram." The Official Notice of
Registration from the United States Patent and Trademark
Office for the mark "Bear-Gram" was approved on, and is
dated, November 5, 1996.
The Company also claims copyright, service mark or
trademark protection for its teddy bear designs, its
marketing slogans, and its advertising copy and promotional
literature.
Employees
As of June 30, 1997, the Company employed 169
individuals, of whom 88 persons were employed in production-
related functions, 58 persons were employed in sales and
marketing positions, and 23 were employed in general and
administrative positions. No employees are members of a
union, and the Company believes it enjoys favorable
relations with all employees.
The Company supplements its regular in-house work force
with homeworkers who perform production functions at their
homes. The level of outsourced work fluctuates with Company
production targets; at June 30, 1997, there were fifteen
homeworkers producing product for the Company. Homeworkers
are treated by the Company as independent contractors for
all purposes, except for withholding of federal employment
taxes. As independent contractors, homeworkers are free to
accept or reject work offered by the Company. This working
relationship allows the Company to adapt to fluctuations in
production requirements.
Item 2. Description of Property
In July 1995, in an effort to consolidate the Company's
disparate locations and improve manufacturing flow, the
Company moved its principal offices, along with its retail
store, manufacturing, sales, and fulfillment operations to
its newly-constructed 62,000 square foot building, located
on a 57-acre site along U.S. Route 7 in Shelburne, Vermont.
<PAGE>
The new site is two miles south of the Company's former
location, and ten miles south of Burlington, Vermont. The
Company purchased the site for approximately $817,000, and
the cost of improving the site and constructing the new
facility totaled approximately $7.1 million. On September
26, 1995, the Company entered into a $3.5 million commercial
loan with the Vermont National Bank, secured by a first
mortgage on the new facility, as well as general business
assets. Repayment of the mortgage loan was based on a
thirty-year fixed principal payment schedule, with a balloon
payment due on September 26, 1997.
On July 18, 1997, the Company completed a
sale-leaseback transaction, involving its factory
headquarters and a portion of its property located in
Shelburne, Vermont. This financing replaced the Company's
mortgage loan agreement with the Vermont National Bank. The
Company received approximately $5.9 million in cash, of
which approximately $3.3 million was used to pay off the
existing mortgage with the Vermont National Bank. The
balance, approximately $2.6 million, was used for general
working capital purposes, to pay down a $600,000 balance on
the Company's line of credit (which was retired as the
result of the termination of the original mortgage loan),
and transaction costs associated with the sale-leaseback.
The lease obligation, secured by the business assets of the
Company, is payable on a twenty-year amortization schedule
through July 2017.
The Company has a three-year lease on 10,000 square
feet of inventory space at a separate location in Shelburne,
Vermont, one mile north of the factory, for $14,000
annually. The Company also has entered into the following
lease agreements for its retail stores:
Square Annual Lease
Lease
Location Footage Rent
Length Expiration
North Conway, NH 6,000 $ 48,204 5 years
6/28/2001
New York City, NY 2,600 $300,000 10 years
10/23/2006
Freeport, ME 6,000 $240,000 10 years
9/1/2007
The annual rent listed in the table above is for fiscal
year 1998 only. The annual rent for the Company's North
Conway, New Hampshire location will increase to $49,608,
effective June 28, 1998, to $51,012, effective June 28,
1999, and to $52,416, effective June 28, 2000. The annual
rent for the Company's New York City, New York location will
increase to $330,000, effective January 1, 2000, and to
$363,000, effective January 1, 2003. The annual rent for
<PAGE>
the Company's Freeport, Maine location will increase to
$252,000, effective September 1, 2001, and to $264,000,
effective September 1, 2004. These figures are the cash
payments due to the respective lessors, which may differ
from the actual amount expensed for accounting purposes in
any given fiscal year.
The Company intends to sublet 3,000 square feet of its
retail space in Freeport, Maine for use by one or more other
retailers. The Company has entered into a sublease
agreement to sublet 1,684 square feet, and intends to sublet
the remaining 1,316 square feet to an additional retailer.
Item 3. Legal Proceedings
The Company is not a party to any material legal
proceedings except for the following:
The Company filed a lawsuit against The Walt Disney
Catalog, Inc., Disney Enterprises, Inc., and the Disney
Store, Inc. ("Defendants"), entitled The Vermont Teddy Bear
Co., Inc. v. The Walt Disney Catalog, Inc., Disney
Enterprises, Inc., and the Disney Store, Inc. on May 16,
1997, in the United States District Court for the Eastern
District of Virginia, Civil Action No. 97-762-A, alleging
trademark and trade dress infringement and unfair
competition in connection with the Company's service marks
Bear-Gram, Vermont Bear-Gram, and the Company's logo. On
September 9, 1997, the parties entered into a binding
settlement agreement, providing for certain assurances that
the Defendants will adequately distinguish their trademarks
and service marks from those of the Company and limit their
use of the Pooh-Gram mark in certain advertising. The
Company remains committed to preserving and strengthening
its trademarks and servicemarks.
Item 4. Submission of Matters to a Vote of Security Holders
There was no matter submitted to a vote of security
holders during the fourth quarter of the fiscal year covered
by this report.
Item 5. Market for Common Equity and Related Stockholder
Matters
Market Information
At the time of the initial public offering of 1,172,500
shares of the Company's Common Stock in November, 1993, the
Company's Common Stock had been approved for quotation on
NASDAQ and the Pacific Stock Exchange under the symbols
<PAGE>
"BEAR" and "VTB," respectively. To date, NASDAQ has been
the principal market for the exchange of the freely tradable
shares of the Company's Common Stock. On July 31, 1996, the
Company voluntarily de-listed from the Pacific Stock
Exchange as a result of minimal trading volume. Between July
1, 1995 and June 30, 1997, the high and low sales prices for
a share of the Company's Common Stock as quoted on NASDAQ
were as follows:
Quarter Ended High Low
June 30, 1997 $ 1.88 $ 1.00
March 31, 1997 $ 2.88 $ 1.38
December 31, 1996 $ 3.25 $ 2.25
September 31, 1996 $ 3.38 $ 2.13
June 30, 1996 $ 3.63 $ 2.38
March 31, 1996 $ 3.75 $ 2.75
December 31, 1995 $ 5.13 $ 3.13
September 30, 1995 $ 6.25 $ 3.25
Description of Securities
Immediately prior to the Company's initial public
offering, there were 4,000,000 shares of the Company's
Common Stock outstanding, held of record by nine
shareholders. As a result of this 1,000,000 share initial
public offering and the Underwriters' purchase of an
additional 172,500 shares to cover over-allotments in
connection therewith, there were 5,172,500 shares of the
Company's Common Stock outstanding immediately following the
offering. On March 8, 1995, the Company purchased 12,000
common shares in the open market, and continues to hold
these shares as treasury stock. On March 1, 1996, 250
shares of the Company's Common Stock were issued pursuant to
the exercise of an employee Incentive Stock Option. As a
result of these activities, there were 5,160,750 shares of
the Company's Common Stock outstanding, held of record by
1,380 shareholders as of June 30, 1996.
There are 90 shares of non-voting Series A Preferred
Stock, held of record by one shareholder, with a liquidation
value of $10,000 per share, and a cumulative dividend at a
rate of eight percent per annum. There has been no change
in the number of Series A preferred shares, and the original
shareholder remains the sole shareholder of Series A
Preferred Stock.
On July 12, 1996, the Company privately placed $550,000
of Series B convertible Preferred Stock. The 204,912 Series
B preferred shares, held of record by twelve shareholders,
are not entitled to any dividends or voting rights, but each
share was originally convertible into one share of the
Company's Common Stock at any time on or after July 12,
1997. On July 18, 1997, as the result of a warrant granted
<PAGE>
in conjunction with the sale-leaseback transaction, the
anti-dilution provisions of the Series B agreement were
activated, and each share of Series B Preferred Stock is now
convertible into 1.85 shares of Common Stock. Common shares
issued as the result of the conversion of the Series B
Preferred Stock shall be considered "restricted securities"
and shall be subject to certain registration rights. On
liquidation, dissolution, or winding up of the Company,
holders of Series B Preferred Stock are entitled to be paid
on a pari passu basis with any holders of Series A Preferred
Stock.
Dividends
The Company has never paid cash dividends on any shares
of its Common Stock, and the Company's Board of Directors
intends to continue this policy for the foreseeable future.
Earnings, if any, will be used to finance the development
and expansion of the Company's business. The Company's
ability to pay dividends on its Common Stock is limited by
the preferences of the outstanding Preferred Stock of the
Company as well as certain indebtedness, and may be further
limited by the terms of Preferred Stock issued or other
indebtedness incurred by the Company in the future. Future
dividend policy will depend upon the Company's earnings,
capital requirements, financial condition and other factors
considered relevant by the Company's Board of Directors.
The Series A Preferred Stock is entitled to receive
cumulative dividends of eight percent per annum, which are
payable before any dividend may be paid upon, or set apart
for, the Common Stock outstanding. The Series B Preferred
Stock is not entitled to receive dividends.
Item 6. Management's Discussion and Analysis or Plan of
Operation
The following discussion and analysis provides information
that the Company's management believes is relevant to an
assessment and understanding of the Company's results of
operations and financial condition. The discussion should
be read in conjunction with the financial statements and
footnotes that appear elsewhere in this report, as well as
the 10-KSB filing for the fiscal year ending June 30, 1996.
This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995, Section 27A of the Securities Act of 1993 and Section
21E of the Securities Exchange Act of 1934. The words
"believe," "expect," "anticipate," "intend," "estimate," and
other expressions that are predictions of or indicate future
events and trends and that do not relate to historical
matters identify forward-looking statements. Such
statements involve risks and uncertainties that could cause
<PAGE>
actual results to differ materially from those set forth in
such forward-looking statements. The Company undertakes no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future
events or otherwise.
Results of Operations
Comparison of Fiscal Year 1997 and Fiscal Year 1996
Net revenues for the fiscal year ended June 30, 1997
totaled $16,489,000, a decrease of $551,000 from net
revenues of $17,040,000 for the fiscal year ended June 30,
1996. By business segment, direct mail revenues increased
$578,000 as the number of circulated pages during the year
was more than quadruple the number of circulated pages in
the prior fiscal year. Retail store net revenues improved by
$722,000, with the addition of new retail locations in North
Conway, New Hampshire and New York, New York providing
additional sources of revenue. Licensing revenues increased
$43,000. Wholesale revenues dropped $516,000, as the
Company did not make any appearances on the QVC television
network in the current twelve-month period, as it had had in
the comparable twelve-month period of the prior fiscal year.
Radio Bear-Gram revenues decreased $1,378,000.
Gross margin decreased by $310,000 to $9,421,000 for
the fiscal year ended June 30, 1997, from $9,731,000 for the
fiscal year ended June 30, 1996. As a percentage of net
revenues, gross margin remained constant at 57.1 percent.
Selling expenses totaled $7,961,000, or 48.3 percent of
net revenues, for the fiscal year ended June 30, 1997, an
increase from $6,287,000, or 36.9 percent of net revenues,
for the comparable period ending June 30, 1996. This
$1,674,000 increase was attributable primarily to additional
costs associated with larger catalog circulation, higher
costs for handling telephone traffic at Valentine's Day, and
operating costs related to the Company's two new retail
stores, which were not in operation during the prior fiscal
year.
General and administrative expenses were $2,938,000 for
the fiscal year ended June 30, 1997, compared to $2,955,000
for the twelve-month period ended June 30, 1996. As a
percentage of net revenues, general and administrative
expenses were 17.8 percent for the fiscal year ended June
30, 1997, compared to 17.3 percent for the fiscal year ended
June 30, 1996.
As a result of the foregoing factors, the net loss to
Common Stockholders for the fiscal year ended June 30, 1997
was $1,974,000, compared to a net income to Common
<PAGE>
Stockholders of $152,000 for the twelve months ended June
30, 1996. By an agreement dated April 12, 1996, the sole
holder of the Series A Preferred Stock waived her right to
receive $72,000 in dividends, which would have accumulated
and accrued during the fiscal year ended June 30, 1996, as
well as $54,000 worth of dividends accrued in the nine
months ended June 30, 1995, in exchange for a five-year
warrant to purchase 43,826 shares of Common Stock at an
exercise price of $2.875 per share. Preferred Stock
dividends totaling $72,000 were declared during the twelve-
month period ended June 30, 1997, and have been accrued.
Liquidity and Capital Resources
As of June 30, 1997, the Company's cash position
decreased to $442,000, from $1,122,000 at June 30, 1996. Of
the $442,000, $365,000 is classified as restricted cash;
there was also $365,000 of restricted cash at June 30, 1996.
The largest component of the restricted cash was $300,000
restricted by a debt service reserve, which was required as
part of the Company's loan agreement with the Vermont
National Bank. Operating losses and an increase in
inventory more than offset borrowings of short-term debt and
increases in accounts payable.
Inventory levels of materials and finished goods and
work-in-process totaled $3,302,000 at June 30, 1997,
compared to $1,975,000 at June 30, 1996. The increase is
primarily the result of merchandise purchased for resale for
the Company's catalog and retail stores, as well as the
stocking of its off-site retail locations. Accounts payable
totaled $2,563,000 at June 30, 1997, compared to $1,354,000
at June 30, 1996. This increase reflects purchases of
inventoried items and an increase in radio advertising for
the Mother's Day holiday.
On October 10, 1997, the Company received a binding
commitment letter from Green Mountain Capital L.P., whereby
it agreed to lend the Company up to $200,000 in the form of
a five-year term loan. The loan would bear interest at 12
percent per annum, would be repayable in monthly
installments over the five-year term, and would be secured
by a security interest in the Company's real and personal
property. In conjunction with the issuance of the notes,
Green Mountain Capital will receive warrants to purchase
100,000 shares of Common Stock, at an exercise price of
$1.00 per share, subject to certain anti-dilution
provisions. (The prior warrants granted to Green Mountain
Capital to purchase 20,000 shares at $3.375 will be canceled
upon the issuance of this new note.) The right to exercise
these warrants begins two years from the date of the loan,
and expires the earlier of five years after the full
repayment of the loan and existing notes or seven years from
<PAGE>
the date of the loan.
On July 18, 1997, the Company completed a
sale-leaseback transaction, involving its factory
headquarters and a portion of its property located in
Shelburne, Vermont. This financing replaced the Company's
mortgage and line of credit agreement with the Vermont
National Bank. The Company received approximately $5.9
million in cash, of which approximately $3.3 million was
used to pay off the existing mortgage with the Vermont
National Bank. The balance, approximately $2.6 million, was
used for general working capital purposes, to pay down a
$600,000 balance on the Company's line of credit (which was
retired as the result of the termination of the original
mortgage loan), and transaction costs of $591,000 associated
with the sale-leaseback. The lease obligation, secured by
the business assets of the Company, is payable on a
twenty-year amortization schedule through July 2017.
On July 12, 1996, the Company privately placed $550,000
of Series B convertible Preferred Stock. The 204,912 Series
B preferred shares, held of record by twelve shareholders,
are not entitled to any dividends or voting rights, but each
share is convertible into one share of the Company's Common
Stock at any time on or after July 12, 1997. Accompanying
the issuance of the Preferred Stock were warrants to
purchase 204,912 shares of the Company's Common at a price
of $2.434 per share, exercisable between July 12, 1997 and
July 12, 1999, subject to certain anti-dilution provisions
(see footnote 9). In addition, finder's warrants for 10,245
common shares were issued with the same terms and
conditions. On July 18, 1997, as the result of a warrant
granted in conjunction with the sale-leaseback transaction,
the anti-dilution provisions of the Series B Preferred Stock
agreement were activated. Each share of Series B Preferred
Stock is now convertible into 1.85 shares of Common Stock.
Common shares issued as the result of the conversion of the
Series B Preferred Stock and/or the exercise of the warrant
shall be considered "restricted securities" and shall be
subject to certain registration rights. On liquidation,
dissolution, or winding up of the Company, holders of Series
B Preferred Stock are entitled to be paid on a pari passu
basis with any holders of Series A Preferred Stock.
On December 26, 1995, Green Mountain Capital L.P.
agreed to lend the company up to $500,000 in the form of
five-year term notes. As of June 30, 1997, the entire
$500,000 had been borrowed. The notes bear interest at 12
percent per annum, are repaid in monthly installments
through December 26, 2000, and are secured by a subordinated
security interest in the Company's personal property. In
conjunction with the issuance of the notes, Green Mountain
Capital received warrants to purchase 20,000 shares of
Common Stock, at an exercise price of $3.375 per share. The
<PAGE>
right to exercise these warrants begins December 26, 1997,
and expires the earlier of December 26, 2002 or five years
after full repayment of the loan. In the event that the
Company borrows more funds from Green Mountain Capital under
the October 10, 1997 binding commitment letter, the
aforementioned warrants to purchase 20,000 shares of Common
stock will be canceled.
The Company is operating without a working capital line
of credit facility, effective July 18, 1997. As such, the
Company's ability to fund its operations over the short-term
is dependent upon its success in achieving its business plan
for fiscal 1998 or obtaining additional financing. If the
Company is unsuccessful in achieving its business plan or
obtaining additional financing, its short-term liquidity may
be adversely impacted, which could require a curtailment of
certain business activities that, in turn, could have a
material adverse effect on the Company's business.
Item 7. Financial Statements
The list of financial statements set forth under the
caption "Index to Financial Statements" on page 24 below is
incorporated herein by reference.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
Not applicable.
Item 9. Directors, Executive Officers, Promoters and
Control Persons;
Compliance With Section 16(a) of the Exchange
Act
Information concerning the directors and executive
officers of the Company, their terms of office, the periods
during which they have served, their personal business
experiences is included in the Company's definitive Proxy
Statement for its 1997 Annual Meeting and is specifically
incorporated herein by reference.
Item 10. Executive Compensation
Information regarding compensation of the Company's
directors and officers is included in the Company's
definitive Proxy Statement for its 1997 Annual Meeting and
is specifically incorporated herein by reference.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners
and Management
Information with respect to the beneficial ownership of
the outstanding shares of the Company's Common Stock by (i)
all persons owning of record, or beneficially to the
knowledge of the Company, more than five percent of the
outstanding shares, (ii) each director and executive officer
of the Company individually, and (iii) all directors and
officers of the Company as a group, is included in the
Company's definitive Proxy Statement for its 1997 Annual
Meeting and is specifically incorporated herein by
reference.
Item 12. Certain Relationships and Related Transactions
Information regarding certain relationships and
transactions between the Company and its directors,
director-nominees, executive officers, and the family
members of these individuals is included in the Company's
definitive Proxy Statement for its 1997 Annual Meeting and
is specifically incorporated herein by reference.
Item 13. Exhibits and Reports on Form 8-K
Exhibits
3.3 Restated Certificate of Incorporation of the Company
(filed with the Securities
and Exchange Commission as exhibit 3.3 to the Company's
1996 Annual
Report on Form 10-KSB (File No. 33-69898) and
incorporated herein by
reference).
3.4 Amended and Restated By-Laws of the Company (filed
with the
Securities and Exchange Commission as exhibit 3.4 to
the Company's 10-
QSB for the quarter ended December 31, 1996 and
incorporated herein by
reference).
4.1 Representative's Warrant issued to Barington Capital
Group, L.P. upon
the consummation of the initial public offering of the
Company's Common
Stock in November 1993 (filed with the Securities and
Exchange Commission
as exhibit 4.1 to the Company's 1993 Annual Report on
Form 10-KSB (File No.
33-69898) and incorporated herein by reference).
<PAGE>
4.2 Form of Common Stock Certificate (filed with the
Securities and Exchange
Commission as exhibit 4.2 to the Company's Registration
Statement on Form
SB-2 (File No. 33-69898) and incorporated herein by
reference).
4.3 Form of Warrant, issued in connection with the private
placement of 204,912
shares of the Company's Series B Convertible Preferred
Stock (filed with the
Securities and Exchange Commission as exhibit 4.3 to
the Company's 1996
Annual Report on Form 10-KSB (File No. 33-69898) and
incorporated herein
by reference).
4.4 Form of Subscription Agreement issued in connection
with the private
placement of 204,912 shares of the Company's Series B
Convertible
Preferred Stock (filed with the Securities and Exchange
Commission as exhibit
4.4 to the Company's 1996 Annual Report on Form 10-KSB
(File No. 33-69898)
and incorporated herein by reference).
4.5 Waiver of Joan H. Martin, dated April 12, 1996, issued
in connection with
waiver of accrued dividends on Series A Preferred Stock
(filed with the
Securities and Exchange Commission as exhibit 4.5 to
the Company's 1996
Annual Report on Form 10-KSB (File No. 33-69898) and
incorporated herein
by reference).
4.6 Warrant to purchase 43,826.087 shares of the Company's
Common Stock,
dated April 12, 1996, issued in connection with Joan H.
Martin's waiver of
accrued dividends on Series A Preferred Stock (filed
with the Securities and
Exchange Commission as exhibit 4.6 to the Company's
1996 Annual Report
on Form 10-KSB (File No. 33-69898) and incorporated
herein by reference).
4.7 Stock Purchase Warrant Agreement, dated July 10, 1997,
between the
Company and URSA (VT) QRS-30, Inc., in conjunction
with the sale-leaseback
of the Company's headquarters in Shelburne, Vermont
<PAGE>
(filed herein).
10.2 Stock warrants issued to Edmund H. Shea, Jr. IRA, Allan
Lyons and William
Maines in connection with the bridge financing prior to
the initial public
offering of the Company's Common Stock in November 1993
(a form of which
was filed with the Securities and Exchange Commission
as exhibit 10.2 to the
Company's Registration Statement on Form SB-2 (File No.
33-69898) and
incorporated herein by reference).
10.10 Incentive Stock Option Plan adopted by the Company
on August 16, 1993, with
form of Incentive Stock Option Agreement (filed with
the Securities and
Exchange Commission as exhibit 10.10 to the Company's
Registration
Statement on Form SB-2 (File No. 33-69898) and
incorporated herein by
reference).
10.11 Securities Purchase Agreement, dated June 10, 1987
between the Company
and VTB Investment Group and Joan Hixon Martin (filed
with the Securities
and Exchange Commission as exhibit 10.11 to the
Company's Registration
Statement on Form SB-2 (File No. 33- 69898) and
incorporated herein by
reference).
10.12 Agreement, dated as of June 19, 1995, between the
Company and John N.
Sortino, providing the terms of Mr. Sortino's
separation agreement with the
Company (filed with the Securities and Exchange
Commission as exhibit 10.12
to the Company's 10-KSB for the transition period ended
June 30, 1995 and
incorporated herein by reference).
10.13 Employment Agreement and Loan Arrangement, dated
July 31, 1995, between
the Company and R. Patrick Burns providing the terms of
Mr. Burns'
employment with the Company as Chief Executive Officer
(filed with the
Securities and Exchange Commission as exhibit 10.13 to
the Company's 10-
KSB for the transition period ended June 30, 1995 and
incorporated herein by
<PAGE>
reference).
10.14 Employment Agreement, dated November 1, 1993,
between the Company and
Spencer C. Putnam (filed with the Securities and
Exchange Commission as
exhibit 10.14 to the Company's Registration Statement
on Form SB-2 (File No.
33-69898) and incorporated herein by reference).
10.17 Commitment Letter issued by Vermont National Bank,
Burlington, Vermont,
dated September 18, 1995, in connection with a
Commercial Mortgage Loan
and a Line of Credit Loan (filed with the Securities
and Exchange Commission
as exhibit 10.17 to the Company's 10-KSB for the
transition period ended June
30, 1995 and incorporated herein by reference).
10.18 Loan Agreement, dated September 26, 1995, between
the Company and
Vermont National Bank regarding $3,500,000 Term Loan
and $1,000,000 Line
of Credit Loan (filed with the Securities and Exchange
Commission as exhibit
10.18 to the Company's 10-KSB for the transition period
ended June 30, 1995
and incorporated herein by reference).
10.19 Commercial Term Note, dated September 26, 1995,
issued in connection with
the $3,500,000 Term Loan of Vermont National Bank
(filed with the Securities
and Exchange Commission as exhibit 10.19 to the
Company's 10-KSB for the
transition period ended June 30, 1995 and incorporated
herein by reference).
10.20 Commercial Time Note, dated September 26, 1995,
issued in connection with
the $1,000,000 Line of Credit Loan of Vermont National
Bank (filed with the
Securities and Exchange Commission as exhibit 10.20 to
the Company's 10-
KSB for the transition period ended June 30, 1995 and
incorporated herein by
reference).
10.24 Amended 1993 Incentive Stock Option Plan of the
Company, amended as of
November 28, 1995 (filed with the Securities and
Exchange Commission as
exhibit 10.24 to the Company's 10-QSB for the quarter
<PAGE>
ended March 31,
1995 and incorporated herein by reference).
10.25 Loan Agreement, dated December 26, 1995, between
Green Mountain Capital,
L.P. and the Company in connection with a $500,000 Term
Loan (filed with the
Securities and Exchange Commission as exhibit 10.25 to
the Company's 10-
QSB for the quarter ended December 31, 1995 and
incorporated herein by
reference).
10.26 Convertible Note, dated December 26, 1995, in the
principal amount of
$200,000, issued in connection with the $500,000 Term
Loan of Green
Mountain Capital (filed with the Securities and
Exchange Commission as
exhibit 10.26 to the Company's 10-QSB for the quarter
ended December 31,
1995 and incorporated herein by reference).
10.27 Stock Purchase Warrant Agreement, dated December
26, 1995, in connection
with the $500,000 Term Loan of Green Mountain Capital
(filed with the
Securities and Exchange Commission as exhibit 10.27 to
the Company's 10-
QSB for the quarter ended December 31, 1995 and
incorporated herein by
reference).
10.28 Employment and Loan Agreements, dated June 30,
1996, between the
Company and R. Patrick Burns (filed with the Securities
and Exchange
Commission as exhibit 10.28 to the Company's 1996
Annual Report on Form
10-KSB (File No. 33-69898) and incorporated herein by
reference).
10.29 Employment Agreement, dated July 1, 1996, between
the Company and
Elisabeth B. Robert (filed with the Securities and
Exchange
Commission as exhibit 10.29 to the Company's 1996
Annual Report on Form
10-KSB (File No. 33-69898) and incorporated herein by
reference).
10.30 Amended 1993 Incentive Stock Option Plan of the
Company, amended as of
November 22, 1996 (filed with the Securities and
<PAGE>
Exchange Commission as
exhibit 10.30 to the Company's 10-QSB for the quarter
ended December 31,
1996 and incorporated herein by reference).
10.31 Non-Employee Directors Stock Option Plan adopted
by the Company on
November 22, 1996 (filed with the Securities and
Exchange Commission as
exhibit 10.31 to the Company's 10-QSB for the quarter
ended December 31,
1996 and incorporated herein by reference).
10.32 Employment Agreement, dated as of July 1, 1996,
between the Company and
Spencer C. Putnam (filed with the Securities and
Exchange Commission as
exhibit 10.32 to the Company's 10-QSB for the quarter
ended December 31,
1996 and incorporated herein by reference).
10.33 Convertible Note, dated November 19, 1996, in the
principal amount of
$300,000, issued in connection with the $500,000 Term
Loan of Green
Mountain Capital (filed with the Securities and
Exchange Commission as
exhibit 10.33 to the Company's 10-QSB for the quarter
ended December 31,
1996 and incorporated herein by reference).
10.34 Lease Agreement, dated October 24, 1996, in
connection with the Company's
lease of 600 square feet at 538 Madison Avenue in New
York, New York (filed
herein).
10.35 Consulting Agreement, dated December 31, 1996,
between the Company and
Venture Management Group, Inc., regarding the provision
of consulting
services to the Company (filed herein).
10.36 Lease Agreement, dated January 17, 1997, in
connection with the Company's
lease of 6,000 square feet at 55 Main Street in
Freeport, Maine (filed herein).
10.37 Lease Agreement, dated July 10, between the
Company and URSA (VT)
QRS-30, Inc., regarding the sale-leaseback of the
Company's headquarters in
Shelburne, Vermont (filed herein).
<PAGE>
10.38 Binding commitment letter, dated October 10, 1997,
from Green Mountain
Capital LP, in connection with a $200,000 term loan
(filed herein).
23.1 Consent of Arthur Andersen, LLP, dated October 14, 1997
(filed herein)
24 Power of Attorney (filed with the Securities and
Exchange Commission as
exhibit 24 to the Company's Registration Statement on
Form SB-2 (File No.
33-69898) and incorporated herein by reference.
Reports on Form 8-K
There were no reports filed on Form 8-K during the fourth
quarter of 1997.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE VERMONT TEDDY BEAR CO., INC.
Dated: October 14, 1997 By: /s/ Elisabeth B. Robert
,
Elisabeth B. Robert, President
<PAGE>
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 Company and in the
capacities and on the date indicated.
Dated: October 13, 1997 By: /s/ Jason Bacon,
Jason Bacon, Director
Dated: October 10, 1997 By: /s/ R. Patrick Burns,
R. Patrick Burns, Director
Dated: October 10, 1997 By: /s/ David W. Garrett,
David W. Garrett, Director
Dated: October 10, 1997 By: /s/ Fred Marks,
Fred Marks, Director and Chairman
of the Board
Dated: October 9, 1997 By: /s/ Joan H. Martin,
Joan H. Martin, Director
Dated: October 10, 1997 By: /s/ Spencer C. Putnam
Spencer C. Putnam, Director, Vice
President and Secretary
Dated: October 10, 1997 By: /s/ Elisabeth B. Robert
Elisabeth B. Robert, Director
President, Treasurer, Chief
Executive Officer and Chief
Financial Officer
The Vermont Teddy Bear Co., Inc.
1997 Form 10-KSB Annual Report
Index To Financial Statements
Page
Independent Auditor's Report
22
Balance Sheets as of June 30, 1997 and 1996
23
Statements of Operations for the years ended June 30, 1997
and 1996 24
Statements of Stockholders' Equity for the years ended June
30,
1997 and 1996 25
<PAGE>
Statements of Cash Flows for the years ended June 30, 1997
and
1996 26
Notes to Financial Statements
27
Report of Independent Public Accountants
To the Stockholders and Board of Directors of
The Vermont Teddy Bear Co., Inc.:
We have audited the accompanying balance sheets of The
Vermont Teddy Bear Co., Inc. (a New York corporation) as of
June 30, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the
years then ended. 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,
<PAGE>
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of The Vermont Teddy Bear Co., Inc. as of June 30,
1997 and 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 10, 1997
(Except with respect to the matter discussed in
Note 11, as to which the date is October 10, 1997.)
The Vermont Teddy Bear Co., Inc.
Balance Sheets
June 30, 1997 and 1996
1997
1996
ASSETS
Current Assets:
Cash and cash equivalents (includes
restricted cash of $365,000) $ 441,573 $
1,121,500
Accounts receivable, trade
46,304
131,550
Inventories
3,302,313
1,974,731
Prepaid expenses and other current assets
386,947
277,502
Deferred income taxes
259,016
240,585
------
----- ---
--------
Total Current Assets
4,436,153
3,745,868
<PAGE>
Property and equipment, net
9,845,935
10,300,318
Deposits and other assets
272,348
98,086
Note receivable
95,000
95,000
-------
----- ---
--------
Total Assets $
14,649,436
$14,239,272
============
===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Line of credit $
550,000 $
-
Current portion of:
Long-term debt
3,443,096
187,095
Capital lease obligations
103,759
104,146
Accounts payable
2,562,536
1,353,698
Accrued expenses
657,347
449,048
Income taxes payable
-
37,365
-----
----- ---
-------
Total Current Liabilities
7,316,738
2,131,352
Long-term debt,net of current portion
372,999
3,505,812
<PAGE>
Capital lease obligations,
net of current portion
209,054
312,814
Other liabilities
-
84,430
Deferred income taxes
259,016
240,585
------
----- ---
-------
Total Liabilities $
8,157,807 $
6,274,993
Stockholders' Equity:
Preferred stock, $.05 par value:
Authorized 1,000,000 Series A; $
900,000 $
900,000
issued and outstanding, 90 shares.
Authorized 375,000 Series B;
issued and outstanding, 204,912 shares.
10,245
-
Common stock, $.05 par value:
Authorized 20,000,000 shares;
issued 5,172,750 shares,
outstanding 5,160,750 shares
258,638
258,638
Additional paid-in capital
10,565,482
10,074,595
Treasury stock, at cost, 12,000 shares
(106,824)
(106,824)
Accumulated deficit
(5,135,912)
(3,162,130)
------
----- ---
-------
Total Stockholders' Equity $
6,491,629 $
7,964,279
Total Liabilities and
Stockholders' Equity
$14,649,436
$14,239,272
<PAGE>
==========
==========
The accompanying notes are an integral part of
these
financial statements.
The Vermont Teddy Bear Co., Inc.
Statements of Operations
For the Years Ended June 30, 1997 and 1996
1997
1996
Net Revenues
$16,489,482
$17,039,618
Cost of Goods Sold
7,068,549
7,309,038
-----
------
----------- Gross Profit
9,420,933 9,730,580
Selling, General and Administrative Expenses:
Selling Expenses
7,961,003
6,287,208
General and Administrative Expenses
2,938,251
2,954,601
-----
------
-----------
10,899,254
9,241,809
Operating Income (Loss)
(1,478,321)
488,771
Interest Income
53,267
41,092
Interest Expense
(464,765)
(441,146)
Other Income (Expense)
(11,963)
63,236
-----
<PAGE>
------
-----------
Income (Loss) Before Income Taxes
(1,901,782)
151,953
Income Tax Provision
-
-
-----
------
-----------
Net Income (Loss)
(1,901,782)
151,953
Preferred Stock Dividends
(72,000)
-
-----
------
-----------
Net Income (Loss) -- Common Stockholders
$(1,973,782)
$ 151,953
===========
===========
Net Income (Loss) Per Common Share $
(0.38)
$ 0.03
Weighted Average Number of Common
Shares Outstanding
5,160,750
5,160,583
===========
===========
The accompanying notes are an integral part of
these
financial statements.
The Vermont Teddy Bear Co., Inc.
Statements of Stockholders' Equity
For the Years Ended June 30, 1997 and 1996
Preferred Stock Preferred
Stock
Series "A" Series
"B"
Shares Amount Shares
<PAGE>
Amount
Balance at June 30, 1995 90 $ 900,000 - $
-
Issuance of Stock - - -
-
Net Income - - -
-
------- --------- ------- ---
------
Balance at June 30, 1996 90 $ 900,000 - $
-
Issuance of Stock - - 204,912
10,245
Net Loss - - -
-
Preferred Stock Dividends - - -
-
------- --------- ------- ---
------
Balance at June 30, 1997 90 $ 900,000 204,912 $
10,245
======= ========= =======
=========
Additional
Common Stock Paid-
In
Shares Amount
Capital
Balance at June 30, 1995 5,172,500 $ 258,625
$10,073,842
Issuance of Stock 250 13
753
Net Income - -
-
--------- ---------- ---------
--
Balance at June 30, 1996 5,172,750 $ 258,638
$10,074,595
Issuance of Stock - -
490,887
Net Loss - -
-
Preferred Stock Dividends - -
-
--------- ---------- ---------
--
Balance at June 30, 1997 5,172,750 $ 258,638
$10,565,482
========= ==========
<PAGE>
===========
Total
Treasury Accumulated
Stockholders'
Stock Deficit
Equity
Balance at June 30, 1995 $ (106,824) $(3,314,083) $
7,811,560
Issuance of Stock - -
766
Net Income - 151,953
151,953
----------- ----------- -----
------
Balance at June 30, 1996 $ (106,824) $(3,162,130) $
7,964,279
Issuance of Stock - -
501,132
Net Loss - (1,901,782)
(1,901,782)
Preferred Stock Dividends - (72,000)
(72,000)
----------- ----------- -----
------
Balance at June 30, 1997 $ (106,824) $(5,135,912) $
6,491,629
=========== ===========
===========
The Vermont Teddy Bear Co., Inc.S
Statements of Cash Flows
For the Years Ended June 30, 1997 and 1996
1997 1996
Cash Flows From Operating Activities:
Net income (loss) $
(1,901,782) $ 151,953
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization
943,163 818,024
Loss on sale/disposal of fixed assets
20,797 4,610
Changes in assets and liabilities:
Accounts receivable, trade
85,246 (8,871)
Inventories
(1,327,582) 1,067,753
Prepaid and other current assets
(109,445) (64,266)
<PAGE>
Deposits and other assets
(174,262) 4,590
Accounts payable
1,208,838 (1,159,770)
Accrued expenses and other liabilities
51,869 (531,390)
Income taxes payable
(37,365) (53,524)
------
---- -----------
Net cash provided by (used for) operating activities
(1,240,523) 229,109
Cash Flows From Investing Activities:
Acquisition of property and equipment
(509,577) (605,970)
Proceeds from sale of fixed assets
- 40,455
Note receivable
- 95,000
-------
---- -----------
Net cash used for investing activities
(509,577) (470,515)
Cash Flows From Financing Activities:
Borrowings of short-term debt
2,069,143 1,616,572
Borrowings of long-term debt
357,104 3,724,150
Payments of short-term debt
(1,519,143) (4,771,602)
Payments of long-term debt
(233,916) (156,397)
Principal payments on capital lease obligations
(104,147) (121,445)
Issuance of common stock, exercise of stock option
- 766
Issuance of preferred stock
501,132 -
-------
--- ------------
Net cash provided by financing activities
1,070,173 292,044
Net Increase (Decrease) in Cash and Cash Equivalents
(679,927) 50,638
Cash and Cash Equivalents, Beginning of Period
1,121,500 1,070,862
Cash and Cash Equivalents, End of Period $
441,573 $ 1,121,500
<PAGE>
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $
462,707 $ 473,154
Cash paid for taxes $
2,218 $ 2,890
Non-cash financing, capital lease $
- $ 64,223
The accompanying notes are an integral part of these
financial statements.
The Vermont Teddy Bear Co., Inc.
Notes to Financial Statements
June 30, 1997
(1) Summary of Significant Accounting Policies
Description of Business
The Vermont Teddy Bear Co., Inc. (the Company), which
was
incorporated under the laws of the State of New York in
1984, is a designer, manufacturer and direct marketer of
Vermont-made teddy bears and related products. Principal
geographic markets include New York, Philadelphia, Chicago
and Boston. The Company's sales are heavily seasonal, with
Valentine's Day, Christmas and Mother's Day as the Company's
largest sales seasons.
Use of Estimates
The preparation of financial statements in conformity
with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
All highly liquid investments with initial maturities
of
three months or less are considered cash equivalents. At
June 30, 1997 and 1996, approximately $365,000 of the
Company's cash was restricted (Note 5).
<PAGE>
Inventories
Inventories are stated at the lower of cost or market
using
the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost, less
accumulated
depreciation. Equipment acquired under capital leases is
stated at the lower of the present value of future minimum
lease payments or fair value at the inception of the lease.
Depreciation, including amortization of assets covered
by
capital leases, is calculated using both the straight-line
and accelerated methods over the estimated useful lives of
the assets, as follows:
Building
39 years
Equipment
5-7
years
Furniture and
fixtures
3-7
years
Vehicles
5 years
Amortization of leasehold improvements is provided over
their estimated useful lives or the remaining lease term,
whichever is shorter. Renewals and improvements that extend
the useful lives of the assets are capitalized.
Expenditures for maintenance and repairs are charged to
expense as incurred.
Income Taxes
Deferred tax assets and liabilities are determined
based on
the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to
reverse.
Net Earnings per Share
The Company currently calculates earnings per common
share
under Accounting principles Board Opinion (APB) No. 15,
"Earnings Per Share." The income or loss per common share
<PAGE>
was computed by dividing the net income or loss by the
weighted average number of shares of common stock
outstanding during the year.
Advertising
The Company expenses the production costs of radio and
print
advertising the first time the advertising takes place.
Direct-response advertising is capitalized and amortized
over its expected period of future benefits.
Direct-response advertising consists primarily of
catalogs
for the Company's products. The capitalized costs are
amortized over the four-month period following the initial
mailing of the catalog.
At June 30, 1997 and June 30, 1996, capitalized
advertising
costs of approximately $15,000 and $50,000, respectively,
consisted primarily of unamortized direct-response catalogs.
Advertising expenses were $4,847,000 and $4,336,000 for the
twelve months ended June 30, 1997 and 1996, respectively.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance
with SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The
Company continually reviews its long-lived assets for events
or changes in circumstances that might indicate the carrying
amount of the assets may not be recoverable. The Company
assesses the recoverability of assets by determining whether
the depreciation of such assets over their remaining lives
can be recovered through projected undiscounted cash flows.
The amount of impairment, if any, is measured based on
projected discounted future cash flows using a discount rate
reflecting the Company's average cost of funds. At June 30,
1997, no such impairment of assets was indicated.
Fair Value of Financial Instruments
In accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 107, Disclosures
About Fair Value of Financial Instruments, the Company has
determined the estimated fair value of its financial
instruments using appropriate market information and
valuation methodologies. Considerable judgment is required
to develop the estimates of fair value; thus, the estimates
are not necessarily indicative of the amounts that could be
realized in a current market exchange. The Company's
financial instruments consist of cash, accounts receivable,
<PAGE>
accounts payable and bank debt. The carrying value of these
assets and liabilities is a reasonable estimate of their
fair market value at June 30, 1997 and 1996.
Recently Issued Accounting Standard
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share," which establishes standards
for computing and presenting earnings per share for entities
with publicly held common stock or potential common stock.
This statement is effective for the fiscal years ending
after December 15, 1997, and early adoption is not
permitted. When adopted, the statement will require
restatement of prior years' earnings per share. The Company
will adopt this statement for its fiscal year ending June
30, 1998. Under the provisions of SFAS No. 128, the pro
forma basic earnings per common share for 1997 would have
been ($.38). For fiscal year 1996 there would be no
material change.
(2) Inventories
Inventories consist of the following at June 30, 1997
and
1996:
1997
1996
Raw materials
$ 565,267
$ 645,763
Work-in-process
109,838
28,711
Finished goods
2,627,208
1,300,257
$ 3,302,313
$ 1,974,731
(3) Property and Equipment
<PAGE>
Property and equipment consist of the following at June
30,
1997 and 1996:
1997
1996
Land and land
improvements
$ 1,398,528
$ 1,398,528
Building
6,668,134
6,668,134
Equipment
3,654,005
3,456,837
Furniture and fixtures
374,769
291,250
Vehicles
122,159
122,159
Leasehold improvements
200,296
15,136
12,417,891
11,952,044
Less-Accumulated
depreciation and
amortization
2,571,956
1,651,726
$ 9,845,935
$ 10,300,318
Depreciation and amortization expense for the years
ended
June 30, 1997, and 1996 was $943,163 and $818,024,
respectively.
<PAGE>
(4) Related Party Transactions
On June 19, 1995, John N. Sortino resigned as the Chief
Executive Officer and President of the Company. The Company
entered into a separation agreement with Mr. Sortino on
June 19, 1995. Under the separation agreement, Mr. Sortino
is entitled to receive (1) cash compensation of $100,000 in
calendar 1995 (including compensation totaling $40,430
already paid to Mr. Sortino as Chief Executive Officer of
the Company), $120,000 in calendar 1996 and $150,000 in
calendar 1997; (2) a bonus of $100,000; (3) the forgiveness
of amounts outstanding to the Company, which include
approximately $128,000 in principal and $64,000 in accrued
interest; and (4) health insurance benefits generally
available to employees of the Company. The Company accrued
and expensed the entire amount due to Mr. Sortino under this
agreement during the six-month period ended June 30, 1995
and will not seek any services from him in the future. The
total accrued severance as of June 30, 1997 and 1996 was
approximately $75,000 and $205,000, respectively. The
current amounts have been included as components of accrued
expenses in the accompanying balance sheets.
As of June 30, 1996, R. Patrick Burns, President of the
Company, signed a new agreement with the Company providing
for continued employment through June 30, 2000. In addition
to cash compensation and stock options, the Company also
increased the amount available to be lent to Mr. Burns to
$116,818, and revised the forgiveness schedule on the loan
agreement such that all outstanding amounts and related
interested charges will be forgiven on July 29, 2000,
provided that Mr. Burns would remain continuously employed
by the Company until that date. As of June 30, 1997, the
Company has reserved for all loans due from Mr. Burns.
On December 31, 1996, the Company entered into a
consulting
agreement with Venture Management Group, Inc. The President
of Venture Management Group, Inc. currently serves as a
member of the Company's Board of Directors. The terms of
this agreement commenced on January 1, 1997 and will
terminate on December 31, 2006, unless earlier terminated in
accordance with this agreement. In consideration of the
consulting services to be provided, the Company will pay
fees of $65,000 per year, payable monthly, plus expenses and
disbursements reasonably incurred in the performance of
services under the agreement. In the event that the Company
defaults in its obligations under this agreement, or if a
change in control of the Company occurs during the term of
the agreement, Venture Management Group, Inc. may, at its
sole option, declare the entire compensation under this
contract to be immediately due and payable.
<PAGE>
(5) Indebtedness
The Company is operating without a working capital line of
credit facility, effective July 18, 1997. As such, the
Company's ability to fund its operations over the short-term
is dependent upon its success in achieving its business plan
for fiscal 1998 or obtaining additional financing. If the
Company is unsuccessful in achieving its business plan or
obtaining additional financing, its short-term liquidity may
be adversely impacted, which could require a curtailment of
certain business activities that, in turn, could have a
material adverse effect on the Company's business.
As of June 30, 1997, the Company had a $1,000,000 revolving
line of credit from a bank. On July 18, the line of credit
agreement was terminated pursuant to the sale-leaseback
financing discussed below. The line of credit, established
September 26, 1995, bears interest at a variable rate of 2%
above the prime rate, is secured by all assets of the
Company and has a one-year maturity. Outstanding borrowings
under the line were $550,000 at June 30, 1997. In addition,
on September 26, 1995, the Company entered into a
$3.5 million commercial mortgage loan, secured by a first
mortgage on the Company's Shelburne, Vermont, facility as
well as certain business assets. The proceeds of the
mortgage loan were used primarily to repay an outstanding
construction loan. The mortgage loan bears interest at a
variable rate of 2% above the prime rate. Payments under
the loan are based on a 30-year amortization and are due in
monthly installments through September 1997 when the
outstanding balance will become due. The terms of the
agreement also require the Company to maintain $300,000 in a
restricted cash account.
In July 1997, the Company entered into a sale-leaseback
transaction which replaced the Company's existing mortgage
loan and line of credit, which were due in September 1997.
See footnote 11 for additional information.
On December 26, 1995, Green Mountain Capital L.P.
entered
into an agreement with the Company to lend up to $500,000 in
the form of five-year term notes. As of June 30, 1997, the
entire $500,000 had been borrowed. The notes bear interest
at 12% per annum and are repayable in monthly installments
through December 2000. The notes are secured by a
subordinated security interest in the Company's personal
property. A commitment fee on any undrawn portion of the
facility of 2% per annum is due monthly. In conjunction
with the issuance of the notes, Green Mountain Capital
received warrants to purchase 20,000 shares of Common Stock
at an exercise price of $3.375 per share. The right to
exercise these warrants begins December 26, 1997 and expires
<PAGE>
the earlier of December 26, 2002 or five years after full
repayment of the loan. As of June 30, 1997, the entire
$500,000 had been borrowed, and $397,142 was outstanding as
of that date. As of June 30, 1996, $200,000 had been
borrowed, and $180,000 was outstanding as of that date.
The Company's long-term debt consists of the following
at
June 30, 1997 and 1996:
1997
1996
Variable rate (10.25% at June 30,
1997) Vermont National Bank building
loan (see detailed discussion above)
$ 3,294,450
$ 3,411,114
12.0% Green Mountain Capital L.P. note
payable (see detailed discussion
above)
397,142
180,000
7.0% Job Development Authority notes,
due in monthly installments through
April 1999, secured by inventory,
equipment and trade accounts
receivable
27,012
41,205
7.9% Note payable to bank, due in
monthly installments through
December 1997, secured by a vehicle
<PAGE>
1,427
4,119
9.0% Note payable to Vermont National
Bank, due in monthly installments
through December 2001, secured by a
vehicle
17,988
22,187
7.5% Note payable to North Creek
Partners, due in monthly installments
through March 2007
53,274
-
9.8% Note payable to financing
services, due in monthly installments
through December 1999, secured by a
vehicle
23,234
30,768
13% Unsecured note payable to bank,
due in monthly installments through
February 1998
1,568
3,514
3,816,095
3,692,907
<PAGE>
Less-Current installments
3,443,096
187,095
Long-term debt, excluding current
installments
$ 372,999
$ 3,505,812
Certain debt agreements contain covenants that require
the
Company to, among other things, restrict certain activities,
meet certain performance targets, and periodically submit
financial information. The Company was in compliance with
the covenants, had refinanced the obligations (see footnote
11), or obtained waivers for all covenants for the year
ended June 30, 1997.
Scheduled future maturities of debt including the
Company's
mortgage loan for the next five years are as follows:
Period Ending
June 30,
1998
$ 3,443,096
1999
144,291
2000
129,916
2001
65,194
2002
6,017
Thereafter
27,581
$ 3,816,095
As of June 30, 1997 and 1996, the Company had
outstanding
letters of credit of $0 and $49,505, respectively.
(6) Preferred Stock
<PAGE>
Series A
The Company has issued 90 shares, $.05 par value, of
Series
A Cumulative Preferred Stock to one individual. The Series
A stockholder is entitled to accrued dividends on the stated
values of the shares at a rate of 8% per annum. The
dividends accrue regardless of whether dividends have been
declared, profits exist, or funds are legally available for
payment. Dividends are payable quarterly, in arrears. As
of June 30, 1996, the Series A stockholder had agreed to
waive any claims on accrued dividends in exchange for a five
year warrant to purchase 43,826 shares of the Company's
Common Stock at a price of $2.875 per share. The warrant
agreement contains certain anti-dilution provisions (see
footnote 9). For the fiscal year ended June 30, 1997,
$72,000 of dividends were accrued. The Series A Preferred
Stock carries a liquidation preference value equal to the
stated value per share plus all accrued and unpaid
dividends. The stated value is equal to $10,000 per share.
Series B
The Company has issued 204,912 shares, $.05 par value, of
Series B Convertible Preferred Stock to twelve individuals.
Series B stockholders are not entitled to any dividends or
voting rights, but each share was originally convertible
into one share of the Company's Common Stock at any time on
or after July 14, 1997, subject to certain anti-dilution
rights. On July 18, 1997, as the result of a warrant
granted in conjunction with the Company's sale- leaseback
transaction (see footnote 11), the anti-dilution provisions
of the Series B agreement were activated, and each share of
Series B Preferred Stock is currently convertible into 1.85
shares of Common Stock. Accompanying the issuance of the
Series B Convertible Preferred Stock were warrants to
purchase 204,912 shares of the Company's Common Stock at an
exercise price of $2.434 per share, exercisable between July
12, 1997 and July 12, 1999. In addition, finder's warrants
for 10,245 share of Common Stock were issued with the same
terms and conditions. The warrants have certain anti-
dilution provisions (see footnote 9.)
(7) Commitments and Contingencies
Leases
During fiscal 1996, the Company relocated its
operations to
its newly constructed facility in Shelburne, Vermont. The
Company leases additional warehouse space in Shelburne,
Vermont, for additional inventory storage under a lease that
expires on June 30, 1999. On May 30, 1996, the Company
<PAGE>
entered into a five-year operating lease for a retail
location in North Conway, New Hampshire. On October, 24,
1996, the Company entered into a ten-year operating lease
for a retail location in New York, New York. On January 17,
1997, the Company entered into a ten-year operating lease
for a retail location in Freeport, Maine. In addition, the
Company leases various equipment under noncancelable capital
lease agreements which expire through 2001 and have interest
rates from 8.69% to 10.12%. Capital leases and
noncancelable operating leases at June 30, 1997 require the
following annual minimum lease payments:
Capital
Leases
Operatin
g Leases
1998
$ 131,071
$ 548,204
1999
127,655
589,608
2000
97,058
611,012
2001
4,827
622,416
2002
-
580,000
Thereafter
-
2,900,000
Total minimum lease payments
360,611
$ 5,851,240
Less-Amounts representing
interest
47,798
<PAGE>
Present value of lease
payments
312,813
Less-Current installments
103,759
Long-term portion
$ 209,054
The original cost and net book value of equipment under
capital leases at June 30, 1997 and 1996 was $505,698 and
$231,161, and $505,698 and $331,903, respectively. Rental
expense under operating leases for the years ended June 30,
1997 and 1996 was $321,924 and $106,550, respectively.
Contingencies
The Company is involved in various legal proceedings
that,
in the opinion of management, will not result in a material
adverse effect on its financial condition or results of
operations.
(8) Income Taxes
The provision for income taxes for the years ended June
30,
1997 and 1996 was comprised of the following:
Year
Ended
June 30,
1997
Year
Ended
June 30,
1996
Current-
<PAGE>
Federal
$ -
$ -
State
-
-
-
-
Deferred-
Federal
-
-
State
-
-
-
-
Income tax provision
(benefit)
$ -
$ -
The components of the net deferred tax asset as of June
30,
1997 and 1996 are presented below:
1997
1996
Deferred tax assets-
Vacation accrual
$ 45,916
$ 20,868
<PAGE>
Net operating loss
carryforwards
1,649,969
920,395
Inventories
48,892
48,892
Severance accrual
30,000
81,772
Contribution
carryforwards
49,456
47,966
Deferred rent
27,843
-
Other
53,292
53,869
Valuation allowance
(1,646,352)
(933,177)
Total deferred tax
assets
259,016
240,585
Deferred tax
liabilities-
Property and equipment
(259,016)
(240,585)
Net deferred tax asset
$ -
$ -
Based on the Company's recent losses, a valuation
allowance
has been provided to fully reserve the net deferred tax
assets. If the Company is able to achieve sufficient
profitability to realize all or a portion of its deferred
tax assets, the valuation allowance will be reduced through
a credit to income in future periods.
<PAGE>
The provision for income taxes varies from the amounts
computed by applying the U.S. federal income tax rate of 34%
as follows for the years ended June 30, 1997 and 1996:
Year
Ended
June 3
0,
1997
Year
Ended
June 3
0,
1996
Computed expected tax expense
(benefit)
34.0%
34.0%
Increase (reduction) resulting
from-
Tax-exempt interest income
-
-
Valuation allowance for deferred
tax assets
(34.0)
(34.0)
State taxes, net of federal
benefits
-
-
Meals
<PAGE>
-
-
Penalties and other
-
-
Income tax provision (benefit)
-%
-%
At June 30, 1997, the Company has federal income tax
net
operating loss (NOL) carryforwards of approximately
$4,240,000. The NOL carryforwards expire in varying amounts
through 2012. In addition, as a result of the change in tax
reporting year-end to June 30, 1995, certain amounts of the
NOL carryforwards (approximately $1,700,000) are available
for use ratably over a six-year period beginning June 30,
1996. The Tax Reform Act of 1986 included certain
provisions relating to changes in stock ownership that, if
triggered, could result in future annual limitations on the
utilization of the NOLs.
(9) Capital Stock
1993 Incentive Stock Option Plan
On August 16, 1993, the stockholders approved a 1993
incentive stock option plan ("1993 Plan"), which provided
for the granting of 200,000 stock options to employees.
Options granted may be either incentive stock options within
the meaning of Section 422 of the Internal Revenue Code, or
non-qualified options. Options under the 1993 Plan vest
ratably over a five-year period. The stock options expire
ten years after the date they are granted. At various
intervals, the stockholders of the Company have ratified
changes to the 1993 Plan, which have increased the number of
shares available under the plan to 2,000,000.
Number
of
<PAGE>
Shares
Exercise
Price
Range
Outstanding, December 31,
1995
151,000
$6.50--
$12.00
Granted
1,324,95
6
$2.63--$3.06
Exercised
(250)
$3.06
Canceled
(673,05
0)
$3.00--$12.00
Outstanding, June 30, 1996
802,656
$2.63--$6.50
Granted
2,135,27
9
$1.00--
$3.13
Exercised
-
-
Canceled
(1,490,9
16)
$1.00--$3.13
Outstanding, June 30, 1997
1,447,01
9
$1.00-
-$6.50
<PAGE>
On June 3, 1997, the Company offered to grant options with
an exercise price of $1.00 per share (the fair market value
of the Company's Common Stock on that date) in exchange for
the surrender of all outstanding qualified employee
incentive stock options at that date. The repriced options
had original exercise prices ranging from $1.50 and $3.13
per share.
As of June 30, 1997, options to purchase 255,989 shares
of
the Company's Common Stock were exercisable under the 1993
Plan, and options to purchase 552,981 shares of the
Company's Common Stock were available for grant under the
1993 Plan.
Non-Employee Director Stock Option Plan
On November 22, 1996, the stockholders approved the Non-
Employee Director Stock Option Plan ("NEDSO Plan"), which
provides for the granting of 400,000 shares of the Common
Stock of the Company in exchange for their participation as
a Director of the Company. Pursuant to the NEDSO Plan, each
participating Director will receive an option to purchase
2,000 shares of Common Stock as an annual retainer. The
Chairman of the Board of Directors, if eligible, is also
entitled to receive an additional annual retainer to
purchase 8,000 shares of the Company's Common Stock. In
addition to the annual retainer options, each participating
director shall receive an option to purchase 1,500 shares of
Common Stock for actual attendance at each regular or
special meeting of the Board of Directors and an option to
purchase 1,000 shares of Common Stock for actual attendance
at a meeting of a committee of the Board of Directors. All
options have an exercise price equal to the fair market
value of the Common Stock on the date of grant, vest
immediately, and are exercisable for a period of ten years.
Number
of
Shares
Exercise
Price
Range
Outstanding, June 30, 1996
-
-
Granted
<PAGE>
19,500
$1.31--
$2.75
Exercised
-
-
Canceled
-
-
Outstanding, June 30, 1997
19,500
$1.31-
-$2.75
As of June 30, 1997, options to purchase 19,500 shares of
the Company's Common Stock were exercisable under the NEDSO
Plan, and options to purchase 380,500 shares of the
Company's Common Stock were available for grant under the
NEDSO Plan.
Other Stock Options
At the Company's 1996 Annual Meeting, the Stockholders of
the Company approved two separate grants of non-qualified
options to purchase 30,000 shares of Common Stock each to
two Directors of the Company. The options have an exercise
price of $2.75 per share, being the fair market value on the
date of grant, vest immediately, and are exercisable for a
period of ten years.
Warrants
At June 30, 1997, there were several warrants
outstanding
for shares of the Company's Common Stock. Substantially all
of the warrant agreements contain certain anti-dilution
provisions which, if triggered, can result in additional
shares being available to the warrant holder and/or a
reduction in the exercise price for each share. Certain
anti-dilution provisions were triggered in fiscal 1997 as
the result of the issuance of warrants and employee stock
options. The following table summarizes the Company's
outstanding warrants at June 30, 1997 and 1996, inclusive of
the effects of anti-dilution provisions:
June 30, 1996
June 30, 1997
Warrant Exercise Expiration Warrant Exercise
<PAGE>
Expiration
Shares Price Date Shares Price
Date
60,000 $ 6.500 8/3/1998 75,374 $ 5.174
8/3/1998
115,000 15.500 11/23/1998 123,377 14.448
11/23/1998
8,000 3.375 12/26/2002 20,000 3.375
12/26/2002
43,826 2.875 4/12/2001 50,795 2.480
4/12/2001
523,692 1.000
7/2/2000
(10) Stock-Based Compensation Plans
The Company's employee stock option plan, the 1993
Incentive
Stock Option Plan (the "1993 Plan") was approved by
stockholders on August 16, 1993. Under the 1993 Plan, the
Option Committee of the Board of Directors is authorized to
grant both non-qualified and incentive stock options to
full-time employees of the Company only, including officers
of the Company. The Committee will determine the provisions
and terms of any stock option grant. No option may
terminate later than ten years from the date the option is
granted. The Committee may provide for termination of the
option in the case of termination of employment with the
Company or any other reason. No stock option can be
transferred except by will or by the laws of descent and
distribution. The 1993 Plan terminates on August 16, 2003,
however, the 1993 Plan may be terminated earlier by decision
of the Board. The Board may amend the 1993 Plan; however,
any amendment that would (1) materially increase the
benefits accruing to participants under the 1993 Plan, (2)
materially increase the number of securities that may be
issued under the 1993 Plan, or (3) materially modify the
requirements of eligibility for participation in the 1993
Plan must be approved by the Stockholders of the Company.
The Company accounts for these plans under APB Opinion
No.
25, under which no compensation cost has been recognized.
Had compensation cost for the 1993 Plan been determined
consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the
following pro forma amounts:
1997
1996
<PAGE>
Net Income (Loss) As Reported ($ 1,973,782)
$ 151,953
Pro Forma ( 2,397,585)
23,222
Primary EPS As Reported ($.38)
$.03
Pro Forma ($.46)
$.00
Because the Statement 123 method of accounting has not
been
applied to options granted prior to July 1, 1995, the
resulting pro forma compensation cost may not be
representative of that to be expected in future years. The
Company may grant options for up to 2,000,000 shares under
the 1993 Plan. The option exercise price equals the stock's
market price on date of grant. Options under the Plan fully
vest after two to four years, and all expire after ten
years. A summary of the status of the Company's stock
option plan for fiscal year 1997 is presented in the table
below:
Average
Exercise
Shares Price
Outstanding, June 30, 1996 802,656 $3.10
Granted 2,135,279 $1.60
Exercised - -
Canceled (1,490,916) $2.93
Outstanding, June 30, 1997 1,447,019 $1.06
Exercisable at end of year 255,989 $1.37
Weighted average fair value
of options granted $0.74
1,428,119 of the 1,447,019 options outstanding at June 30,
1997 have an exercise price of $1.00 per share and a
weighted average remaining contractual life of 8.6 years.
237,090 of these options are exercisable; their weighted
average exercise price is $1.00 per share. The remaining
18,900 options have an exercise price of $6.50 per share and
a weighted average remaining contractual life of 6.3 years.
All of these options are exercisable. The fair value of
each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the weighted
assumptions of a 6.5 percent risk-free interest rate and a
34 percent expected volatility.
(11) Subsequent Events
Governance
<PAGE>
On October 10, 1997 the Company appointed Elisabeth B.
Robert to the position of President of The Vermont Teddy
Bear Company. Ms. Robert had previously served as the
Company's Chief Financial Officer since September,1995. Ms.
Robert will be assuming the title of President from R.
Patrick Burns, who will be stepping down from that position.
Mr. Burns will remain active as a consultant to Vermont
Teddy Bear and will also continue as a member of the
Company's Board of Directors.
Financing
On October 10, 1997, the Company received a binding
commitment letter from Green Mountain Capital L.P., whereby
it agreed to lend the Company up to $200,000 in the form of
a five-year term loan. The loan would bear interest at 12
percent per annum, would be repayable in monthly
installments over the five-year term, and would be secured
by a security interest in the Company's real and personal
property. In conjunction with the issuance of the notes,
Green Mountain Capital will receive warrants to purchase
100,000 shares of Common Stock, at an exercise price of
$1.00 per share, subject to certain anti-dilution
provisions. (The prior warrants granted to Green Mountain
Capital to purchase 20,000 shares at $3.375 will be canceled
upon the issuance of this new note.) The right to exercise
these warrants begins two years from the date of the loan,
and expires the earlier of five years after the full
repayment of the loan and existing notes or seven years from
the date of the loan.
On July 18, 1997, the Company completed a sale-leaseback
transaction, involving its factory headquarters and a
portion of its property located in Shelburne, Vermont. This
financing replaced the Company's mortgage and line of credit
agreement with the Vermont National Bank. The Company
received approximately $5.9 million in cash, of which
approximately $3.3 million was used to pay off the existing
mortgage with the Vermont National Bank. The balance,
approximately $2.6 million, was used for general working
capital purposes, to pay down a $600,000 balance on the
Company's line of credit (which was retired as the result of
the termination of the original mortgage loan), and
transaction costs of $591,000 associated with the sale-
leaseback. The lease obligation, secured by the business
assets of the Company, is payable on a twenty-year
amortization schedule through July 2017.
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our reports, dated September
<PAGE>
10, 1997 (except with respect to the matter discussed in
Note 11, as to which the date is October 10, 1997) and
August 30, 1996, included in The Vermont Teddy Bear Co.,
Inc.'s Annual Report on Form 10-KSB for the years ended
June 30, 1997 and 1996 into the Company's previously filed
Registration Statement on Form S-8 No. 33-84586 (filed on
September 26, 1995).
Arthur Andersen LLP
Boston, Massachusetts
October 14, 1997
EXHIBIT 4.7
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON
THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THIS WARRANT
NOR
ANY SUCH SHARES MAY BE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.
WARRANT
To Purchase Common Stock of
THE VERMONT TEDDY BEAR CO., INC.
THIS IS TO CERTIFY that URSA (VT) QRS 12-30, Inc. ("QRS:12-
30")
or registered assigns, is entitled upon the due exercise
hereof
at any time during the Exercise Period (as hereinafter
defined)
to purchase 150,000 shares of Common Stock (subject to
adjustment
as provided herein) of The Vermont Teddy Bear Co., Inc., a
New
York corporation, at the Exercise Price (as hereinafter
defined)
(such Exercise Price and the number of shares of Common
Stock
purchasable hereunder being subject to adjustment as
provided
<PAGE>
herein), and to exercise the other rights, powers and
privileges
hereinafter provided, all on the terms and subject to the
conditions hereinafter set forth.
ARTICLE I
DEFINITIONS
The terms defined in this ARTICLE I, whenever used in this
Warrant, shall have the respective meanings hereinafter
specified.
"Affiliate" of any Person means a Person which directly or
indirectly through one or more intermediaries controls, or
is
controlled by, or is under common control with, the Company.
The
term "control," as used with respect to any Person, means
the
possession, directly or indirectly, of the power to direct
or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities,
by
contract or otherwise.
"Assignment" means the form of Assignment appearing at the
end of
this Warrant.
"Cashless Exercise Ratio" means a fraction, the numerator of
which is the difference between the Current Market Price per
share of Common Stock on the date of the exercise of this
Warrant
and the Exercise Price and the denominator of which is the
Current Market Price per share of Common Stock on the date
of the
exercise of this Warrant.
"Closing Date" means July __, 1997.
"Commission" means the Securities and Exchange Commission or
any
other Federal agency from time to time administering the
Securities Act.
"Common Stock" means shares of the Company's Common Stock,
$0.05
par value, any stock into which such stock shall have been
changed or any stock resulting from any reclassification of
such
<PAGE>
stock and any class of capital stock of the Company now or
hereafter authorized having the right to share in
distributions
either of earnings or assets of the Company without limit as
to
amount or percentage.
"Company" means The Vermont Teddy Bear Co., Inc., a New York
corporation, and any successor corporation.
"Convertible Securities" means evidences of indebtedness,
shares
of stock or other securities which are convertible into or
exchangeable for, with or without payment of additional
consideration, additional shares of Common Stock, either
immediately or upon the arrival of a specified date or the
happening of a specified event.
"Current Market Price" as of any date herein specified as to
any
security means the average of the daily closing prices for
the
thirty (30) consecutive trading days commencing forty-five
(45)
trading days before the day in question. The closing price
for
each day shall be (i) the closing price of any such security
in
the over-the-counter market as shown by the National
Association
of Securities Dealers, Inc. Automated Quotation System, or
any
similar system of automated dissemination of quotations of
securities prices then in common use, if so quoted, as
reported
by any member firm of the New York Stock Exchange selected
by the
Company, or (ii) if not quoted as described in clause (i),
the
mean between the high bid and low asked quotations for any
such
security as reported by the National Quotation Bureau
Incorporated or any similar successor organization, as
reported
by any member firm of the New York Stock Exchange selected
by the
Company, or (iii) if any such security is listed or admitted
for
trading on any national securities exchange, the last sale
price
of any such security, regular way, or the mean of the
closing bid
and asked prices thereof if no such sale occurred, in each
<PAGE>
case
as officially reported on the principal securities exchange
on
which any such security is listed. If any such security is
quoted on a national securities or central market system in
lieu
of a market or quotation system described above, the closing
price shall be determined in the manner set forth in clause
(ii)
of the preceding sentence if bid and asked quotations are
reported but actual transactions are not, and in the manner
set
forth in clause (iii) of the preceding sentence if actual
transactions are reported.
"Default Rate" shall mean the rate of interest specified in
Paragraph 7(a)(iv) of the Lease.
"Event of Default" means (a) the breach of any warranty, or
the
inaccuracy of any representation, made by the Company
herein,
(b) the failure by the Company to comply with any covenant
contained herein or (c) an Event of Default (as such term is
defined in the Lease).
"Exercise Period" means (subject to the provisions of
Section 8.12 below) the period commencing on the Closing
Date and
ending on July __, 2004.
"Exercise Price" means the average closing price of the
Common
Stock as quoted on NASDAQ for the thirty (30) day period
commencing fifteen (15) days prior to the Closing Date and
ending
on the fifteenth (15th) day following the Closing Date, as
such
price may be adjusted pursuant to ARTICLE IV. Promptly
following
the end of such thirty (30) day period the Holder and the
Company
shall execute a document that shall state the numerical
Exercise
Price.
"Fair Value" means the fair value of the appropriate
security,
property, assets, business or entity as determined by an
opinion
of an independent investment banking firm or firms in
accordance
with the following procedure: In the case of any event
which
<PAGE>
gives rise to a requirement to determine "Fair Value"
pursuant to
the provisions hereof, whether in connection with an
adjustment
to the Exercise Price or otherwise, the Company shall be
responsible for initiating the process by which Fair Value
shall
be determined as promptly as practicable following such
event,
and if the procedures contemplated in connection with
obtaining
such opinion have not been complied with fully, then any
such
determination of Fair Value for any purpose of this Warrant
(and
any such resulting adjustment to the Exercise Price) shall
be
deemed to be preliminary and subject to adjustment pending
full
compliance with such procedures. The Company and the holder
of
this Warrant or Issued Warrant Shares (who, if more than
one,
shall agree among themselves by a two-thirds majority) shall
each
retain a separate independent investment banking firm (which
firm, in either case, may be the independent investment
banking
firm regularly retained by the Company or any of such
holders);
provided, that the holder may, at its opinion, elect to rely
on
the firm retained by the Company in lieu or retaining its
own
firm. Such firms shall determine the fair value of the
security,
property, assets, business or entity, as the case may be, in
question and deliver their opinion in writing to the Company
and
to such holder. If such firms cannot jointly make such
determination (or in the event that the holder has elected
to
rely upon the firm retained by the Company and disagrees
with the
determination made by such firm), then, unless otherwise
directed
by agreement of the Company and a two-thirds majority of
such
holders, such firms (or firm), in their (or its) sole
discretion,
shall choose another independent investment banking firm of
the
Company or such holders, which firm shall make such
determination
<PAGE>
and render such an opinion. In either case the
determination so
made shall be conclusive and binding on the Company and such
holders. The fees and expenses of any such determination
made by
the independent investment banking firm selected by such
independent banking firms (or firm) shall be borne by the
Company.
"Initial Holder" means QRS:12-30.
"Issuable Warrant Shares" means the number of shares of
Common
Stock issuable from time to time upon exercise of this
Warrant.
"Issued Warrant Shares" means any shares of Common Stock
issued
pursuant to this Warrant.
"Lease" means the Lease Agreement, dated as of the Closing
Date,
between the Initial Holder and the Company, as the same may
be
amended from time to time in accordance with the terms
thereof.
"Notice of Exercise" means the form of Notice of Exercise
appearing at the end of this Warrant.
"Opinion of Counsel" means the opinion of counsel
experienced in
Securities Act or bank regulatory matters, as the case may
be,
chosen by the holder of this Warrant or the holder of Issued
Warrant Shares, which counsel may be counsel to such holder.
"Other Securities" means any stock and other securities of
the
Company (other than Common Stock, Convertible Securities or
Stock
Purchase Rights) or any other Person which shall become
subject
to issue or sale upon the conversion or exchange of any
stock or
other securities of the Company.
"Person" means any unincorporated organization, association,
corporation, individual, sole proprietorship, partnership,
joint
venture, trust institution, entity, party or government
(including any instrumentality, division, agency, body or
department thereof).
<PAGE>
"Piggy-Back Shares" has the meaning set forth in Section
5.3.
"Preferred Stock" means shares of the Company's Preferred
Stock,
no par value.
"Securities Act" means the Securities Act of 1933, as
amended, or
any successor Federal statute and the rules and regulations
of
the Commission promulgated thereunder, all as the same shall
be
in effect from time to time.
"Series A Preferred Stock" means shares of the Company's
Series A
Preferred Stock, $.05 par value.
"Series B Preferred Stock" means shares of the Company's
Series B
Preferred Stock, $.05 par value.
"Stock Purchase Rights" means any warrants, options or other
rights to subscribe for, purchase or otherwise acquire any
shares
of Common Stock or any Convertible Securities.
"Subsidiary" means any corporation or association (a) more
than
fifty percent (50%) (by number of votes) of the Voting Stock
of
which is at the time owned by the Company or by one or more
Subsidiaries or by the Company and one or more Subsidiaries,
or
any other business entity in which the Company or one or
more
Subsidiaries or the Company and one or more Subsidiaries
owns
more than a fifty percent (50%) interest either in the
profits or
capital of such business entity or (b) whose net earnings,
or
portions thereof, are consolidated with the net earnings of
the
Company and are recorded on the books of the Company for
financial reporting purposes in accordance with generally
accepted accounting principles.
"Voting Stock" means securities of any class or series of a
corporation or association the holders of which are
ordinarily,
in the absence of contingencies, entitled to participate in
the
<PAGE>
election of a majority of the directors or persons
performing
similar functions of such corporation or association.
"Warrant" means the warrant dated as of Closing Date issued
to
the Initial Holder and all warrants issued upon the partial
exercise, transfer or division of or in substitution for any
Warrant.
"Warrant Shares" means the Issuable Warrant Shares plus the
Issued Warrant Shares, but only during such time as
certificates
representing such shares of this Warrant are required to
bear the
legend contained in Section 5.8 hereof.
Whenever used in this Warrant, any noun or pronoun shall be
deemed to include both the singular and plural and to cover
all
genders, and the words "herein", "hereof", and "hereunder"
and
words of similar import shall refer to this instrument as a
whole, including any amendments hereto.
ARTICLE II
EXERCISE OF WARRANT
2.1 Right to Exercise; Notice. On the terms and
subject to the conditions of this ARTICLE II, the holder
hereof
shall have the right, at its option, to exercise this
Warrant in
whole or in part at any time during the Exercise Period by
delivery to the Company of a Notice of Exercise duly
executed by
such holder specifying the number of shares of Common Stock
to be
purchased.
2.2 Manner of Exercise; Issuance of Common Stock. To
exercise this Warrant, the holder hereof shall (i) deliver
to the
Company (a) a Notice of Exercise duly executed by the holder
hereof specifying the number of shares of Common Stock to be
purchased, (b) an amount equal to the aggregate Exercise
Price
for all shares of Common Stock as to which this Warrant is
then
being exercised and (c) this Warrant or (ii) in connection
with
the exercise of this Warrant without the payment of the
Exercise
<PAGE>
Price, deliver to the Company (a) a Notice of Exercise duly
executed by the holder hereof specifying the number of
shares of
Common Stock for which this Warrant is being exercised and
the
number of shares of Common Stock deliverable upon such
exercise,
which shall equal the product of (x) the number of shares of
Common Stock for which this Warrant is being exercised and
(y) the Cashless Exercise Ratio and (b) this Warrant. At
the
option of the holder hereof, if this Warrant is being
exercised
in the manner described in clause (i) of the immediately
preceding sentence, payment of the Exercise Price shall be
made
by (a) wire transfer of funds to an account in a bank
located in
the United States designated by the Company for such
purpose,
(b) certified or official bank check payable to the order of
the
Company and drawn on a member of the New York Clearing House
or
(c) by any combination of such methods.
Upon receipt of the required deliveries, the
Company shall, as promptly as practicable, and in any event
within five (5) days thereafter, cause to be issued and
delivered
to the holder hereof (or its nominee) or, subject to ARTICLE
V,
the transferee designated in the Notice of Exercise, a
certificate or certificates representing shares of Common
Stock
equal in the aggregate to the number of shares of Common
Stock
specified in the Notice of Exercise (but not exceeding the
maximum number of shares issuable upon exercise of this
Warrant).
Such certificates shall be registered in the name of the
holder
hereof (or its nominee) or in the name of such transferee,
as the
case may be.
If this Warrant is exercised in part, the Company
shall, at the time of delivery of such certificate or
certificates, unless the Exercise Period has expired, issue
and
deliver to the holder hereof or, subject to ARTICLE V, the
transferee so designated in the Notice of Exercise a new
warrant
evidencing the right of the holder hereof or such transferee
<PAGE>
to
purchase the aggregate number of shares of Common Stock for
which
this Warrant shall not have been exercised, and this Warrant
shall be canceled.
2.3 Effectiveness of Exercise. Unless otherwise
requested by the holder hereof, this Warrant shall be deemed
to
have been exercised and such certificate or certificates
shall be
deemed to have been issued, and the holder or transferee so
designated in the Notice of Exercise shall be deemed to have
become a holder of record of such shares for all purposes,
as of
the close of business on the date the Notice of Exercise,
together with payment of the Exercise Price and this
Warrant, is
received by the Company.
2.4 Fractional Shares. The Company shall not issue
fractional shares of Common Stock or scrip representing
fractional shares of Common Stock upon any exercise of this
Warrant. As to any fractional share of Common Stock which
the
holder hereof would otherwise be entitled to purchase from
the
Company upon such exercise, the Company shall purchase from
the
holder such fractional share at a price equal to an amount
calculated by multiplying such fractional share (calculated
to
the nearest .001 of a share) by the Current Market Price
calculated as of the date of the Notice of Exercise.
Payment of
such amount shall be made at the time of delivery of any
certificate or certificates deliverable upon such exercise
in
cash or by check payable to the order of the holder hereof
or,
subject to ARTICLE V, the transferee designated in the
Notice of
Exercise, as the case may be.
2.5 Continued Validity. A holder of shares of Common
Stock issued upon the exercise of this Warrant, in whole or
in
part, shall continue to be entitled to all rights to which a
holder of this Warrant is entitled pursuant to the
provisions of
this Warrant, except such rights as their terms apply solely
to
the holder of a Warrant. The Company will, at the time of
any
<PAGE>
exercise of this Warrant, upon the request of the holder of
the
shares of Common Stock issued upon the exercise hereof,
acknowledge in writing, in a form reasonably satisfactory to
such
holder, its continuing obligation to afford to such holder
all
rights to which such holder shall continue to be entitled
after
such exercise in accordance with the provisions of this
Warrant;
provided, however, that if such holder shall fail to make
any
such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder all such
rights.
ARTICLE III
REGISTRATION, TRANSFER AND EXCHANGE
3.1 Maintenance of Registration Books. The Company
shall keep at its principal office in Shelburne, Vermont, a
register in which, subject to such reasonable regulations as
it
may prescribe, the Company shall provide for the
registration,
transfer and exchange of this Warrant. The Company shall
not at
any time except upon the dissolution, liquidation or winding
up
of the Company, close such register so as to result in
preventing
or delaying the exercise or transfer of this Warrant.
3.2 Transfer and Exchange. Upon surrender for
registration or transfer of this Warrant at such office, the
Company shall execute and deliver, subject to ARTICLE V, in
the
name of the designated transferee or transferees, one or
more new
Warrants representing the right to purchase a like aggregate
number of shares of Common Stock. At the option of the
holder
hereof, this Warrant may be exchanged for other Warrants
representing the right to purchase a like aggregate number
of
shares of Common Stock upon surrender of this Warrant at
such
office. Whenever this Warrant is so surrendered for
exchange,
the Company shall execute and deliver the Warrants which the
holder making the exchange is entitled to receive.
Every Warrant presented or surrendered for
<PAGE>
registration of transfer or exchange shall be accompanied by
an
Assignment duly executed by the holder thereof or its
attorney
duly authorized in writing.
All Warrants issued upon any registration of
transfer or exchange of Warrants shall be the valid
obligations
of the Company, evidencing the same rights, and entitled to
the
same benefits, as the Warrants surrendered upon such
registration
of transfer or exchange.
3.3 Replacement. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction
or
mutilation of this Warrant and (a) in the case of any such
loss,
theft or destruction upon delivery of indemnity reasonably
satisfactory to the Company in form and amount or (b) in the
case
of any such mutilation, upon surrender of such Warrant for
cancellation at the principal office of the Company, the
Company,
at its expense, will execute and deliver, in lieu thereof, a
new
Warrant.
3.4 Ownership. The Company and any agent of the
Company may treat the Person in whose name this Warrant is
registered on the register kept at the principal office of
the
Company as the owner and holder thereof for all purposes,
notwithstanding any notice to the contrary, except that, if
and
when this Warrant is properly assigned in blank, the Company
may
(but shall not be obligated to) treat the bearer thereof as
the
owner of this Warrant for all purposes, notwithstanding any
notice to the contrary. This Warrant, if properly assigned,
may
be exercised by a new holder without first having a new
Warrant
issued.
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 Adjustment of Number of Shares Purchasable. Upon
any adjustment of the Exercise Price as provided in Section
4.2,
<PAGE>
the holder hereof shall thereafter be entitled to purchase,
at
the Exercise Price resulting from such adjustment, the
number of
shares of Common Stock (calculated to the nearest 1/1OOth of
a
share) obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares
of
Common Stock purchasable hereunder immediately prior to such
adjustment and dividing the product thereof by the Exercise
Price
resulting from such adjustment. It is the intent of the
Company
that, after giving effect to any exercise of this Warrant,
the
holder hereof would be the owner of (or have the right to
acquire
pursuant hereto) an aggregate of a minimum of
150,000/5,172,750
percent (2.90655%) the Common Stock outstanding on a fully
diluted basis.
4.2 Adjustment of Exercise Price. The Exercise Price
shall be subject to adjustment from time to time as
hereinafter
set forth.
(a) Stock Dividends, Subdivisions and Combinations. In
the event that the Company subsequent to the Closing Date
shall:
(i) declare a dividend upon, or make any
distribution in respect of, any of its stock, payable in
Common
Stock, Convertible Securities or Stock Purchase Rights, or
(ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock,
then the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price per share of
Common
Stock immediately prior to such event by a fraction (A) the
numerator of which shall be the total number of outstanding
shares of Common Stock of the Company immediately prior to
such
event, and (B) the denominator of which shall be the total
number
of outstanding shares of Common Stock of the Company
immediately
<PAGE>
after such event, treating as outstanding all shares of
Common
Stock issuable upon conversions or exchanges of such
Convertible
Securities and exercises of such Stock Purchase Rights.
(b) Issuance of Additional Shares of Common Stock. In
case the Company shall issue or sell any shares of Common
Stock
after the Closing Date for a consideration less than the
then
Current Market Price, the Exercise Price upon each such
issuance
or sale shall be adjusted as follows:
by dividing (A) an amount equal to the sum of (1) the number
of
shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing Current Market
Price plus (2) the aggregate consideration, if any, received
by
the Company upon such issue or sale, by (B) the total number
of
shares of Common Stock outstanding immediately after such
issue
or sale;
The provisions of this Subsection (b) shall not apply
to any additional shares of Common Stock which are
distributed to
holders of Common Stock pursuant to a stock dividend or
subdivision for which an adjustment is provided for under
Subsection (a) of this Section 4.2. No adjustment of the
Exercise Price shall be made under this Subsection upon the
issuance of any additional shares of Common Stock which are
issued pursuant to the exercise of any Stock Purchase Rights
or
pursuant to the conversion or exchange of any Convertible
Securities to the extent that such adjustment shall
previously
have been made upon the issuance of such Stock Purchase
Rights or
Convertible Securities pursuant to Subsection (a), (c) or
(d) of
this Section 4.2.
(c) Issuance of Stock Purchase Rights. In case the
Company shall issue or sell any Stock Purchase Rights and
the
consideration per share at which additional shares of Common
Stock may at any time thereafter be issuable upon exercise
thereof (or, in the case of Stock Purchase Rights
exercisable for
the purchase of Convertible Securities, upon the subsequent
conversion or exchange of such Convertible Securities) shall
<PAGE>
be
less than the then Current Market Price, the Exercise Price
shall
be adjusted as provided in subsection (b) of this Section
4.2 on
the basis that (1) the maximum number of additional shares
of
Common Stock issuable upon exercise of such Stock Purchase
Rights
(or upon conversion or exchange of such Convertible
Securities
following such exercise) shall be deemed to have been issued
as
of the date of the determination of the Current Market
Price, and
(2) the aggregate consideration received for such additional
shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by the Company in
connection with the issuance and exercise of such Stock
Purchase
Rights (or upon conversion or exchange of such Convertible
Securities).
(d) Issuance of Convertible Securities. In case the
Company shall issue or sell any Convertible Securities and
the
consideration per share for such shares of Convertible
Securities
shall be less than the then Current Market Price, the
Exercise
Price shall be adjusted as provided in Subsection (b) of
this
Section 4.2 on the basis that (1) the maximum number of
additional shares of Common Stock necessary to effect the
conversion or exchange of all such Convertible Securities
shall
be deemed to have been issued as of the date for the then
Current
Market Price, and (2) the aggregate consideration received
for
such additional shares of Common Stock shall be deemed to be
equal to the minimum consideration received and receivable
by the
Company in connection with the issuance and exercise of such
Convertible Securities. No adjustment of the Exercise Price
shall
be made under this Subsection upon the issuance of any
Convertible Securities which are issued pursuant to the
exercise
of any Stock Purchase Rights, if an adjustment shall
previously
have been made upon the issuance of such Stock Purchase
Rights
pursuant to Subsection (c) of this Section 4.2.
<PAGE>
(e) Minimum Adjustment. In the event any adjustment of
the Exercise Price pursuant to this Section 4.2 shall result
in
an adjustment of less than one cent ($.01) per share of
Common
Stock, no such adjustment shall be made, but any such lesser
adjustment shall be carried forward and shall be made at the
time
and together with the next subsequent adjustment which
together
with any adjustments so carried forward, shall amount to one
cent
($.01) or more per share of Common Stock; provided, however,
that
upon any adjustment of the Exercise Price resulting from (i)
the
declaration of a dividend upon, or the making of any
distribution
in respect of, any stock of the Company payable in Common
Stock
or Convertible Securities or (ii) the reclassification by
subdivision, combination or otherwise, of the Common Stock
into a
greater or smaller number of shares, the foregoing figure of
one
cent ($.01) per share (or such figure last adjusted) shall
be
proportionately adjusted; provided, further, upon the
exercise of
this Warrant, the Company shall make all necessary
adjustments
(to the nearest .001 of a cent) not theretofore made to the
Exercise Price up to and including the date upon which this
Warrant is exercised.
(f) Readjustment of Exercise Price. In the event
(i) the purchase price payable for any Stock Purchase Rights
or
Convertible Securities referred to in Subsection (c) or (d)
above, (ii) the additional consideration, if any, payable
upon
exercise of such Stock Purchase Rights or upon the
conversion or
exchange of such Convertible Securities or (iii) the rate at
which any Convertible Securities above are convertible into
or
exchangeable for additional shares of Common Stock shall
change,
the Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Exercise Price which would
have
been in effect at such time had such Stock Purchase Rights
or
<PAGE>
Convertible Securities provided for such changed purchase
price,
additional consideration or conversion rate, as the case may
be,
at the time initially granted, issued or sold. On the
expiration
of any such Stock Purchase Rights not exercised or of any
such
right to convert or exchange under such Convertible
Securities
not exercised, the Exercise Price then in effect hereunder
shall
forthwith be increased to the Exercise Price which would
have
been in effect at the time of such expiration or termination
had
such Stock Purchase Rights or Convertible Securities never
been
issued. No readjustment of the Exercise Price pursuant to
this
Subsection (f) shall have the effect of increasing the
Exercise
Price by an amount in excess of the adjustment originally
made to
the Exercise Price in respect of the issue, sale or grant of
the
applicable Stock Purchase Rights or Convertible Securities.
(g) Reorganization, Reclassification or
Recapitalization of Company. In case of any capital
reorganization or reclassification or recapitalization of
the
capital stock of the Company (other than in the cases
referred to
in Subsection (a) of this Section 4.2), or in case of the
consolidation or merger of the Company with or into another
corporation, or in case of the sale or transfer of the
property
of the Company as an entirety or substantially as an
entirety,
there shall thereafter be deliverable upon the exercise of
this
Warrant or any portion thereof (in lieu of or in addition to
the
number of shares of Common Stock theretofore deliverable, as
appropriate) the number of shares of stock or other
securities or
property to which the holder of the number of shares of
Common
Stock which would otherwise have been deliverable upon the
exercise of this Warrant or any portion thereof at the time
would
have been entitled upon such capital reorganization or
reclassification of capital stock, consolidation, merger or
<PAGE>
sale,
and at the same aggregate Exercise Price.
Prior to and as a condition of the consummation of
any transaction described in the preceding sentence, the
Company
shall make equitable, written adjustments in the application
of
the provisions herein set forth satisfactory to the holders
of
Warrants with respect to the rights and interests of holders
of
Warrants so that the provisions set forth herein shall
thereafter
be applicable, as nearly as possible in relation to any
shares of
stock or Other Securities or other property thereafter
deliverable upon exercise of this Warrant. Any such
adjustment
shall be made by and set forth in a supplemental agreement
between the Company and/or the successor entity, as
applicable,
which agreement shall bind each such entity, shall be
accompanied
by an Opinion of Counsel as to the enforceability of such
agreement.
(h) Dilution in Case of Other Securities. In case any
Other Securities shall be issued or sold or shall become
subject
to issuance or sale upon the conversion or exchange of any
stock
(or other securities) of the Company (or any issuer of Other
Securities or any other Person referred to in Subsection
(g)) or
becomes subject to subscription, purchase or other
acquisition
pursuant to any options or rights issued or granted by the
Company (or by any such other issuer or Person) for a
consideration such as to dilute, within the standards
established
in the other provisions of this ARTICLE IV, the purchase
rights
granted by this Warrant, then, and in each such case, the
computations, adjustments and readjustments provided for in
this
ARTICLE IV with respect to the Exercise Price shall be made
as
nearly as possible in the manner so provided and applied to
determine the amount of Other Securities from time to time
receivable upon the exercise of this Warrant, so as to
protect
the holders of the Warrant against the effect of such
dilution.
<PAGE>
(i) Other Dilutive Events. In case any event shall
occur as to which the other provisions of this ARTICLE IV
are not
strictly applicable but the failure to make any adjustment
would
not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and
principles
hereof, then, in each such case, the Company shall appoint a
firm
of independent public accountants of recognized national
standing
(which may be the regular auditors of the Company), which
shall
give their opinion as to the adjustment, if any, on a basis
consistent with the essential intent and principles
established
in this ARTICLE IV, necessary to preserve, without dilution,
the
purchase rights represented by this Warrant. Upon receipt
of
such opinion, the Company will promptly mail a copy thereof
to
the holder of this Warrant and shall make the adjustments
described therein.
(j) Determination of Consideration. For purposes of
this ARTICLE IV, the consideration received or receivable by
the
Company for the issuance, sale, grant or assumption of
additional
shares of Common Stock, Stock Purchase Rights or Convertible
Securities, irrespective of the accounting treatment of such
consideration, shall be valued as follows:
(1) Cash Payment. In the case of cash, the net
amount received by the Company after deduction of any
accrued
interest, dividends or any expenses paid or incurred or any
underwriting commissions or concessions paid or allowed by
the
Company.
(2) Securities or Other Property. In the case of
securities or other property, at the lesser of (i) the
Current
Market Price of the security for which such consideration
was
received, and (ii) the Fair Value of such consideration (in
both
cases as of the date immediately preceding the issuance,
sale or
grant in question).
<PAGE>
(3) Allocation Related to Common Stock. In the
event additional shares of Common Stock are issued or sold
together with other securities or other assets of the
Company for
a consideration which covers both, the consideration
received
(computed as provided in (1) and (2) above) shall be
allocable to
such additional shares of Common Stock as determined in good
faith by the Board of Directors of the Company.
(4) Allocation Related to Stock Purchase Rights
and Convertible Securities. In case any Stock Purchase
Rights or
Convertible Securities shall be issued or sold together with
other securities or other assets of the Company, together
comprising one integral transaction in which no specific
consideration is allocated to the Stock Purchase Rights or
Convertible Securities, such Stock Purchase Rights or
Convertible
Securities shall be deemed to have been issued without
consideration.
(5) Dividends in Securities. In case the Company
shall declare a dividend or make any other distribution upon
any
stock of the Company (other than Common Stock) payable in
either
case in Common Stock, Convertible Securities or Stock
Purchase
Rights, such Common Stock, Convertible Securities or Stock
Purchase Rights, as the case may be, issuable in payment of
such
dividend or distribution shall be deemed to have been issued
or
sold without consideration.
(6) Stock Purchase Rights and Convertible
Securities. The consideration for which shares of Common
Stock
shall be deemed to be issued upon the issuance of any Stock
Purchase Rights or Convertible Securities shall be
determined by
dividing (i) the total consideration, if any, received or
receivable by the Company as consideration for the granting
of
such Stock Purchase Rights or the issuance of such
Convertible
Securities, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of
such
Stock Purchase Rights, or, in the case of such Convertible
Securities, the minimum aggregate amount of additional
<PAGE>
consideration, if any, payable upon the conversion or
exchange
thereof, in each case after deducting any accrued interest,
dividends, or any expenses paid or incurred or any
underwriting
commissions or concessions paid or allowed by the Company by
(ii) the maximum number of shares of Common Stock issuable
upon
the exercise of such Stock Purchase Rights or upon the
conversion
or exchange of all such Convertible Securities.
(7) Merger, Consolidation or Sale of Assets. In
case any shares of Common Stock or Convertible Securities or
any
Stock Purchase Rights shall be issued in connection with any
merger or consolidation in which the Company is the
surviving
corporation, the amount of consideration therefor shall be
deemed
to be the Fair Value of such portion of the assets and
business
of the non-surviving corporation as shall be attributable to
such
Common Stock, Convertible Securities or Stock Purchase
Rights, as
the case may be. In the event of any merger or
consolidation of
the Company in which the Company is not the surviving
corporation
or in the event of any sale of all or substantially all of
the
assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a
number
of shares of its Common Stock for stock or securities of the
other corporation computed on the basis of the actual
exchange
ratio on which the transaction was predicated and for a
consideration equal to the Fair Value on the date of such
transaction of such stock or securities of the other
corporation,
and if any such calculation results in adjustment of the
Exercise
Price, the determination of this number of shares of Common
Stock
issuable upon exercise of this Warrant immediately prior to
such
merger, consolidation or sale, for the purposes of
Subsection (g)
above, shall be made after giving effect to such adjustment
of
the Exercise Price.
<PAGE>
(k) Record Date. In case the Company shall take a
record of the holders of the Common Stock for the purpose of
entitling them (i) to receive a dividend or other
distribution
payable in Common Stock or in Convertible Securities or (ii)
to
subscribe for or purchase Common Stock or Convertible
Securities,
then all references in this ARTICLE IV to the date of the
issue
or sale of the shares of Common Stock deemed to have been
issued
or sold upon the declaration of such dividend or the making
of
such other distribution or the date of the granting of such
right
of subscription or purchase, as the case may be, shall be
deemed
to be references to such record date.
(l) Shares Outstanding. The number of shares of Common
Stock deemed to be outstanding at any given time shall not
include (i) shares of Common Stock in the treasury of the
Company
or any wholly-owned Subsidiary and (ii) any of the Issuable
Warrant Shares or the Issued Warrant Shares.
(m) Maximum Exercise Price. At no time shall the
Exercise Price per share of Common Stock exceed the amount
set
forth in the first paragraph of the Preamble of this Warrant
except as provided in Subsection (a) or (g) of this Section
4.2.
(n) Application. Except as otherwise provided herein,
all Subsections of this Section 4.2 are intended to operate
independently of one another. If an event occurs that
requires
the application of more than one Subsection, all applicable
Subsections shall be given independent effect.
(o) No Adjustments under Certain Circumstances.
Anything herein to the contrary notwithstanding, the Company
shall not be required to make any adjustment of the Exercise
Price in the case of:
(i) the issuance of shares of Common Stock upon
the exercise in whole or part of this Warrant; or
(ii) the issuance of shares of Common Stock
pursuant to a rights offering in which the holder hereof
elects
to participate under the provisions of Section 4.3; or
<PAGE>
(iii) the issuance of shares of common stock
pursuant to the Company's Incentive Stock Option Plan or its
Non-Employee Directors Stock Option Plan, or any successor
plan
thereto or replacement thereof; or
(iv) the issuance of shares of common stock upon
conversion of any of the shares of the Company's Series B
Convertible Preferred Stock issued and outstanding as of the
date
of this Warrant; or
(v) the issuance of shares of common stock
pursuant to any other Stock Purchase Right issued and
outstanding
as of the date of this Warrant.
4.3 Rights Offering. In the event the Company shall
effect an offering of Common Stock pro rata among its
stockholders, the holder hereof shall be entitled, at its
option,
to elect to participate in each and every such offering as
if
this Warrant had been exercised and such were, at the time
of any
such rights offering, then a holder of that number of shares
of
Common Stock to which such holder is then entitled on the
exercise hereof.
4.4 Certificates and Notices.
(a) Adjustments to Exercise Price. Upon any
adjustment under this ARTICLE IV of the number of shares of
Common Stock purchasable upon exercise of this Warrant or of
the
Exercise Price, a certificate, signed (i) by the President
or a
Vice President and by the Treasurer or an Assistant
Treasurer or
the Secretary or an Assistant Secretary of the Company, or
(ii) by any independent firm of certified public accountants
of
recognized national standing selected by, and at the expense
of,
the Company, setting forth in reasonable detail the events
requiring the adjustment and the method by which such
adjustment
was calculated, shall be mailed to the holder of this
Warrant
specifying the adjusted Exercise Price and the number of
shares
of Common Stock purchasable upon exercise of such holder's
Warrant after giving effect to such adjustment.
<PAGE>
The certificate of any independent firm of certified
public accountants of recognized national standing selected
by
the Board of Directors of the Company shall be conclusive
evidence of the correctness of any computation made under
ARTICLE IV, absent manifest error.
(b) Extraordinary Corporate Events. In case the
Company after the date hereof shall propose to (i) pay any
dividend payable in stock to the holders of shares of Common
Stock or to make any other distribution to the holders of
shares
of Common Stock, (ii) offer to the holders of shares of
Common
Stock rights to subscribe for or purchase any additional
shares
of any class of stock or any other rights or options or
(iii) effect any reclassification of the Common Stock (other
than
a reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock), or any
capital reorganization or any consolidation or merger (other
than
a merger in which no distribution of securities or other
property
is to be made to holders of shares of Common Stock), or any
sale,
transfer or other disposition of its property, assets and
business as an entirety or substantially as an entirety, or
the
liquidation, dissolution or winding up of the Company, then,
in
each such case, the Company shall mail to the holder of this
Warrant notice of such proposed action, which shall specify
the
date on which the stock transfer books of the Company shall
close, or a record shall be taken, for determining the
holders of
Common Stock entitled to receive such stock dividends or
other
distribution or such rights or options, or the date on which
such
reclassification, reorganization, consolidation, merger,
sale,
transfer, other disposition, liquidation, dissolution or
winding
up shall take place or commence, as the case may be, and the
date
as of which it is expected that holders of Common Stock of
record
shall be entitled to receive securities or other property
deliverable upon such action, if any such date is to be
fixed.
<PAGE>
Such notice shall be mailed in the case of any action
covered by
clause (i) or (ii) above at least ten (10) days prior to the
record date for determining holders of Common Stock for
purposes
of receiving such payment or offer, or in the case of any
action
covered by clause (iii) above at least thirty (30) days
prior to
the date upon which such action takes place and twenty (20)
days
prior to any record date to determine holders of Common
Stock
entitled to receive such securities or other property.
(c) Effect of Failure. Failure to file any certificate
or notice or to mail any notice, or any defect in any
certificate
or notice pursuant to this Section 4.4 shall not affect the
legality or validity of the adjustment of the Exercise Price
or
the number of shares purchasable upon exercise of this
Warrant,
or any transaction giving rise thereto.
ARTICLE V
RESTRICTIONS ON TRANSFER
Neither this Warrant nor any Issued Warrant Shares
shall be transferable except (a) to an Affiliate of the
holder
hereof, (b) to a successor corporation to the holder hereof
as a
result of a merger or consolidation with, or sale of all or
substantially all of the assets of, the holder hereof, (c)
as is
or may be required by the holder hereof to comply with any
Federal or state law or any rule or regulation of any
governmental or public body or authority, or (d) on thirty
(30)
days prior written notice to the Company for a period of
ninety
(90) days immediately following the date of such notice, to
any
other Person.
Any notice given by the holder hereof or of any
Issued Warrant Shares pursuant to Subsection (d) of the
first
paragraph of this ARTICLE V shall contain (i) the name and
address of the proposed bona fide purchaser, (ii) the
proposed
purchase price for this Warrant or portion hereof or Issued
Warrant Shares proposed to be sold, (iii) the portion of
<PAGE>
this
Warrant or the number of Issued Warrant Shares proposed to
be
sold and (iv) a brief description of such proposed transfer.
The conditions contained in the following sections
of this ARTICLE V are intended to ensure compliance with the
Securities Act in respect of the transfer of this Warrant or
Issued Warrant Shares. Reference in this ARTICLE V to
Issued
Warrant Shares includes Issued Warrant Shares theretofore
issued
upon the exercise of this Warrant or otherwise which are
then
evidenced by certificates required to bear the legend set
forth
in Section 5.8.
5.1 Notice of Proposed Transfer; Registration Not
Required. The holder hereof or the holder of any Issued
Warrant
Shares bearing the legend set forth in Section 5.8, by
acceptance
hereof or thereof, agrees to give written notice to the
Company,
prior to any transfer of this Warrant (other than transfers
referred to in Subsection (d) of the first paragraph of this
ARTICLE V), such Issued Warrant Shares or any portion hereof
or
thereof, of its intention to make such transfer as required
by
the preamble of this ARTICLE V.
Such holder shall request an Opinion of Counsel
(which shall be rendered by counsel reasonably acceptable to
the
Company) that the proposed transfer may be effected without
registration or qualification under any Federal or state
securities or blue sky law. Counsel shall, as promptly as
practicable, notify the Company and the holder of such
opinion of
the terms and conditions, if any, to be observed in such
transfer, whereupon the holder shall be entitled to transfer
this
Warrant or such Issued Warrant Shares (or portion thereof)
in
accordance with the terms of the notice delivered to the
Company.
In the event this Warrant shall be exercised as an incident
to
such transfer, such exercise shall relate back and for all
purposes of this Warrant be deemed to have occurred as of
the
date of such notice regardless of delays incurred by reason
<PAGE>
of
the provisions of this ARTICLE V which may result in the
actual
exercise on any later date.
5.2 [Intentionally Omitted]
5.3 Incidental Registration and Qualification. If the
Company proposes to register any of its securities under the
Securities Act on its behalf or on behalf of any of its
security
holders on any registration form (otherwise than for the
registration of securities to be offered and sold pursuant
to
(a) an employee benefit plan, (b) a dividend or interest
reinvestment plan, (c) other similar plans or
(d) reclassifications of securities, mergers, consolidations
and
acquisitions of assets) permitting a secondary offering or
distribution of Issued Warrant Shares, not less than ninety
(90)
days prior to each such registration the Company shall give
to
the holder hereof and the holders of Issued Warrant Shares
bearing the legend required by Section 5.8 hereof written
notice
of such proposal which shall describe in detail the proposed
registration and distribution (including those jurisdictions
where registration or qualification under the securities or
blue
sky laws is intended) and, upon the written request of the
holder
hereof or a holder of such Issued Warrant Shares furnished
within
thirty (30) days after the date of any such notice, proceed
to
include in such registration all of the Warrant Shares
("Piggy-Back Shares") subject to the limitation contained in
the
next paragraph. The holder hereof or any holder of such
Issued
Warrant Shares shall in its request describe briefly the
proposed
disposition of such shares of Common Stock. The Company
will in
each instance use its best efforts to cause all such Piggy-
Back
Shares to be registered under the Securities Act and
qualified
under the securities or blue sky laws of any jurisdiction
requested by a prospective seller, all to the extent
necessary to
permit the sale or other disposition thereof in the manner
stated
<PAGE>
in such request by a prospective seller of the securities so
registered.
If the managing underwriter selected by the
Company (if such distribution is a primary offering) or the
security holders (if such security holders are exercising
demand
registration rights) to manage the distribution of the
shares of
Common Stock being registered advises the Company in writing
that, in its opinion, the inclusion of the Piggy-Back Shares
with
the securities being registered by the Company and/or other
prospective sellers would materially adversely affect the
distribution of all such securities, then (a) if such
distribution is a primary offering on behalf of the Company,
the
Company shall first be entitled to have all of the shares
proposed to be sold by it and any holders of Series B
Preferred
Stock shall be entitled to have all shares proposed to be
sold by
them upon conversion of the Series B Preferred Stock or
exercise
of a warrant issued in connection with the Series B
Preferred
Stock included in such distribution before any shares
(including
Piggy-Back Shares) proposed to be sold by any other
prospective
sellers are included in such distribution and any shares in
excess of such numbers of shares proposed to be sold by the
Company which are permitted by such managing underwriter to
be
included in such distribution shall be allocated among such
other
prospective sellers in such proportion as the number of
shares
proposed to be sold by each such prospective seller bears to
the
aggregate number of shares of Common Stock proposed to be
sold by
all such other prospective sellers; and (b) if such
distribution
is initiated pursuant to the exercise of demand registration
rights granted by the Company to any of its security
holders, the
Company and each prospective seller may sell that proportion
of
the shares of Common Stock to be sold in the proposed
distribution which the number of shares of Common Stock
proposed
to be sold by such prospective seller bears to the aggregate
number of shares of Common Stock proposed to be sold by all
<PAGE>
prospective sellers (including the Company). In the event
that
some or all of the Piggy-Back Shares proposed to be sold by
prospective sellers are not included in such distribution,
the
Company shall use its best efforts to effect and maintain
any
such registration or qualification under the Securities Act
and
the securities or blue sky laws of any jurisdiction as may
be
necessary to permit such prospective seller to make its
proposed
offering and sale following the end of a period not to
exceed
ninety (90) days after the effective date of such
registration
and shall pay all expenses related thereto in accordance
with
Section 5.6.
The holder hereof and any holder of Issued Warrant
Shares who has requested shares of Common Stock to be
included in
a registration pursuant to this Section 5.3, by acceptance
hereof
or thereof, agrees to (a) the selection by the Company or
such
other security holders of an underwriter to manage such
registration and (b) execute an underwriting agreement with
such
underwriter that is (i) reasonably satisfactory to such
holder
and (ii) in customary form.
Nothing in this Section 5.3 shall be deemed to
require the Company to proceed with any primary registration
of
its securities after giving the notice as provided herein;
provided, however, that the Company shall pay all expenses
incurred pursuant to such notice (in accordance with
Section 5.6.)
5.4 Registration and Qualification Procedures.
Whenever the Company is required by the provisions of
Section 5.3
to use its best efforts to effect the registration of any of
its
securities under the Securities Act, the Company will, as
expeditiously as is possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities in connection with
which the Company will give the sellers, their underwriters,
<PAGE>
if
any, their respective counsel and accountants the
opportunity to
participate in the preparation of such registration
statement,
each prospectus included therein or filed with the
Commission,
and each amendment thereof or supplement thereto, and will
give
each of them access to its books and records and such
opportunities to discuss the business of the Company with
its
officers and the independent public accountants who have
certified its financial statements as shall be necessary, in
the
opinion of such sellers' and such underwriters' respective
counsel, to conduct a reasonable investigation within the
meaning
of the Securities Act;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement
and the
prospectus used in connection therewith as may be necessary
to
keep such registration statement effective and the
prospectus
current and to comply with the provisions of the Securities
Act
with respect to the sale of all securities covered by such
registration statement whenever the seller of such
securities
shall desire to sell the same; provided, however, that the
Company shall have no obligation to file an amendment or
supplement at its own expense more than nine (9) months
after the
effective date of such registration statement;
(c) furnish to each seller such numbers of copies of
preliminary prospectuses and prospectuses and each
supplement or
amendment thereto and any other documents as each seller may
reasonably request in order to facilitate the sale or other
disposition of the securities owned by such seller in
conformity
with (i) the requirements of the Securities Act and (ii) the
seller's proposed method of distribution;
(d) register or qualify the securities covered by such
registration statement under the securities or blue sky laws
of
such jurisdictions within the United States as each seller
shall
request, and do such other reasonable acts and things as may
<PAGE>
be
required of it to enable each seller to consummate the sale
or
other disposition in such jurisdictions of the securities
owned
by such seller; provided, however, that the Company shall
not be
required to (i) qualify as a foreign corporation or consent
to a
general and unlimited service of process in any such
jurisdiction, or (ii) qualify as a dealer in securities;
(e) furnish, at the request of any seller on the date
such securities are delivered to the underwriters for sale
pursuant to such registration or, if such securities are not
being sold through underwriters, on the date the
registration
statement with respect to such securities becomes effective,
(i) an opinion, dated such date, of counsel representing the
Company for the purposes of such registration, addressed to
the
underwriters, if any, and to the seller making such request,
covering such legal matters with respect to the registration
in
respect of which such opinion is being given as the seller
of
such securities may reasonably request and are customarily
included in such opinions and (ii) letters, dated,
respectively,
(1) the effective date of the registration statement and (2)
the
date such securities are delivered to the underwriters, if
any,
for sale pursuant to such registration, from a firm of
independent certified public accountants of recognized
national
standing selected by the Company, addressed to the
underwriters,
if any, and to the seller making such request, covering such
financial, statistical and accounting matters with respect
to the
registration in respect of which such letters are being
given as
the seller of such securities may reasonably request and are
customarily included in such letters;
(f) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to its security holders as soon as reasonably
practicable, but not later than sixteen (16) months after
the
effective date of the registration statement, an earnings
statement covering a period of at least twelve (12) months
beginning after the effective date of the registration
statement,
<PAGE>
which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(g) enter into and perform an underwriting agreement
with the managing underwriter, if any, selected as provided
in
Section 5.3, containing customary (i) terms of offer and
sale of
the securities, payment provisions, underwriting discounts
and
commissions, and (ii) representations, warranties,
covenants,
indemnities, terms and conditions; the sellers may, at their
option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall
also be
made to and for the benefit of such sellers and that any or
all
of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions
precedent to the obligations of such sellers; such sellers
shall
not be required to make any representations or warranties to
or
agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such
seller
and such seller's intended method of distribution and any
other
representation required by law;
(h) notify each seller at any time when a prospectus
relating to the registration is required to be delivered
under
the Securities Act, upon discovery that, or upon the
happening of
any event as a result of which, the prospectus included in
such
registration statement, as then in effect, includes an
untrue
statement of a material fact or omits to state any material
fact
required to be stated therein or necessary to make the
statements
therein not misleading in the light of the circumstances
under
which they were made, at the request of any such seller
promptly
prepare and furnish to such seller a reasonable number of
copies
of a supplement to or an amendment of such prospectus as may
be
necessary so that, as thereafter delivered to the purchasers
<PAGE>
of
such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the
statements
therein not misleading in the light of the circumstances
under
which they were made; and
(i) keep each seller advised in writing as to the
initiation and progress of any registration under Section
5.3.
5.5 Holdback Agreement. The Company agrees not to
effect any public sale or distribution of its equity
securities
or securities convertible into or exchangeable or
exercisable for
any of such securities during the seven (7) days prior to or
ninety (90) days after any underwritten registration
pursuant to
Section 5.3 has become effective, except as part of such
underwritten registration and except pursuant to
registrations on
Form S-8 or S-4 or any successor or similar forms thereto,
and to
cause each Person who purchases its equity securities or any
securities convertible into or exchangeable or exercisable
for
any of such securities at any time after the date of this
Warrant
(other than in a public offering) to agree not to effect any
such
public sale or distribution of such securities, during such
period.
5.6 Allocation of Expenses. If the Company is
required by the provisions of Section 5.3 to use its best
efforts
to effect the registration or qualification under the
Securities
Act or any state securities or blue sky laws of any of the
Warrant Shares, the Company shall pay all expenses (i) other
than
the fees and expenses set forth in clauses (1) and (2) of
the
proviso set forth below, which expenses shall include,
without
limitation, (a) all expenses incident to filing with the
National
Association of Securities Dealers, Inc., (b) registration
fees,
(c) printing expenses, (d) accounting and legal fees and
<PAGE>
expenses, (e) expenses of any special audits incident to or
required by any such registration or qualification, (f)
premiums
for insurance in such amount, if any, deemed appropriate by
the
managing underwriter and (g) expenses of complying with the
securities or blue sky laws of any jurisdictions in
connection
with registration or qualification; provided, however, that
the
following fees and expenses shall be treated as set forth
above
and (x) and (y) below: (1) any discounts or commissions to
any
underwriter attributable to securities being sold by or on
behalf
of Persons other than the Company; (2) any stock transfer
taxes
incurred in respect of the Warrant Shares sold by the
sellers;
(3) the reasonable legal fees of any holder of this Warrant
or
shares issued or issuable hereunder; provided further, that
in
any required registration pursuant to Section 5.3 hereof,
the
incremental expenses of the nature set forth in clauses
(ii)(a)
through (g) above (including those set forth in clauses (1),
(2)
and (3) above) attributable to the inclusion of Piggy-Back
Shares
shall be borne pro rata by the holders of Warrant Shares
whose
Warrant Shares are included therein in proportion to their
respective numbers of Warrant Shares included therein.
5.7 Indemnification. In connection with any
registration or qualification of securities under Section
5.3,
the Company agrees to indemnify the holder hereof and the
holders
of any Issued Warrant Shares and each underwriter thereof,
including each person, if any, who controls the holder or
such
stockholder or underwriter within the meaning of Section 15
of
the Securities Act, against all losses, claims, damages,
liabilities and expenses (including reasonable costs of
investigation) caused by any untrue, or alleged untrue,
statement
of a material fact contained in any registration statement,
preliminary prospectus, prospectus or notification or
offering
<PAGE>
circular (as amended or supplemented if the Company shall
have
furnished any amendments or supplements thereto) or caused
by any
omission, or alleged omission, to state therein a material
fact
required to be stated therein or necessary to make the
statements
therein not misleading, except insofar as such losses,
claims,
damages, liabilities or expenses are caused by any untrue
statement or alleged untrue statement or omission or alleged
omission based upon information furnished in writing to the
Company by the holder or any such stockholder or underwriter
expressly for use therein. The Company and each officer,
director and controlling person of the Company shall be
indemnified by the holder of this Warrant and by the holders
of
any Issued Warrant Shares for all such losses, claims,
damages,
liabilities and expenses (including the costs of reasonable
investigation) caused by any such untrue, or alleged untrue,
statement or any such omission or alleged omission, based
upon
information furnished in writing to the Company by the
holder
hereof or any such stockholder expressly for use therein.
Promptly upon receipt by a party indemnified under
this Section 5.7 of notice of the commencement of any action
against such indemnified party in respect of which indemnity
or
reimbursement may be sought against any indemnifying party
under
this Section 5.7, such indemnified party shall notify the
indemnifying party in writing of the commencement of such
action,
but the failure so to notify the indemnifying party shall
not
relieve it of any liability which it may have to any
indemnified
party otherwise than under this Section 5.7 unless such
failure
shall materially adversely affect the defense of such
action. In
case notice of commencement of any such action shall be
given to
the indemnifying party as above provided, the indemnifying
party
shall be entitled to participate in and, to the extent it
may
wish, jointly with any other indemnifying party similarly
notified, to assume the defense of such action at its own
expense, with counsel chosen by it and satisfactory to such
<PAGE>
indemnified party. The indemnified party shall have the
right to
employ separate counsel in any such action and participate
in the
defense thereof, but the fees and expenses of such counsel
(other
than reasonable costs of investigation) shall be paid by the
indemnified party unless (a) the indemnifying party agrees
to pay
the same, (b) the indemnifying party fails to assume the
defense
of such action with counsel reasonably satisfactory to the
indemnified party or (c) the named parties to any such
action
(including any impleaded parties) have been advised by such
counsel that representation of such indemnified party and
the
indemnifying party by the same counsel would be
inappropriate
under applicable standards of professional conduct (in which
case
the indemnifying party shall not have the right to assume
the
defense of such action on behalf of such indemnified party).
No
indemnifying party shall be liable for any settlement
entered
into without its consent.
If the indemnification provided for in this
Section is unavailable or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages,
liabilities, expenses or actions in respect thereof referred
to
herein, then each indemnifying party shall in lieu of
indemnifying such indemnified party as a result of such
losses,
claims, damages, liabilities, expenses or actions in such
proportion as is appropriate to reflect the relative fault
of the
Company, on the one hand, and the sellers of such Common
Stock,
on the other, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities,
expenses or actions as well as any other relevant equitable
considerations, including the failure to give the notice
required
hereunder. The relative fault shall be determined by
reference
to, among other things, whether the untrue or alleged untrue
statement of a material fact relates to information supplied
by
the Company, on the one hand, or the sellers of such Common
Stock, on the other hand, and the parties' relative intent,
<PAGE>
knowledge, access to information and opportunity to correct
or
prevent such statement or omission. The Company and the
holder
hereof agree that it would not be just and equitable if
contribution pursuant to this Section were determined by pro
rata
allocation (even if all of the sellers of such Common Stock
were
treated as one entity for such purpose) or by any other
method of
allocation which did not take account of the equitable
considerations referred to above. The amount paid or
payable by
an indemnified party as a result of the losses, claims,
damages,
liabilities or actions in respect thereof referred to above
shall
be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the contribution provisions of this Section
5.7,
in no event shall the amount contributed by any seller of
Common
Stock exceed the aggregate gross offering proceeds received
by
such seller from the sale of Common Stock to which such
contribution claim relates. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of
the
Securities Act) shall be entitled to contribution from any
person
who is not guilty of such fraudulent misrepresentation.
Each holder of this Warrant and each holder of
Issued Warrant Shares bearing the legend required by Section
5.8,
by acceptance hereof or thereof, as the case may be, agrees
to
the indemnification and contribution provisions of this
Section 5.7.
5.8 Legend on Warrants and Certificates. Each Warrant
shall bear a legend in substantially the following form:
"This Warrant and any shares of Common Stock issuable
upon the exercise of this Warrant have not been
registered under the Securities Act of 1933, as
amended, and neither this Warrant nor any such shares
may be transferred in the absence of such registration
or any exemption therefrom under such Act."
Warrant Shares which are issued upon the exercise
<PAGE>
in whole or in part of this Warrant or otherwise, or are
thereafter transferred, in either case under such
circumstances
that no registration under the Securities Act is required,
shall
bear on the face thereof the following legend:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and any transfer thereof is subject to the
conditions specified in the Warrant dated as of July
10, 1997, originally issued by The Vermont Teddy Bear
Co., Inc. (the "Company") to URSA (VT) QRS 12-30, Inc.
to purchase shares of Common Stock, $.05 par value, of
the Company. A copy of the form of such Warrant is on
file with the Secretary of the Company at 2236
Shelburne Road, Shelburne, Vermont 05482, and will be
furnished without charge by the Company to the holder
of this certificate upon written request to the
Secretary of the Company at such address."
5.9 Termination of Restrictions. The restrictions
imposed under this ARTICLE V upon the transferability of
this
Warrant, or of Issuable Warrant Shares or Issued Warrant
Shares,
shall cease when (a) a registration statement covering such
Issuable Warrant Shares or Issued Warrant Shares becomes
effective under the Securities Act or (b) the Company
receives an
Opinion of Counsel that such restrictions are no longer
required
in order to ensure compliance with the Securities Act. When
such
restrictions terminate, the Company shall, or shall instruct
its
transfer agent and registrar to, issue new certificates in
the
name of the holder not bearing the legends required under
Section 5.8.
5.10 Supplying Information. The Company, the holder
hereof and each holder of Issued Warrant Shares shall
cooperate
with each other in supplying such information as may be
necessary
for any of such parties to complete and file any information
reporting forms presently or hereafter required by the
Commission
or any commissioner or other authority administering the
blue sky
or securities laws of any jurisdiction where shares of
Common
Stock are proposed to be sold pursuant to Section 5.3.
<PAGE>
5.11 Liquidated Damages. In the event the Company
fails to comply with any provision of Section 5.3 or 5.4,
upon
written request of the holder of this Warrant or any holder
of
Issued Warrant Shares entitled to the benefits of this
ARTICLE V,
the Company shall promptly obtain an opinion of an
independent
investment banking firm reasonably satisfactory to such
holder
estimating the net proceeds which such Person would have
received
(after deducting underwriting commissions and discounts and
any
other expenses that would have been solely attributable to
the
registration or qualification of such shares of Common
Stock)
upon the sale of shares of Common Stock proposed to be sold
pursuant to such registration or qualification. Such
opinion of
an independent investment banking firm shall be (a)
delivered in
writing to the Company, with a copy to such person, within
seven
(7) days after the date of the request of such person to the
Company and (b) conclusive and binding on the Company and
such
Person.
Within thirty (30) days of receipt by the Company
of such estimate, the Company shall pay to such Person an
amount
equal to (a) such estimated net proceeds minus (b) in the
case of
Warrants or portions thereof that have not been exercised,
the
aggregate Exercise Price payable upon the exercise of such
Warrants. Payment of such amount shall be made by a
certified or
official bank check payable to the order of such person and
drawn
on a member of the New York Clearing House. Upon payment to
such
Person of such liquidated damages, such Person shall assign
to
the Company this Warrant and the Issued Warrant Shares
proposed
to be sold pursuant to the registration or qualification in
question without any representation or warranty (other than
that
the holder has not taken any action which would impair its
<PAGE>
ownership of or right to transfer to the Company the Warrant
or
such shares of Common Stock). If less than all of the
Issued
Warrant Shares were proposed to be sold pursuant to the
registration or qualification in question, the Company shall
cancel this Warrant and issue in the name of, and deliver
to, the
holder, pursuant to Section 2.2, a new Warrant for the
shares of
Issuable Warrant Shares not required to be assigned to the
Company pursuant to the provisions of the preceding
sentence.
The Company agrees that the amount of actual damages that
would
be sustained by the holder as a result of the failure of the
Company to comply with any provisions of Section 5.3 or 5.4
is
not capable of ascertainment on any other basis.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to the
Initial Holder and each subsequent holder of this Warrant
that as
of the Closing Date:
6.1 Organization and Capitalization of the Company.
The Company is a corporation duly organized, validly
existing and
in good standing under the laws of the State of New York.
The
authorized capital of the Company consists of twenty million
(20,000,000) shares of Common Stock, ninety (90) shares of
Series
A Preferred Stock, three hundred seventy-five thousand
(375,000)
shares of Series B Preferred Stock and six hundred twenty-
four
nine hundred ten (624,910) shares of undesignated preferred
stock. As of the date hereof, there are 5,172,750 shares of
Common Stock issued and outstanding, ninety (90) shares of
Series
A Preferred Stock issued and outstanding and two hundred
four
thousand nine hundred twelve (204,912) shares of Series B
Preferred Stock issued and outstanding, and twelve thousand
(12,000) shares of the Company's capital stock are held in
its
treasury. No unissued shares of Common Stock are reserved
for
any purpose other than for issuance upon the exercise of
<PAGE>
this
Warrant with the exception of two million (2,000,000) shares
of
common stock reserved for issuance pursuant to options
granted
under the Company's Incentive Stock Option Plan and four
hundred
thousand (400,000) shares of common stock reserved for
issuance
pursuant to options granted under the Company's 1996 Non-
Employee
Directors' Stock Option Plan. The Company has not issued or
agreed to issue any Stock Purchase Rights, other than
pursuant to
this Warrant, or Convertible Securities, and there are no
preemptive rights in effect with respect to the issuance of
any
shares of Common Stock, except as listed in Schedule 6.1.
All
the outstanding shares of the Company's capital stock have
been
validly issued without violation of any preemptive or
similar
rights and are fully paid and nonassessable.
6.2 Authority. The Company has full corporate power
and authority to execute and deliver this Warrant and to
perform
all of its obligations hereunder, and the execution,
delivery and
performance hereof have been duly authorized by all
necessary
corporate action on its part. This Warrant has been duly
executed on behalf of the Company and constitutes the legal,
valid and binding obligation of the Company enforceable in
accordance with its terms.
6.3 No Legal Bar. Neither the execution, delivery or
performance of this Warrant will (a) conflict with or result
in a
violation of the certificate of incorporation or Bylaws of
the
Company, (b) conflict with or result in a violation of any
law,
statute, regulation, order or decree applicable to the
Company or
any Affiliate, (c) require any consent or authorization or
filing
with, or other act by or in respect of, any governmental
authority, or (d) result in a breach of, constitute a
default
under or constitute an event creating rights of
acceleration,
termination or cancellation under any mortgage, lease,
<PAGE>
contract,
franchise, instrument or other agreement to which the
Company is
a party or by which it is bound, other than applicable
restrictions contained in any of such documents relating to
indebtedness of the Company.
ARTICLE VII
VARIOUS COVENANTS OF THE COMPANY
7.1 No Impairment or Amendment. The Company shall not
by any action including, without limitation, amending its
certificate of incorporation, any reorganization, transfer
of
assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to
avoid
the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate to protect the
rights
of the holder hereof against impairment. Without limiting
the
generality of the foregoing, the Company will (a) not
increase
the par value of any shares of Common Stock issuable upon
the
exercise of this Warrant above the amount payable therefor
upon
such exercise, (b) take all such action as may be necessary
or
appropriate in order that the Company may validly issue
fully
paid and nonassessable shares of Common Stock upon the
exercise
of this Warrant, (c) obtain all such authorizations,
exemptions
or consents from any public regulatory body having
jurisdiction
thereof as may be necessary to enable the Company to perform
its
obligations under this Warrant, and (d) not undertake any
reverse
stock split, combination, reorganization or other
reclassification of the capital stock which would have the
effect
of making this Warrant exercisable for less than
150,000/5,172,750 percent (2.90655%) of the outstanding
shares of
Common Stock.
Upon the request of the holder hereof the Company
<PAGE>
will at any time during the period this Warrant is
outstanding
acknowledge in writing, in form satisfactory to such holder,
the
continued validity of this Warrant and the Company's
obligations
hereunder.
7.2 Reservation of Common Stock. The Company will at
all times reserve and keep available, solely for issuance,
sale
and delivery upon the exercise of this Warrant a number of
shares
of Common Stock equal to the number of shares of Common
Stock
issuable upon the exercise of this Warrant. All such shares
of
Common Stock shall be duly authorized and, when issued upon
exercise of this Warrant, shall be validly issued and fully
paid
and non-assessable with no liability on the part of the
holders
thereof.
7.3 Listing on Securities Exchange. If the Company
shall list any shares of Common Stock on any securities
exchange
it will, at its expense, list thereon, maintain and increase
when
necessary such listing of, all Issued Warrant Shares so long
as
any shares of Common Stock shall be so listed. The Company
will
also so list on each securities exchange, and will maintain
such
listing of, any other securities which the holder of this
Warrant
shall be entitled to receive upon the exercise thereof if at
the
time any securities of the same class shall be listed on
such
securities exchange by the Company.
7.4 Availability of Information. The Company will
cooperate with the holder hereof and of Issued Warrant
Shares in
supplying such information as may be necessary for such
holder to
complete and file any information reporting forms presently
or
hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the
sale
of this Warrant or such Issued Warrant Shares.
<PAGE>
7.5 Indemnification. If the Company fails to make when
due any payments provided for in this Warrant, the Company
shall
pay to the holder hereof (a) interest at the Default Rate on
any
amounts due and owing to such holder and (b) such further
amounts
as shall be sufficient to cover any costs and expenses
including,
but not limited to, reasonable attorneys' fees and expenses
incurred by such holder in collecting any amounts due
hereunder.
The Company shall indemnify, save and hold
harmless the holder hereof from and against any and all
liability, loss, cost, damage, reasonable attorneys' and
accountants' fees and expenses, court costs and all other
out-of-pocket expenses (excluding consequential damages)
incurred
in connection with or arising from an Event of Default.
7.6 Certain Expenses. The Company shall pay all
expenses in connection with, and all taxes (other than stock
transfer taxes) and other governmental charges that may be
imposed in respect of, the issue, sale and delivery of (a)
this
Warrant, (b) the Issuable Warrant Shares, or (c) the Issued
Warrant Shares.
ARTICLE VIII
MISCELLANEOUS
8.1 Nonwaiver. No course of dealing or any delay or
failure to exercise any right, power or remedy hereunder on
the
part of the holder hereof shall operate as a waiver of or
otherwise prejudice such holder's rights, powers or
remedies.
8.2 Holder Not a Stockholder. Prior to the exercise of
this Warrant as hereinbefore provided, the holder hereof
shall
not be entitled to any of the rights of a stockholder of the
Company including, without limitation, the right as a
stockholder
to (a) vote on or consent to any proposed action of the
Company
or (b) receive (i) dividends or any other distributions made
to
stockholders, (ii) notice of or attend any meetings of
stockholders of the Company (except as provided in ARTICLE
IV) or
<PAGE>
(iii) notice of any other proceedings of the Company (except
as
provided in ARTICLE IV).
8.3 Notices. Any notice, demand or delivery to be made
pursuant to the provisions of this Warrant shall be
sufficiently
given or made if sent by first class mail, postage prepaid,
addressed to (a) the holder of this Warrant or Issued
Warrant
Shares at its last known address appearing on the books of
the
Company maintained for such purpose or (b) the Company at
its
principal office at 2236 Shelburne Road, Shelburne, Vermont
05482. The holder of this Warrant and the Company may each
designate a different address by notice to the other
pursuant to
this Section 8.3.
8.4 Like Tenor. All Warrants shall at all times be
identical, except as to the Preamble.
8.5 Remedies. The Company stipulates that the remedies
at law of the holder of this Warrant or of Issued Warrant
Shares
in the event of any default or threatened default by the
Company
in the performance of or compliance with any of the terms of
this
Warrant are not and will not be adequate and that, to the
fullest
extent permitted by law, such terms may be specifically
enforced
by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of
any
of the terms hereof or otherwise.
8.6 Successors and Assigns. This Warrant and the
rights evidenced hereby shall inure to the benefit of and be
binding upon the successors and assigns of the Company, the
holder hereof and the holders of Issued Warrant Shares, to
the
extent provided herein, and shall be enforceable by any such
holder.
8.7 Modification and Severability. If, in any action
before any court or agency legally empowered to enforce any
provision contained herein, any provision hereof is found to
be
unenforceable, then such provision shall be deemed modified
to
the extent necessary to make it enforceable by such court or
<PAGE>
agency. If any such provision is not durable as set forth
in the
preceding sentence, the unenforceability of such provision
shall
not affect the other provisions of this Agreement, but this
Agreement shall be construed as if such unenforceable
provision
had never been contained herein.
8.8 Integration. This Warrant replaces all prior
agreements, supersedes all prior negotiations and
constitutes the
entire agreement of the parties with respect to the
transactions
contemplated herein.
8.9 Amendment. This Warrant may not be modified or
amended except by written agreement of the Company and the
holder
hereof.
8.10 Headings. The headings of the Articles and
Sections of this Warrant are for the convenience of
reference
only and shall not, for any purpose, be deemed a part of
this
Warrant.
8.11 Governing Law. This Warrant shall be governed by
the laws of the State of New York.
Dated as of July __, 1997.
WITNESS: THE VERMONT TEDDY BEAR CO., INC.
________________________
By:_____________________________
Title:Senior Vice President and Chief
Financial Officer
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered holder of the within Warrant
irrevocably exercises the within Warrant for and purchases
____
shares of Common Stock of The Vermont Teddy Bear Co., Inc.
<PAGE>
and
herewith makes payment therefor in the amount of $ , all
at
the price and on the terms and conditions specified in the
within
Warrant, and requests that a certificate (or _____
certificates
in denominations of shares) for the shares of
Common
Stock of The Vermont Teddy Bear Co., Inc. hereby purchased
be
issued in the name of and delivered to (choose one) (a) the
undersigned or (b) , whose address is
and, if such shares of Common Stock shall not include all
the
shares of Common Stock issuable as provided in the within
Warrant, that a new Warrant of like tenor for the number of
shares of Common Stock of The Vermont Teddy Bear Co., Inc.
not
being purchased hereunder be issued in the name of and
delivered
to (choose one) (a) the undersigned or
(b)________________________, whose address is
___________________________________________________.
Dated: ,
Signature Guaranteed: By:
(Signature of Registered
Holder)
------------------------------
By:
[Title:]
NOTICE: The signature to this Notice of Exercise must
correspond with the name as written upon the face of
the within Warrant in every particular, without
alteration or enlargement or any change whatever.
The signature to this Notice of Exercise must be
guaranteed by a commercial bank or trust company in the
United States or a member firm of the New York Stock
Exchange.
ASSIGNMENT FORM
(To be executed only upon the assignment
of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered holder of the
<PAGE>
within Warrant hereby sells, assigns and transfers unto
, whose address is
________________________________ all of the rights of the
undersigned under the within Warrant, with respect to
shares of Common Stock of The Vermont Teddy Bear Co., Inc.
(the
"Company") and, if such shares of Common Stock shall not
include
all the shares of Common Stock issuable as provided in the
within
Warrant, that a new Warrant of like tenor for the number of
shares of Common Stock of The Vermont Teddy Bear Co., Inc.
not
being transferred hereunder be issued in the name of and
delivered to the undersigned, and does hereby irrevocably
constitute and appoint Attorney to register
such
transfer on the books of the Company maintained for the
purpose,
with full power of substitution in the premises.
Dated: ,
Signature Guaranteed: By:
(Signature of Registered
Holder)
-----------------------------
By:
[Title:]
NOTICE: The signature to this Assignment must correspond
with
the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement
or any change whatever.
The signature to this Assignment must be guaranteed by
a commercial bank or trust company in the United States
or a member firm of the New York Stock Exchange.
EXHIBIT 10.34
STANDARD FORM OF STORE LEASE
The Real Estate Board of New York, Inc.
Agreement of Lease, made of this _________ day of October,
1996, between 538 Madison Realty Company, a New York limited
partnership with offices c/o Siegel Consultants, 50 School
Lane,
Huntington, New York, party of the first part, hereinafter
referred to as OWNER, and The Vermont Teddy Bear Co., Inc.,
<PAGE>
New
York corporation with offices at 2336 Shelburne Road, #5,
Shelburne, Vermont, party of the second part, hereinafter
referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant
hereby hires from Owner the Street retail space (which
excludes
the office lobby and elevator) and Lower Level (which shall
not
include the electric room and a four foot corridor from the
sidewalk trap door to the electric room) (See Plan annexed
hereto
as Exhibit A), in the building known as 538 Madison Avenue,
in
the Borough of Manhattan, City of New York, for the term of
ten
(10) years, (or until such term shall sooner cease and
expire as
hereinafter provided) to commence on the ______ day of _____
October, nineteen hundred and ninety-six, and to end on the
______ day of _______________ two thousand and six, both
dates
inclusive, at an annual rental rate of _________. See
Article
40.
which Tenant agrees to pay in lawful money of the United
States
which shall be legal tender in payment of all debts and
dues,
public and private, at the time of payment, in equal monthly
installments in advance on the first day of each month
during
said term, at the office of Owner or such other place as
Owner
may designate, without any set off or deduction whatsoever,
except that Tenant shall pay the first _________ monthly
installment(s) on the execution hereof (unless this lease be
a
renewal).
In the event that, at the commencement of the term of this
lease, or thereafter, Tenant shall be in default in the
payment
of rent to Owner pursuant to the terms of another lease with
Owner or with Owner's predecessor in interest, Owner may at
Owner's option and without notice to Tenant add the amount
of
such arrears to any monthly installment of rent payable
hereunder
and the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs,
<PAGE>
distributees, executors, administrators, legal
representatives,
successors and assigns, hereby covenant as follows:
Rent: 1. Tenant shall pay the rent as above and
as hereinafter provided.
Occupancy: 2. Tenant shall use and occupy demised
premises
for the retail sale of products manufactured by
and labeled under The Vermont Teddy Bear Company
name, and other brand name products in positioning
The Vermont Teddy Bear Company as a teddy bear
"category killer."
and for no other purpose. Tenant shall at all times conduct
its
business in a high grade and reputable manner, shall not
violate
Article 37 hereof, and shall keep show windows and signs in
a
neat and clean condition.
Alterations: 3. Tenant shall make no changes in or
to the
demised premises of any nature without Owner's prior written
consent. Subject to the prior written consent of Owner, and
to
the provisions of this article. Tenant, at Tenant's
expense, may
make alterations, installations, additions or improvements
which
are non-structural and which do not affect utility services
or
plumbing and electrical lines, in or to the interior of the
demised premises by using contractors or mechanics first
approved
in each instance by Owner. Tenant shall, before making any
alterations, additions, installations or improvements, at
its
expense, obtain all permits, approvals and certificates
required
by any governmental or quasi-governmental bodies and (upon
completion) certificates of final approval thereof and shall
deliver promptly duplicates of all such permits, approvals
and
certificates to Owner and Tenant agrees to carry and will
cause
Tenant's contractors and sub-contractors to carry such
workman's
compensation, general liability, personal and property
damage
insurance as Owner may require. If any mechanic's lien is
filed
<PAGE>
against the demised premises, or the building of which the
same
forms a part, for work claimed to have done for, or
materials
furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within 30
days
thereafter, at Tenant's expense, by payment or filing the
bond
required by law. All fixtures and all paneling, partitions,
railings and like installations, installed in the premises
at any
time, either by Tenant or by Owner on Tenant's behalf,
shall,
upon installation, become the property of Owner and shall
remain
upon and be surrendered with the demised premises unless
Owner,
by notice to Tenant no later than twenty days prior to the
date
fixed as the termination of this lease, elects to relinquish
Owner's rights thereto and to have them removed by Tenant,
in
which event, the same shall be removed from the premises by
Tenant prior to the expiration of the lease, at Tenant's
expense.
Nothing in this article shall be construed to give Owner
title to
or to prevent Tenant's removal of trade fixtures, moveable
office
furniture and equipment, but upon removal of any such from
the
premises or upon removal of other installation as may be
required
by Owner, Tenant shall immediately and at its expense,
repair and
restore the premises to the condition existing prior to
installation and repair any damage to the demised premises
or the
building due to such removal. All property permitted or
required
to be removed by Tenant at the end of the term remaining in
the
premises after Tenant's removal shall be deemed abandoned
and
may, at the election of Owner, either be retained as Owner's
property or may be removed from the premises by Owner at
Tenant's
expense.
Repairs: 4. Owner shall maintain and repair the
public
portions of the building, both exterior and interior, except
that
<PAGE>
if Owner allows Tenant to erect on the outside of the
building a
sign or signs, or a hoist, lift or sidewalk elevator for the
exclusive use of Tenant. Tenant shall maintain such
exterior
installations in good appearance and shall cause the same to
be
operated in a good and workmanlike manner and shall make all
repairs thereto necessary to keep same in good order and
condition, at Tenant's own cost and expense, and shall cause
the
same to be covered by the insurance provided for hereafter
in
Article 8. Tenant shall, throughout the term of this lease,
take
good care of the demised premises and the fixtures and
appurtenances therein, and the sidewalks adjacent thereto,
and at
its sole cost and expense, make all non-structural repairs
thereto as and when needed to preserve them in good working
order
and condition, reasonable wear and tear, obsolescence and
damage
from the elements, fire or other casualty, excepted. If the
demised premises be or become infested with vermin, Tenant
shall
at Tenant's expense, cause the same to be exterminated from
time
to time to the satisfaction of Owner. Except as
specifically
provided in Article 9 or elsewhere in this lease provided
Owner
uses reasonable efforts, if possible, to perform its
repairs,
alterations, additions or improvements in a manner that
minimizes
(a) disruption of Tenant's business operations or (b) an
affect
on the access to and visibility of the Premises. There
shall be
no allowance to the Tenant for the diminution of rental
value and
no liability on the part of Owner by reason of
inconvenience,
annoyance or injury to business arising from Owner, making
or to
make any repairs, alterations, additions or improvements in
or to
any portion of the building including the erection or
operation
of any crane, derrick or sidewalk shed, or in or to the
demised
premises or the fixtures, appurtenances or equipment
thereof. It
<PAGE>
is specifically agreed that Tenant shall be not entitled to
any
set off or reduction of rent by reason of any failure of
Owner to
comply with the covenants of this or any other article of
this
lease. Tenant agrees that Tenant's sole remedy at law in
such
instance will be by way of an action for damages for breach
of
contract. The provisions of this Article 4 with respect to
the
making of repairs shall not apply in the case of fire or
other
Casualty which are dealt with in Article 9 hereof.
Window Cleaning: 5. Tenant will not clean nor
require,
permit, suffer or allow any window in the demised premises
to be
cleaned from the outside in violation of Section 202 of the
New
York State Labor Law or any other applicable law or of the
Rules
of the Board of Standards and Appeals, or of any other Board
or
body having or asserting jurisdiction.
Requirements of
Law, Fire Insurance: 6. Prior to the commencement of
the
lease term, if Tenant is then in possession, and at all
times
thereafter, Tenant, at Tenant's sole cost and expense, shall
promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local
governments, departments, commissions and boards and any
direction of any public officer pursuant to law, and all
orders,
rules and regulations of the New York Board of Fire
Underwriters
or the Insurance Services Office, or any similar body which
shall
impose any violation, order or duty upon Owner or Tenant
with
respect to the demised premises, and with respect to the
portion
of the sidewalk adjacent to the premises, if the premises
are on
the street level, whether or not arising out of Tenant's use
or
manner of use thereof, or with respect to the building if
arising
out of Tenant's use or manner of use of the premises or the
<PAGE>
building (including the use permitted under the lease).
Except
as provided in Article 29 hereof, nothing herein shall
require
Tenant to make structural repairs or alterations unless
Tenant
has by its manner of use of the demised premises or method
of
operation therein, violated any such laws, ordinances,
orders,
rules, regulations or requirements with respect thereto.
Tenant
shall not do or permit any act or thing to be done in or to
the
demised premises which is contrary to law, or which will
invalidate or be in conflict with public liability, fire or
other
policies of insurance any time carried by or for the benefit
of
Owner. Tenant shall pay all costs, expenses, fines,
penalties or
damages, which may be imposed upon Owner by reason of
Tenant's
failure to comply with the provisions of this article. If
the
fire insurance rate shall, at the beginning of the lease or
at
any time thereafter be higher than it otherwise would be,
then
Tenant shall reimburse Owner, as additional rent hereunder,
for
that portion of all fire insurance premiums thereafter, be
higher
than it otherwise would be, then Tenant shall reimburse
Owner, as
additional rent hereunder, for that portion of all fire
insurance
premiums thereafter paid by Owner which shall have been
charged
because of such failure by Tenant, to comply with the terms
of
this article. If the fire insurance rate shall, at the
beginning
of the lease or at any time thereafter, be higher than it
otherwise would be, then Tenant shall reimburse Owner, as
additional rent hereunder, for that portion of all fire
insurance
premiums thereafter paid by Owner which shall have been
charged
because of such failure by Tenant, to comply with the terms
of
this article. In any action or proceeding wherein Owner and
Tenant are parties, a schedule or "make-up" of rate for the
building or demised premises issued by a body making fire
<PAGE>
insurance rates applicable to said premises shall be
conclusive
evidence of the facts therein stated and of the several
items and
charges in the fire insurance rate then applicable to said
premises.
Subordination: 7. This lease is subject and subordinate to
all
ground or underlying leases and to all mortgages which may
now or
hereafter affect such leases or the real property of which
demised premises are a part and to all renewals,
modifications,
consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-
operative and no further instrument of subordination shall
be
required by any ground or underlying lessor or by any
mortgagee,
affecting any lease or the real property of which the
demised
premises are a part. In confirmation of such subordination.
Tenant shall from time to time execute promptly any
certificate
that Owner may request. Owner agrees to make a request to
any
future mortgagee to provide Tenant with a non-disturbance
and
attornment agreement in the Bank's customary form.
Tenant's Liability
Insurance Property
Loss, Damage,
Indemnity: 8. Owner or its agents shall not be
liable
for any damage to property of Tenant or of others entrusted
to
employees of the building, nor for loss of or damage to any
property of Tenant by theft or otherwise, nor for any injury
or
damage to persons or property resulting from any cause of
whatsoever nature, unless caused by or due to the negligence
of
owner, its agents, servants or employees. Owner or its
agents
will not be liable for any such damage caused by other
tenants or
persons in, upon or about said building or caused by
operations
in construction of any private, public or quasi public work.
Tenant agrees, at Tenant's sole cost and expense, to
maintain
general public liability insurance in standard form in favor
<PAGE>
of
Owner and Tenant against claims for bodily injury or death
or
property damage occurring in or upon the demised premises,
effective from the date Tenant enters into possession and
during
the term of this lease. Such insurance shall be in an
amount and
with carriers acceptable to the Owner. Such policy or
policies
shall be delivered to the Owner. On Tenant's default in
obtaining or delivering any such policy or policies or
failure to
pay the charges for any such policy or policies and charge
the
Tenant as additional rent therefor. Tenant shall indemnify
and
save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses
for
which Owner shall not be reimbursed by insurance, including
reasonable attorneys fees, paid, suffered or incurred as a
result
of any breach by Tenant, Tenant's agent, contractors,
employees,
invitees, or licensees, of any covenant on condition of this
lease, or the carelessness negligence or improper conduct of
the
Tenant, Tenant's agents, contractors, employees, invitees or
licensees. Tenant's subtenant, and any agent, contractor,
employee, invitee or licensee of any subtenant. In case any
action or proceeding is brought against Owner by reason of
any
such claim, Tenant, upon written notice from Owner, will, at
Tenant's expense, resist or defend such action or proceeding
by
counsel approved by Owner in writing, such approval not to
be
unreasonably withheld.
Destruction,
Fire, and
Other Casualty: 9. (a) If the demised premises or any
part
thereof shall be damaged by fire or other casualty, Tenant
shall
give immediate notice thereof to Owner and this lease shall
continue in full force and effect except as hereinafter set
forth. (b) If the demised premises are partially damaged or
rendered partially unusable by fire or other casualty, the
damages thereto shall be repaired by and at the expense of
Owner
and the rent and other items of additional rent, until such
repair shall be substantially completed, shall be
<PAGE>
apportioned
from the day following the casualty according to the part of
the
premises which is usable. (c) If the demised premises are
totally damaged or rendered wholly unusable by fire or other
casualty, then the rent and other items of additional rent
as
hereinafter expressly provided shall be proportionately paid
up
to the time of the casualty and thenceforth shall cease
until the
date when the premises shall have been repaired and restored
by
Owner (or sooner reoccupied in part by Tenant then rent
shall be
apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as
hereinafter
provided. (d) If the demised premises are rendered wholly
unusable or (whether or not the demised premises are damaged
in
whole or in part) if the building shall be so damaged that
Owner
shall decide to demolish it or to rebuild it, then, in any
of
such events. Owner may elect to terminate this lease by
written
notice to Tenant given within 90 days after such fire or
casualty
or 30 days after adjustment of the insurance claim for such
fire
or casualty, whichever is sooner, specifying a date for the
expiration of the lease, which date shall not be more than
60
days after the giving of such notice, and upon the date
specified
in such notice the term of this lease shall expire as fully
and
completely as if such date were the date set forth above for
the
termination of this lease and Tenant shall forthwith quit,
surrender and vacate the premises without prejudice however,
to
Owner's rights and remedies against Tenant under the lease
provisions in effect prior to such termination, and any rent
owing shall be paid up to such date and any payments of rent
made
by Tenant which were on account of any period subsequent to
such
date shall be returned to Tenant. Unless Owner shall serve
a
termination notice as provided for herein, Owner shall make
the
repairs and restorations under the conditions of (b) and (c)
<PAGE>
hereof, with all reasonable expedition subject to delays due
to
adjustment of insurance claims, labor troubles and causes
beyond
Owner's control. After any such casualty, Tenant shall
cooperate
with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable
inventory and movable equipment, furniture, and other
property.
Tenant's liability for rent shall resume five (5) days after
written notice from Owner that the premises are
substantially
ready for Tenant's occupancy. (e) Nothing contained herein
above
shall relieve Tenant from liability that may exist as a
result of
damage from fire or other casualty. Notwithstanding the
foregoing, including Owner's obligation to restore under
subparagraph (b) above, each party shall look first to any
insurance in its favor before making any claim against the
other
party for recovery for loss or damage resulting from fire or
other casualty, and to the extent that such insurance is in
force
and collectible and to the extent permitted by law, Owner
and
Tenant each hereby releases and waives all right of recovery
with
respect to subparagraphs (b), (d), and (e) above, against
the
other or any one claiming through or under each of them by
way of
subrogation or otherwise. The release and waiver herein
referred
to shall be deemed to include any loss or damage to the
demised
premises and/or to any personal property, equipment, trade
fixtures, goods and merchandise located therein. The
foregoing
release and waiver shall be in force only if both releasors'
insurance policies contain a clause providing that such a
release
or waiver shall not invalidate the insurance. Tenant
acknowledges that Owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment,
improvements, or appurtenances removable by Tenant and
agrees
that owner will not be obligated to repair any damage
thereto or
replace the same. (f) Tenant hereby waives the provisions
of
Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu
<PAGE>
thereof.
Eminent
Domain: 10. If the whole or any part of the demised
premises
shall be acquired or condemned by Eminent Domain for any
public
or quasi public use or purpose, then and in that event, the
term
of this lease shall cease and terminate from the date of
title
vesting in such proceeding and Tenant shall have no claim
for the
value of any unexpired term of said lease. Tenant shall
have the
right to make an independent claim to the condemning
authority
for the value of Tenant's moving expenses and personal
property,
trade fixtures and equipment, provided Tenant is entitled
pursuant to the terms of the lease to remove such property,
trade
fixtures and equipment at the end of the term and provided
further such claim does not reduce Owner's award.
Assignment,
Mortgage, Etc.: 11. Tenant, for itself, its heirs,
distributees, executors, administrators, legal
representatives,
successors and assigns expressly covenants that it shall not
assign, mortgage or encumber this agreement, nor underlet,
or
suffer or permit the demised premises or any part thereof to
be
used by others, without the prior written consent of Owner
in
each instance. If this lease be assigned, or if the demised
premises or any part thereof be underlet or occupied by
anybody
other than Tenant, Owner may, after default by Tenant,
collect
rent from the assignee, under-tenant or occupant, and apply
the
net amount collected to the rent herein reserved, but no
such
assignment, underletting, occupancy or collection shall be
deemed
a waiver of the covenant, or the acceptance of the assignee,
under-tenant or occupant as tenant, or a release of Tenant
from
the further performance by Tenant of covenants on the part
of
Tenant herein contained. The consent by Owner to an
assignment
<PAGE>
or underletting shall not in any wise be construed to
relieve
Tenant from obtaining the express consent in writing of
Owner to
any further assignment or underletting.
Electric
Current: 12. Rates and conditions in respect to
submetering or
rent inclusion, as the case may be, to be added in RIDER
attached
hereto. Tenant covenants and agrees that at all times its
use of
electric current shall not exceed the capacity of existing
feeders to the building or the risers or wiring installation
and
Tenant may not use any electrical equipment which, in
Owner's
opinion, reasonably exercised, will overload such
installations
or interfere with the use thereof by other tenants of the
building. The change at any time of the character of
electric
service shall in no wise make Owner liable or responsible to
Tenant, for any loss, damages or expenses which Tenant may
sustain.
Access to
Premises: 13. Owner or Owner's agents shall have the right
(but
shall not be obligated) to enter the demised premises in any
emergency at any time, and, at other reasonable times and
(except
for emergencies) after reasonable notice to examine the same
and
to make such repairs, replacements and improvements as Owner
may
deem necessary and reasonably desirable to any portion of
the
building or which Owner may elect to perform, in the
premises,
following Tenant's failure to make repairs or perform any
work
which Tenant is obligated to perform under this lease, or
for the
purpose of complying with laws, regulations or other
directions
of governmental authorities. Tenant shall permit Owner to
sue
and maintain and replace pipes and conduits in and through
the
demised premises and to erect new pipes and conduits
therein,
provided they are concealed within the walls, floors and
<PAGE>
ceiling,
wherever practicable. Owner may, during the progress of any
work
in the demised premises, take all necessary materials and
equipment into said premises without the same constituting
an
eviction nor shall the Tenant be entitled to any abatement
of
rent while such work is in progress nor to any damages by
reason
of loss or interruption of business or otherwise provided
Owner
uses reasonable efforts, if possible, to perform its
repairs,
alterations, additions or improvements in a manner that
minimizes
(a) disruption of Tenant's business operations or (b) an
affect
on the access to and visibility of the Premises. Throughout
the
term hereof Owner shall have the right to enter the demised
premises at reasonable hours on reasonable notice for the
purpose
of showing the same to prospective purchasers or mortgagees
of
the building, and during the last six months of the term for
the
purpose of showing the same to prospective tenants and may,
during said six months period, place upon the demised
premises
the usual notice "To Let" and "For Sale" which notices
Tenant
shall permit to remain thereon without molestation. If
Tenant is
not present to open and permit an entry into the demised
premises, Owner or Owner's agents may enter the same
whenever
such entry may be necessary or permissible by master key or
forcibly and provided reasonably care is exercised to
safeguard
Tenant's property, such entry shall not render Owner or its
agents liable therefor, nor in any event shall the
obligations of
Tenant hereunder be affected. If during the last month of
term
Tenant shall have removed all or substantially all of
Tenant's
property therefrom, Owner may immediately enter, alter,
renovate
or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease
or
Tenant's obligations hereunder. Owner shall have the right
<PAGE>
at
any time, without the same constituting an eviction and
without
incurring liability to Tenant therefor to change the
arrangement
and/or location of public entrances, passageways, doors,
doorways, corridors, elevators, stairs, toilets, or other
public
parts of the building and to change the name, number or
designation by which the building may be known provided
Owner
uses reasonable efforts, if possible, to perform its
repairs,
alterations, additions or improvements in a manner that
minimizes
(a) disruption of Tenant's business operations or (b) an
affect
on the access to and visibility of the Premises.
Vault,
Vault Space, Area: 14. No vaults, vault space or area,
whether
or not enclosed or covered, not within the property line of
the
building is leased hereunder, anything contained in or
indicated
on any sketch, blueprint or plan, or anything contained
elsewhere
in this lease to the contrary notwithstanding. Owner makes
no
representation as to the location of the property line of
the
building. All vaults and vault space and all such areas not
within the property line of the building, which tenant may
be
permitted to use and/or occupy, is to be used and/or
occupied
under a revocable license, and if any such license be
revoked, or
if the amount of such space or area be diminished or
required by
any federal, state or municipal authority or public utility,
Owner shall not be subject to any liability nor shall Tenant
be
entitled to any compensation or diminution or abatement of
rent,
nor shall such revocation, diminution or requisition be
deemed
constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid
by
Tenant.
Occupancy: 15. Tenant will not at any time use or
<PAGE>
occupy the demised premises in violation of Articles 2 or 37
hereof, or of the certificate of occupancy issued for the
building of which the demised premises are a part. Tenant
has
inspected the premises and accepts them as is, subject to
the
riders annexed hereto with respect to Owner's work, if any.
In
any event, Owner makes no representation as to the condition
of
the premises and Tenant agrees to accept the same subject to
violations whether or not of record.
Bankruptcy: 16. (a) Anything elsewhere in this
lease to
the contrary notwithstanding, this lease may be canceled by
Landlord by the sending of a written notice to Tenant within
a
reasonable time after the happening of any one or more of
the
following events: The (1) filing by Tenant of a voluntary
petition in bankruptcy or under the laws of any state naming
Tenant as the debtor or (2) the filing of an involuntary
petition
in bankruptcy naming Tenant as the debtor which petition is
not
dismissed within sixty (60) days; or (3) the making by
Tenant of
an assignment or any other arrangement for the benefit of
creditors under any state statute. Neither Tenant nor any
person
claiming through or under Tenant, or by reason of any
statute or
order of court, shall thereafter be entitled to possession
of the
premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance
with its
terms, the provisions of this Article 16 shall be applicable
only
to the party then owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner
shall
forthwith, notwithstanding any other provisions of this
lease to
the contrary, be entitled to recover from Tenant as and for
liquidated damages an amount equal to the difference between
the
rent reserved hereunder for the unexpired portion of the
term
demised and the fair and reasonable rental value of the
demised
<PAGE>
premises for the same period. In the computation of such
damages
the difference between any installment of rent becoming due
hereunder after the date of termination and the fair and
reasonable rental value of the demises premises for the
period
for which such installment was payable shall be discounted
to the
date of termination at the rate of four percent (4%) per
annum.
If such premises or any part thereof be re-let by the Owner
for
the unexpired term of said lease, or any part thereof,
before
presentation of proof of such liquidated damages to any
court,
commission or tribunal, the amount of rent reserved upon
such re-
letting shall be deemed to be the fair and reasonable rental
value for the part or the whole of the premises to re-let
during
the term of the re-letting. Nothing herein contained shall
limit
or prejudice the right of the Owner to prove for and obtain
as
liquidated damages by reason of such termination, an amount
equal
to the maximum allowed by any statute or rule of law in
effect at
the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be
greater,
equal to, or less than the amount of the difference referred
to
above.
Default: 17. (1) If Tenant defaults in fulfilling any of
the
covenants of this lease other than the covenants for the
payment
of rent or additional rent; or if the demised premises
become
vacant or deserted; or if any execution or attachment shall
be
issued against Tenant or any of Tenant's property whereupon
the
demised premises shall be taken or occupied by someone other
than
Tenant; or if this lease be rejected under Section 365 of
Title
11 of the U.S. Code (Bankruptcy Code); or a Tenant shall
fail to
move into or take possession of the premises within thirty
(30)
<PAGE>
days after the commencement of the term of this lease, of
which
fact Owner shall be the sole judge; then, in any one or more
of
such events, upon Owner serving a written fifteen (15) days
notice upon Tenant specifying the nature of said default and
upon
the expiration of said fifteen (15) days, if Tenant shall
have
failed to comply with or remedy such default, or if the said
default or omission complained of shall be of a nature that
the
same cannot be completely cured or remedied within said
fifteen
(15) day period and if Tenant shall not have diligently
commenced
curing such reasonable diligence and in good faith proceed
to
remedy or cure such default, then Owner may serve a written
five
(5) days notice of cancellation of this lease upon Tenant,
and
upon the expiration of said five (5) days, this lease and
the
term thereunder shall end and expire as fully and completely
as
if the expiration of such five (5) day period were the day
herein
definitely fixed for the end and expiration of this lease
and the
term thereof and Tenant shall then quit and surrender the
demised
premises to Owner but Tenant shall remain liable as
hereinafter
provided.
(2) If the notice provided for in (1) hereof shall have
been given, and the term shall expire as aforesaid; of if
Tenant
shall make default in the payment of the rent reserved
herein or
any item of additional rent herein mentioned or any part of
either or in making any other payment herein required; then
and
in any of such events Owner may without notice, re-enter the
demised premises, and dispossess Tenant by summary
proceedings or
otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and
hold
the premises as if this lease had not been made, and Tenant
hereby waives the service of notice of intention to re-enter
or
to institute legal proceedings to that end.
<PAGE>
Remedies of Owner and
Waiver of Redemption: 18. In case of any such default,
re-
entry, expiration and/or dispossess by summary proceedings
or
otherwise, (a) the rent, and additional rent, shall become
due
thereupon and be paid up to the time of such re-entry,
dispossess
and/or expiration. (b) Owner may re-let the premises or any
part
or parts thereof, either in the name of Owner or otherwise,
for a
term or terms, which may at Owner's option be less than or
exceed
the period which would otherwise have constituted the
balance of
the term of this lease and may grant concessions or free
rent or
charge a higher rental than that in this lease, and/or (c)
Tenant
or the legal representatives of Tenant shall also pay Owner
as
liquidated damages for the failure of Tenant to observe and
perform said Tenant's covenants herein contained any
deficiency
between the rent hereby reeved and/or covenanted to be paid
and
the net amount, if any, of the rents collected on account of
the
subsequent lease or leases of the demised premises for each
month
of the period which would otherwise have constituted the
balance
of the term of this lease. The failure of Owner to re-let
the
premises or any part or parts thereof shall not release or
affect
Tenant's liability for damages. In computing such
liquidated
damages there shall be added to the said deficiency such
expenses
as Owner may incur in connection with the re-letting, such
as
reasonable legal expenses, reasonable attorneys' fees,
brokerage,
advertising and for keeping the demised premises in good
order or
for preparing the same for re-letting. Any such liquidated
damages shall be paid in monthly installments by Tenant on
the
rent day specified in this lease. Owner, in putting the
demised
premises in good order or preparing the same for re-rental
<PAGE>
may,
at Owner's option, make such alterations, repairs,
replacement,
and/or decorations in the demised premises as Owner, in
Owner's
reasonable judgment, considers advisable and necessary for
the
purpose of re-letting the demised premises, and the making
of
such alterations, repairs, replacements, and/or decorations
shall
not operate or be construed to release Tenant from
liability.
Owner shall in no event be liable in any way whatsoever for
failure to re-let the demised premises, or in the event that
the
demised premises are re-let, for failure to collect the rent
thereof under such re-letting, and in no event shall Tenant
be
entitled to receive any excess, if any, of such net rent
collected over the sums payable by Tenant to Owner
hereunder. In
the event of a breach or threatened breach by Tenant or any
of
the covenants or provisions hereof. Owner shall have the
right
of injunction and the right to invoke any remedy allowed at
law
or in equity as if re-entry, summary proceedings and other
remedies were not herein provided for. Mention in this
lease of
any particular remedy, shall not preclude Owner from any
other
remedy, in law or in equity. Tenant hereby expressly waives
any
and all rights of redemption granted by or under any present
or
future laws.
Fees and
Expenses: 19. If Tenant shall default in the
observance or
performance of any term or covenant on Tenant's part to be
observed or performed under or by virtue of any of the terms
or
provisions in any article of this lease, after notice if
required
and upon expiration of any applicable grace period if any,
(except in an emergency), then, unless otherwise provided
elsewhere in this lease, Owner may immediately or at any
time
thereafter and without notice perform the obligation of
Tenant
thereunder, and if Owner, in connection therewith or in
connection with any default by Tenant in the covenant to pay
<PAGE>
rent
hereunder, makes any reasonable expenditures or incurs any
obligations for the payment of money, including but not
limited
to reasonable attorneys' fees, in instituting, prosecuting
or
fending any actions or proceeding and prevails in any such
action
or proceeding, such sums so paid or obligations incurred
with
interest and costs shall be deemed to be additional rent
hereunder and shall be paid by Tenant to Owner within ten
(10)
days of rendition of any bill or statement to Tenant
therefor,
and if Tenant's lease term shall have expired at the time of
making of such expenditures or incurring of such
obligations,
such sums shall be recoverable by Owner as damages.
No Representations
by Owner: 20. Neither Owner nor Owner's agent
have
made any representations or promises with respect to the
physical
condition of the building, the land upon which it is erected
or
the demised premises, the rents, leases, expenses of
operation,
or any other matter or thing affecting or related to the
premises
except as herein expressly set forth and no rights,
easements or
licenses are acquired by Tenant by implication or otherwise
except as expressly set forth in the provisions of this
lease.
Tenant has inspected the building and the demised premises
and is
thoroughly acquainted with their condition, and agrees to
take
the same "as is," except for Owner's work described in
Exhibit B,
and acknowledges that the taking of possession of the
demised
premises by Tenant shall be conclusive evidence that the
said
premises and the building of which the same form a part were
in
good and satisfactory condition at the time such possession
was
so taken, except as to latent defects. As understandings
and
agreements heretofore made between the parties hereto are
merged
<PAGE>
in this contract, which alone fully and completely expresses
the
agreement between Owner and Tenant and any executory
agreement
hereafter made shall be ineffective to change, modify,
discharge
or effect an abandonment of it in whole or in part, unless
such
executory agreement is in writing and signed by the party
against
whom enforcement of the change, modification, discharge or
abandonment is sought.
End of Term: 21. Upon the expiration or other termination
of
the term of this lease, Tenant shall quit and surrender to
Owner
the demised premises, broom clean, in good order and
condition,
ordinary wear excepted, and Tenant shall remove all its
property.
Tenant's obligation to observe or perform this covenant
shall
survive the expiration or other termination of this lease.
If
the last day of the term of this lease or any renewal
thereof,
falls on Sunday, this lease shall expire at noon on the
preceding
Saturday unless it be a legal holiday in which case it shall
expire at noon on the preceding business day.
Quiet Enjoyment: 22. Owner covenants and agrees with
Tenant
that upon Tenant paying the rent and additional rent and
conditions, on Tenant's part to be observed and performed,
Tenant
may peaceably and quietly enjoy the premises hereby demised,
subject, nevertheless, to the terms and conditions of this
lease
including, but not limited to, Article 33 hereof and to the
ground leases, underlying leases and mortgages hereinbefore
mentioned.
Failure to
Give Possession: 23. If Owner is unable to give
possession of
the demised premises on the date of the commencement of the
term
hereof, because of the holding-over or retention of
possession of
any tenant, undertenant or occupants, or if the premises are
located in a building being constructed, because such
building
<PAGE>
has not been sufficiently completed to make the premises
ready
for occupancy or because of the fact that certificate of
occupancy has not been procured or for any other reason,
Owner
shall not be subject to any liability for failure to give
possession on said date and the validity of the lease shall
not
be impaired under such circumstances, nor shall the same be
construed in any wise to extend the term of this lease, but
the
rent payable hereunder shall be abated (provided Tenant is
not
responsible for the inability to obtain possession or
complete
construction) until after Owner shall have given Tenant
written
notice that the Owner is able to deliver possession in the
condition required by this lease. If permission is given to
Tenant to enter into the possession of the demised premises
or to
occupy premises other than the demised premises prior to the
date
specified as the commencement of the term of this lease,
Tenant
covenants and agrees that such possession and/or occupancy
shall
be deemed to be under all the terms, covenants, conditions
and
provisions of this lease except the obligation to pay the
fixed
annual rent set forth in page one of this lease. The
provisions
of this article are intended to constitute "an express
provision
to the contrary" within the meaning of Section 223-a of the
New
York Real Property Law.
No Waiver: 24. The failure of Owner to seek
redress for
violation of, or to insist upon the strict performance of
any
covenant or condition of this lease or of any of the Rules
or
Regulations set forth or hereafter adopted by Owner, shall
not
prevent a subsequent act which would have originally
constituted
a violation from having all the force and effect of an
original
violation. The receipt by Owner of rent and/or additional
rent
with knowledge of the breach of any covenant of this lease
<PAGE>
shall
not be deemed a waiver of such breach and no provision of
this
lease shall be deemed to have been waived by Owner unless
such
waiver be in writing signed by Owner. No payment by Tenant
or
receipt by Owner of a lesser amount than the monthly rent
herein
stipulated shall be deemed to be other than on account of
the
earliest stipulated rent, nor shall any endorsement or
statement
of any check or any letter accompanying any check or payment
as
rent be deemed an accord and satisfaction, and owner may
accept
such check or payment without prejudice to Owner's right to
recover the balance of such rent or pursue any other remedy
in
this lease provided. No act or thing done by Owner or
Owners
agents during the term hereby demised shall be deemed in
acceptance of a surrender of said premises and no agreement
to
accept such surrender shall be valid unless in writing
signed by
Owner. No employee of Owner or Owner's agent shall have any
power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any
such
agent or employee shall not operate as a termination of the
lease
or a surrender of the premises.
Waiver of
Trial by Jury: 25. It is mutually agreed by and between
Owner
and Tenant that the respective parties hereto shall and they
hereby do waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against
the
other (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected
with
this lease, the relationship of Owner and Tenant. Tenant's
use
of or occupancy of said premises, and any emergency
statutory or
any other statutory remedy. It is further mutually agreed
that
in the event Owner commences any proceeding or action for
possession including a summary proceeding for possession of
the
<PAGE>
premises, Tenant will not interpose any counterclaim of
whatever
nature or description in any such proceeding, including a
counterclaim under Article 4 except for statutory mandatory
counterclaims.
Inability to
Perform: 26. This lease and the obligation of Tenant
to
pay rent hereunder and perform all of the other covenants
and
agreements hereunder on part of Tenant to be performed shall
in
no wise be affected, impaired or excused because Owner is
unable
to fulfill any of its obligations under this lease or to
supply
or is delayed in supplying any service expressly or
impliedly to
be supplied or is unable to make, or is delayed in making
any
repair, additions, alterations or decorations or is unable
to
supply or is delayed in supplying any equipment, fixtures or
other materials if Owner is prevented or delayed from so
doing by
reason of strike or labor troubles, government preemption or
restrictions or by reason of any rule, order or regulation
of any
department or subdivision thereof of any government agency
or by
reason of the conditions of which have been or are affected,
either directly or indirectly, by war or other emergency, or
when, in the judgment of Owner, temporary interruption of
such
services is necessary by reason of accident, mechanical
breakdown, or to make repairs, alteration or improvements.
Bills and
Notices: 27. [Deleted.]
Water
Charges: 28. If Tenant requires, uses or consumes
water
for any purpose in addition to ordinary lavatory purposes
(of
which fact Tenant constitutes Owner to be the sole judge)
Owner
may install a water meter and thereby ensure Tenant's water
consumption for all purposes. Tenant shall pay Owner for
the
cost of the meter and the cost of the installation thereof
and
throughout the duration of Tenant's occupancy Tenant shall
<PAGE>
keep
said meter and installation equipment in good working order
and
repair at Tenant's own cost and expense. Tenant agrees to
pay
for water consumed, as shown on said meter as and when bills
are
rendered. Tenant covenants and agrees to pay the sewer
rent,
charge or any other tax, rent, levy or charge which now or
hereafter is assessed, imposed or a lien upon the demised
premises or the realty of which they are part pursuant too
law,
order or regulation made or issued in connection with the
use,
consumption, maintenance or supply of water, water system or
sewage or sewage connection or system. The bill rendered by
Owner shall be payable by Tenant as additional rent. If the
building or the demised premises or any part thereof be
supplied
with water through a meter through which water is also
supplied
to other premises Tenant shall pay to Owner as additional
rent, a
pro-rata share on the first day of each month of the total
meter
charges, as Tenant's portion. Independently of and in
addition
to any of the remedies reserved to Owner hereinabove or
elsewhere
in this lease, Owner may sue for and collect any monies to
be
paid by Tenant or paid by Owner for any of the reasons or
purposes hereinabove set forth.
Sprinklers: 29. Anything elsewhere in this lease to
the
contrary notwithstanding, if the New York Board of Fire
Underwriters or the Insurance Services Office or any bureau,
department or official of the federal, state or city
government
require or recommend the installation of a sprinkler system
or
that any changes, modifications, alterations, or additional
sprinkler heads or other equipment be made or supplied in an
existing sprinkler system by reason of Tenant's business, or
the
location of partitions, trade fixtures, or other contents of
the
demised premises, or for any other reason, or if any such
sprinkler system installation, changes, modifications,
alterations, additional sprinkler heads or other such
equipment,
become necessary to prevent the imposition of a penalty or
<PAGE>
charge
against the full allowance for a sprinkler system in the
fire
insurance rate set by any said Exchange or by any fire
insurance
company, Tenant shall, at Tenant's expense, promptly make
such
sprinkler system installations, changes, modifications,
alterations, and supply additional sprinkler heads or other
equipment as required whether the work involved shall be
structural or nonstructural in nature. Tenant shall pay a
pro-
rata share to Owner as additional rent the sum of
$______________
on the first day of each month during the term of this lease
as
Tenant's portion of the contract price for sprinkler
supervisory
service.
Elevators,
Heat,
Cleaning: 30. Tenant shall at Tenant's expense keep
demised
premises clean and in order, to the satisfaction to Owner,
and if
demised premises are situated on the street floor, Tenant
shall,
at Tenant's own expense, make all repairs and replacements
to the
sidewalks and curbs adjacent thereto, and keep said
sidewalks and
curbs free from snow, ice, dirt and rubbish. Tenant shall
pay to
Owner the cost of removal of any of Tenant's refuse and
rubbish
from the building. Bills for the same shall be rendered by
Owner
to tenant at such times as Owner may elect and shall be due
and
payable when rendered, and the amount of such bills shall be
deemed to be, and be paid as, additional rent. Tenant
shall,
however, have the option of independently contracting for
the
removal of any of Tenant's refuse and rubbish from the
building.
Bills for the same shall be rendered by Owner to Tenant at
such
times as Owner may elect and shall be due and payable when
rendered, and the amount of such bills shall be deemed to
be, and
be paid as, additional rent. Tenant shall, however, have
the
<PAGE>
option of independently contracting for the removal of such
rubbish and refuse in the event that Tenant does not wish to
have
same done by employees of Owner. Under such circumstances,
however, the removal of such refuse and rubbish by others
shall
be subject to such rules and regulations as, in the judgment
of
Owner, are necessary for the proper operation of the
building.
Security: 31. Tenant has deposited with Owner the sum of
$150,000 as security for the faithful performance and
observance
by Tenant of the terms, provisions and conditions of this
lease:
it is agreed that in the event Tenant defaults in respect of
any
of the terms, provisions and conditions of this lease
including,
but not limited to, the payment of rent and additional rent,
Owner may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment
of
any rent and additional rent or any other sum as to which
Tenant
is in default or for any sum which Owner may expend or may
be
required to expend by reason of Tenant's default in respect
of
any of the terms, covenants and conditions of this lease,
including but not limited to, any damages or deficiency in
the
reletting of the premises, whether such damages or
deficiency
accrued before or after summary proceedings or other re-
entry by
Owner. In the event that Tenant shall fully and faithfully
comply with all of the terms, provisions, covenants and
conditions of this lease, plus accrued interest if any,
pursuant
to Article 65, the security shall be returned to Tenant
after the
date fixed as the end of the Lease and after delivery of
entire
possession of the demised premises to Owner. In the event
of a
sale of the land and building or leasing of the building, of
which the demised premises form a part, Owner shall have the
right to transfer the security to the vendee or lessee and
Owner
shall thereupon be released by Tenant from all liability for
the
return of such security, and Tenant agrees to look to the
<PAGE>
new
Owner solely for the return of said security; and it is
agreed
that the provisions hereof shall apply to every transfer or
assignment made of the security to a new Owner. Tenant
further
covenants that it will not assign or encumber or attempt to
assign or encumber the monies deposited herein as security
and
that neither Owner nor its successors or assigns shall be
bound
by any such assignment, encumbrance, attempted assignment or
attempted encumbrance.
Captions 32. The Captions are inserted only as a
matter of
convenience and for reference and in no way define, limit or
describe the scope of this lease nor the intent of any
provision
thereof.
Definitions: 33. The term "Owner" as used in this
lease
means only the Owner, or the mortgagee in possession, for
the
time being of the land and building (or the Owner of a lease
of
the building or of the land and building) of which the
demised
premises form a part, so that in the event of any sale or
sales
of said land and building or of said lease, or in the event
of a
lease of said building, or of the land and building, the
said
Owner shall be and hereby is entirely freed and relieved of
all
covenants and obligations of Owner hereunder, and it shall
be
deemed and construed without further agreement between the
parties of their successors in interest, or between the
parties
and the purchaser, at any such sale, or the said lessee of
the
building, or of the land and building, that the purchaser or
the
lessee of the building has assumed and agreed to carry out
any
and all covenants and obligations of Owner hereunder. The
words
"re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning. The term
"business
days" as used in this lease shall exclude Saturdays, Sundays
<PAGE>
and
all days designated as holidays by the applicable building
service union employees service contract or by the
applicable
Operating Engineers contract with respect to HVAC service.
Wherever it is expressly provided in this lease that consent
shall not be unreasonably withheld, such consent shall not
be
unreasonably delayed.
Adjacent
Excavation-
Shoring: 34. If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to
be
made, Tenant shall afford to the person causing or
authorized to
cause such excavation, license to enter upon the demised
premises
for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which
demised
premises form a part from injury or damage and to support
the
same by proper foundations without any claim for damages or
indemnity against Owner, or diminution or abatement of rent
provided Owner uses reasonable efforts, if possible, to
perform
its repairs, alterations, additions or improvements in a
manner
that minimizes (a) disruption of Tenant's business
operations or
(b) an affect on the access to and visibility of the
Premises.
Rules
and Regulations: 35. Tenant and Tenant's servants,
employees,
agents, visitors, and licensees shall observe faithfully,
and
comply strictly with the Rules and Regulations and such
other and
further reasonable Rules and Regulations as Owner or Owners
agents may from time to time adopt. Notice of any
additional
rules or regulations shall be given in such manner as Owner
may
elect. In case Tenant disputes the reasonableness of any
additional Rule or regulation hereafter made or adopted by
Owner
or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation
for
decision of the New York office of the American Arbitration
<PAGE>
Association, whose examination shall be final and conclusive
upon
the parties hereto. The right to dispute the reasonableness
of
any additional Rule or Regulation upon Tenant's part shall
be
deemed waived unless the same shall be asserted by service
of a
notice, in writing upon Owner within fifteen (15) days after
the
giving of notice thereof. Nothing in this lease contained
shall
be construed to impose upon Owner any duty or obligation to
enforce the Rule and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant
and
Owner shall not be liable to Tenant for violation of the
same by
any other tenant, its servants, employees, agents, visitors
or
licensees.
Glass: 36. Owner shall replace, at the expense
of
Tenant, any and all plate and other glass damaged or broken
from
any cause whatsoever in and about the demised premises.
Owner
may insure, and keep insured, at Tenant's expense, all plate
and
other glass in the demised premises for and in the name of
Owner.
Bills for the premiums therefor shall be rendered by Owner
to
Tenant at such times as Owner may elect, and shall be due
from,
and payable by, Tenant when rendered, and the amount thereof
shall be deemed to be, and be paid as, additional rent.
Pornographic
Uses Prohibited: 37. Tenant agrees that the value
of the
demised premises and the reputation of the Owner will be
seriously injured if the premises are used for any obscene
or
pornographic purposes of any sort of commercial sex
establishment. Tenant agrees that Tenant will not bring or
permit any obscene or pornographic material on the premises
, and
shall not permit or conduct any obscene, nude, or semi-nude
live
performances on the premises, nor permit use of the premises
for
nude modeling, rap sessions, or as a so-called rubber good
<PAGE>
shop,
or as a sex club of any sort, or as a "massage parlor."
Tenant
agrees further that Tenant will not permit any of these uses
by
any sublessee or assignee of the premises. This Article
shall
directly bind any successors in interest to the Tenant.
Tenant
agrees that if at any time Tenant violates any of the
provisions
of this article, such violation shall be deemed a breach of
a
substantial obligation of the terms of this lease and
objectionable conduct. Pornographic materials is defined
for the
purposes of this Article as any written or pictorial manner
with
prurient appeal or any objects of instrument that are
primarily
concerned with lewd and prurient sexual activity. Obscene
material is defined here as it is in Penal law 235.00.
Estoppel
Certificate: 38. Tenant, at any time, and from time
to
time, upon at least 10 days prior notice by Owner, shall
execute,
acknowledge and deliver to owner, and/or to any other
person,
firm, or corporation specified by Owner, a statement
certifying
that this lease is unmodified and in full force and effect
(or,
if there have been modifications, that the same is in full
force
and effect as modified and stating the modifications),
stating
the dates which the rent and additional rent have been paid,
and
stating whether or not there exists any defaults by Owner
under
this lease, and, if so, specifying each such default.
Successors
and Assigns: 39. The covenants, conditions and
agreements
contained in this lease shall bind and inure to the benefit
of
Owner and Tenant and their respective heirs, distributees,
executors, administrators, successors, and except as
otherwise
provided in this lease, their assigns. Tenant shall look
only to
<PAGE>
Owner's estate and interest in the land and building for the
satisfaction of Tenant's remedies for the collection of a
judgment (or other judicial process) against Owner in the
event
of any default by Owner hereunder, and no other property or
assets of such Owner (or any partner, member, officer or
director
thereof, disclosed or undisclosed), shall be subject to
levy,
execution or other enforcement procedure for the
satisfaction of
Tenant's remedies under or with respect to this lease, the
relationship of Owner and Tenant hereunder, or Tenant's use
and
occupancy of the demised premises.
IN WITNESS WHEREOF, Owner and Tenant have respectively
signed and
sealed this lease as of the day and year first above
written.
Witness for Owner: 538 MADISON REALTY
COMPANY
_________________________
By:____________________________________
Witness for Tenant: VERMONT TEDDY BEAR CO.,
INC.
_________________________
By:____________________________________
ACKNOWLEDGEMENTS
CORPORATE OWNER
STATE OF _______________
COUNTY OF _____________
On this _____ day of _____________, 19__, before me
personally came _____________________ to me known, who being
by
me duly sworn, did depose and say that he resided in
_________________________; that he is the
______________________
of ________________________ the corporation described in and
which executed the foregoing instrument, as OWNER; the he
knows
the seal of said corporation; the seal affixed to said
instrument
<PAGE>
is such corporate seal; that it was so affixed by order of
the
Board of Directors of said corporation, and that he signed
his
name thereto by like order.
___________________________________
___
CORPORATE TENANT
STATE OF _______________
COUNTY OF _____________
On this _____ day of _____________, 19__, before me
personaly came _____________________ to me known, who being
by me
duly sworn, did depose and say that he resided in
_________________________; that he is the
______________________
of ________________________ the corporation described in and
which executed the foregoing instrument, as TENANT; the he
knows
the seal of said corporation; the seal affixed to said
instrument
is such corporate seal; that it was so affixed by order of
the
Board of Directors of said corporation, and that he signed
his
name thereto by like order.
___________________________________
___________
INDIVIDUAL OWNER
STATE OF _______________
COUNTY OF _____________
On this _____ day of _____________, 19__, before me
personally came _____________________ to be known and known
to me
to be the individual described in and who, as OWNER,
executed the
foregoing instrument and acknowledged to me that
_____________________________ he executed the same.
___________________________________
___________
INDIVIDUAL TENANT
STATE OF _______________
COUNTY OF _____________
On this _____ day of _____________, 19__, before me
personally came _____________________ to be known and known
<PAGE>
to me
to be the individual described in and who, as TENANT,
executed
the foregoing instrument and acknoweldged to me that
_____________________________ he executed the same.
___________________________________
___________
INDEX TO RIDER
ARTICLE PAGE
40. Basic Rent 1
41. Real Estate Taxes, Operating Expenses 1
42. Taxes on Personalty 2
43. Alterations 3
44. Repairs 5
45. Maintenance 5
46. Landlord's Obligation re Compliance 5
47. Modification of the Lease for Mortgagee 6
48. Insurance 6
49. Indemnification 8
50. Waiver of Subrogation 9
51. Assignment and Subletting 9
52. Access to Premises 12
53. Use of Premises 12
54. Tenant's Use and Compliance with Laws and Insurance
12
55. Quality of Building 12
56. Vending Machines 13
57. Three Proceedings and Grace Period 13
58. Late Charges 13
59. No Representations 14
60. Provisions re Surrender 14
61. Holdover 15
62. Notice 15
63. HVAC 16
64. Utilities 16
65. Security 17
66. Definition of Owner and Landlord 17
67. Plate Glass 17
68. Estoppel 17
69. Limitation of Landlord Liability 18
70. Tenant Occupying Other Space 19
71. Landlord's Right to Make Changes in the Building 19
72. Lease Not Binding Until Signed 19
73. Rider Controls 19
ARTICLE PAGE
74. Signs 19
75. Broker 20
76. Landlord's Right to Cancel 20
77. Security Gate 23
78. Tenant's Work; Access to Landlord 23
<PAGE>
79. Landlord's Right to Recapture Space 23
80. Four Foot Corridor 23
81. Method of Payment 23
40. Basic Rent. Tenant shall pay to Landlord a basic rent
("Basic Rent") per annum as follows:
Year 1 $300,000
Year 2 $300,000
Year 3 $300,000
Year 4 $330,000
Year 5 $330,000
Year 6 $330,000
Year 7 $363,000
Year 8 $363,000
Year 9 $363,000
Year 10 $363,000
Notwithstanding the foregoing, Basic Rent shall not commence
until January 1, 1997. Tenant shall be liable for all other
obligations under this Lease. Tenant shall be entitled to
take
possession of the Premises as of the date of execution and
delivery of this Lease by both parties.
41. Real Estate Taxes, Operating Expenses. Tenant
covenants and agrees to pay as additional rent, without set-
off
or deduction 50% of any and all increases in Real Estate
Taxes,
as hereinafter defined, above those for the 1997-1998 fiscal
tax
year (hereinafter referred to as the "Base Tax Year")
imposed on
<PAGE>
the land and Building (which for purposes of this Article
are
known as the "Taxable Premises") with respect to every
calendar
year or part thereof during the term of this Lease, whether
any
such increase results from a higher tax rate or an increase
in
the assessed valuation of the property, or both. If the
Real
Estate Taxes for the Base Tax Year are finally reduced as
the
result of tax reduction or other proceeding to reduce the
assess
valuation of the Taxable Premises, the parties agree that
such
Base Tax Year, as reduced, shall be the Base Tax Year for
the
purposes of all computations hereunder. "Real Estate Taxes"
shall be defined as including the following items: (a) real
estate taxes imposed on the Taxable Premises and (b)
assessments
levied, assessed or imposed against such Taxable Premises.
If
due to a change in the method of taxation any franchise,
income,
profit, or other tax, however designated, shall be levied
against
Landlord's interest in the property in whole or in part or
the
rents or profits therefrom for or in lieu of any tax which
would
otherwise constitute Real Estate Taxes, such taxes shall be
included in the term "Real Estate Taxes" for purposes
hereof. All
such payment shall be appropriately pro-rated for any
partial
calendar years in which the terms of this Lease shall
commence or
expire. A copy of the Tax Bill of the City of New York shall
be
sufficient evidence of the amount of Real Estate Taxes.
Tenant
shall pay the amount due within 30 days of receipt of notice
from
Landlord.
Only Landlord shall be eligible to institute tax reduction
or other proceedings to reduce the assessed valuation of the
Taxable Premises. Should Landlord be successful in any such
reduction proceedings and obtain a rebate for periods during
which Tenant has paid its share of increases, and provided
that
Tenant is not in default under this Lease, Landlord shall,
after
<PAGE>
deducting its expenses, including, without limitation,
attorneys'
fees and disbursements in connection therewith, shall at
Landlord's option either (a) promptly return to Tenant its
percentage of such rebate after Landlord has received such
proceeds or (b) credit Tenant with such amount against the
forthcoming monthly Basic Rent(s). Tenant may not obtain any
portion of the benefits which may accrue to Landlord from
any
reduction in Real Estate Taxes for any year below those
imposed
in the Base Tax Year.
Landlord's failure during the Lease term to prepare and
deliver any of the foregoing tax bills, statements or bills,
or
Landlord's failure to make a demand, shall not in any way
waive
or cause Landlord to forfeit or surrender its rights to
collect
any of the foregoing items of additional rent which may
become
due during the term of this Lease. Tenant's liability for
the
amounts due under this Article shall survive the expiration
of
the term. In no event shall any rent adjustment hereunder
result
in a decrease in the Basic Rent.
42. Taxes on Personalty. Tenant shall be liable for all
taxes levied against personal property and trade fixtures
placed
by Tenant in or about the Premises, including but not
limited to
shelves, counters, wall safes, partitions, fixtures,
machinery,
refrigeration and heating, ventilating and air-conditioning
equipment, or as a result of any alterations or improvements
made
to the Premises by Tenant, and if Landlord pays the taxes
based
on such increased assessment, Tenant, with thirty (30) days
notice, shall repay to Landlord as additional rent the taxes
so
paid by Landlord.
43. Alterations. Supplementing Article 3
(a) No alterations or additions shall at any time be made to
the Premises by Tenant without Landlord's prior written
consent
except for decorative work in the nature of wallpaper,
paint,
interior carpentry, and the like ("Decorative Work"). For
all
alterations other than Decorative Work, including but not
limited
<PAGE>
to plumbing and electric, Tenant must submit detailed plans
to
Landlord for its approval. Landlord shall not unreasonably
withhold or delay its consent to non-structural alterations
and
plumbing provided the alterations to the plumbing systems do
not
adversely affect the remainder of the Building. Tenant shall
pay
for Landlord's expenses including reasonable architects and
attorneys fees in connection with any request for approval.
If
Landlord shall give its consent, all work, repairs and
alterations made by Tenant shall be done in a good
workmanlike
manner which shall be in keeping with the high quality of
the
Building and shall be in compliance with any applicable
governmental rules and regulations and the cost thereof
shall be
paid by Tenant, so that the Premises shall at all times be
free
of liens for labor and materials supplied or claimed to have
been
supplied to the Premises. Tenant shall obtain completion
and/or
surety bonds or letter of credit(s) in amounts and in form
acceptable to Landlord. Tenant and its contractors and sub-
contractors shall carry workman's compensation insurance and
general liability, theft, personalty and property damage
insurance as detailed in Article 48. Any alterations, with
the
exception of trade fixtures and personalty removable without
damage to the Premises, shall immediately become the
property of
Landlord, subject only to the use of same by Tenant during
the
term of this Lease, or any renewal thereof. All contractors
and
sub-contractors shall be union contractors.
(b) Tenant shall indemnify, defend and save harmless
Landlord from and against any and all costs, expenses,
claims,
losses, damages, fines or penalties, including reasonable
counsel
fees and disbursements, because of or due to Tenant's
failure to
comply with the provisions of subparagraph (a) of this
Article
43, and Tenant shall not call upon Landlord for any
disbursement
or outlay of money whatsoever in connection with such work,
and
hereby expressly releases and discharges Landlord of and
<PAGE>
from any
liability or responsibility whatsoever in connection
therewith.
(c) Nothing contained in this Lease shall authorize Tenant
to do any act which may create or be the foundation for any
lien,
mortgage or other encumbrance upon the reversion or other
estate
of Landlord, or of any interest of Landlord in the Premises,
or
upon or in the Building or improvements thereon; it being
agreed
that should Tenant cause any alterations, changes,
additions,
improvements or repairs to be made to the Premises, or cause
materials to be furnished or labor to be performed therein
or
thereon, neither Landlord nor the Premises shall, under any
circumstances, be liable for the payment of any expense
incurred
or for the value of any work done or material furnished to
the
Premises or any part thereof; but all such alterations,
changes,
additions, improvements and repair and materials and labor
shall
be at Tenant's expenses and Tenant shall be solely and
wholly
responsible for the contractors, laborers and materialmen
furnishing labor and materials to said Premises and the
Building
or any part thereof. If, because of any act or omission of
Tenant, any mechanic's or other lien or order for the
payment of
money shall be filed against the Premises or any Building or
improvement thereon, or against Landlord (whether or not
such
lien or order is valid or enforceable as such), Tenant
shall, at
Tenant's own cost and expense, within forty (40) days after
the
date of notice thereof, cause the same to be canceled and
discharged of record, or furnish Landlord with a surety bond
issued by a surety company or letter of credit reasonably
satisfactory to the Landlord, protecting Landlord from any
loss
because of non-payment of such lien claim, and further shall
indemnify, defend and save harmless Landlord from and
against any
and all costs, expenses, claims, losses or damages,
including
reasonable counsel fees, resulting therefrom or by reason
thereof.
44. Repairs. Supplementing Article 4, Tenant shall take
<PAGE>
good care of the Premises and shall, at the Tenant's own
cost and
expense, make all repairs except structural repairs not
caused or
occasioned by Tenant, its agents, employees, licensees,
invitees
or customers. Tenant shall make all non-structural repairs,
within the Premises, including but not limited to the
following:
repairs to plate glass, ceilings, floors, non-bearing walls,
electrical, plumbing and decorating, and at the end or other
expiration of the term, shall deliver up the Premises in
good
order or condition, damages by the elements and normal wear
and
tear excepted. In the event Landlord is responsible for any
repairs Tenant shall give Landlord written notice detailing
the
repairs to be done and Landlord shall have a reasonable time
to
perform such repairs.
45. Maintenance. Supplementing Article 4, Tenant agrees
that it shall maintain the Premises in a clean and orderly
manner
at its sole cost and expense to the reasonable satisfaction
of
Landlord, and Landlord shall have no responsibility
whatsoever
for maintenance or cleaning of the Premises. Tenant shall
place
its refuse in areas approved by Landlord. Landlord shall
have the
right to remove Tenant's refuse from non-approved areas and
charge Tenant two times Landlord's removal cost. Tenant, at
its
sole cost and expense shall contract with an independent
company
for the cleaning of the Premises and the removal of its
refuse.
46. Landlord's Obligation re Compliance. Supplementing
Article 6, Landlord shall not be liable for any change of
condition in the Premises caused by the compliance with any
present or future laws, rules, order, ordinances,
requirements,
or regulations of any Federal, State, County or Municipal
authority or government, including any change required by
law for
off-street parking or similar legislation, or by revocation
by
any such authority or authorities of any permit or license
heretofore granted, if such revocation was caused by
Landlord or
by construction or operation of any public or quasi-public
work,
<PAGE>
or by the erection of any building or buildings upon any
adjacent
property, or by change of environment. Landlord shall not be
liable for interference with or loss of light or other
incorporeal hereditaments caused by anybody other than
Landlord,
or caused by or for the City or any governmental or quasi-
governmental agency or authority in connection with the
construction of any public or quasi-public work.
47. Modification of the Lease for Mortgagee Supplementing
Article 7, if, in connection with obtaining financing or
refinancing for the premises demised to Landlord (as
hereinafter
defined), a banking, insurance or other institutional lender
shall request reasonable modifications to this Lease as a
condition to such financing or refinancing, Tenant will not
withhold, delay or defer its consent thereto, provided that
such
modifications do not increase Tenant's rent obligations and
do
not materially increase Tenant's non-monetary obligations
hereunder (as an example, Tenant may be required to give
notices
of any defaults by Landlord to such lender and/or permit the
curing of such defaults by such lender together with the
granting
of such additional time for such curing as may be required
for
such lender) or materially adversely affect the leasehold
interest hereby created. In no event shall a requirement
that the
consent (providing that such consent shall not be
unreasonably
withheld) of any such lender be given for any modification
of
this Lease, be deemed to materially adversely affect the
Leasehold interest hereby created.
48. Insurance. Supplementing Article 8, Tenant
covenants to provide on or before the commencement of the
demised
term and to keep in force during the demised term: (i)
Commercial
general liability insurance relating to the Premises and its
appurtenances on an occurrence basis with minimum limits of
liability in amounts of Five Million ($5,000,000) Dollars
for
bodily injury, personal injury or death to any one person,
Six
Million ($6,000,000) Dollars for bodily injury, personal
injury
or death to more than one person, and One Million
($1,000,000)
Dollars with respect to damage to property by water or
otherwise;
<PAGE>
(ii) Fire and extended coverage, vandalism, mischief and
special
extended coverage insurance in an amount adequate to cover
the
cost of replacement of all improvements in the Premises; and
(iii) Rent Insurance in an amount equal to one year of Basic
Rent
and additional rent, if Landlord cannot obtain same as part
of
its regular insurance package without additional cost.
Tenant
agrees to deliver to Landlord, at least thirty (30) days
prior to
the time such insurance is first required to be carried by
Tenant, and thereafter at least thirty (30) days prior to
the
expiration of any such policy, either a duplicate original
or a
certificate and true copy of all policies procured by Tenant
in
compliance with its obligations hereunder, together with
evidence
of payment therefor and including an endorsement which
states
that such insurance may not be canceled except upon thirty
(30)
days' prior written notice to Landlord and any designees of
Landlord.
All of the aforesaid insurance shall be issued in the name
of Tenant with Landlord (and any designees of Landlord) and
any
mortgagee of the Building as their interests may appear as
Additional Insureds on the liability policies and as payee
as
their interests may appear on the property policies, and
shall be
written by one or more responsible insurance companies
satisfactory to Landlord; all such insurance shall contain
endorsements that: (i) Such insurance may not be canceled or
amended with respect to Landlord (or its designees) except
upon
thirty (30) days' prior written notice by certified mail to
Landlord (and such designees) by the insurance company; and
(ii)
Tenant shall be solely responsible for the payment of
premiums
and that Landlord (or its designees) shall not be required
to pay
any premiums for such insurance.
The minimum limits of the comprehensive general liability
policy of insurance shall be subject to increase at any time
and
from time to time, after the commencement of the third (3rd)
year
<PAGE>
of the full term hereof if Landlord in the exercise of its
reasonable judgment shall deem same necessary for adequate
protection.
49. Indemnification. Supplementing Article 8, Tenant
shall indemnify and save harmless Landlord and Landlord's
agents
and at Landlord's option, defend Landlord and Landlord's
agents
against and from (i) any and all claims against Landlord or
such
agents directly or indirectly of whatever nature arising
wholly
or in part from any act, omission or negligence of Tenant,
its
contractors. licensees, agents, servants, officers,
employees,
invitees or visitors; (ii) all claims against Landlord or
such
agents arising directly or indirectly from any accident,
injury
or damage whatsoever caused to any person or to the property
of
any person and occurring during the term of this Lease in or
about the Premises, or occurring outside of the Premises but
anywhere within or about the land or the Building, where
such
accident, injury or damage results or is claimed to have
resulted
wholly or in part from any act, omission or negligence of
Tenant
or Tenant's contractors, licensees, agents, servants,
officers,
employees, invitees or visitors; (iii) any breach, violation
or
nonperformance of any covenant, condition or agreement in
this
Lease set forth and contained on the part of Tenant to be
fulfilled, kept, observed and performed; and (iv) any cost,
liability or responsibility for the payment of any sales tax
with
respect to any installations, furniture, furnishings,
fixtures or
other improvements located, installed or constructed in the
Premises, or the filing of any tax return in connection
therewith
(although Landlord agrees to execute any such return if
required
by law) regardless of whether such tax is imposed upon
Landlord
or Tenant. This indemnity and hold harmless agreement shall
include indemnity from and against any and all liability,
fines,
suits, demands, costs, damages and reasonable expenses of
any
<PAGE>
kind or nature (including without limitation attorney's and
other
professional fees and disbursements) incurred in or in
connection
with any such claims (including any settlement thereof) or
proceeding brought thereon, and the defense thereof.
50. Waiver of Subrogation. Supplementing Articles 8 and
9, each party releases and waives any claim or right of
recovery
against the other party, its affiliates, agents, successors
and
assigns, for any loss resulting from causes covered by
insurance
and shall procure a waiver of subrogation on the part of the
insurer against the other party by an endorsement to all
insurance policies whereby the insurer recognizes that the
assured has waived any right of recovery from the other
party. A
copy of such endorsement shall be deposited with Landlord
and
Tenant. Landlord shall not be liable for any damage to or
destruction of any of Tenant's goods, merchandise, fixtures
or
other property by fire, or other cause or casualty no matter
how
caused, except by reason of Landlord's negligence.
51. Assignment and Subletting. Supplementing Article 11,
(a) Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and
assigns,
expressly covenants that it shall not assign, or mortgage or
otherwise encumber, all or any part of its interest in this
Lease, sublet the Premises, in whole or in part, or suffer
or
permit the Premises or any part thereof to be used by
others,
without the prior written consent of Landlord in each
instance.
Tenant represents that it is a public corporation and is the
entity conducting all of the "Vermont Teddy Bear" business.
(b) If Tenant shall desire to assign its interest in this
Lease or to sublet all or any portion of the Premises,
Tenant
shall submit to Landlord a written request for Landlord's
consent
to such assignment or subletting, which request shall be
accompanied by the following information: (i) the name and
address of the proposed assignee or subtenant; (ii) if
Tenant
desires to sublet a portion of the Premises, a description
of the
portion to be sublet, together with a floor plan thereof;
(iii)
the terms and conditions of the proposed assignment or
<PAGE>
subletting; (iv) the nature, character and image of the
business
of the proposed assignee or subtenant and its proposed use
of the
Premises; (v) current financial information and any other
information Landlord may, in its sole discretion, request
with
respect to the proposed assignee or subtenant; (vi) the
number of
years of operation of the business of the proposed assignee
or
subtenant and (vii) the current and past addresses where the
proposed assignee or sublessee has conducted business and
the
dates of when the business was conducted. Notwithstanding
the
foregoing, any proposed assignment or sub-letting shall be
subject to Landlord's consent in its sole discretion.
(c) Tenant shall reimburse Landlord within thirty (30) days
written notice for reasonable costs, including reasonable
attorneys' fees and disbursements that may be incurred by
Landlord in connection with said proposed assignment or
sublease.
(d) Every subletting hereunder is subject to the express
condition, and by accepting a sublease hereunder each
subtenant
shall be conclusively deemed to have agreed, that if this
Lease
shall be terminated prior to the Expiration Date or if
Landlord
shall succeed to Tenant's estate in the Premises, then at
Landlord's election such subtenant shall either surrender
the
Premises to Landlord or shall attorn to and recognize
Landlord as
such subtenant's landlord under such sublease, and such
subtenant
shall promptly execute and deliver any instrument Landlord
may
reasonably request to evidence such attornment.
(e) Tenant shall deliver to Landlord a copy of each sublease
or assignment with assumption made hereunder within five (5)
days
after the date of its execution. Tenant shall remain fully
liable
for the performance of all of Tenant's obligations hereunder
notwithstanding any subletting or assignment provided for
herein
and, without limiting the generality of the foregoing, shall
remain fully responsible and liable to Landlord for acts and
omissions of any subtenant, assignee or anyone claiming by,
through or under any subtenant or assignee which shall be in
violation of any of the obligations of this Lease, and any
such
<PAGE>
violation shall be deemed to be a violation by Tenant.
Tenant
herein named and any Guarantor, and each immediate or remote
successor in interest of Tenant herein named, shall remain
jointly and severally (as a primary obligor) with its
assignee
and all subsequent assignees for the performance of Tenant's
obligations hereunder, and shall remain fully and directly
responsible and liable to the Landlord for all the acts and
omissions on the part of any assignee subsequent to it in
violation of any of the obligations of this Lease.
(f) Notwithstanding anything to the contrary contained in
this Lease, no assignment of Tenant's interest in this Lease
shall be binding upon Landlord unless the assignee shall
execute
and deliver to Landlord an agreement, in recordable form,
whereby
such assignee agrees unconditionally to be bound by and to
perform all of the obligations of Tenant hereunder and
further
expressly agrees that notwithstanding such assignment the
provisions of this Article shall continue to be binding upon
such
assignee with respect to all future assignments and
transfers.
(g) In the event that Tenant fails to execute and deliver
any assignment or sublease to which Landlord consented under
the
provisions of this Article within sixty (60) days after the
giving of such consent, then Tenant shall again comply with
all
of the provisions of this Article before assigning its
interest
in this Lease or subletting the Premises.
(h) The consent of Landlord to an assignment or a subletting
shall not relieve Tenant from obtaining the express consent
in
writing of Landlord to any further assignment or subletting.
(i) If Tenant's interest in this Lease be assigned, or if
the Premises or any part thereof be sublet or occupied by
anyone
other than Tenant, Landlord may collect rent from the
assignee,
subtenant or occupant and apply the net amount collected to
the
Basic Rent and all additional rent herein reserved, but no
such
assignment, subletting, occupancy or collection shall be
deemed a
waiver of the provisions of this Article or of any default
hereunder or the acceptance of the assignee, subtenant or
occupant as Tenant, or a release of Tenant from the further
observance or performance by Tenant of all of the covenants,
conditions, terms and provisions on the part of Tenant to be
<PAGE>
performed or observed.
52. Access to Premises. Supplementing Article 13, Landlord,
for its agents, designees or employees, shall have the right
to
enter into the Premises for purposes of inspection or to do
such
repair work as may be required which shall be done except in
the
case of emergencies at reasonable times and after reasonable
notice. Tenant shall provide Landlord with an emergency 24
hour
phone number where a representative of Tenant can be
reached.
53. Use of Premises. Supplementing Articles 2 and 15,
Tenant covenants that Tenant will not use or permit any
person to
use the Premises for any unlawful purpose. Tenant shall
obtain
and maintain at Tenant's sole cost and expense all licenses
and
permits from any and all governmental authorities having
jurisdiction of the Premises which may be necessary for the
conduct of Tenant's business therein. Tenant further
covenants to
comply with applicable laws, resolutions, codes, rules and
regulations of any department bureau, agency or any
governmental
authority having jurisdiction over the operation, occupancy,
maintenance and use of the Premises for the purposes set
forth
herein. Tenant will indemnify and save Landlord harmless
from and
against any claims, penalties, loss, damage or expenses
imposed
by reason of governmental authorities having jurisdiction
thereof
related to Tenant's use and occupancy. Tenant shall obtain
at its
sole cost and expense an amended certificate of occupancy
permitting Tenant's use if required by law.
54. Tenant's Use and Compliance with Laws and Insurance.
Supplementing Article 15, subject to and in accordance
with all rules, regulations, laws, ordinances, statutes and
requirements of all governmental
authorities and the Fire Insurance Rating Organization and
Board
of Fire Insurance Underwriters, and any similar bodies
having
jurisdiction hereof, Tenant covenants and agrees that it
shall
use the Premises solely for the uses detailed in Article 2.
55. Quality of Building. Supplementing Article 15,
Tenant, recognizing that the Building has been developed and
is
<PAGE>
maintained as a first class Building and as an additional
inducement to Landlord to enter into this Lease, covenants
and
agrees that at all times (i) the business to be conducted in
or
from the Premises and the kind and quality of the
merchandise,
goods, and services offered in the conduct thereof will be
reputable in every respect and in keeping with the high
quality
of the Building, (ii) Tenant shall maintain any and all
exterior
portions of the Premises in a clean and orderly condition in
accordance with the high quality of the building and (iii)
Tenant
shall maintain the exterior and interior windows, including
any
and all displays and advertisements located therein, of the
Premises in a neat and orderly condition and in a quality
and
character representative of the high quality of the
building.
56. Vending Machines. Supplementing Article 15, Tenant
shall not place or permit to be placed any vending machines
in
the Premises, except for the exclusive use of Tenant's
employees,
without the prior written consent of Landlord in each
instance.
57. Three Proceedings and Grace Period.
(a) Supplementing Article 17, if during any twenty-four
month period, Landlord shall have commenced against Tenant
two
summary proceedings for the non-payment of rent, and Tenant
shall
within such twenty-four month period commit a third default
then
any provision of this Lease which provides for notice of
default
or opportunity to cure default notwithstanding, Landlord, at
its
option, may immediately exercise any remedy afforded by this
Lease, including without limitation, service of a 7 day
notice of
termination without further notice to Tenant, and without
any
opportunity for Tenant to cure such default.
(b) Tenant shall have a five day grace period prior to
being in default for the payment of Basic Rent. This grace
period
shall be automatically eliminated in the event Tenant is
late in
the payment of Basic Rent beyond such grace period more than
two
<PAGE>
times in any 12 month period.
58. Late Charges. Supplementing Article 17, if Tenant
shall make any payment of fixed rent, additional rent or
other
charges more than five (5) days after the same is due and
payable
Tenant shall pay interest on the amount due equal to the
lower
of 12% per annum or the highest rate permitted by law
("Interest
Rate"). Such amounts shall be payable as additional rent
hereunder. Additionally, in the event Landlord incurs any
expenditure due to a default by Tenant, in addition to such
amounts, Tenant shall pay interest on the amounts expended
at the
Interest Rate.
59. No Representations. Supplementing Article 20, neither
Landlord nor Landlord's agents have made any representations
or
promises with respect to the Building or Premises except as
herein expressly set forth and Tenant agrees that it will
accept
possession of the Premises "as is" except for the work to be
performed by the Landlord as shown on Exhibit B.
60. Provisions re Surrender. Supplementing Article 21,
Tenant shall ascertain from Landlord within thirty (30) days
prior to the end of the term hereof or any extension or
renewal
thereof whether Landlord desires to have any non-movable
fixtures, machinery and/or equipment permanently installed
by
Tenant, removed from the Premises with the Premises being
returned, in as good a condition as upon the commencement of
the
term hereof, reasonable wear and tear excepted. All
fixtures,
machinery and equipment installed by Tenant, except those
items
which Landlord expressly agrees are to remain in the
Premises and
become the property of Landlord, remaining within the
Premises
after the expiration of such term or sooner termination
thereof
and after Tenant is no longer in possession of the Premises
shall, at Landlord's option, either (i) become the property
of
the Landlord, free of any claim by Tenant or any person
claiming
through Tenant, or (ii) be removed and disposed of by
Landlord,
at Tenant's cost and expense, without further notice to or
demand
upon Tenant. Machinery, fixtures, chattels or equipment, if
<PAGE>
any,
furnished or installed by Tenant, the cost of which is to be
borne by Landlord, shall become the property of Landlord
upon
payment therefor by Landlord or reimbursement of Tenant by
Landlord, as the case may be, and shall not be removed by
Tenant.
The Tenant's obligations under this Article shall survive
the
expiration or sooner termination of the term hereof. Tenant
shall not make any installation of any other ventilating,
air-
conditioning or heating equipment or perform any mechanical
work
without the prior written consent of Landlord.
61. Holdover. Supplementing Article 21, in the event that
the Tenant shall remain in the Premises after the expiration
or
sooner termination of the term of this Lease without having
entered into a new written lease with the Landlord, executed
and
delivered by Landlord and Tenant, such holding over shall
not
constitute the renewal or extension of this Lease. The
Landlord
may at its option, elect to treat the Tenant as one who has
not
removed at the end of his term, and thereupon be entitled to
all
the remedies against the Tenant provided by law in that
situation
and rent shall accrue from the date of such holdover at the
rate
of two (2) times the then monthly Basic Rent, plus any
additional
rent or escalations due, or the Landlord may elect, at its
option, to construe such holding over as a tenancy from
month to
month subject to the payment of all rent in advance at the
rate
of two (2) times the then monthly Basic Rent, plus any
additional
rent or escalations due.
62. Notice. Supplementing Article 27, any notice,
statement, demand or other communication required or
permitted to
be given rendered or made by either party to the other,
pursuant
to this Lease or pursuant to any applicable law or
requirement of
public authority, shall be in writing (whether or not so
stated
elsewhere in this Lease) and shall be given by registered or
certified mail, return receipt requested, or by recognized
<PAGE>
overnight delivery service, addressed to each of the
following
parties:
if to Landlord: 538 Madison Realty Company
c/o Siegel Consultants, Ltd.
50 School Lane
Huntington, New York 11743
Attn: Robert Siegel
Joan Siegel
with a copy to: Hoffinger Friedland Dobrish
Bernfeld & Stern, P.C.
110 East 59th Street
New York, New York 10022
Attn: Samuel P. Ross, Esq.
if to Tenant: The Vermont Teddy BEar Co., Inc.
2236 Shelburne Road
P.O. Box 965
Shelburne, Vermont 05482
with a copy: Spencer R. Knapp, Esq.
Dinse, Erdmann, Knapp & McAndrew
209 Battery Street
P.O. Box 988
Burlington, Vermont 05402
All notices shall be deemed to have been given, rendered or
made
five (5) days after the date of mailing thereof or upon
receipt,
whichever is sooner. Either party may, by notice as
aforesaid,
designate a different address or addresses for notices,
statements, demands or other communications intended for it,
provided, however, that Tenant shall not designate more than
one
(1) of such addresses (and one (1) for a copy) at any one
time.
63. HVAC. Supplementing Article 30, Tenant at its sole
cost and expense shall be responsible for the installation
of any
heating, ventilating and air conditioning and exhaust
("HVAC")
systems if same do not presently exist. Landlord makes no
representations as to the condition of any existing HVAC
system.
Tenant, at Tenant's sole cost and expense, shall be
responsible
for all maintenance and repairs to the HVAC system and any
replacement thereof. Upon the expiration or other
termination of
this Lease, TEnant shall not remove the HVAC system and the
HVAC
<PAGE>
system shall be in as good condition as upon the
commencement of
the term hereof, reasonable wear and tear excepted.
Nothing herein contained shall be construed so as to require
Landlord to repair, maintain or replace same.
64. Utilities. Supplementing Article 30, it is
expressly understood that Landlord shall not supply to the
Premises any utilities or building services of any kind,
except
as may be specifically set forth herein. Tenant agrees to
make
its own arrangements with the public utility company
servicing
the Premisses for the furnishing of and payment of all
charges
for electricity, gas and for all other utilities consumed by
Tenant in the Premises, and for the installation of meters
therefor including branch meters. In no event shall
Landlord be
responsible for charges for electricity, gas or any other
utilities consumed in the Premises by tEnant. All meters at
the
Premises for the purposes of measuring Tenant's consumption
of
the respective utilities (gas, electricity, steam, etc.)
shall be
installed by and maintained by Tenant, at Tenant's sole cost
and
expense, in good order and condition. Notwithstanding the
foregoing, Landlord, at Tenant's expense may install sub-
meters.
Interruption or curtailment of any such service shall not
constitute a constructive or partial eviction, nor entitle
Tenant
to any compensation or abatement of rent. In no event shall
Tenant in any way interfere with or tie in to any electrical
feeders, risers or other electrical installations within the
Building of which the Premises form a part.
65. Security. Supplementing Article 31, Tenant shall
deposit additional amounts of security so that at all times
the
amount of security shall equal six (6) months of the then
Basic
Rent. Interest on the cash security deposit less 1% shall
accrue
and be part of the security deposit. Tenant in lieu of cash
may
deliver an irrevocable letter of credit to Landlord from a
bank
and in form satisfactory to Landlord in its sole discretion
and
Landlord shall return the cash deposit plus accrued interest
to
<PAGE>
Tenant.
66. Definition of Owner and Landlord. Supplementing
Article 33, wherever the word Owner appears it shall also
mean
Landlord and wherever the word Landlord appears it shall
also
mean Owner.
67. Plate Glass. Supplementing Article 36, anything
contained herein to the contrary notwithstanding, Tenant at
its
own expense shall replace throughout the Premises all glass
broken after the commencement date of this Lease.
68. Estoppel. Supplementing Article 38, Tenant shall,
without charge at any time and from time to time, within ten
(10)
days after request by Landlord, duly execute, acknowledge
and
deliver to the owner of the Building or to any mortgagee,
assignee of any mortgagee or purchaser, or any proposed
mortgagee, assignee of any mortgagee or purchaser, or any
other
person, firm or corporation specified by Landlord a written
statement certifying such reasonable information regarding
this
Lease as Landlord may request including (without
limitation):
(a) The commencement and expiration dates of this Lease;
(b) This Lease is unmodified and in full force and effect
(or, if there has been modification, that the same is in
full
force and effect as modified and stating the modifications);
(c) Whether or not the Landlord is in default under this
Lease and if so, specifying each such default;
(d) Whether or not there are then existing any set-offs or
defenses against the enforcement of any of the agreements,
terms,
covenants or conditions hereof upon the part of Tenant to be
performed or complied with (and, if so, specifying the
same); and
(e) The dates, if any, to which the rental and all other
charges hereunder have been paid in advance, if any.
Breach of the foregoing will constitute Tenant's
acknowledgment, which may be relied on by any person holding
or
proposing to acquire an interest in the Building or this
Lease,
that this Lease is unmodified and in full force and effect
and
will constitute, as to any such person, a waiver of any
defaults
on Landlord's part which may exist prior to the date of such
notice. The foregoing does not limit any other rights and
remedies available to Landlord for breach of this Article.
69. Limitation of Landlord's Liability.
<PAGE>
(a) With respect to any provision of this Lease which
provides, in effect, that Landlord shall not unreasonably
withhold or unreasonably delay any consent for any approval,
Tenant in no event, shall be entitled to make, nor shall
Tenant
make any claim and Tenant hereby waives any claim for money
damages; nor shall Tenant claim any money damages by way of
set-
off, counterclaim or defense, based upon any claim or
assertion
by Tenant that Landlord has unreasonably withheld or
unreasonably
delayed any consent or approval; but Tenant's sole remedy
shall
be an action or proceeding to enforce any such provision or
for
specific performance, injunction or declaratory judgment.
(b) Notwithstanding anything in this Lease to the contrary,
(i) Landlord shall have no liability for any breach for
damages
to Tenant's merchandise or personalty or for loss of
business and
(ii) the Landlord and its partners, agents and employees
shall
have no personal liability with respect to any claim Tenant
may
have under this Lease. Tenant's sole recourse shall be
against
Landlord's interest in the Building.
70. Tenant Occupying Other Space. Tenant shall not directly
or indirectly occupy any space in the Building (by
assignment,
sublease or otherwise) other than the Premises, except with
the
prior written consent of Landlord in each instance.
71. Landlord's Right to Make Changes in the Building.
Landlord reserves the right, at any time, without
incurring
any liability to Tenant therefor, to make such changes in or
to
the Building and which the Premises hereunder are a part
thereof
and the fixtures and equipment thereof, as well as in or to
the
street entrances, halls, passages, elevators and stairways
thereof, as it may deem necessary or desirable, so long as
such
changes will not unreasonably obstruct or impair access or
visibility to the Premises or materially impacts the
operation of
Tenant's business.
72. Lease Not Binding Until Signed. This Lease is not an
offer and shall not be binding upon the Landlord unless and
until
<PAGE>
it is signed by Landlord and delivered to Tenant and shall
not
prejudice Landlord in any pending litigation.
73. Rider Controls. In the event of any inconsistency
between provisions of the printed form of this Lease and the
provisions of the rider, the provisions of the rider shall
control. Wherever in the printed form the word "premises" or
"demised premises" appear they shall be deemed to read
"Premises", wherever the word "building" appears it shall be
deemed to read "Building", and wherever the words "this
lease" or
"the lease" appear they shall be deemed to read "this Lease"
or
"the Lease".
74. Signs.
(a) Tenant shall not, without Landlord's prior consent in
its sole discretion, place or install any sign on any
exterior
wall of the Premises. Tenant must obtain Landlord's written
approval for the location and design of any sign or awning.
Notwithstanding the foregoing, Landlord shall not
unreasonably withhold its consent to Tenant installing flags
displaying The Great American Teddy Bear or Vermont Teddy
Bear
logos on the exterior or facade above the second level
(which
facade shall be for the exclusive use of the second floor
tenant's displays and awnings). Awning colors may be chosen
by
Tenant subject to Landlord's approval, but may not bear any
wording or logos (except on street level). All signs, flags,
and
awnings must comply with all governmental rules and
regulations.
Tenant must obtain all requisite permits. Landlord shall not
unreasonably withhold or delay its consent to street level
signs
in character with Grade A Office Buildings in the Plaza
District
provided such signs are within the boundaries of the store.
Landlord consent will be in its sole discretion for other
locations.
(b) As used in this article, the word "sign" shall be
construed to include any placard, light or other advertising
symbol or object irrespective of whether same be temporary
or
permanent.
75. Broker. Landlord and Tenant each represent and
warrant to each other that each has dealt with no broker in
connection with this Lease and that this Lease was not
brought
about or procured through the use, negotiation and/or
instrumentality of any agent or broker. Landlord and Tenant
covenant and agree to indemnify and hold each other harmless
<PAGE>
from
and against any and all claims for commissions and other
compensation made by any agent or agents and/or any broker
or
brokers based on any dealings between them and any agent or
agents and/or any broker or brokers, together with all costs
and
expenses incurred by Landlord or Tenant in resisting such
claims,
(including, without limitation, attorneys' fees).
76. Landlord's Right to Cancel. As a material inducement
to Owner to execute and deliver this Lease to Tenant, Tenant
hereby agrees that Owner shall have the option (hereinafter
referred to as the "Cancellation Option"), exercisable at
Owner's
sole discretion, to cancel this lease as hereinafter
provided in
the event that the Owner intends to (a) either demolish or
substantially renovate the Building or change the use of the
Building for any reason whatsoever or (b) the land and/or
Building shall hereinafter be involved in an assemblage,
regardless of whether or not such assemblage shall occur as
a
result of Landlord acquiring a fee or other interest in
other
land(s) or building(s) or a third party acquiring Landlord's
land
or building. If Owner shall desire to exercise the
Cancellation
Option, Owner shall send written notice thereof (hereinafter
referred to as the "Cancellation Date") for the cancellation
of
the term hereof, which date shall not be earlier than (a)
180
days from the date the Cancellation Notice is sent and (b)
the
first day of the third lease year.
THE NOTICE SHALL BE SUBSTANTIALLY AS FOLLOWS:
"Please be advised that the undersigned Owner
hereby intends to [INSERT REASON]. Pursuant
to Article 76 of the lease for the premises
you occupy at 538 Madison Avenue, New York,
New York, Owner hereby elects to terminate
your lease as of the ____ day of _____________,
199__ (Cancellation Date)."
In the event that Owner shall send the Cancellation Notice
to Tenant as hereinbefore provided, the term hereof shall
cease
and expire as of the Cancellation Date as if such date were
expressly set forth herein as the Expiration Date, and the
Tenant
shall quit and surrender the premises on or before
<PAGE>
Cancellation
Date, and the Owner shall immediately be entitled to the
recovery
of the possession of the demised premises in the manner
herein
provided; and the Tenant shall on demand execute and deliver
to
the Owner a written surrender in recordable form.
In the event of such termination, provided Tenant is not
then in default, Landlord shall pay to Tenant upon Tenant
vacating the Premises, the sum of (i) $100,000 and (ii) the
unamortized cost of leasehold improvements made to the
Premises
by Tenant in accordance with generally accepted accounting
principals ("Termination Payment"). The Termination Payment
shall
be reduced by an amount equal to 1/120 per month for each
month
which elapses from the Commencement Date to the Cancellation
Date
multiplied by the Termination Payment.
In the event Landlord terminates this Lease and Tenant is
not then in default, Tenant's security deposit shall be
returned
to Tenant after Landlord verifies Tenant has vacated the
Premises.
Tenant hereby acknowledges its understanding that Owner will
suffer great and irreparable damage, the extent of which is
now
and will be in the future impossible to quantify, in the
event
that Tenant shall fail to vacate and surrender the Premises
to
Owner as hereinbefore provided in the event that Owner shall
duly
exercise the Cancellation Option. In view thereof, the
parties
hereto agree that, in the event the Premises shall not be
vacated
and surrendered to Owner for any reason whatsoever on or
before
the close of business on the Cancellation Date, Owner shall
have
the following remedies in addition to any other remedies
available to Owner at law or in equity, which remedies Owner
may
exercise independently, in any sequence, or cumulatively at
Owner's sole election:
(i) to enter a final order in any court of appropriate
jurisdiction dispossessing Tenant from the demised premises
and
to cause a warrant to be issued thereon without a stay of
execution, and Tenant hereby consents to the entering of
<PAGE>
such an
order and the issuance of such a warrant and hereby waives
all
rights that it may have to contest the same or to assert a
claim
for any damages whatsoever that it may sustain or for any
award
or compensation to which it may otherwise be entitle by
reason
thereof; and
(ii) to require Tenant to pay the sum of Two Thousand
Five Hundred ($2,500.00) Dollars a day from and after the
day
next succeeding the Cancellation Date to and including the
day
upon which the demised premises is finally vacated and
surrendered to Owner, representing liquidated damages that
Tenant
acknowledges Owner will sustain as a result of Owner's not
obtaining possession thereof upon the Cancellation Date.
In the event Tenant challenges Landlord's right to exercise
its Cancellation Option, Tenant in no event shall (a) be
entitled
to make any claim nor shall Tenant make any claim to remain
in
possession of the Premises, nor (b) commence any action or
proceeding to remain in possession or for injunction or-
declaratory judgment. Tenant's sole remedy shall be limited
to a
claim, action or proceeding for money damages only.
77. Security Gate. Tenant shall remove at its sole cost and
expense the existing security gate and replace it with
either an
interior security gate or an exterior gate which shall be of
a
type in keeping with the high quality of the Building.
78. Tenant's Work: Access to Landlord. Tenant shall be
doing certain work ("Tenant's Work") which shall be
performed in
accordance with Article 43. Landlord shall either pay to
Tenant
or give Tenant a rent credit in the sum of $
______________________ towards Tenant's Work. Tenant shall
permit Landlord's contractors in the Premises in order for
Landlord to provide extra support for the second floor.
79. Landlord's Right to Recapture Space. Landlord shall
have the right to recapture up to 1 foot by 2 feet of the
Premises on the outer perimeter of the Premises. Landlord
shall
give Tenant a rent abatement for the space taken The
recapture is
subject to the following conditions: (a) the recapture is
reasonably necessary to allow the Landlord to perform
alterations
<PAGE>
reasonably necessary for other tenants; (b) the space
recaptured
cannot be along the street facade; and (c) the recaptured
space
will be in a location that will not unreasonably obstruct or
impair access to or visibility of the Premises or materially
affect the operation of Tenant's business.
80. Four Foot Corridor. Tenant acknowledges that the four
foot corridor excluded from the description of the Premises
does
not presently exist. However, Landlord in its sole
discretion may
make such a corridor and Tenant shall not be entitled to any
rent
abatement.
81. Method of Payment. Tenant shall make all monetary
payments including Basic Rent and additional rent to
Landlord by
either a wire transfer or check drawn on a New York
Clearinghouse
Bank.
EXHIBIT 10.35
The Vermont Teddy Bear
Co.
2236 Shelburne Road
P.O. Box 965
Shelburne, Vermont 05482
December 31, 1996
Fred Marks, President
Venture Management Group, Inc.
160 Shelburne Road
Burlington, Vermont 05401
Dear Fred:
This letter will confirm the agreement between Vermont Teddy
Bear
Company ("VTBC") and Venture Management Group, Inc.("Venture
Group"), regarding the provision of consulting services by
Venture Group to VTBC, as follows:
1. Scope of Consulting Services.
During the term of this agreement, Venture Group will
provide consulting services to VTBC, when and as needed by
VTBC, in the areas of financial management, corporate
finance, investor relations and strategic planning (the
<PAGE>
"Consulting Services"). The Consulting Services shall be
provided by one or more qualified Consultants employed by
Venture Group and acceptable to VTBC. Initially, VTBC
acknowledges and agrees that the Consulting Services are to
be provided by yourself, given your knowledge, background
and familiarity with the business of VTBC. In the event
that Venture Group chooses to provide the Consulting
Services through additional or alternative Consultants, such
persons shall be subject to the approval of VTBC, which
shall not be unreasonably delayed or withheld. It is
contemplated that the Consulting Services shall involve a
maximum of 1500 hours of time, in total, each year to be
provided by the Consultants furnished by Venture Group.
VTBC shall from time to time define the specific scope of
consulting projects to be provided by Venture Group.
Venture Group shall have the sole authority to determine the
method and manner of providing the Consulting Services.
2. Term.
The term of this agreement shall commence on January 1,
1997
and shall terminate on December 31, 2006, unless earlier
terminated in accordance with this agreement.
3. Consulting Fees.
In consideration of the Consulting Services to be
provided
hereunder, Venture Group shall be paid consulting fees of
$65,000 per year, payable monthly, plus expenses and
disbursements reasonably incurred in the performance of
services under this Agreement, provided, however, that in
the event VTBC defaults in its obligations under this
Agreement, Venture Group may, at its sole option, declare
the entire compensation under this contract to be
immediately due and payable. If a "change in control of the
Company" occurs during the term of this Agreement, Venture
Group may, at its sole option, declare the entire
compensation under this Agreement to be immediately due and
payable. In either such event, the balance then due and
owing shall bear interest at the prime rate of VTBC's
principal lender, adjusted quarterly, until full payment is
made to Venture Group, and Venture Group shall be entitled
to collect from VTBC its reasonable attorneys' fees arising
from any default and all costs of collection. For purposes
of this Agreement, a "change in control of the Company"
shall be deemed to have occurred if: (a) any person becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), of securities
of the Company representing 51% or more of the combined
voting power of the Company's then outstanding securities;
or (b) the shareholders of the Company approve a merger or
<PAGE>
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least 80% of the combined voting
power of the voting securities of the Company or such
surviving entity) at least 80% of the combined voting power
of the voting securities of the Company or such surviving
entity outstanding immediately after such securities of
merger or consolidation, or the shareholders of the Company
approve an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
4. Nature of Relationship.
For all purposes, Venture Group and the Consultants
furnished by it shall be deemed to be independent
contractors of VTBC and shall not be subject to the
direction, supervision or control of VTBC. Consultants
furnished by Venture Group shall not be considered or deemed
to be employees or agents of VTBC for any purpose and
neither Venture Group, nor the Consultants which it
furnishes shall represent or hold themselves out as such in
any manner. Consultants furnished by Venture Group shall
not be entitled to receive any of the benefits paid or
provided by VTBC to its employees, such as health,
disability or life insurance, paid sick leave or vacation.
Venture Group shall be solely responsible for arranging to
provide to consultants which it furnishes any of such
benefits it may consider appropriate, and for paying any
state or federal income taxes which may be due in connection
with the compensation paid or payable by Venture Group to
its employees in connection with this agreement. VTBC shall
not, withhold on behalf on Venture Group or its employees
any state or federal income, social security or Medicare
taxes or any unemployment contributions.
5. Termination.
This agreement may be terminated by either party upon a
material breach and the failure to cure such breach within
thirty (30) days written notice to the breaching party.
If this letter agreement accurately conforms to your
understanding of the agreement between VTBC and Venture
Group
please so indicate by signing in the space provided below.
Very truly yours,
________________________________________
VERMONT TEDDY BEAR COMPANY, INC.
<PAGE>
R. Patrick Burns, President
AGREED:
_______________________________________
VENTURE MANAGEMENT GROUP, INCORPORATED
Fred Marks, President
EXHIBIT 10.36
INDEX TO LEASE
Paragraph Page
1. Leased Premises 1
2. Term of Lease 1
3. Minimum Rent 1
4. Percentage Rent 2
5. Additional Rent -Taxes 2
6. Maintenance of Common Areas -
Tenant's Contribution 2
7. Utilities 2
8. Use of Premises 3
9. Assignment - Subleasing 3
10. Repair - Maintenance 4
11. Indemnity and Public Liability Insurance 4
12. Landlord's Access to Premises 5
13. Insurance 5
14. Total or Partial Destruction 6
15. Eminent Domain 6
16. Other Stores 7
17. Landlord's Remedies 7
18. Covenant of Quiet Enjoyment 7
19. Estoppel Certificate - Subordination -
<PAGE>
Attornment - Mortgage 8
20. Security Deposit 8
21. Assignment of Rent 8
22. Mechanic's Lien 8
23. Real Estate Broker 9
24. Notices 9
25. Holdover 9
26. Miscellaneous Provisions 9
27. When Lease Becomes Binding 10
Execution and Acknowledgement 10,11
Exhibit A - Leased Premises 12
Exhibit B - Landlord's Work 13
Exhibit C - Estimated C.A.M. Expenses for the first year of
the
Lease 14
Exhibit D - Rules and Regulations 15
Exhibit E - Tenant's Work 16
INDENTURE OF LEASE, made as of this 17th day of January
1997, by and between THE TOWN OF FREEPORT, MAINE, a Maine
Municipality having a place of business at the Municipal
Building, Freeport Maine 04032 (hereinafter referred to as
"Landlord") and THE VERMONT TEDDY BEAR CO., INC. a New York
corporation having a mailing address of 2236 Shelburne Road,
P.
O. Box 965, Shelburne, Vermont, (hereinafter referred to as
"Tenant").
WITNESSETH:
1. A. Leased Premises. Landlord hereby leases to Tenant,
and Tenant hereby rents from Landlord, upon the terms and
provisions of this Lease, the store premises which the
parties
deem to contain approximately 6000 square feet cross hatched
on
Exhibit A and the surrounding land and improvements depicted
on
said Exhibit A which is attached hereto and incorporated
herein
(hereinafter referred to as the "Leased Premises",
<PAGE>
"Facility",
"Demised Premises", or "Store") and comprising the entire
facility known as The Bartol Library Building, located on
Main
Street, Freeport, Maine, as more fully set forth in and
subject
to the terms and conditions of this Indenture of Lease and
to
such rules and regulations for the use thereof as may be
prescribed from time to time by the Landlord in accordance
with
Paragraph 8(c) of the Lease.
2. Term of Lease. (a) The term of this Lease shall be
for a period of one hundred twenty (120) calendar months,
plus
the number of days remaining in the calendar month in which
this
Lease commences. The term shall commence on the earlier to
occur
of (a) forty five (45) days after the date on which the
Landlord
substantially completes Landlord's work (in accordance with
the
provisions of this Lease) which shall not occur later than
November 1, 1997; or (b) the opening by Tenant of its
business in
the Leased Premises; and the term hereof shall end on the
last
day of the 120th calendar month after the calendar month in
which
this Lease commences. The Landlord agrees to use reasonable
efforts to substantially complete its work on or before
September
1, 1997. The parties hereto agree, upon demand of the other,
to
execute a written declaration, in recordable form,
expressing the
commencement and termination dates of the term when the
commencement date has been determined.
(b) The Leased Premises shall be deemed to be ready for
occupancy by Tenant on the date there is sent to Tenant a
notice
from Landlord to the effect that Landlord has substantially
completed all of Landlord's work described in Exhibit B
which is
attached hereto and incorporated herein, which notice will
be
binding and conclusive in the absence of bad faith.
"Substantially completed", as used in this paragraph, is
defined
to mean completed in such fashion as to enable Tenant upon
performance of the work to be done by Tenant, to open for
<PAGE>
business in the normal manner, exclusive of minor punch list
items. Landlord's and Tenant's architects shall mutually
agree on
the punch list items.
(c) Tenant shall perform, at its own cost and expense, all
of Tenant's work set forth in Exhibit E which is attached
hereto
and incorporated herein and shall equip the Leased Premises
with
trade fixtures and all personal property necessary for the
operation of Tenant's business.
3. Minimum Rent. (a) Tenant covenants and agrees to pay
to Landlord, at Landlord's office at the Municipal Building,
Freeport, Maine 04032, or at such other place as Landlord
shall
from time to time designate in writing, minimum rent for the
Leased Premises inclusive, without deduction or offset as
follows:
(1) $240,000.00 per year ($20,000.00 per calendar month)
($40 per square foot) for years 1 through 4 of the term;
(2) $252,000.00 per year ($21,000.00 per calendar month)
($42 per square foot) for years 5 through 7 of the term; and
(3) $264,000.00 per year ($22,000.00 per calendar month)
($44 per square foot) for years 8 through 10 of the teen.
Each monthly payment shall be paid in advance on the first
day of each and every calendar month during the term.
Landlord and Tenant expressly covenant and agree that any
payment of minimum or additional rent which is not paid to
Landlord within ten (10) days of the first day of each
calendar
month during the term shall be considered a late payment of
rent
(hereinafter referred to as "Late Rent Payment"). Landlord
and
Tenant further covenant and agree that Landlord, in its sole
discretion may impose a late charge for any Late Rent
Payment
made by Tenant during the term or any extension thereof in
an
amount equal to four percent (4%) of the minimum rent due
Landlord each month in addition to the monthly rent then due
or
in addition to the additional rent then due. The rights
afforded
to Landlord pursuant to this Paragraph 3 shall be in
addition to
and not in lieu of any other rights and remedies Landlord
<PAGE>
may
have under this Lease.
(a) If Tenant fails to open for business at the
commencement date set forth in Paragraph 2, and/or (b)
thereafter, if Tenant fails to continuously operate its
business
in accordance with the terms of this Lease or vacates the
Leased
Premises prior to the expiration of the term hereof,
Landlord
shall have the right to treat any of the aforesaid events as
an
event of default and shall, have the right in any of the
aforesaid events, but not the obligation, upon 60 day's
notice,
to require the Tenant to surrender the Leased Premises to
the
Landlord in consideration of the appropriate pro rata
adjustment
of the Tenant's obligations under this Lease..
Notwithstanding
the above, Tenant's closing of the store for inventory not
more
than three (3) days per year shall not constitute a default
under
this paragraph.
Hours of operation shall be consistent with major retailers,
in the "Freeport Downtown Village Area" (such as Polo/Ralph
Lauren, Dansk, Cole Haan The Gap but not L.L. Bean) such
hours
being no less than approximately 10:00 A.M. to 6:00 P.M. six
(6)
days a week.
4 (a). Percentage Rent - Intentionally Deleted.
4 (b). Lease Year - Whenever used in this Lease the words
"lease year" shall mean the twelve (12) full calendar months
of
the term commencing with the January 1st immediately
following
the commencement date and ending December 31st of such
calendar
year and each succeeding twelve (12) month period; provided,
however, that the first lease year shall commence on the
commencement date and terminate on the immediately following
thirty-first (31st) day of December in the term of this
Lease and
the last lease year shall terminate on the last day of the
term
of this Lease.
<PAGE>
5. Additional Rent-Taxes. Tenant shall pay annually all
real estate taxes (if any) and assessments (hereinafter
"taxes")
assessed against the Leased Premises. Tenant's pro rata
share
hereunder is 100%. Tenant's payment of said taxes shall be
due
and payable 1/12 each month in advance with the minimum
rent,
based on Landlord's good faith estimate of what total taxes
will
be, with a final adjustment to be made as soon as said pro
rata
share has been determined. The provisions of this Paragraph
are
predicated upon the present system of taxation in the State
of
Maine. If taxes upon rentals shall be substituted, in whole
or in
part, for the present ad valorem real estate taxes, then
Tenant's
pro rata share of taxes shall be based upon such taxes on
rentals
to the extent to which the same shall be a substitute for
present
ad valorem real estate taxes, plus said ad valorem real
estate
taxes. The foregoing shall generally apply to any system of
taxation instituted which replaces the present method of
taxation, in whole or in part.
6. Maintenance of Common Areas - Tenant's Contribution.
(a) Tenant shall cause the Facility (except for repairs
and
maintenance allocated to Landlord in Section 10 and
elsewhere in
this Lease) including the parking facilities and sidewalks,
and
lighting thereof, to be maintained in reasonably good repair
and
clean condition at all times during the term of this Lease.
Accumulations of snow will be removed from parking areas by
Tenant and from sidewalks by Tenant.
(b) All commercially reasonable costs and expenses of every
kind and nature paid or incurred by Landlord in operating,
managing equipping, policing, lighting, repairing replacing
and
maintaining all parking facilities, the Off Premises Parking
facilities, sidewalks, enclosed portions of the Facility,
and all
other facilities (including, but without limitation, all
landscaping and gardening) shall be paid by Tenant in the
manner
<PAGE>
hereinafter provided. Such commercially reasonable costs and
expenses shall likewise include (but shall not be limited
to)
water and sewer charges; premiums for liability, property
damage,
fire, and all other insurance carried by Landlord with
respect to
the Leased Premises; wages, unemployment taxes, social
security
taxes, personal property taxes and assessments; but there
shall
be excluded costs of equipment properly chargeable to
capital
account and depreciation of the buildings and parking
facilities.
Tenant shall reimburse Landlord for all such costs and
expenses
of every kind and nature paid or incurred by Landlord for
all
premiums for liability, property damage, fire, and all other
insurance carried by Landlord with respect to the Leased
Premises, the Tenant's per space charge representing the
Tenant's
parking, or other required parking facilities or spaces.
Tenant's
insurance costs and expenses set forth in this Paragraph
shall be
determined in accordance with the same formula by which
Tenant's
share of the real estate taxes is determined under Paragraph
5.
Tenant's share of said premiums shall be due and payable in
monthly installments, in the amount estimated by Landlord,
on the
first day of each and every calendar month, in advance.
Within
ninety (90) days after the end of each calendar year during
the
term hereof, Landlord shall furnish to Tenant a statement,
in
reasonable detail, setting forth the computation of such
total
costs and expenses; thereupon there shall be a prompt
adjustment
between Landlord and Tenant, with payment to, or repayment
by,
Landlord, as the case may require,, to the end that Landlord
shall receive the entire amount of Tenant's share of said
costs
and expenses, and not more. Tenant's estimated expenses for
the
first year of the term of this Lease is set forth on Exhibit
C.
The Landlord's statement will be deemed correct unless
<PAGE>
questioned
by Tenant within ninety (90) days after being delivered.
(c) Tenant's share of the commercially reasonable costs and
expenses set forth in this Paragraph shall be determined in
accordance with the same formula by which Tenant's pro rata
share
of the real estate taxes is determined under Paragraph 5.
Tenant's pro rata share shall be paid in monthly
installments, in
the amount reasonably estimated by Landlord, on the first
day of
each and every calendar month, in advance. Within ninety
(90)
days after the end of each calendar year during the term
hereof,
Landlord shall furnish to Tenant a statement in reasonable
detail
setting forth the computation of such total costs and
expenses;
thereupon there shall be a prompt adjustment between
Landlord and
Tenant, with payment to, or repayment by, Landlord, as the
case
may require, to the end that Landlord shall receive the
entire
amount of Tenant's pro rata share of said costs and
expenses, and
no more.
(d) Off Site Parking. As a portion of the Common Area
Maintenance Charges, Tenant will pay Landlord the cost of
the off
site parking spaces allocated to Tenant (including without
limitation all snow removal, grounds care, cleaning, rubbish
removal, lighting, repairs, restriping or other costs
required to
be provided under current Town of Freeport Ordinances in
conjunction with the Tenant's retail use of the Leased
Premises.
Tenant acknowledges that Landlord has agreed to designate
all off
site parking spaces as "shared" parking as defined in the
Town of
Freeport Parking Ordinance and such spaces cannot be
restricted
in any way to provide for exclusive use by Tenant or any
other
party.
(e) Cost of Compliance. Tenant agrees to be responsible for
its pro rated share of all reasonable costs required to be
incurred to comply with any and all future ordinances, laws,
rules or regulations promulgated by the Town or any other
<PAGE>
Municipality that arise out of Tenant's use or operation of
the
Leased Premises as a retail facility.
7. Utilities. Tenant shall pay for all of its
requirements for utilities, including, but not limited to,
gas,
steam, water, electricity, oil, phone, and the like,
including
all utilities necessary for heating and air conditioning the
Leased Promises including sewer charges. In the event that
Landlord shall elect to supply any of such utilities, Tenant
agrees to purchase the same from Landlord, provided the rate
does
not exceed the rate which Tenant would be required to pay in
a
market competitive and independent transaction to the
utility
and/or fuel oil company furnishing the same.
8. Use of Premises. (a) It is understood and agreed by
Tenant that the Leased Premises shall be used and occupied
by
Tenant only for the purpose of: the retail sale of teddy
bear
items, other stuffed animal items and related
"bearaphenalia" and
featuring "Make your own Teddy Bear" inter-activity or such
other
retail activity that relates to Teddy Bears and for no other
use.
(b) Tenant further agrees to conform to the following
provisions in addition to the Rules and Regulations set
forth in
Exhibit D attached hereto during the entire term of this
Lease:
(1) No auction, fire, or bankruptcy sales may be conducted
within
the Leased Premises without the prior written consent of
Landlord; (2) Tenant shall not use the sidewalks adjacent to
the
Leased Premises for any purpose without obtaining temporary
activity permits; (3) Tenant shall keep the display windows
of
the Lease Premises clean; (4) Tenant shall receive and
deliver
goods and merchandise only in the manner at such time and in
such
areas as may be in conformity with approvals and conditions
imposed by the Town of Freeport. (a) Semi-trailer limitation
signs shall be reviewed by the Code Enforcement Officer,
Police
Chief and the Town Planner. (5) All trash, refuse, and the
<PAGE>
like,
shall be kept in covered metal cans, which metal cans shall
be
kept within the Leased Premises at all times, and in no
event
stored outside of the same; unless Landlord shall provide a
separate trash storage area and such trash, refuse and the
like
will only be removed at times which comply with the Freeport
Zoning Ordinance approvals and conditions imposed by the
Town of
Freeport; (6) Tenant shall not place on the exterior of the
Leased Premises or visible from the exterior (including, but
without limitation, windows, doors, and entrance lobbies)
any
signs other than those which comply with the Freeport Zoning
Ordinance and site review. The Tenant will be allowed to
have
signage in the approved locations. The proposed signage and
the
lighting for the signage must be approved by both Landlord
and
applicable Town Officials or Boards. If, subsequent to the
commencement of the Lease the Tenant is granted additional
signage by the Town of Freeport, such additional signage
shall be
allowed if it conforms to the above conditions. The signs
desired
by Tenant shall be purchased, installed and maintained at
Tenant's sole cost and expense; (7) Tenant shall not perform
any
act or carry on any practice which may physically damage the
Leased Premises or any part of the Facility, or cause any
offensive odors or loud noise (including, but without
limitation,
the use of loudspeakers or musical instruments), or cause a
nuisance or menace to other persons; (8) The Leased Premises
will
be kept open for business for those hours and days
consistent
with other direct retailers in the area; (9) Tenant shall
not use
any portion of the Leased Premises for storage or other
services,
except in conjunction with its business in the Leased
Premises;
(10) Tenant acknowledges that Freeport, Maine requires
retailers
to recycle cardboard and agrees to comply with this
requirement;
(11) Tenant acknowledges that Freeport, Maine requires that
all
restrooms located in retail facilities will be open to the
public; and (12) Tenant's janitorial service shall be at its
<PAGE>
sole
cost and expense.
(c) Tenant will observe and comply with the Rules and
Regulations set forth on Exhibit D and such other reasonable
Rules and Regulations from time to time mutually agreed to
by
Landlord and Tenant.
(d) Tenant covenants and agrees that, with respect to any
hazardous, toxic or special wastes, materials or substances
including asbestos, waste oil and petroleum products (the
"Hazardous Materials") which Tenant, its agent or employees,
may
use, handle, store or generate in the conduct of its
business at
the Leased Premises it will: (i) comply with all applicable
laws,
ordinances and regulations which relate to the treatment,
storage, transportation and handling of the Hazardous
Materials;
(ii) that Tenant will in no event permit or cause any
disposal of
Hazardous Materials in, on or about the Leased Premises or
the
Facility and in particular will not deposit any Hazardous
Materials in, on or about the floor or in any drainage
system or
in the trash containers which are customarily used for the
disposal of solid waste; (iii) that with respect to any off-
site
disposal, shipment storage, recycling or transportation of
any
Hazardous Materials, Tenant shall properly package the
Hazardous
Materials and shall cause to be executed and duly led and
retain
all records required by federal, state or local law; (iv)
that
Tenant will at all reasonable times and upon reasonable
notice
(except in emergency situations) permit Landlord or its
agents or
employees to enter the Leased Premises to inspect the same
for
compliance with the terms of this Paragraph and will further
provide upon five (5) days notice from Landlord copies of
all
records which Tenant may be obligated to obtain and keep in
accordance with the terms of this Paragraph; (v) that upon
termination of this Lease, Tenant will at its expense,
remove all
Hazardous Materials from the Leased Premises which were
deposited
<PAGE>
by the Tenant, its employees, agents, or invitees after the
date
Landlord substantially completes all of Landlord's Work and
Tenant takes possession of the Leased Premises and Facility,
and
comply with respect to Hazardous Materials deposited in, on,
or
about the Leased Premises or the Facility by Tenant, its
employees, agents, or invitees, with applicable Maine and
federal
law as the same may be amended from time to time, including
without limitation Chapter 851 of the Regulations for the
Maine
Department of Environmental Protection, Section 11 relating
to
"Closure." For all purposes under this Lease, neither
Landlord,
nor Landlord's contractors, subcontractors, agents,
employees, or
any other person or entities performing or providing any
work or
services to the Facility, the Leased Premises or the areas
surrounding same, whether before or after the commencement
of
this Lease, shall ever be deemed to be an agent or employee
of
Tenant; and (vi) Tenant further agrees to deliver the Leased
Premises to Landlord at the termination of this Lease free
of
pollutants, contaminants, special wastes, underground
storage
tanks installed by Tenant, its employees or agents;
asbestos,
waste oil, petroleum, other hazardous, pathological,
radioactive,
dangerous or toxic substances, materials or wastes which
have
been deposited by Tenant, its employees,, agents or invitees
after the date Tenant takes possession of the Leased
Premises.
The terms used in this Paragraph shall include, without
limitation, all substances, materials, etc., designated by
such
terms under any laws, ordinances or regulations, whether
federal,
state or local. Tenant further agrees to (a) hold harmless
and
(b) indemnify Landlord, its officers directors,
shareholders,
partners, employees, agents and contractors for and against
any
and all claims, loss, costs, damages and expenses, including
reasonable attorneys' fees, which may arise in the event
that
<PAGE>
Tenant fails to comply with any of the provisions contained
in
this Paragraph. The terms of this Paragraph 8(d) shall
expressly
survive the expiration or earlier termination of this Lease.
(e) Landlord is aware of no Hazardous Materials located at
the Leased Premises prior to the date of this Lease (other
than
normal office products).
9. Assignment - Subleasing Tenant covenants and agrees
that it will not assign this Lease the whole or any part of
the
Leased Premises without in each instance having first
received
the express written consent of Landlord which consent may,
at the
sole, exclusive and absolute discretion of Landlord be
withheld.
Tenant covenants and agrees that it will not sublease any or
the
whole of the Leased Premises without, in each instance
having
first received the express written consent of the Landlord,
which
consent shall not be unreasonably withheld or delayed. In
any
case where Landlord shall consent to such subletting: (1)
Tenant
named herein shall remain fully liable for the obligations
of
Tenant hereunder, including, without limitation' or the
obligation to pay the rent and other amounts provided under
this
Lease; and (2) the proposed subtenant will have equal or
greater
financial strength and stature as Tenant; and (3) Landlord
shall
receive any amount received by Tenant from such subtenant in
excess of the minimum rent. For the purposes of this
Paragraph
the term "assignment" shall not include a transfer of any
part or
all of the corporate shares of Tenant so as to result in a
change
in the effective voting control of Tenant. The provisions
of the
Paragraph shall not be applicable to an assignment of this
Lease
by Tenant to a subsidiary or controlling corporation,
provided
(and it shall be a condition of the validity of any such
assignment) that such subsidiary or controlling corporation
<PAGE>
agrees directly with Landlord to be bound by all of the
obligations of Tenant hereunder, including, without
limitation,
the obligation to pay the rent and other amounts provided
for
under this Lease, and the covenant against further
assignment;
but such assignment shall not relieve Tenant of any of its
obligations hereunder, and Tenant shall remain fully liable
therefor. Notwithstanding anything to the contrary,
however,
within forty-five days after Tenant submits a letter of
intent to
sublease or assign the Tenant's interest in this Lease,
Landlord
shall have the right to require (so long as such assignment
is
not for the purpose of obtaining Tenant's financing) that
all (or
any portion) of the premises which Tenant proposes to
sublease or
as to which Tenant proposes to assign this lease (if the
subtenant or assignee is not an entity controlled by the
same
interests which control Tenant) be surrendered to Landlord
for
the term of the proposed sublease or assignment in
consideration
of the pro rata adjustment of (based on the number of
rentable
square feet being recaptured), or cancellation of, the
Tenant's
obligations hereunder.
10. Repair - Maintenance. (a) Landlord agrees to keep in
good order, condition, and repair, the foundation and
structural
components of the building of the Leased Premises and will
be
responsible to maintain and replace the roof. Landlord
agrees to
repair and replace the sidewalks, driveways and parking
areas (to
the extent there are any); however, Tenant shall remain
solely
liable to clean debris from and remove snow and ice from all
such
sidewalks, driveways and parking areas at the Premises.
Tenant
will keep in good order, condition and repair the HVAC and
mechanical systems and Landlord will transfer any existing
warranty to the Tenant to the extent transferable. Tenant
shall
also be responsible for the cost of routine maintenance of
<PAGE>
such
mechanical systems, glass, windows and the so called store
front,
irrespective of which party installed same. This Paragraph
is not
intended to refer to damage by fire or other insured risk to
the
Leased Premises, provision for which is hereinafter made.
Tenant
will receive all mechanical and HVAC systems provided for in
Landlord's work in good working order.
(b) Tenant agrees that from and after the date that
possession of the Leased Premises is delivered to Tenant,
and
until the end of the term of this Lease, it will keep neat
and
clean and maintain in good order, condition and repair: all
interior and exterior portions of the Leased Premises
including
but not limited to the store front and the exterior and
interior
portions of all doors, windows, plate glass and showcases
surrounding the Leased Premises; all plumbing and sewage
facilities within the Leased Premises; fixtures; interior
wars;
floors; ceilings; signs (including exterior signs where
permitted); and all wiring, electrical systems, interior
building
appliances, heating, air conditioning and ventilation
systems and
equipment, (but excepting the foundation and the structural
components of the building of the Leased Premises and
maintenance
and replacing the roof and certain repairs and replacing of
sidewalks, driveways and parking areas, except as set forth
in
paragraph 10(a) above). Tenant shall repaint and refurbish
the
Leased Premises from time to time in order to assure that
the
same are kept in a first-class, tenantable, and attractive
condition throughout the term of this Lease consistent with
other
first class retail locations in Freeport, Maine. There is
excepted from this paragraph, however, damage to such
portions of
the Leased Premises originally delivered by Landlord to
Tenant as
is caused by those hazards which are covered by the policies
of
fire insurance with extended coverage endorsements carried
by
Landlord and described in Paragraph 13 hereof, unless caused
<PAGE>
by
Tenant, its employees, agents or invitees. Tenant further
agrees
that the Leased Premises shall be kept in a clean, sanitary
and
safe condition in accordance with the laws of the State of
Maine
and ordinances of the City of Freeport Maine, and in
accordance
with all directions, rules, regulations of the Health
Officer,
Fire Marshal, Building Inspector, and other proper officers
of
the governmental agencies having jurisdiction over the
Leased
Premises.
(c) Tenant shall not make any alterations, renovations,
improvements and/or additions to the Leased Premises without
first obtaining, in each instance, the written consent of
Landlord, it being understood that Landlord must also obtain
the
consent of Landlord, except that Tenant may make non-
structural
interior alterations to and/or remodel the interior costing
not
more than Five Thousand Dollars ($5,000), upon condition
that
such alterations shall be made in accordance with all
applicable
laws and in a good and first-class, workmanlike manner
without
Landlord's consent. In no event shall Tenant be permitted to
alter or renovate the exterior of the Leased Premises
without
Landlord's consent which may be denied in Landlord's
discretion.
Any and all alterations, additions, improvements, and
fixtures
which may be made or installed by either Landlord or Tenant
upon
the Leased Premises and which in any manner are attached to
the
floors, walls or ceilings (including, without limitation,
any
linoleum or other floor covering of similar character which
may
be cemented or otherwise adhesively affixed to the floor)
shall
remain upon the Leased Premises, and at the termination of
this
Lease shall be surrendered with the Leased Premises as a
part
thereof without disturbance, molestation or injury .
<PAGE>
However, the
usual trade fixtures and furniture which may be installed in
the
Leased Promises prior to or during the term hereof at the
cost of
Tenant may be removed by Tenant from the Leased Premises
upon the
termination of this Lease. Further, Tenant covenants and
agrees,
at its own cost and expense, to repair any and all damage to
the
Leased Premises resulting from or caused by such removal. In
no
event shall Tenant be entitled to remove any heating,
ventilating, or air conditioning equipment, nor shall Tenant
be
entitled to remove any store front or grate or related
opening
and closing mechanisms.
11. Indemnity and Public Liability Insurance. (a) Except
to the extent caused by the negligence of Landlord, its
agents,
servants, and employees, or a breach of this Lease by
Landlord.
Tenant will defend and will indemnify Landlord and save it
harmless from and against any and all claims, actions,
damages,
liability and expense (including, but not limited to,
attorney's
fees and disbursements) in connection with the loss of life,
personal injury or damage to property or business arising
from,
related to, or in connection with the occupancy or use by
Tenant
of the Leased Premises occasioned wholly or in part by
negligence
or intentional act or omission of Tenant, its contractors,
subcontractors, subtenants, licensees or concessionaires, or
its
or their respective agents, servants or employees. The
provisions
of this Paragraph shall survive the termination or earlier
expiration of the term of this Lease. Neither Landlord, its
agents, servants, employees nor contractors shall be liable
for
and Tenant hereby releases them from all claims for, loss of
life, personal injury or damage to property of business
sustained
by Tenant or any person claiming through Tenant resulting
from
any fire, accident, occurrence or condition in or upon the
Facility or any part thereof (including, without limitation,
the
<PAGE>
Leased Premises), including, but not limited to, such claims
for
loss of life, personal injury or damage resulting from (1)
any
defect in or failure of plumbing, heating or air
conditioning
equipment, electrical wiring or installation thereof, water
pipes, stairs, railings or walks; (2) any equipment or
appurtenances being out of repair, (3) the bursting, leaking
or
running of any tank, washstand, water closet, waste pipe,
drain
or any other pipe or tank in, upon or about the Facility,
(4) the
backing up of any sewer pipe; (5) the escape of steam or hot
water, (6) water, snow or ice being upon or coming through
the
roof or any other place upon or near the Leased Premises or
the
building of which the same is a part; (7) the falling of any
fixture, plaster or stucco; (8) broken glass; and (9) any
act or
omission of any subtenants or other occupants of the Leased
Premises. Notwithstanding the above, on work performed by
Landlord, the Landlord's work will be delivered in good
working
order.
(b) Tenant agrees to maintain in full force during the term
hereof a policy of public liability and property damage
insurance
under which Landlord, and Tenant are named as insureds, and
under
which the insurer agrees to indemnify and hold Landlord and
those
in privity of estate with Landlord harmless from and against
all
cost, expense and/or liability arising out of or based upon
any
and all claims, accidents, injuries, and damages mentioned
in
subparagraph (a) of this Paragraph 11, except for those
caused by
the negligence of Landlord or Landlord's agents, or a breach
of
this Lease by Landlord. Each such policy shall be non-
cancelable
with respect to Landlord without thirty (30) days' prior
written
notice to Landlord. The minimum limits of liability of such
insurance shall be One Million Five Hundred Thousand Dollars
($1,500,000.00) for injury (or death) to any one person, and
Three Million Dollars ($3,000,000.00) for injury (or death)
to
<PAGE>
more than one person, and Two Hundred Thousand Dollars
($250,000.00) with respect to damage to property in any one
accident or other occurrence such policy or policies shall
include Landlord and the Lessor as additional insured.
Tenant
agrees to deliver certificates of such insurance to Landlord
at
the commencement of the Term of this Lease and thereafter
not
less than thirty (30) Lays prior to the expiration of any
such
policy. Such insurance shall be noncancelable without thirty
(30)
days written notice to Landlord.
(c) Tenant agrees to use and occupy the Leased Premises at
its own risk; and that Landlord shall have no responsibility
or
liability for any loss of or damage to fixtures or other
personal
property of Tenant except if caused by the Intentional act
of
Landlord. The provisions of this Paragraph 11 (c) shall
apply
during the whole of the term hereof.
12. Landlord's Access to Premises. (a) Landlord may at
all reasonable times during tile term of this Lease enter to
inspect the Leased Premises upon reasonable notice and/or
may
show the Leased Premises to prospective purchasers, tenants,
or
lenders. At any time within nine (9) months immediately
preceding
the expiration of the term of this Lease, Landlord shall
have the
right to display on the exterior of the Leased Premises (but
not
so as to unreasonably obstruct the view thereof or access
thereto) up to four customary "For Rent" signs (no larger
than
four feet by four feet each) on places other than on doors
or
covering windows and during such period Landlord may show
the
Leased Premises and all parts thereof to prospective tenants
during Tenant's hours of operation or by special arrangement
after hours. Landlord also reserves the right after notice
of
intention to so enter (except that in the event of an
emergency,
no notice shall be required) to enter the Leased Premises at
any
time and from time to time to make such repairs, additions,
<PAGE>
or
alterations as it may deem necessary for the safety,
improvement,
or preservation thereof, or of the building in which the
Leased
Premises is contained, but Landlord assumes no obligation to
do
so, and the performance thereof by Landlord shall not
constitute
a waiver of Tenant's default in failing to perform the same.
Landlord shall in no event be liable for any inconvenience,
disturbances, loss of business, or other damage to Tenant by
reason of the performance by Landlord of any work in, upon,
above
or under the Leased Premises or the exercise by Landlord of
any
of its rights and remedies herein If Tenant shall have
vacated or
deserted the Leased Premises or, in the event of an
emergency, or
if in any other instance after Landlord has given notice of
Landlord's intention to enter Tenant or Tenant's employees
shall
not be personally present to permit an entry into the Leased
Premises, then in any such event, Landlord or its agents or
employees may enter the same by the use of force or
otherwise
without rendering Landlord liable therefor, and without in
any
manner affecting Tenant's obligations under this Lease. The
exercise of any such reserved right by Landlord shall not be
deemed an eviction or disturbance of Tenant's use and
possession
of the Leased Premises and shall not render Landlord liable
in
any manner to Tenant or to any other person, nor shall the
same
constitute any grounds for an abatement of any rent
hereunder.
13. Insurance. (a) Landlord shall keep the Leased
Premises insured against loss or damage by fire or other
casualty, with the usual extended coverage endorsements and
such
other insurance as the then holder of the first mortgage on
the
Facility which includes the Leased Premises shall require,
in
amounts not less the full replacement value thereof above
foundation walls or in such other amounts as are required by
Landlord's mortgagee.
(b) Tenant agrees that it shall keep its property including
but not limited to leasehold improvements, fixtures,
<PAGE>
merchandise
and equipment insured against loss or damage by fire or
other
casualty with the usual extended coverage endorsements. It
is
understood and agreed that Tenant assumes all risk of damage
to
its own property arising from any cause whatsoever,
including,
without limitation, loss by theft or otherwise, except if
such
damage is caused by the intentional act of Landlord.
(c) Insofar as and to the extent that the following
provision may be effective without invalidating or making it
impossible to secure insurance coverage obtainable from
responsible insurance companies doing business in the State
of
Maine (even though extra premium may result therefrom)
Landlord
and Tenant mutually agree, to the extent of the insurance
coverage only, that with respect to any property loss which
is
covered by insurance then being carried by them,
respectively,
the one carrying such insurance and suffering said loss
releases
the other of and from any and all claims with respect to
such
loss; and they further mutually agree that their respective
insurance companies shall have no right of subrogation
against
the other on account thereof. In the event that extra
premium is
payable by either party as a result of this provision, the
other
party shall reimburse the party paying such premium the
amount of
such extra premium. If, at the written request of one party,
this
release and non -subrogation provision is waived,, then the
obligation of reimbursement shall cease for such period of
time
as such waiver shall be effective, but nothing contained in
this
Paragraph shall be deemed to modify or otherwise affect
releases
elsewhere herein contained of either party for claims.
(d) Tenant covenants and agrees that it will not do or
permit anything to be done in or upon the Leased Premises or
bring in anything or keep anything therein, which shall
increase
the rate of insurance on the Facility above the standard
<PAGE>
rate at
a free standing retail store in Freeport, Maine; and Tenant
further agrees that in the event it shall do any of the
foregoing, it will promptly pay to Landlord on demand any
such
increase resulting therefrom which shall be due and payable
as
additional rent hereunder.
14. Total or Partial Destruction. (a) In the event that
thirty-five percent (35%) or more of the leasable floor area
of
the Leased Premises are damaged or destroyed by fire or
other
casualty, Landlord shall have the right to terminate this
Lease
in the manner described hereafter. If by reason of such
occurrence, the Leased Premises shall be rendered
untenantable in
whole or in part, Landlord, at its own expense, shall cause
the
damage to be repaired if this Lease is not terminated and
the
Minimum Rent and meanwhile shall be abated promptly and
proportionately as to the portion of the Leased Premises
rendered
untenantable until delivery of possession of the restored
Leased
Premises. If the Leased Premises shall be damaged or
destroyed by
a fire or casualty not fully covered by Landlord's policies
of
fire and extended coverage insurance or if Landlord has the
option to terminate described below, or if the Landlord, at
its
option, decides not to repair and restore the Leased
Premises,
Landlord shall have the right, to be exercised by notice in
writing delivered to Tenant within ninety (90) days from and
after the occurrence of such damage or destruction, to elect
to
cancel and terminate this Lease. Tenant shall have the right
to
elect to cancel and terminate this Lease upon 30 days
notice, if
Landlord advises Tenant that it does not intend to rebuild
the
Leased Premises. Either party shall have the right, to be
exercised by notice in writing, delivered to the other
within
thirty (30) days from and after any occurrence which renders
the
Leased Premises wholly untenantable to cancel this Lease if
said
<PAGE>
destruction of the premises occurs during the term of this
Lease,
said cancellation to take effect thirty (30) days from and
after
the delivery of such notice by the other party, and in such
event
this Lease and the tenancy hereby created shall cease as of
the
aforesaid cancellation date, the rent to be adjusted as of
such
date; provided, however, that if Landlord shall commence
repairs
or reconstruction of the damaged portions of the Leased
Premises
during the period prior to the cancellation date, the
tenancy
shall remain in effect and said notice of cancellation shall
be
considered void. In no event shall Landlord be obligated to
expend for any repairs or reconstruction pursuant to this
Paragraph 14 an amount in excess of the insurance proceeds
recovered by it and allocable to the damage to the Leased
Premises after deduction therefrom of Landlord's reasonable
expenses in obtaining such proceeds and any amounts required
to
be paid to Landlord's mortgagee. Notwithstanding anything
herein
to the contrary, in the event of a destruction, if Landlord
elects to restore, Landlord will substantially complete its
restoration within 180 days of the loss or either Landlord
or
Tenant may terminate this Lease upon notice to the other.
Once
the Landlord's restoration work is substantially complete,
the
Tenant's right to terminate will expire.
(b) If the Landlord is required to repair or reconstruct
the Leased Premises pursuant to the provisions of this
paragraph,
its obligation shall be limited to the building shell and
the
condition of the Leased Premises as it existed at the
commencement of this lease term. Tenant at Tenant's expense
shall
promptly perform all repairs or restoration not required to
be
done by Landlord and shall promptly re-enter the Leased
Premises
and commence doing business in accordance with the
provisions of
this Lease. With respect to total or partial destruction as
described in paragraph 14 (a), Landlord shall not be liable
for
<PAGE>
delays occasioned by adjustment of losses with insurance
carriers
or by any other cause so long as Landlord shall proceed in
good
faith; this provision shall have no effect on the time
periods
described in 14(a).
(c) Notwithstanding anything set forth herein to the
contrary, Tenant shall be responsible for all repairs and
replacements of damage and/or destruction of the Leased
Premises
necessitated by burglary or attempted burglary, or any other
illegal or forcible entry into the Leased Premises.
(d) Tenant covenants that it will give notice to Landlord
of any accident or damage, whether such damage is caused by
insured or uninsured casualty, occurring in, on or about the
Leased Premises within forty eight (48) hours after Tenant
has or
should have had knowledge of the occurrence of such accident
or
damage. If Tenant breaches its covenant set forth in this
paragraph 14(d), Landlord in addition to all other rights
and
remedies under this Lease, at law or in equity shall, at its
option, be relieved of any of its obligations under this
Paragraph 14.
15. Eminent Domain. (a) If all of the Leased Premises
shall be taken by condemnation or right of eminent domain,
either
party, upon written notice to the other, shall be entitled
to
terminate this Lease, provided that such notice is given not
later than thirty (30) days after Tenant has been deprived
of
possession. Should more than 30% of the Leased Promises be
so
taken or condemned then Landlord or Tenant may, terminate
this
Lease in the manner described above within sixty (60) days.
If
this Lease is not terminated, Landlord covenants and agrees
promptly after such taking or condemnation, and the
determination
of Landlord's award therein, to expend so much as may be
necessary of the net amount which may be awarded to Landlord
in
such condemnation proceedings in restoring the Leased
Premises to
an architectural unit as nearly like their condition prior
to
<PAGE>
such taking as shall be practicable. Should the net amount
so
awarded to Landlord be insufficient to cover the costs of
restoring the Leased Premises, as estimated by Landlord,
Landlord
may, but shall not be obligated to, supply the amount of
such
insufficiency and restore the Leased Premises as above
provided,
with all reasonable diligence, or terminate this Lease.
Where
Tenant has not already exercised any right of termination
accorded to it under the foregoing portion of this
paragraph,
Landlord shall notify Tenant of Landlord's election not
later
than ninety (90) days after the final determination of the
amount
of the award.
(b) Out of any award for any taking of the Leased Premises,
in condemnation proceedings or by right of eminent domain,
Landlord shall be entitled to receive and retain the amounts
awarded for the Leased Premises and for Landlord's business
loss.
Tenant shall only be entitled to receive and retain any
amounts
which may be specifically awarded to it in any such
condemnation
proceeding because of the taking of its trade fixtures or
furniture.
(c) In the event of any such taking of the Leased Premises,
the minimum rent, or a fair and just proportion thereof,
according to the nature and extent of the damage sustained,
shall
be suspended or abated.
16. Other Stores. Intentionally deleted.
17. Landlord's Remedies. (a) It is covenanted and
agreed that if Tenant shall neglect or fail to perform or
observe
any of the covenants, terms, provisions or conditions
contained
in this Lease and on its part to be performed or observed
within
thirty (30) days after written notice of default or such
additional time as is necessary to cure such default if
Tenant
has commenced a cure during said thirty (30) day period and
is
diligently effecting a cure, (except for payment of minimum
rent
<PAGE>
or other charges, in which case said period shall be seven
(7)
business days after written notice of default; provided
however,
that Landlord shall not be required to send Tenant notice of
a
monetary default more than two (2) times in any twelve month
period after which there shall be no further notice of
default or
cure period required), or if the estate hereby created shall
be
taken on execution or by other process of law, or if Tenant
shall
be judicially declared bankrupt or insolvent according to
law, or
if any assignment shall be made of the property of Tenant
for the
benefit of creditors (other than a Collateral Assignment of
Lease
as required for Tenant's financing), or if a receiver,
guardian,
conservator, trustee in involuntary bankruptcy or other
similar
officer shall be appointed to take charge of all or any
substantial part of Tenant's property by a court of
competent
jurisdiction, or if a petition shall be filed for the
reorganization of Tenant under any provisions of the Federal
Bankruptcy Code now or hereafter enacted, and such
proceeding is
not dismissed within ninety (90) days after it is begun, or
if
Tenant shall file a petition for such reorganization, or for
arrangement under any provisions of the Federal Bankruptcy
Code
now or hereafter enacted and providing a plan for a debtor
to
settle, satisfy or extend the time for the payment of debts
-
then, and in any of said cases (notwithstanding any license
of
any former breach of covenant or waiver of the benefit
hereof or
consent in a former instance), Landlord shall be entitled to
all
remedies available to Landlord at law and/or equity,
including,
without limitation, the remedy of forcible entry and
detainer,
and Landlord lawfully may enter into the Premises,
immediately or
at any time thereafter, and in compliance with any statute
in any
manner relating to summary process. As an additional remedy,
<PAGE>
Landlord may, at its election, enter into and upon the
Leased
Premises or any part thereof in the name of the whole and
repossess the same as of its former estate, and expel Tenant
and
those claiming through or under it in accordance with law,
and
remove it or their effects without being deemed guilty of
any
manner of trespass, and without prejudice to any remedies
which
might otherwise be used for arrears of rent or preceding
breach
of covenant, and upon entry as aforesaid, this Lease shall
terminate. Tenant covenants and agrees, notwithstanding any
entry
or re-entry by Landlord, whether by summary proceedings,
termination, or otherwise, that Tenant shall, as of the date
of
such termination, immediately be liable for and pay to
landlord
the entire unpaid rental and all other balances due under
this
lease for the remainder of the term, as well as all costs
incurred by Landlord to obtain and fit-up the Leased
Premises for
a new tenant including, without limitation, brokerage
commissions. Further, if this Lease shall be guaranteed on
behalf
of Tenant, all of the foregoing provisions with respect to
bankruptcy of Tenant shall be deemed to read: "Tenant or the
guarantor hereof." Landlord will use reasonable efforts to
mitigate Tenant's losses.
(b) Notwithstanding anything in this Lease to the contrary,
Tenant, and Landlord for themselves, their heirs,
successors, and
assigns hereby knowingly, willingly and voluntarily waive
any and
all rights such party may have to a trial by jury in any
forcible
entry and detainer ("FED") action or proceeding brought by
Landlord, or Landlord's successors and/or assigns based upon
or
related to the provisions of this Lease. Landlord and Tenant
hereby agree that any such FED action or proceeding shall be
heard before a single judge of the appropriate District
Court or
a single justice of the appropriate Superior Court, or a
Federal
District Court Judge sitting in the District of Maine.
(c) Landlord shall in no event be in default in the
performance of any of its obligations hereunder unless and
<PAGE>
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 by
Tenant to Landlord properly specifying wherein Landlord has
failed to perform any such obligation. Landlord agrees to
respond
reasonably promptly in emergency situations.
18. Covenant of Quite Enjoyment: Exculpation. Force
Majeure.
(a) Tenant subject to the terms and provisions of this
Lease on payment of the rent and observing, keeping and
performing all of the terms and provisions of this Lease on
its
part to be observed, kept and performed, shall lawfully,
peaceably and quietly have, hold, occupy and enjoy the
Leased
Premises during the term without hindrance or ejection by
Landlord or any persons lawfully claiming under Landlord;
but it
is understood and agreed that this covenant and any and all
other
covenants of Landlord contained in this Lease shall be
binding
upon Landlord only with respect to Landlord's period of
interest
hereunder.
(b) In addition, Tenant specifically agrees to look solely
to Landlord's interest in the Leased Premises for recovery
of any
judgment from Landlord; it being specifically agreed that
neither
Landlord nor anyone claiming under Landlord shall ever be
personally liable for any such judgment. The provision
contained
in the foregoing sentence is not intended to, and shall not,
limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or Landlord's successors
in
interest, or any other action not involving the personal
liability of Landlord or anyone claiming under Landlord, to
respond in monetary damages from their assets other than its
interest in the Leased Premises.
(c) It is further understood and agreed that with respect
to any services to be furnished by Landlord to Tenant,
Landlord
shall in no event be liable for failure to furnish the same
when
prevented from so doing by strike, lockout, breakdown,
<PAGE>
accident,
order or regulation of or by any governmental authority, or
failure of supply, or inability by the exercise of
reasonable
diligence to obtain supplies, parts, or employees necessary
to
furnish such services, or because of war or other emergency,
or
for any cause beyond Landlord's reasonable control, or for
any
cause due to any act or neglect of Tenant or its servants,
agents, employees, licensees, or any person claiming by,
through
or under Tenant, or any termination for any reason of
Landlord
occupancy of the Leased Premises from which the service is
being
supplied by Landlord, and in no event shall Landlord ever be
liable to Tenant for any indirect or consequential damages.
19. Estoppel Certificate - Subordination - Attornment -
Mortgage. At any time, and from time to time, upon the
written
request of Landlord, Landlord's Lessor, or any mortgagee,
Tenant
within ten (10) days of the date of such written requests
agrees
to execute and deliver to Landlord and/or such mortgagee,
without
charge and in a form reasonably satisfactory to Landlord,
Tenant,
and/or such mortgagee, a written statement: (i) ratifying
this
Lease; (ii) confirming the commencement and expiration dates
of
the term of this Lease; (iii) certifying that Tenant is in
occupancy of the Lease Premises, and that the Lease is in
full
force and effect and has not been modified, assigned,
supplemented or amended except by such writings as shall be
state; (iv) certifying that all conditions and agreements
under
this Lease to be satisfied or performed by Landlord have
been
satisfied and performed except as shall be state; (v)
certifying
that Landlord is not in default under the Lease and there
are no
defenses or offsets against the enforcement of this Lease by
Landlord, or stating the defaults and/or defenses claimed by
Tenant; (vi) reciting the amount of advance rent, if any,
paid by
Tenant and the date to which such rent has been paid and
agrees
<PAGE>
not to prepay rent more than thirty (30) days in advance;
(vii)
reciting the amount of security deposited with Landlord, if
any;
and (viii) any other information which Landlord or the
mortgagee
shall reasonably require. The failure of Tenant to execute,
acknowledge and deliver to Landlord and/or any mortgagee a
statement in accordance with the provisions of this
paragraph
within the period set forth shall constitute an
acknowledgement
by Tenant which may be relied upon by any person holding or
intending to acquire any interest whatsoever in the Leased
Premises or the Facility that this Lease has not ben
assigned,
amended, changed or modified, is in full force and effect
and
that the Minimum Rent, Tenant's share of Common Area
Expenses and
Taxes, Utility Charges, and Percentage Rent have been duly
and
fully paid (subject to adjustment) not beyond the respective
due
dates immediately preceding the date of the request for such
statement and shall constitute as to any persons entitled to
rely
on such statements a waiver of any defaults by Landlord or
defenses or offsets against the enforcement of this Lease by
Landlord which may exist prior to the date of the written
request, and Landlord, at its option, may treat such failure
as
an event of default. Tenant agrees that, except as
hereinafter
provided, this Lease is, and all of Tenant's rights
hereunder are
and shall always be, subject and subordinate to any
mortgage,
leases of Landlord's property (in sale-leaseback) pursuant
to
which Landlord has or shall retain the right of possession
of the
Leased Premises or security instruments (collectively called
"Mortgage") that now exist, or may hereafter be placed upon
the
Leased Premise or the Facility or any part thereof and to
all
advances made or to be made thereunder and to the interest
thereon, and all renewals, replacements, modifications,
consolidations, or extensions thereof so long as the same do
not
change the terms hereof; that if the holder of any such
Mortgage
("Mortgagee") or if the purchaser at any foreclosure sale or
<PAGE>
at
any sale under a power of sale contained in any Mortgage
shall at
its sole option so request, Tenant will attorn to, and
recognize
such Mortgagee or purchaser, as the case may be, as Landlord
under this Lease for the balance then remaining of the terms
of
this Lease, subject to all terms of this Lease, and that the
aforesaid provisions shall be self-operative and no further
instrument or document shall be necessary unless required by
any
such Mortgagee or purchaser. At any time so requested by
Landlord or Landlord's Mortgagee, Tenant covenants and
agrees to
deliver to Landlord and/or any such Mortgagee, without
charge, a
copy of Tenant's most recent and fully completed public
financial
statements, which statements shall be in compliance with
general
accounting practices. Tenant shall deliver said financial
statements to Landlord and/or any such Mortgagee within ten
(10)
days of Landlord's request for the same. Notwithstanding
anything to the contrary set forth above, any Mortgagee may
at
any time subordinate its Mortgage to this Lease, without
Tenant's
consent, by execution of a written document subordinating
such
Mortgage to this Lease to the extent set forth therein, and
thereupon this Lease shall be deemed prior to such Mortgage
to
the extent set forth in such written document without regard
to
their respective dates of execution, delivery and/or
recording
and in that event, to the extent set forth in such written
document such Mortgagee shall have the same rights with
respect
to this Lease as though this Lease has been executed and a
memorandum thereof recorded prior to the execution, delivery
and
recording of the Mortgage and as though this Lease had been
assigned to such mortgagee. Should Landlord or any
Mortgagee or
purchaser desire confirmation of either such subordination
or
such attornment, as the case may be, Tenant upon written
request,
and from time to time, will execute and deliver without
charge
and in form reasonably satisfactory to Tenant and Landlord,
<PAGE>
the
Mortgagee or the purchaser all instruments and/or documents
that
may be requested to acknowledge such subordination and/or
agreement to attorn, in recordable form as long as said
mortgagee
agrees to execute a non disturbance or recognition agreement
for
the benefit of the Tenant. At Tenant's request, Landlord
will
use reasonable efforts to obtain non-disturbance or a
recognition
agreement from its mortgagee. In the event Tenant fails to
execute and deliver the instruments and documents as
provided for
in this paragraph within the time period set forth, Landlord
may
treat such failure as an event of default.
20. Security Deposit. Upon substantial completion of
Landlord's Work, the Tenant shall deliver to Landlord and
maintain during the entire term of this Lease a performance
bond
underwritten by a good and solvent insurance company
licensed to
do business in the state of Main, which bond shall be in the
principal amount of $120,000 (6 months of base rent) in form
satisfactory to Landlord which shall be held by Landlord
throughout the term of this Lease, as security for the
faithful
performance of all of Tenant's obligations hereunder.
Landlord
shall have the right to apply any part or the whole of said
bond
to the curing of any default that may then exist without
prejudice to any other remedy which Landlord may have on
account
thereof. Should the Leased Premises be conveyed by
Landlord,
such bond shall be turned over by Landlord to Landlord's
transferee. If Tenant shall have fully and promptly
complied
with all of the terms of this Lease during the entire term
hereof, the said bond shall be redelivered to Tenant.
21. Assignment of Rents. With reference to any
assignment by Landlord of Landlord's interest in this Lease,
or
the rents payable hereunder, conditional in nature or
otherwise,
which assignment is made to the holder of a mortgage on the
Leased Premises, Tenant agrees that the execution thereof by
Landlord, and the acceptance thereof by such holder, shall
never
<PAGE>
be deemed an assumption by such holder of any of the
obligations
of Landlord hereunder, unless such holder shall, by written
notice sent to Tenant, specifically otherwise elect.
22. Mechanic's Liens. Tenant agrees immediately to
discharge (either by payment or by filing of the necessary
bond,
or otherwise) any mechanic's lien, materialmen's lien, or
other
lien against the Lease Premises and/or Landlord's interest
therein, which liens may arise out of any payment due for or
purported to be due for, any labor, services, materials,
supplies, or equipment alleged to have been furnished to or
for
Tenant in, upon or about the Leased Premises.
23. Real Estate Broker . Tenant warrants and represents
that it has not dealt with a real estate broker, in
connection
with the consummation of this Lease except for Jackman
Commercial
Realty and Jack Riddle, Commercial Properties, Inc., and in
the
event of any brokerage claims against Landlord predicted
upon
dealings with Tenant other than by John A. Jackman, Jackman
Commercial Investment Realty and Jack Riddle, Commercial
Properties Inc., Tenant agrees to defend the same and
indemnify
Landlord against any such claim. Landlord and Tenant agree
that
any brokerage commission due to John A. Jackman, Jackman
Commercial Investment Realty and Jack Riddle Commercial
Properties, Inc. shall be paid by Landlord split equally,
per
agreement between Commercial Properties, Inc. and the
Landlord
and the Landlord will indemnify Tenant against any such
claim.
24. Notices. Whenever by the terms of this Lease notice,
demand or other communication shall or may be given either
to
Landlord or to Tenant, the same shall be in writing and
shall be
sent by registered or certified mail , postage prepaid or by
overnight delivery service, prepaid, and requiring a
receipt:
If intended for Landlord, addressed to it at the address set
forth on the first page of this Lease, (or to such other
addresses as may from time to time hereafter be designated
by
<PAGE>
Landlord), with a copy to:
Charles E. Miller, Esq.
Bernstein, Shur, Sawyer & Nelson
One Hundred Middle Street
P. O. Box 9729
Portland, ME 04104-5029
If intended for Tenant, addressed to it at the address set
forth on the first page of this Lease (or to such other
address
addresses as may from time to time hereafter be designated
by
Tenant by like notice).
After receiving written notice from any person, firm, or
other entity, stating that it holds a mortgage on the
Leased
Premises, Tenant shall, so long as such mortgage is
outstanding,
be required to give to such holder the same notices as are
required to be given to Landlord under the terms of this
Lease,
but such notices may be given by Tenant to Landlord and
such
holder concurrently. It is further agreed that such holder
shall
have an additional 30 days after the Landlord's obligation
to
cure any default or to effect such curing, and if necessary
to
cure such a default, such holder shall have access to the
Leased
Premises. All notices shall be deemed effective when
mailed.
25. Holdover. If Tenant remains in possession of the
Premises after the expiration of the term of this lease,
such
possession shall be as a month-to-month tenant. During such
month-to-month tenancy, the provisions of this Lease, except
for
Minimum Rent, shall be applicable. If Landlord and Tenant
are
negotiating an extension or renewal in good faith the
Minimum
Rent shall continue at the same rate required by the Lease
for
the prior month for a period not to exceed one month;
thereafter,
Minimum Rent shall be increased to one and one half (1 1/2)
times
the then-current Minimum Rent for the period just preceding
such
<PAGE>
termination. Landlord or Tenant my terminate any such month-
to-
month tenancy by giving the other party thirty (30) days
prior
written notice.
26. Miscellaneous Provisions. (a) Waiver. Failure on
the part of Landlord to complain of any action or nonaction
on
the part of Tenant no matter how long the same may continue,
shall never be deemed to be a waiver by Landlord of any of
its
rights hereunder. Further, no waiver at any time of any of
the
provisions hereof by Landlord shall be construed as a waiver
of
any of the other provisions hereof, and that a waiver at any
time
of any of the provisions hereof shall not be construed as a
waiver at any subsequent time of the same provisions. The
consent
or approval of Landlord to or of any action by the other
requiring Landlord's consent or approval shall not be deemed
to
waive or render unnecessary Landlord's consent or approval
to or
of any subsequent similar act by Tenant. No payment by
Tenant, or
acceptance by Landlord, or a lesser amount than shall be due
from
Tenant to Landlord shall be treated otherwise than as a
payment
on account. The acceptance by either Landlord of a check for
a
lesser amount with an endorsement or statement thereon, or
upon
any letter accompanying such check, that such lesser amount
is
payment in full shall be given no effect; and Landlord may
accept
such check without prejudice to any other rights or remedies
which Landlord may have against Tenant.
(b) Invalidity of Particular Provisions. If any term or
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 term or provision to persons or circumstances other
than
those as to which it is held invalid or unenforceable, shall
not
be affected thereby, and each term and provision of this
<PAGE>
Lease
shall be valid and be enforced to the fullest extent
permitted by
law.
(c) Governing Law. This Lease shall he governed exclusively
by the provisions hereof and by the laws of State of Maine.
(d) Recording. Tenant agrees not to record this Lease,
but each party hereto agrees, on request of the other, to
execute a Memorandum of Lease in recordable form and
satisfactory
to Landlord's and Tenant's attorney. In no event shall such
memorandum set the forth the rental or other charges payable
by
Tenant under this Lease and any such memorandum shall
expressly
state that it is executed pursuant to the provisions
contained in
this Lease, and is not intended to vary the terms and
conditions
of hereof.
(e) Paragraph Headings. The paragraph headings throughout
this instrument are for convenience and reference only, and
is
contained therein shall in no way be held to explain,
modify,
amplify, or aid in the interpretation, construction, or
meaning
of the provisions of this Lease.
(f) Tenant Defined - Use of Pronoun. The work "Tenant"
shall be deemed and taken to mean each and every person or
party
mentioned as a Tenant herein, be the same one or more; and
if
there shall be more than one Tenant, any notice required or
permitted by the terms of this Lease may be given by or to
any
one thereof, and shall have the same force and effect as if
given
by or to all thereof. The use of the neuter singular
pronoun to
refer to Landlord or TEnant shall be deemed a proper
reference
even though Landlord or Tenant may be an individual, a
partnership, a corporation, or a group of two or more
individuals
or corporations. The necessary grammatical changes required
to
make the provisions of this Lease apply in the plural number
where there is more than one Landlord or Tenant and to
either
<PAGE>
corporations, associations, partnerships, or individuals,
males
or females, shall in all instances be assumed as though in
each
case fully expressed.
(g) Additional Right. In the event it shall become
necessary for Landlord to bring suit in order to collect the
rent
aforesaid or to enforce any other provision of this Lease on
the
part of Tenant to be performed. landlord shall be entitled
to
collect reasonable legal fees, costs and disbursements from
Tenant in connection with the aforesaid enforcement
proceedings.
(h) Performance of Covenants. Landlord and Tenant
covenant and agree that each will perform all agreements and
observe all covenants herein expressed on its part to be
performed and observed and that each will promptly, comply
with
such notices from the other. If Tenant or Landlord shall
not
comply with any such notice to the satisfaction of the other
prior to the date on which such non-compliance would
constitute
an event of default, in addition to, and not in lieu or in
limitation of any other remedy which may have pursuant to
this
Lease, at law or in equity, Landlord and TEnant may, but
shall
not be obligated to, enter upon the Leased Premises and do
the
things specified in said notice. Landlord and Tenant shall
have
no liability to the other for any loss or damage resulting
in any
way from such action and the non performing party agrees to
pay
upon demand, any expense incurred by the other in taking
such
action. Notwithstanding the foregoing, Landlord's or
Tenant's
performance of any or all of the other's covenants shall not
release the defaulting party from liability for non-
performance.
(i) Interpretation. Whenever in this Lease provision is
made for the doing of any act by any party, it is understood
and
agreed that said act shall be done by such party at its own
cost
and expense, unless a contrary intent is expressed. All
<PAGE>
measurements of leasable space shall be from the exterior of
the
outside wall to the exterior of the outside wall.
27. When Lease BEcomes Binding. Only the Town Manager of
Landlord shall have authority to make or agree to make a
lease or
any other agreement or undertaking in connection herewith.
The
submission of this document for examination and negotiation
does
not constitute an offer to lease, or a reservation of, or
option
for, the Leased Premises, and this document shall become
effective and binding only upon the execution and delivery
hereof
by both Landlord and Tenant. All negotiations,
considerations,
representations and understandings between Landlord and
Tenant
are incorporated herein and may be modified or altered only
by
agreement in writing between Landlord and TEnant, and no act
or
omission of any employee or agent of Landlord shall alter,
change, or modify any of the provisions hereof. All rights,
obligations and liabilities herein given to, or imposed
upon, the
respective parties hereto shall extend to and bind the
several
respective heirs, executors, administrators, trustees,
receivers,
legal representatives, successors and assigns of the said
parties; and if there shall be more than one tenant, they
shall
all be bound jointly and severally by the terms, covenants
and
agreements herein. No rights, however, shall inure to the
benefit of any assignee, legal representative, trustee,
receiver,
legatee or other personal representative of Tenant unless
the
assignment to such party has been approved by Landlord in
writing
as provide din Paragraph 9 hereof.
WITNESS the execution hereof, under seal, in any number of
counterpart copies, each of which counterpart copies shall
be
deemed an original for all purposes, as of the day and year
first
above written.
WITNESS: THE TOWN OF FREEPORT, MAINE
<PAGE>
(LANDLORD)
_________________________
By:__________________________________________
Its Town Manager
THE VERMONT TEDDY BEAR COMPANY,
INC.
(TENANT)
_________________________
By:__________________________________________
Its Chief Financial Officer
Thereunto duly authorized
STATE OF MAINE
CUMBERLAND, SS
January ______, 1997
Then personally appeared the above-named Dale Olmstead, Jr.,
Town Manager of the Town of Freeport and he acknowledged the
foregoing instrument to be his free act and deed in his said
capacity.
Before me,
___________________________________
Name:
Title:
STATE OF VERMONT
CHITTENDEN, SS.
January ______, 1997
Then personally appeared the above-named Elisabeth Robert,
and acknowledged the foregoing instrument to be her free act
and
deed in her said capacity as Chief Financial Officer of The
Vermont Teddy BEar Co., Inc., and the free act and deed of
The
Vermont Teddy Bear Co., Inc.
Before me,
<PAGE>
___________________________________
_
Name:
Title:
EXHIBIT "A"
LEASED PREMISES
Diagram of Leased Premises
<PAGE>
EXHIBIT "B"
LANDLORD'S WORK (COVER PAGE PLUS PAGES ATTACHED)
Notwithstanding anything herein to the contrary, the cost of
Landlord's work* described on this Exhibit B shall be capped
at
$230,000. The Tenant shall be responsible for all work in
excess
of $230,000 notwithstanding such work's designation as
Landlord's
work.
* If the work to be performed pursuant to this Exhibit B is
not
prepared at Lease execution, the Landlord and TEnant agree
that
such work shall be mutually agreed upon by Landlord's
architect
and Tenant's architect; provided, however, Landlord's work
shall
never cost more than the $230,000 cap set forth herein.
<PAGE>
*in providing a vanilla box
<PAGE>
EXHIBIT "C"
ADDITIONAL TERMS AND CONDITIONS
ESTIMATED COMMON AREA CHARGES PER SQUARE FOOT
Building Insurance $ .15 per square
foot
(Property and Liability)
Real Estate Taxes $ 4.82 per
square
foot
Parking $ 5.78 per square
foot
Management $ .50 per square
foot
Note that these figures are "good faith" estimated charges
per
square foot. Actual charges may be higher or lower.
(Grounds/Building Maintenance, and utilities shall be
Tenant's
direct cost and responsibility.
Costs for Tenant's electricity for lights and outlets, heat
and
air conditioning and janitorial services are not shown.
These
items will be the Tenant's cost and responsibility.
Parking charges are subject to annual increases.
Notwithstanding the above, Landlord and Tenant acknowledge
that
Tenant's per square foot cost for insurance premiums covered
as
common area insurance and the common area parking charges
described as a category of common area expense on this
Exhibit C
shall not increase more than 5% annually after the actual
cost of
the common area charges for the first Lease year is
determined.
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. The sidewalk, entrances, passages, courts, vestibules,
corridors or halls shall not be obstructed or encumbered by
any
Tenant.
2. No awnings or other projections shall be attached to
the outside walls of the building without the prior written
consent of the Landlord. No curtains, blinds, shades, or
<PAGE>
screens
shall be attached to or hung in, or used in connection with,
any
window or door of the Leased Premises, without prior written
consent of the Landlord.
3. No show cases, sales tables, merchandise displays,
signs or other articles shall be put in front of or affixed
to
any part of the exterior of the building, nor upon any
public or
common facilities of the Facility without the prior written
consent of the Landlord.
4. The water and wash closets and other plumbing fixtures,
if any, shall not be used for any purposes other than those
for
which they were constructed, and no sweepings, rubbish,
rags, or
other substances shall be thrown therein. All damages
resulting
from any misuse of the fixtures shall be borne by the
Tenant.
5. Tenant shall not mark, paint, drill into, or in any way
deface any part of the lease premises or the building of
which
they form a part. No boring, cutting or stringing of wires
shall
be permitted, except with the prior written consent of the
Landlord, and as the Landlord may direct.
6. Tenant, nor any of Tenant's servants, employees, gents,
visitors, or licensees, shall not at any time bring or keep
upon
the Leased Premises any inflammable, combustible or
explosive
fluid, chemical, or substance other than for household use
and
under such circumstances, TEnant shall properly store and
dispose
of such fluids, chemicals, or substances.
7. No additional locks or bolts of any kind may be placed
upon any of the doors or windows by Tenant, nor shall any
changes
be made in existing locks or the mechanism thereof. Tenant
must,
upon the termination of its tenancy, restore to the Landlord
all
keys, codes or combinations of stores, offices, and toilet
rooms,
either furnished to, or otherwise procured by, such TEnant,
and
<PAGE>
in the event of the loss of any keys, codes or combinations
so
furnished to Tenant or procured by TEnant, Tenant shall pay
to
the Landlord the cost thereof, and in the event sages,
closets or
other lockable permanent fixtures are installed in the
premises,
give all keys, codes or combinations thereto to the
Landlord.
8. The premises shall not be used for lodging or sleeping
or for any immoral or illegal purpose.
9. Requests of TEnant will be attended to only upon
written application to the Landlord or its agent.
Landlord's
employees shall not perform any work or do anything outside
of
the regular duties, unless under special instructions from
the
office of the Landlord or its agent.
10. Canvassing, soliciting, and peddling in the building is
prohibited and TEnant shall cooperate to prevent the same.
11. All deliveries or shipments of any kind to and from the
Premises, including loading and unloading of goods, shall be
made
only by way of the rear of the Premises of at any other
location
or times required by Town approvals and ordinances, and only
at
such times designated for such purpose by he Town of
Freeport.
12. No external radio, television, phonograph or other
similar devices shall be installed without first obtaining
in
each instance the Landlord's consent in writing, and if such
consent be given, no such device shall be used in a manner
so as
to be heard or seen outside the Premises; provided, however,
Tenant may install a satellite dish for tele-communications
subject to the approval to the Town of Freeport and Landlord
and
further provided that such installation shall never pierce
the
membrane of the roof at the Facility.
13. Tenant shall keep the Premises at a temperature
sufficiently high to prevent freezing of water in pipes and
fixtures.
<PAGE>
14. The outside sidewalk area immediately adjoining the
Premises shall be kept clean and free from snow, ice, dirt
and
rubbish by Tenant and Tenant shall not place, suffer or
permit
any obstructions or merchandise in such areas.
15. Plumbing facilities shall not be used for any other
purpose than that for which they are construed, and no
foreign
substance of any kind shall be thrown therein.
EXHIBIT "E"
TENANT'S WORK
Tenant shall be responsible for all other work necessary for
Tenant to open for business, including, but not limited to,
all
interior partitions, wall treatments and/or floor coverings
in
excess of that which is described in Exhibit C as Landlord's
work. All of Tenant's work as referred to in this paragraph
shall be subject to the review and approval of Landlord. In
addition, any Tenant's work which increases the costs of
Landlord's work over the amount specified in Exhibit C shall
be
at TEnant's cost and expense and shall be paid by Tenant
within
thirty (30) days of being invoiced.
Tenant shall BE responsible for all other work necessary for
Tenant to open for business, including, but not limited to,
all
interior partitions, wall treatments and/or floor coverings
in
excess of that which is described in Exhibit C as Landlord's
work
All of Tenant's work as referred to in this paragraph shall
be
subject to the review and approval of Landlord. In addition,
any
Tenant's work which increases the costs of Landlord's work
over
the amount specified in Exhibit C shall be at Tenant's cost
and
expense and shall be paid by Tenant within thirty (30) days
<PAGE>
of
being invoiced.
EXHIBIT 10.37
LEASE AGREEMENT
by and between
URSA (VT) QRS 12-30, INC.,
a Vermont corporation
as LANDLORD
and
THE VERMONT TEDDY BEAR CO., INC.,
a New York corporation,
as TENANT
Premises: Shelburne, Vermont
Dated as of: July 10, 1997
TABLE OF CONTENTS
Page
Parties 1
1. Demise of Premises 1
2. Certain Definitions 1
3. Title and Condition 9
4. Use of Leased Premises; Quiet Enjoyment 10
5. Term 11
6. Basic Rent 12
7. Additional Rent 12
8. Net Lease; Non-Terminability 13
9. Payment of Impositions 14
10. Compliance with Laws and Easement Agreements;
Environmental Matters 16
11. Liens; Recording and Title 17
12. Maintenance and Repair 18
13. Alterations and Improvements 19
14. Permitted Contests 20
15. Indemnification 21
16. Insurance 22
17. Casualty and Condemnation 25
18. Termination Events 27
19. Restoration 28
<PAGE>
20. Procedures Upon Purchase 30
21. Assignment and Subletting; Prohibition
against Leasehold Financing 32
22. Events of Default 33
23. Remedies and Damages Upon Default 35
24. Notices 39
25. Estoppel Certificate 40
26. Surrender 40
27. No Merger of Title 40
28. Books and Records 41
29. Determination of Value 42
30. Non-Recourse as to Landlord 43
31. Financing 44
32. Subordination 45
33. Financial Covenants 45
34. Tax Treatment; Reporting 45
35. Option to Purchase 45
36. Right of First Refusal 46
37. Additional Property
38. Miscellaneous 48
EXHIBITS
Exhibit "A" - Premises
Exhibit "A-1" - Additional Property
Exhibit "B" - Machinery and Equipment
Exhibit "C" - Schedule of Permitted Encumbrances
Exhibit "D" - Rent Schedule
Exhibit "E" - Financial Covenants
LEASE AGREEMENT, made as of this 10th day of July,
1997, between URSA (VT) QRS 12-30, INC., a Vermont
corporation
with an address c/o W. P. Carey & Co., Inc., 50 Rockefeller
Plaza, 2nd Floor, New York, New York 10020 ("Landlord"),
and THE
VERMONT TEDDY BEAR CO., INC., a New York corporation with an
address at 2236 Shelburne Road, Shelburne, Vermont 05482
("Tenant").
In consideration of the rents and provisions herein
stipulated to be paid and performed, Landlord and Tenant
hereby
covenant and agree as follows:
1. Demise of Premises. Landlord hereby demises and
lets to Tenant, and Tenant hereby takes and leases from
Landlord,
for the term and upon the provisions hereinafter specified,
the
following described property (collectively, the "Leased
Premises"): (a) the premises described in Exhibit "A"
hereto,
<PAGE>
together with the Appurtenances (collectively, the "Land");
(b) the buildings, structures and other improvements now or
hereafter constructed on the Land (collectively, the
"Improvements"); and (c) the fixtures, machinery, equipment
and
other property described in Exhibit "B" hereto
(collectively, the
"Equipment").
2. Certain Definitions.
"Acquisition Cost" shall mean $5,863,874.
"Additional Property" shall mean those certain
parcels of real property owned by Tenant, pledged to
Landlord, as
Lease Collateral and more particularly described in Exhibit
"A-1"
hereto and any proceeds from the sale of any one or more of
such
parcels.
"Additional Rent" shall mean Additional Rent as
defined in Paragraph 7.
"Adjoining Property" shall mean all sidewalks,
driveways, curbs, gores and vault spaces adjoining any of
the
Leased Premises.
"Alterations" shall mean all changes, additions,
improvements or repairs to, all alterations,
reconstructions,
renewals, replacements or removals of and all substitutions
or
replacements for any of the Improvements or Equipment, both
interior and exterior, structural and non-structural, and
ordinary and extraordinary.
"Appurtenances" shall mean all tenements,
hereditaments, easements, rights-of-way, rights, privileges
in
and to the Land, including (a) easements over other lands
granted
by any Easement Agreement and (b) any streets, ways, alleys,
vaults, gores or strips of land adjoining the Land.
"Assignment" shall mean any assignment of rents
and leases from Landlord to a Lender which (a) encumbers any
of
the Leased Premises and (b) secures Landlord's obligation to
repay a Loan, as the same may be amended, supplemented or
modified from time to time.
<PAGE>
"Basic Rent" shall mean Basic Rent as defined in
Paragraph 6.
"Basic Rent Payment Dates" shall mean the Basic
Rent Payment Dates as defined in Paragraph 6.
"Casualty" shall mean any injury to or death of
any person or any loss of or damage to any property
(including
the Leased Premises) included within or related to the
Leased
Premises or arising from the Adjoining Property.
"Commencement Date" shall mean Commencement Date
as defined in Paragraph 5.
"Condemnation" shall mean (a) any taking or
damaging of all or a portion of any of the Leased Premises
(i) in
or by condemnation or other eminent domain proceedings
pursuant
to any Law, general or special, or (ii) by reason of any
agreement with any condemnor in settlement of or under
threat of
any such condemnation or other eminent domain proceeding, or
(iii) by any other means, or (b) any de facto condemnation.
The
Condemnation shall be considered to have taken place as of
the
later of the date actual physical possession is taken by the
condemnor, or the date on which the right to compensation
and
damages accrues under the law applicable to the Leased
Premises.
"Condemnation Notice" shall mean notice or
knowledge of the institution of or intention to institute
any
proceeding for Condemnation.
"Costs" of a Person or associated with a specified
transaction shall mean all reasonable costs and expenses
incurred
by such Person or associated with such transaction,
including
without limitation, reasonable attorneys' fees and expenses,
court costs, brokerage fees, escrow fees, title insurance
premiums, mortgage commitment fees, mortgage points,
recording
fees and transfer taxes, as the circumstances require.
"Covenants" shall mean the covenants and
agreements described on Exhibit "E".
<PAGE>
"CPI" shall mean CPI as defined in Exhibit "D"
hereto.
"Default Termination Amount" shall mean the
Default Termination Amount as defined in Paragraph
23(a)(iii).
"Default Rate" shall mean the Default Rate as
defined in Paragraph 7(a)(iv).
"Easement Agreement" shall mean any conditions,
covenants, restrictions, easements, declarations, licenses
and
other agreements listed as Permitted Encumbrances or as may
hereafter affect the Leased Premises.
"Environmental Law" shall mean (i) whenever
enacted or promulgated, any applicable federal, state,
foreign
and local law, statute, ordinance, rule, regulation,
license,
permit, authorization, approval, consent, court order,
judgment,
decree, injunction, code, requirement or agreement with any
governmental entity, (x) relating to pollution (or the
cleanup
thereof), or the protection of air, water vapor, surface
water,
groundwater, drinking water supply, land (including land
surface
or subsurface), plant, aquatic and animal life from injury
caused
by a Hazardous Substance or (y) concerning exposure to, or
the
use, containment, storage, recycling, reclamation, reuse,
treatment, generation, discharge, transportation,
processing,
handling, labeling, production, disposal or remediation of
Hazardous Substances, Hazardous Conditions or Hazardous
Activities, in each case as amended and as now or hereafter
in
effect, and (ii) any common law or equitable doctrine
(including,
without limitation, injunctive relief and tort doctrines
such as
negligence, nuisance, trespass and strict liability) that
may
impose liability or obligations or injuries or damages due
to or
threatened as a result of the presence of, exposure to, or
ingestion of, any Hazardous Substance. The term
Environmental
<PAGE>
Law includes, without limitation, the federal Comprehensive
Environmental Response Compensation and Liability Act of
1980,
the Superfund Amendments and Reauthorization Act, the
federal
Water Pollution Control Act, the federal Clean Air Act, the
federal Clean Water Act, the federal Resources Conservation
and
Recovery Act of 1976 (including the Hazardous and Solid
Waste
Amendments to RCRA), the federal Solid Waste Disposal Act,
the
federal Toxic Substance Control Act, the federal
Insecticide,
Fungicide and Rodenticide Act, the federal Occupational
Safety
and Health Act of 1970, the federal National Environmental
Policy
Act and the federal Hazardous Materials Transportation Act,
each
as amended and as now or hereafter in effect and any similar
state or local Law.
"Environmental Violation" shall mean (a) any
direct or indirect discharge, disposal, spillage, emission,
escape, pumping, pouring, injection, leaching, release,
seepage,
filtration or transporting of any Hazardous Substance at,
upon,
under, onto or within the Leased Premises, or from the
Leased
Premises to the environment, in violation of any
Environmental
Law or in excess of any reportable quantity established
under any
Environmental Law or which could result in any liability to
Landlord, Tenant or Lender, any Federal, state or local
government or any other Person for the costs of any removal
or
remedial action or natural resources damage or for bodily
injury
or property damage, (b) any deposit, storage, dumping,
placement
or use of any Hazardous Substance at, upon, under or within
the
Leased Premises or which extends to any Adjoining Property
in
violation of any Environmental Law or in excess of any
reportable
quantity established under any Environmental Law or which
could
result in any liability to any Federal, state or local
government
<PAGE>
or to any other Person for the costs of any removal or
remedial
action or natural resources damage or for bodily injury or
property damage, (c) the abandonment or discarding of any
barrels, containers or other receptacles containing any
Hazardous
Substances in violation of any Environmental Laws, (d) any
activity, occurrence or condition which could result in any
liability, cost or expense to Landlord or Lender or any
other
owner or occupier of the Leased Premises, or which could
result
in the creation of a lien on the Leased Premises under any
Environmental Law, or (e) any violation of or noncompliance
with
any Environmental Law.
"Equipment" shall mean the Equipment as defined in
Paragraph 1.
"Event of Default" shall mean an Event of Default
as defined in Paragraph 22(a).
"Fair Market Value" shall mean the higher of
(a) the fair market value of the Leased Premises as of the
Relevant Date as if unaffected and unencumbered by this
Lease or
(b) the fair market value of the Leased Premises as of the
Relevant Date as affected and encumbered by this Lease and
assuming that the Term has been extended for all extension
periods provided for herein. For all purposes of this
Lease,
Fair Market Value shall be determined in accordance with the
procedure specified in Paragraph 29.
"Fair Market Value Date" shall mean the date when
the Fair Market Value is determined in accordance with
Paragraph 29.
"Federal Funds" shall mean federal or other
immediately available funds which at the time of payment are
legal tender for the payment of public and private debts in
the
United States of America.
"Hazardous Activity" means any activity, process,
procedure or undertaking which directly or indirectly
(i) procures, generates or creates any Hazardous Substance;
(ii) causes or results in (or threatens to cause or result
in)
the release, seepage, spill, leak, flow, discharge or
emission of
any Hazardous Substance into the environment (including the
air,
<PAGE>
ground water, watercourses or water systems), (iii) involves
the
containment or storage of any Hazardous Substance; or (iv)
would
cause the Leased Premises or any portion thereof to become a
hazardous waste treatment, recycling, reclamation,
processing,
storage or disposal facility within the meaning of any
Environmental Law.
"Hazardous Condition" means any condition which
would support any claim or liability under any Environmental
Law,
including the presence of underground storage tanks.
"Hazardous Substance" means (i) any substance,
material, product, petroleum, petroleum product, derivative,
compound or mixture, mineral (including asbestos), chemical,
gas,
medical waste, or other pollutant, in each case whether
naturally
occurring, man-made or the by-product of any process, that
is
toxic, harmful or hazardous or acutely hazardous to the
environment or public health or safety or (ii) any substance
supporting a claim under any Environmental Law, whether or
not
defined as hazardous as such under any Environmental Law.
Hazardous Substances include, without limitation, any toxic
or
hazardous waste, pollutant, contaminant, industrial waste,
petroleum or petroleum-derived substances or waste, radon,
radioactive materials, asbestos, asbestos containing
materials,
urea formaldehyde foam insulation, lead and polychlorinated
biphenyls.
"Impositions" shall mean the Impositions as
defined in Paragraph 9(a).
"Improvements" shall mean the Improvements as
defined in Paragraph 1.
"Indemnitee" shall mean an Indemnitee as defined
in Paragraph 15.
"Initial Loan" shall mean the $3,311,508.74 Loan
from Vermont National Bank to Landlord.
"Insurance Requirements" shall mean the
requirements of all insurance policies required to be
maintained
in accordance with this Lease.
<PAGE>
"Land" shall mean the Land as defined in
Paragraph 1.
"Law" shall mean any constitution, statute, rule
of law, code, ordinance, order, judgment, decree,
injunction,
rule, regulation, policy, requirement or administrative or
judicial determination, even if unforeseen or extraordinary,
of
every duly constituted governmental authority, court or
agency,
now or hereafter enacted or in effect.
"Lease" shall mean this Lease Agreement.
"Lease Collateral" shall mean the collateral
pledged, assigned and/or mortgaged by Tenant to Landlord
pursuant
to the Lease Collateral Documents to secure the obligations
and
liabilities of Tenant under this Lease.
"Lease Collateral Documents" shall mean the
Trademark Collateral Assignment, Assignment of Certificates,
Commercial Mortgage Deed for the Additional Property,
Security
Agreement and any other documents from Tenant to Landlord
evidencing and securing the grant of the Lease Collateral.
"Lease Year" shall mean, with respect to the first
Lease Year, the period commencing on the Commencement Date
and
ending at midnight on the last day of the twelfth (12th)
consecutive calendar month following the month in which the
Commencement Date occurred, and each succeeding twelve (12)
month
period during the Term.
"Leased Premises" shall mean the Leased Premises
as defined in Paragraph 1.
"Legal Requirements" shall mean the requirements
of all present and future Laws (including but not limited to
Environmental Laws and Laws relating to accessibility to,
usability by, and discrimination against, disabled
individuals)
and all covenants, restrictions and conditions now or
hereafter
of record which may be applicable to Tenant or to any of the
Leased Premises, or to the use, manner of use, occupancy,
possession, operation, maintenance, alteration, repair or
restoration of any of the Leased Premises, even if
<PAGE>
compliance
therewith necessitates structural changes or improvements or
results in interference with the use or enjoyment of any of
the
Leased Premises.
"Lender" shall mean (a) Vermont National Bank and
(b) any other Person (and their respective successors and
assigns) which may, after the date hereof, make a Loan to
Landlord or is the holder of any Note.
"Loan" shall mean any loan, including the Initial
Loan, made by one or more Lenders to Landlord, which loan is
secured by a Mortgage and an Assignment and evidenced by a
Note.
"Monetary Obligations" shall mean Rent and all
other sums payable by Tenant under this Lease to Landlord,
to any
third party on behalf of Landlord or to any Indemnitee.
"Mortgage" shall mean any mortgage or deed of
trust from Landlord to a Lender which (a) encumbers any of
the
Leased Premises and (b) secures Landlord's obligation to
repay a
Loan, as the same may be amended, supplemented or modified.
"Net Award" shall mean (a) the entire award
payable to Landlord or Lender by reason of a Condemnation
whether
pursuant to a judgment or by agreement or otherwise, or (b)
the
entire proceeds of any insurance required under clauses (i),
(ii)
(to the extent payable to Landlord or Lender), (iv), (v) or
(vi)
of Paragraph 16(a), as the case may be, less any expenses
incurred by Landlord and Lender in collecting such award or
proceeds.
"Note" shall mean any promissory note evidencing
Landlord's obligation to repay a Loan, as the same may be
amended, supplemented or modified.
"Offer Amount" shall mean the greater of (a) the
Fair Market Value of the Leased Premises as of the Relevant
Date
and (b) the sum of the Acquisition Cost and the applicable
Prepayment Premium which Landlord will be required to pay in
prepaying any Loan with the proceeds of the Offer Amount.
"Partial Casualty" shall mean any Casualty which
<PAGE>
does not constitute a Termination Event.
"Partial Condemnation" shall mean any Condemnation
which does not constitute a Termination Event.
"Permitted Encumbrances" shall mean those
covenants, restrictions, reservations, liens, conditions and
easements and other encumbrances, other than any Mortgage or
Assignment, listed on Exhibit "C" hereto (but such listing
shall
not be deemed to revive any such encumbrances that have
expired
or terminated or are otherwise invalid or unenforceable).
"Person" shall mean an individual, partnership,
association, corporation or other entity.
"Prepayment Premium" shall mean any payment (other
than a payment of principal and/or interest which Landlord
is
required to make under a Note or a Mortgage) by reason of
any
prepayment by Landlord of any principal due under a Note or
Mortgage, and which may be (in lieu of such prepayment
premium or
prepayment penalty) a "make whole" clause requiring a
prepayment
premium in an amount sufficient to compensate the Lender for
the
loss of the benefit of the Loan due to a prepayment.
"Present Value" of any amount shall mean such
amount discounted by a rate per annum which is the lower of
(a) the Prime Rate at the time such present value is
determined
or (b) eight percent (8%) per annum.
"Prime Rate" shall mean the annual interest rate
as published, from time to time, in The Wall Street Journal
as
the "Prime Rate" in its column entitled "Money Rate". The
Prime
Rate may not be the lowest rate of interest charged by any
"large
U.S. money center commercial banks" and Landlord makes no
representations or warranties to that effect. In the event
The
Wall Street Journal ceases publication or ceases to publish
the
"Prime Rate" as described above, the Prime Rate shall be the
average per annum discount rate (the "Discount Rate") on
ninety-one (91) day bills ("Treasury Bills") issued from
time to
time by the United States Treasury at its most recent
<PAGE>
auction,
plus three hundred (300) basis points. If no such 91-day
Treasury Bills are then being issued, the Discount Rate
shall be
the discount rate on Treasury Bills then being issued for
the
period of time closest to ninety-one (91) days.
"Relevant Amount" shall mean the Termination
Amount, the Default Termination Amount or the Offer Amount,
as
the case may be.
"Relevant Date" shall mean (a) the date
immediately prior to the date on which the applicable
Condemnation Notice is received, in the event of a
Termination
Notice under Paragraph 18 which is occasioned by a
Condemnation,
(b) the date immediately prior to the date on which the
applicable Casualty occurs, in the event of a Termination
Notice
under Paragraph 18 which is occasioned by a Casualty, (c)
the
date when Fair Market Value is redetermined, in the event of
a
redetermination of Fair Market Value pursuant to Paragraph
20(c),
(d) the date immediately prior to the Event of Default
giving
rise to the need to determine Fair Market Value in the event
Landlord provides Tenant with notice of its intention to
require
Tenant to make a termination offer under Paragraph
23(a)(iii) or
(e) the date immediately prior to the date on which the
notice
described in Paragraph 35(a) is received by Landlord.
"Remaining Sum" shall mean Remaining Sum as
defined in Paragraph 19(c).
"Rent" shall mean, collectively, Basic Rent and
Additional Rent.
"Site Assessment" shall mean a Site Assessment as
defined in Paragraph 10(c).
"State" shall mean the State of Vermont.
"Surviving Obligations" shall mean any obligations
of Tenant under this Lease, actual or contingent, which
arise on
or prior to the expiration or prior termination of this
<PAGE>
Lease or
which survive such expiration or termination by their own
terms.
"Term" shall mean the Term as defined in
Paragraph 5.
"Termination Amount" shall mean the greater of
(a) Fair Market Value or (b) the sum of the Acquisition Cost
and
any Prepayment Premium which Landlord will be required to
pay in
prepaying any Loan with proceeds of the Termination Amount.
"Termination Date" shall mean Termination Date as
defined in Paragraph 18(b).
"Termination Event" shall mean a Termination Event
as defined in Paragraph 18(a).
"Termination Notice" shall mean Termination Notice
as defined in Paragraph 18(a).
3. Title and Condition.
(a) The Leased Premises are demised and let
subject to (i) the Mortgage and Assignment presently in
effect,
(ii) the rights of any Persons in possession of the Leased
Premises, (iii) the existing state of title of any of the
Leased
Premises, including any Permitted Encumbrances, (iv) any
state of
facts which an accurate survey or physical inspection of the
Leased Premises might show, (v) all Legal Requirements,
including
any existing violation of any thereof, and (vi) the
condition of
the Leased Premises as of the commencement of the Term,
without
representation or warranty by Landlord.
(b) Tenant acknowledges that the Leased Premises
is in good condition and repair at the inception of this
Lease.
LANDLORD LEASES AND WILL LEASE AND TENANT TAKES AND WILL
TAKE THE
LEASED PREMISES AS IS. TENANT ACKNOWLEDGES THAT LANDLORD
(WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER
CAPACITY)
HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED
TO
HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED,
<PAGE>
WITH RESPECT TO ANY OF THE LEASED PREMISES, INCLUDING ANY
WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE
QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF
ANY
DEFECT, LATENT OR PATENT, (iv) LANDLORD'S TITLE THERETO,
(v) VALUE, (vi) COMPLIANCE WITH SPECIFICATIONS, (vii)
LOCATION,
(viii) USE, (ix) CONDITION, (x) MERCHANTABILITY, (xi)
QUALITY,
(xii) DESCRIPTION, (xiii) DURABILITY, (xiv) OPERATION, (xv)
THE
EXISTENCE OF ANY HAZARDOUS SUBSTANCE, HAZARDOUS CONDITION OR
HAZARDOUS ACTIVITY OR (xvi) COMPLIANCE OF THE LEASED
PREMISES
WITH ANY LAW OR LEGAL REQUIREMENT; AND ALL RISKS INCIDENT
THERETO
ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE
LEASED
PREMISES IS OF ITS SELECTION AND TO ITS SPECIFICATIONS AND
THAT
THE LEASED PREMISES HAS BEEN INSPECTED BY TENANT AND IS
SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR
DEFICIENCY IN
ANY OF THE LEASED PREMISES OF ANY NATURE, WHETHER LATENT OR
PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY
WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES (INCLUDING STRICT LIABILITY IN TORT). THE
PROVISIONS OF
THIS PARAGRAPH 3(b) HAVE BEEN NEGOTIATED, AND ARE INTENDED
TO BE
A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY
LANDLORD,
EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED
PREMISES,
ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER
LAW
NOW OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.
(c) Tenant represents to Landlord that Tenant has
examined the title to the Leased Premises prior to the
execution
and delivery of this Lease and has found the same to be
satisfactory for the purposes contemplated hereby. Tenant
acknowledges that (i) fee simple title (both legal and
equitable)
is in Landlord and, except as provided in Paragraph(s) 35
and 36
hereof with respect to certain options and rights of first
refusal to purchase the Leased Premises, that Tenant has
only the
leasehold right of possession and use of the Leased Premises
<PAGE>
as
provided herein, (ii) the Improvements conform to all
material
Legal Requirements and all Insurance Requirements, (iii) all
easements necessary or appropriate for the use or operation
of
the Leased Premises have been obtained, (iv) all contractors
and
subcontractors who have performed work on or supplied
materials
to the Leased Premises have been fully paid, and all
materials
and supplies have been fully paid for, (v) the Improvements
have
been fully completed in all material respects in a
workmanlike
manner of first class quality, and (vi) all Equipment
necessary
for the use or operation of the Leased Premises has been
installed and is presently fully operative in all material
respects.
(d) Landlord hereby assigns to Tenant, without
recourse or warranty whatsoever, all warranties, guaranties,
indemnities and similar rights which Landlord may have
against
any manufacturer, seller, engineer, contractor or builder in
respect of any of the Leased Premises. Such assignment
shall
remain in effect until an Event of Default occurs or until
the
expiration or earlier termination of this Lease, whereupon
such
assignment shall cease and all of said warranties,
guaranties,
indemnities and other rights shall automatically revert to
Landlord.
4. Use of Leased Premises; Quiet Enjoyment.
(a) Tenant may occupy and use the Leased Premises
as a manufacturing, retail, tourist destination and office
facility and for no other purposes. Tenant shall not use or
occupy or permit any of the Leased Premises to be used or
occupied, nor do or permit anything to be done in or on any
of
the Leased Premises, in a manner which would or might (i)
violate
any Law or Legal Requirement, (ii) make void or voidable or
cause
any insurer to cancel any insurance required by this Lease,
or
make it difficult or impossible to obtain any such insurance
<PAGE>
at
commercially reasonable rates, (iii) cause structural injury
to
any of the Improvements or (iv) constitute a public or
private
nuisance or waste.
(b) Subject to the provisions hereof, so long as
no Event of Default has occurred and is continuing, Tenant
shall
quietly hold, occupy and enjoy the Leased Premises
throughout the
Term, without any hindrance, ejection or molestation by
Landlord
with respect to matters that arise after the date hereof,
provided that Landlord or its agents may enter upon and
examine
any of the Leased Premises at such reasonable times as
Landlord
may select and upon reasonable notice to Tenant (except in
the
case of an emergency, in which no notice shall be required)
for
the purpose of inspecting the Leased Premises, verifying
compliance or non-compliance by Tenant with its obligations
hereunder and the existence or non-existence of an Event of
Default or event which with the passage of time and/or
notice
would constitute an Event of Default, showing the Leased
Premises
to prospective Lenders and purchasers and taking such other
action with respect to the Leased Premises as is permitted
by any
provision hereof.
5. Term.
(a) Subject to the provisions hereof, Tenant
shall have and hold the Leased Premises for an initial term
(such
term, as extended or renewed in accordance with the
provisions
hereof, being called the "Term") commencing on July ___,
1997
(the "Commencement Date") and ending on the last day of the
two
hundred fortieth (240th) calendar month next following the
date
hereof (the "Expiration Date").
(b) Provided that if, on or prior to the
Expiration Date or any other Renewal Date (as hereinafter
defined) this Lease shall not have been terminated pursuant
to
<PAGE>
any provision hereof, then on the Expiration Date and on the
fifth (5th) and tenth (10th) anniversaries of the Expiration
Date
(the Expiration Date and each such anniversary being a
"Renewal
Date"), the Term shall be deemed to have been automatically
extended for an additional period of five (5) years, unless
Tenant shall notify Landlord in writing in recordable form
at
least two (2) years prior to the next Renewal Date that
Tenant is
terminating this Lease as of the next Renewal Date. Any
such
extension of the Term shall be subject to all of the
provisions
of this Lease, as the same may be amended, supplemented or
modified.
(c) If Tenant exercises its option not to extend
or further extend the Term, or if an Event of Default
occurs,
then Landlord shall have the right during the remainder of
the
Term then in effect and, in any event, Landlord shall have
the
right during the last year of the Term, to (i) advertise the
availability of the Leased Premises for sale or reletting
and to
erect upon the Leased Premises signs indicating such
availability
and (ii) show the Leased Premises to prospective purchasers
or
tenants or their agents at such reasonable times as Landlord
may
select.
6. Basic Rent. Tenant shall pay to Landlord, as
annual rent for the Leased Premises during the Term, the
amounts
determined in accordance with Exhibit "D" hereto ("Basic
Rent"),
commencing on the first day of the first month following the
date
hereof and continuing on the same day of each month
thereafter
during the Term (each such day being a "Basic Rent Payment
Date"). Each such rental payment shall be made, at
Landlord's
sole discretion, (a) to Landlord at its address set forth
above
and/or to such one other Person, at such addresses and in
such
proportions as Landlord may direct by fifteen (15) days'
prior
<PAGE>
written notice to Tenant (in which event Tenant shall give
Landlord notice of each such payment concurrent with the
making
thereof), and (b) by a check hand delivered at least three
(3)
business days before or mailed at least five (5) business
days
before the applicable Basic Rent Payment Date, or in Federal
Funds. Pro rata Basic Rent for the period from the date
hereof
through the last day of the month hereof shall be paid on
the
date hereof.
7. Additional Rent.
(a) Tenant shall pay and discharge, as additional
rent (collectively, "Additional Rent"):
(i) except as otherwise specifically
provided herein, all reasonable costs and expenses of
Tenant,
Landlord and any other Persons specifically referenced
herein
which are incurred in connection or associated with (A) the
ownership, use, non-use, occupancy, possession, operation,
condition, design, construction, maintenance, alteration,
repair
or restoration of any of the Leased Premises, (B) the
performance
of any of Tenant's obligations under this Lease, (C) any
sale or
other transfer of any of the Leased Premises to Tenant under
this
Lease, (D) any Condemnation proceedings, (E) the adjustment,
settlement or compromise of any insurance claims involving
or
arising from any of the Leased Premises, (F) the
prosecution,
defense or settlement of any litigation involving or arising
from
any of the Leased Premises, this Lease, or the sale of the
Leased
Premises to Landlord, (G) the exercise or enforcement by
Landlord, its successors and assigns, of any of its rights
under
this Lease; provided Landlord prevails in any such
enforcement
proceeding or a settlement is reached, (H) any amendment to
or
modification or termination of this Lease made at the
request of
Tenant, (I) Costs of Landlord's counsel incurred in
connection
<PAGE>
with any act undertaken by Landlord (or its counsel) at the
request of Tenant, or incurred in connection with any act of
Landlord performed on behalf of Tenant, and (J) any other
items
specifically required to be paid by Tenant under this Lease;
(ii) after the date all or any portion of
any installment of Basic Rent is due and not paid, an amount
equal to five percent (5%) of the amount of such unpaid
installment or portion thereof;
(iii) a sum equal to any sums in excess of
amounts payable under clauses (ii) and (iv) of this
Paragraph
7(a) (including any late charge, default penalties, interest
and
fees of Lender's counsel) which are payable by Landlord to
any
Lender under any Note by reason of Tenant's late payment or
non-payment of Basic Rent or by reason of an Event of
Default;
and
(iv) interest at the rate (the "Default
Rate") of five percent (5%) over the Prime Rate per annum on
the
following sums until paid in full: (A) all overdue
installments
of Basic Rent from the respective due dates thereof, (B) all
overdue amounts of Additional Rent relating to obligations
which
Landlord shall have paid on behalf of Tenant, from the date
of
payment thereof by Landlord, and (C) all other overdue
amounts of
Additional Rent, from the date when any such amount becomes
overdue.
(b) Tenant shall pay and discharge (i) any
Additional Rent referred to in Paragraph 7(a)(i) when the
same
shall become due, provided that amounts which are billed to
Landlord or any third party, but not to Tenant, shall be
paid
within five (5) days after Landlord's demand for payment
thereof,
and (ii) any other Additional Rent, within five (5) days
after
Landlord's demand for payment thereof. Landlord's demand
for
payment shall include reasonable substantiation of the
amounts
due.
<PAGE>
(c) In no event shall amounts payable under
Paragraph 7(a)(ii), (iii) and (iv) exceed the maximum amount
permitted by applicable Law.
8. Net Lease; Non-Terminability.
(a) This is a net lease and all Monetary
Obligations shall be paid without notice or demand and
without
set-off, counterclaim, recoupment, abatement, suspension,
deferment, diminution, deduction, reduction or defense
(collectively, a "Set-Off").
(b) Except as otherwise expressly provided
herein, this Lease and the rights of Landlord and the
obligations
of Tenant hereunder shall not be affected by any event or
for any
reason, including the following: (i) any damage to or
theft,
loss or destruction of any of the Leased Premises, (ii) any
Condemnation, (iii) Tenant's acquisition of ownership of any
of
the Leased Premises other than pursuant to an express
provision
of this Lease, (iv) any default on the part of Landlord
hereunder
or under any Note, Mortgage, Assignment or any other
agreement,
(v) any latent or other defect in any of the Leased
Premises,
(vi) the breach of any warranty of any seller or
manufacturer of
any of the Equipment, (vii) any violation of any provision
of
this Lease by Landlord, (viii) the bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation,
dissolution or winding-up of, or other proceeding affecting
Landlord, (ix) the exercise of any remedy, including
foreclosure,
under any Mortgage or Assignment, (x) any action with
respect to
this Lease (including the disaffirmance hereof) which may be
taken by Landlord, any trustee, receiver or liquidator of
Landlord or any court under the Federal Bankruptcy Code or
otherwise, (xi) any interference with Tenant's use of the
Leased
Premises, (xii) market or economic changes or (xiii) any
other
cause, whether similar or dissimilar to the foregoing, any
present or future Law to the contrary notwithstanding.
(c) The obligations of Tenant hereunder shall be
<PAGE>
separate and independent covenants and agreements, all
Monetary
Obligations shall continue to be payable in all events (or,
in
lieu thereof, Tenant shall pay amounts equal thereto), and
the
obligations of Tenant hereunder shall continue unaffected
unless
the requirement to pay or perform the same shall have been
terminated pursuant to an express provision of this Lease.
All
Rent payable by Tenant hereunder shall constitute "rent" for
all
purposes (including Section 502(b)(6) of the Bankruptcy
Code).
(d) Except as otherwise expressly provided
herein, Tenant shall have no right and hereby waives all
rights
which it may have under any Law (i) to quit, terminate or
surrender this Lease or any of the Leased Premises, or (ii)
to
any Set-Off of any Monetary Obligations.
9. Payment of Impositions.
(a) Tenant shall, before interest or penalties
are due thereon, pay and discharge all taxes (including real
and
personal property, franchise, sales and rent taxes), all
charges
for any easement or agreement maintained for the benefit of
any
of the Leased Premises, all assessments and levies, all
permit,
inspection and license fees, all rents and charges for
water,
sewer, utility and communication services relating to any of
the
Leased Premises, all ground rents and all other public
charges
whether of a like or different nature, even if unforeseen or
extraordinary, imposed upon or assessed against (i) Tenant,
(ii) Tenant's leasehold interest in the Leased Premises,
(iii) any of the Leased Premises, (iv) Landlord as a result
of or
arising in respect of the acquisition, ownership, occupancy,
leasing, use, possession or sale of any of the Leased
Premises,
any activity conducted on any of the Leased Premises, or the
Rent, or (v) any Lender by reason of any Note, Mortgage,
Assignment or other document evidencing or securing a Loan
and
which (as to this clause (v)) Landlord has agreed to pay
<PAGE>
(collectively, the "Impositions"); provided, that nothing
herein
shall obligate Tenant to pay (A) income, excess profits or
other
taxes of Landlord (or Lender) which are determined on the
basis
of Landlord's (or Lender's) net income or net worth (unless
such
taxes are in lieu of or a substitute for any other tax,
assessment or other charge upon or with respect to the
Leased
Premises which, if it were in effect, would be payable by
Tenant
under the provisions hereof or by the terms of such tax,
assessment or other charge), (B) any estate, inheritance,
succession, gift or similar tax imposed on Landlord or (C)
any
real property transfer (except in connection with a transfer
to
Tenant), capital gains or land gains tax imposed on Landlord
in
connection with the sale of the Leased Premises to any
Person.
If any Imposition may be paid in installments without
interest or
penalty, Tenant shall have the option to pay such Imposition
in
installments; in such event, Tenant shall be liable only for
those installments which accrue or become due and payable
during
the Term. Tenant shall prepare and file all tax reports
required
by governmental authorities which relate to the Impositions
assessed against Tenant or all or any portion of the Leased
Premises. Tenant shall deliver to Landlord (1) copies of
all
settlements and notices pertaining to the Impositions which
may
be issued by any governmental authority within ten (10) days
after Tenant's receipt thereof, (2) receipts for payment of
all
taxes required to be paid by Tenant hereunder within thirty
(30)
days after the due date thereof and (3) receipts for payment
of
all other Impositions within ten (10) days after Landlord's
request therefor. Where an Imposition is assessed against
Landlord or Lender, Tenant's obligations to pay such
Imposition
and any interest thereon or penalty pertaining thereto is
conditioned upon Tenant's receipt of reasonable notice of
such
Imposition.
<PAGE>
(b) Landlord shall have the right at any time to
require Tenant to pay to Landlord an additional monthly sum
(each
an "Escrow Payment") sufficient to pay the Escrow Charges
(as
hereinafter defined) as they become due. As used herein,
"Escrow
Charges" shall mean real estate taxes on the Leased Premises
or
payments in lieu thereof and premiums on any insurance
required
by this Lease. Landlord shall determine the amount of the
Escrow
Charges and of each Escrow Payment which shall be binding,
absent
manifest error. As long as the Escrow Payments are being
held by
Landlord the Escrow Payments shall not be commingled with
other
funds of Landlord or other Persons and interest thereon
shall
accrue for the benefit of Tenant from the date such monies
are
received and invested until the date such monies are
disbursed to
pay Escrow Charges. Landlord shall promptly (and before
interest
or penalties are due thereon) apply the Escrow Payments to
the
payment of the Escrow Charges in such order or priority as
Landlord shall determine or as required by law. If at any
time
the Escrow Payments theretofore paid to Landlord shall be
insufficient for the payment of the Escrow Charges, Tenant,
within ten (10) days after Landlord's demand therefor, shall
pay
the amount of the deficiency to Landlord.
10. Compliance with Laws and Easement Agreements;
Environmental Matters.
(a) Tenant shall, at its expense, comply with and
conform to, and cause the Leased Premises and any other
Person
occupying any part of the Leased Premises to comply with and
conform to, all Insurance Requirements, Legal Requirements
(including all applicable Environmental Laws) and Permitted
Encumbrances, including land use permits. Tenant shall not
at
any time (i) cause, permit or suffer to occur any
Environmental
Violation or (ii) permit any sublessee, assignee or other
Person
<PAGE>
occupying the Leased Premises under or through Tenant to
cause,
permit or suffer to occur any Environmental Violation. No
later
than September 1, 1997, Tenant shall cause the Subdivision
Plat
for Shelburne South Commercial Park to be reapproved by the
Planning Commission of Shelburne and rerecorded in the land
records of Shelburne Land Records in accordance with
applicable
law.
(b) Tenant, at its sole cost and expense, will at
all times promptly and faithfully abide by, discharge and
perform
all of the covenants, conditions and agreements contained in
any
Easement Agreement on the part of Landlord or the occupier
to be
kept and performed thereunder. Neither Landlord nor Tenant
will
alter, modify, amend or terminate any Easement Agreement,
give
any consent or approval thereunder, or enter into any new
Easement Agreement without, in each case, the prior written
consent of the other party hereto.
(c) Upon prior written notice from Landlord,
Tenant shall permit such persons as Landlord may designate
("Site
Reviewers") to visit the Leased Premises and perform, as
agents
of Tenant, environmental site investigations and assessments
("Site Assessments") on the Leased Premises for the purpose
of
determining whether there exists on the Leased Premises any
Environmental Violation or any condition which could result
in
any Environmental Violation. Such Site Assessments may
include
both above and below the ground testing for Environmental
Violations and such other tests as may be necessary, in the
opinion of the Site Reviewers, to conduct the Site
Assessments.
Tenant shall supply to the Site Reviewers such historical
and
operational information regarding the Leased Premises as may
be
reasonably requested by the Site Reviewers to facilitate the
Site
Assessments, and shall make available for meetings with the
Site
Reviewers appropriate personnel having knowledge of such
matters.
<PAGE>
The cost of performing and reporting Site Assessments shall
be
paid by Tenant so long as such Site Assessment is performed
in
connection with any of the following: (i) a proposed sale
of the
Leased Premises; (ii) the occurrence of an Event of Default;
(iii) the refinancing of any Loan; (iv) Landlord or Lender
has a
reasonable belief that an Environmental Violation has
occurred;
or (v) upon the direction of any governmental entity, agency
or
political subdivision having jurisdiction over Landlord or
the
Leased Premises.
(d) If an Environmental Violation occurs or is
found to exist and, in Landlord's reasonable judgment, the
cost
of remediation of the same is likely to exceed $100,000,
Tenant
shall provide to Landlord, within ten (10) days after
Landlord's
request therefor, adequate financial assurances that Tenant
will
effect such remediation in accordance with applicable
Environmental Laws. Such financial assurances shall be a
bond or
letter of credit reasonably satisfactory to Landlord in form
and
substance and in an amount equal to or greater than
Landlord's
reasonable estimate, based upon a Site Assessment performed
pursuant to Paragraph 10(c), of the anticipated cost of such
remedial action.
(e) Notwithstanding any other provision of this
Lease, if an Environmental Violation occurs or is found to
exist
and the Term would otherwise terminate or expire, then, at
the
option of Landlord, the Term shall be automatically extended
beyond the date of termination or expiration and this Lease
shall
remain in full force and effect beyond such date until the
earlier to occur of (i) the completion of all remedial
action in
accordance with applicable Environmental Laws or (ii) the
date
specified in a written notice from Landlord to Tenant
terminating
this Lease.
<PAGE>
(f) If Tenant fails to correct any Environmental
Violation which occurs or is found to exist, Landlord shall
have
the right (but no obligation) to take any and all actions as
Landlord shall deem necessary or advisable in order to cure
such
Environmental Violation.
(g) Tenant shall notify Landlord immediately
after becoming aware of any Environmental Violation (or
alleged
Environmental Violation) or noncompliance with any of the
covenants contained in this Paragraph 10 and shall forward
to
Landlord immediately upon receipt thereof copies of all
orders,
reports, notices, permits, applications or other
communications
relating to any such violation or noncompliance.
(h) All future leases, subleases or concession
agreements relating to the Leased Premises entered into by
Tenant
shall contain covenants of the other party not to at any
time
(i) cause any Environmental Violation to occur or (ii)
permit any
Person occupying the Leased Premises through said subtenant
or
concessionaire to cause any Environmental Violation to
occur.
11. Liens; Recording.
(a) Tenant shall not, directly or indirectly,
create or permit to be created (except for statutory liens
arising by operation of law) or to remain and shall promptly
discharge or remove any lien, levy or encumbrance on any of
the
Leased Premises or on any Rent or any other sums payable by
Tenant under this Lease, other than any Mortgage or
Assignment,
the Permitted Encumbrances and any mortgage, lien,
encumbrance or
other charge created by or resulting solely from any act or
omission of Landlord. NOTICE IS HEREBY GIVEN THAT LANDLORD
SHALL
NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
OR
TO BE FURNISHED TO TENANT OR TO ANYONE HOLDING OR OCCUPYING
ANY
OF THE LEASED PREMISES THROUGH OR UNDER TENANT, AND THAT NO
MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD
<PAGE>
IN
AND TO ANY OF THE LEASED PREMISES. LANDLORD MAY AT ANY
TIME, AND
AT LANDLORD'S REQUEST TENANT SHALL PROMPTLY, POST ANY
NOTICES ON
THE LEASED PREMISES REGARDING SUCH NON-LIABILITY OF
LANDLORD.
(b) Tenant shall execute, deliver and record,
file or register (collectively, "record") all such
instruments as
may be required or permitted by any present or future Law in
order to evidence the respective interests of Landlord and
Tenant
in the Leased Premises, and shall cause a memorandum of this
Lease (or, if such a memorandum cannot be recorded, this
Lease),
and any supplement hereto or thereto, to be recorded in such
manner and in such places as may be required or permitted by
any
present or future Law in order to protect the validity and
priority of this Lease.
12. Maintenance and Repair.
(a) Tenant shall at all times maintain the Leased
Premises and the Adjoining Property in as good repair and
appearance as they are in on the date hereof, except for
ordinary
wear and tear, and fit to be used for their intended use in
accordance with the better of the practices generally
recognized
as then acceptable by other companies in its industry or
observed
by Tenant with respect to the other real properties owned or
operated by it, and, in the case of the Equipment, in as
good
mechanical condition as it was on the later of the date
hereof or
the date of its installation, except for ordinary wear and
tear.
Tenant shall take every other action reasonably necessary or
appropriate for the preservation and safety of the Leased
Premises consistent with sound business practices and the
permitted uses of the Leased Premises. Tenant shall
promptly
make all Alterations of every kind and nature, whether
foreseen
or unforeseen, which may be required to comply with the
foregoing
requirements of this Paragraph 12(a). Landlord shall not be
required to make any Alteration, whether foreseen or
unforeseen,
<PAGE>
or to maintain any of the Leased Premises or Adjoining
Property
in any way, and Tenant hereby expressly waives any right
which
may be provided for in any Law now or hereafter in effect to
make
Alterations at the expense of Landlord or to require
Landlord to
make Alterations. Any Alteration made by Tenant pursuant to
this
Paragraph 12 shall be made in conformity with the provisions
of
Paragraph 13.
(b) If any Improvement, now or hereafter
constructed, shall (i) encroach upon any setback or any
property,
street or right-of-way adjoining the Leased Premises,
(ii) violate the provisions of any restrictive covenant
affecting
the Leased Premises, (iii) hinder or obstruct any easement
or
right-of-way to which any of the Leased Premises is subject
or
(iv) impair the rights of others in, to or under any of the
foregoing, Tenant shall, promptly after receiving notice or
otherwise acquiring knowledge thereof, either (A) obtain
from all
necessary parties waivers or settlements of all claims,
liabilities and damages resulting from each such
encroachment,
violation, hindrance, obstruction or impairment, whether the
same
shall affect Landlord, Tenant or both, or (B) take such
action as
shall be necessary to remove all such encroachments,
hindrances
or obstructions and to end all such violations or
impairments,
including, if necessary, making Alterations.
13. Alterations and Improvements.
(a) Tenant shall have the right, without having
obtained the prior written consent of Landlord and Lender,
to
make (i) non-structural Alterations to the Leased Premises,
(ii) structural Alterations or a series of related
structural
Alterations that, as to any such Alterations or series of
related
Alterations, do not cost in excess of $250,000 and (iii) to
install or replace Equipment in the Improvements or
accessions to
<PAGE>
the Equipment that, as to such Equipment or accessions, do
not
cost in excess of $250,000, so long as at the time of
construction or installation of any such Equipment or
Alterations
no Event of Default exists and the value and utility of the
Leased Premises is not diminished thereby. If the cost of
any
structural Alterations, series of related structural
Alterations,
Equipment or accessions thereto is in excess of $250,000,
the
prior written approval of Landlord and Lender shall be
required,
such approval not to be unreasonably withheld, delayed or
conditioned. Tenant shall not construct upon the Land any
additional buildings without having first obtained the prior
written consent of Landlord and Lender, which consent shall,
so
long as no Event of Default has occurred, not be
unreasonably
withheld, delayed or conditioned.
(b) If Tenant makes any Alterations pursuant to
this Paragraph 13 or as required by Paragraph 12 or 17 (such
Alterations and actions being hereinafter collectively
referred
to as "Work"), whether or not Landlord's consent is
required,
then (i) the market value of the Leased Premises shall not
be
lessened by any such Work or its usefulness impaired, (ii)
all
such Work shall be performed by Tenant in a good and
workmanlike
manner, (iii) all such Work shall be expeditiously completed
in
compliance with all Legal Requirements, (iv) all such Work
shall
comply with the Insurance Requirements, (v) if any such Work
involves the replacement of Equipment or parts thereto, all
replacement Equipment or parts shall have a value and useful
life
equal to the greater of (A) the value and useful life on the
date
hereof of the Equipment being replaced or (B) the value and
useful life of the Equipment being replaced immediately
prior to
the occurrence of the event which required its replacement,
(vi) Tenant shall promptly discharge or remove all liens
filed
against any of the Leased Premises arising out of such Work,
(vii) Tenant shall procure and pay for all permits and
licenses
<PAGE>
required in connection with any such Work, (viii) all such
Work
shall be the property of Landlord and shall be subject to
this
Lease, and Tenant shall execute and deliver to Landlord any
document requested by Landlord evidencing the assignment to
Landlord of all estate, right, title and interest (other
than the
leasehold estate created hereby) of Tenant or any other
Person
thereto or therein, and (ix) Tenant shall comply, to the
extent
requested by Landlord or required by this Lease, with the
provisions of Paragraph 19(a), whether or not such Work
involves
restoration of the Leased Premises.
14. Permitted Contests. Notwithstanding any other
provision of this Lease, Tenant shall not be required to (a)
pay
any Imposition, (b) discharge or remove any lien referred to
in
Paragraph 11 or 13 or (c) take any action with respect to
any
encroachment, violation, hindrance, obstruction or
impairment
referred to in Paragraph 12(b) (such non-compliance with the
terms hereof being hereinafter referred to collectively as
"Permitted Violations"), so long as at the time of such
contest
no Event of Default exists and so long as Tenant shall
contest,
in good faith, the existence, amount or validity thereof,
the
amount of the damages caused thereby, or the extent of its
or
Landlord's liability therefor by appropriate proceedings
which
shall operate during the pendency thereof to prevent or stay
(i) the collection of, or other realization upon, the
Permitted
Violation so contested, (ii) the sale, forfeiture or loss of
any
of the Leased Premises or any Rent to satisfy or to pay any
damages caused by any Permitted Violation, (iii) any
interference
with the use or occupancy of any of the Leased Premises,
(iv) any
interference with the payment of any Rent or (v) the
cancellation
or increase in the rate of any insurance policy or a
statement by
the carrier that coverage will be denied. Tenant shall
<PAGE>
provide
Landlord security which is satisfactory, in Landlord's
reasonable
judgment, to assure that such Permitted Violation is
corrected,
including all Costs, interest and penalties that may be
incurred
or become due in connection therewith. While any
proceedings
which comply with the requirements of this Paragraph 14 are
pending and the required security is held by Landlord,
Landlord
shall not have the right to correct any Permitted Violation
thereby being contested unless Landlord is required by law
to
correct such Permitted Violation and Tenant's contest does
not
prevent or stay such requirement as to Landlord. Each such
contest shall be promptly and diligently prosecuted by
Tenant to
a final conclusion, except that Tenant, so long as the
conditions
of this Paragraph 14 are at all times complied with, has the
right to attempt to settle or compromise such contest
through
negotiations. Tenant shall pay any and all losses,
judgments,
decrees and Costs in connection with any such contest and
shall,
promptly after the final determination of such contest,
fully pay
and discharge the amounts which shall be levied, assessed,
charged or imposed or be determined to be payable therein or
in
connection therewith, together with all penalties, fines,
interest and Costs thereof or in connection therewith, and
perform all acts the performance of which shall be ordered
or
decreed as a result thereof. No such contest shall subject
Landlord to the risk of any civil or criminal liability.
15. Indemnification.
(a) Tenant shall pay, protect, indemnify, defend,
save and hold harmless Landlord, Lender and all other
Persons
described in Paragraph 30 (each an "Indemnitee") from and
against
any and all liabilities, losses, damages (including punitive
damages), penalties, Costs (including attorneys' fees and
costs),
causes of action, suits, claims, demands or judgments of any
nature whatsoever, howsoever caused, without regard to the
form
<PAGE>
of action and whether based on strict liability, negligence
or
any other theory of recovery at law or in equity, arising
from
(i) any matter pertaining to the ownership, use, non-use,
occupancy, operation, condition, design, construction,
maintenance, repair or restoration of the Leased Premises or
Adjoining Property, (ii) any casualty in any manner arising
from
the Leased Premises or Adjoining Property, whether or not
Indemnitee has or should have knowledge or notice of any
defect
or condition causing or contributing to said casualty, (iii)
any
violation by Tenant of any provision of this Lease, any
contract
or agreement to which Tenant is a party, any Legal
Requirement or
any Permitted Encumbrance or any encumbrance Tenant
consented to
or the Mortgage or Assignment or (iv) any alleged,
threatened or
actual Environmental Violation, including (A) liability for
response costs and for costs of removal and remedial action
incurred by the United States Government, any state or local
governmental unit or any other Person, or damages from
injury to
or destruction or loss of natural resources, including the
reasonable costs of assessing such injury, destruction or
loss,
incurred pursuant to Section 107 of CERCLA, or any successor
section or act or provision of any similar state or local
Law,
(B) liability for costs and expenses of abatement,
correction or
clean-up, fines, damages, response costs or penalties which
arise
from the provisions of any of the other Environmental Laws
and
(C) liability for personal injury or property damage arising
under any statutory or common-law tort theory, including
damages
assessed for the maintenance of a public or private nuisance
or
for carrying on of a dangerous activity. Notwithstanding
the
foregoing, Tenant shall not be obligated to indemnify any
Person
pursuant to this Paragraph 15 from and against any liability
to
the extent arising directly from the gross negligence or
willful
misconduct of Landlord, its agents or employees.
<PAGE>
(b) In case any action or proceeding is brought
against any Indemnitee by reason of any such claim, (i)
Tenant
may, except in the event of a conflict of interest or a
dispute
between Tenant and any such Indemnitee or during the
continuance
of an Event of Default, retain its own counsel and defend
such
action (it being understood that Landlord may at its expense
employ counsel of its choice to monitor the defense of any
such
action) and (ii) such Indemnitee shall notify Tenant to
resist or
defend such action or proceeding by retaining counsel
reasonably
satisfactory to such Indemnitee, and such Indemnitee will
cooperate and assist in the defense of such action or
proceeding
if reasonably requested so to do by Tenant. In the event of
a
conflict of interest or dispute or during the continuance of
an
Event of Default, Landlord shall have the right to select
counsel, and the cost of such counsel shall by paid by
Tenant.
(c) The obligations of Tenant under this
Paragraph 15 shall survive any termination, expiration or
rejection in bankruptcy of this Lease with respect to any
matter
that occurred, existed or arose prior to such termination,
expiration or rejection.
16. Insurance.
(a) Tenant shall maintain the following insurance
on or in connection with the Leased Premises:
(i) Insurance against physical loss or
damage to the Improvements and Equipment as provided under a
standard "All Risk" property policy including but not
limited to
flood (if the Leased Premises is in a flood zone) and
earthquake
coverage in amounts not less than the actual replacement
cost of
the Improvements and Equipment. Such policies shall contain
Replacement Cost and Agreed Amount Endorsements and shall
contain
deductibles not more than $10,000 per occurrence.
(ii) Commercial General Liability Insurance
<PAGE>
and Business Automobile Liability Insurance (including Non-
Owned
and Hired Automobile Liability) against claims for personal
and
bodily injury, death or property damage occurring on, in or
as a
result of the use of the Leased Premises, in an amount not
less
than $7,000,000 per occurrence/annual aggregate and all
other
coverage extensions that are usual and customary for
properties
of this size and type; provided, however, that Landlord
shall
have the right to require such higher limits as may be
reasonable
and customary for properties of this size and type.
(iii) Worker's compensation insurance
covering all persons employed by Tenant in connection with
any
work done on or about any of the Leased Premises for which
claims
for death, disease or bodily injury may be asserted against
Landlord, Tenant or any of the Leased Premises or, in lieu
of
such Worker's Compensation Insurance, a program of self-
insurance
complying with the rules, regulations and requirements of
the
appropriate agency of the State.
(iv) Comprehensive Boiler and Machinery
Insurance on any of the Equipment or any other equipment on
or in
the Leased Premises, in an amount not less than $5,000,000
per
accident for damage to property. Such policies shall
include at
least $5,000,000 per accident for Off-Premises Service
Interruption, Expediting Expenses, Ammonia Contamination,
and
Hazardous Materials Clean-Up Expense and may contain a
deductible
not to exceed $250,000.
(v) Business Income/Extra Expense Insurance
to include loss of rents at limits sufficient to cover 100%
of
the annual rent payable to Landlord with a period of
indemnity
not less than one year from time of loss. Such insurance
shall
name Landlord as additional insured solely with respect to
<PAGE>
Rent
payable to or for the benefit of Landlord under this Lease.
(vi) During any period in which substantial
Alterations at the Leased Premises are being undertaken,
builder's risk insurance covering the total completed value
including any "soft costs" with respect to the Improvements
being
altered or repaired (on a completed value, non-reporting
basis),
replacement cost of work performed and equipment, supplies
and
materials furnished in connection with such construction or
repair of Improvements or Equipment, together with such
"soft
cost" endorsements and such other endorsements as Landlord
may
reasonably require and general liability, worker's
compensation
and automobile liability insurance with respect to the
Improvements being constructed, altered or repaired.
(vii) Such other insurance (or other terms
with respect to any insurance required pursuant to this
Paragraph 16, including without limitation amounts of
coverage,
deductibles, form of mortgagee clause) on or in connection
with
any of the Leased Premises as Landlord or Lender may
reasonably
require, which at the time is usual and commonly obtained in
connection with properties similar in type of building size,
use
and location to the Leased Premises.
(b) The insurance required by Paragraph 16(a)
shall be written by companies which have a Best's rating of
A:X
or above and are admitted in, and approved to write
insurance
policies by, the State Insurance Department for the State.
The
insurance policies (i) shall be for such terms as Landlord
may
reasonably approve and (ii) shall be in amounts sufficient
at all
times to satisfy any coinsurance requirements thereof. The
insurance referred to in Paragraphs 16(a)(i), 16(a)(iv) and
16(a)(vi) shall name Landlord as Owner and Lender as loss
payee
and Tenant as its interest may appear. The insurance
referred to
in Paragraph 16(a)(ii) shall name Landlord and Lender as
<PAGE>
additional insureds, and the insurance referred to in
Paragraph 16(a)(v) shall name Landlord as insured and Lender
Landlord as loss payee. If said insurance or any part
thereof
shall expire, be withdrawn, become void, voidable,
unreliable or
unsafe for any reason, including a breach of any condition
thereof by Tenant or the failure or impairment of the
capital of
any insurer, or if for any other reason whatsoever said
insurance
shall become reasonably unsatisfactory to Landlord, Tenant
shall
immediately obtain new or additional insurance reasonably
satisfactory to Landlord.
(c) Each insurance policy referred to in
clauses (i), (iv), (v) and (vi) of Paragraph 16(a) shall
contain
standard non-contributory mortgagee clauses in favor of and
acceptable to Lender. Each policy required by any provision
of
Paragraph 16(a), except clause (iii) thereof, shall provide
that
it may not be canceled except after thirty (30) days' prior
notice to Landlord and Lender. Each such policy shall also
provide that any loss otherwise payable thereunder shall be
payable notwithstanding (i) any act or omission of Landlord
or
Tenant which might, absent such provision, result in a
forfeiture
of all or a part of such insurance payment, (ii) the
occupation
or use of any of the Leased Premises for purposes more
hazardous
than those permitted by the provisions of such policy, (iii)
any
foreclosure or other action or proceeding taken by Lender
pursuant to any provision of the Mortgage, Note, Assignment
or
other document evidencing or securing the Loan upon the
happening
of an event of default therein or (iv) any change in title
to or
ownership of any of the Leased Premises.
(d) Tenant shall pay as they become due all
premiums for the insurance required by Paragraph 16(a),
shall
renew or replace each policy and deliver to Landlord
evidence of
the payment of the full premium therefor or installment then
due
<PAGE>
at least thirty (30) days prior to the expiration date of
such
policy, and shall promptly deliver to Landlord all original
policies.
(e) Anything in this Paragraph 16 to the contrary
notwithstanding, any insurance which Tenant is required to
obtain
pursuant to Paragraph 16(a) may be carried under a "blanket"
or
umbrella policy or policies covering other properties or
liabilities of Tenant, provided that such "blanket" or
umbrella
policy or policies otherwise comply with the provisions of
this
Paragraph 16 and provided further that Tenant shall provide
to
Landlord a Statement of Values which shall be reviewed
annually
and amended as necessary based on Replacement Cost
Valuations.
The original or a certified copy of each such "blanket" or
umbrella policy shall promptly be delivered to Landlord.
(f) Tenant shall promptly comply with and conform
to (i) all provisions of each insurance policy required by
this
Paragraph 16 and (ii) all requirements of the insurers
thereunder
applicable to Landlord, Tenant or any of the Leased Premises
or
to the use, manner of use, occupancy, possession, operation,
maintenance, alteration or repair of any of the Leased
Premises,
even if such compliance necessitates Alterations or results
in
interference with the use or enjoyment of any of the Leased
Premises.
(g) Tenant shall not carry separate insurance
concurrent in form or contributing in the event of a
Casualty
with that required in this Paragraph 16 unless (i) Landlord
and
Lender are included therein as named insureds, with loss
payable
as provided herein, and (ii) such separate insurance
complies
with the other provisions of this Paragraph 16. Tenant
shall
immediately notify Landlord of such separate insurance and
shall
deliver to Landlord the original policies thereof.
<PAGE>
(h) All policies shall contain effective waivers
by the carrier against all claims for insurance premiums
against
Landlord and shall contain full waivers of subrogation
against
Landlord.
(i) All proceeds of any insurance required under
Paragraph 16(a) shall be payable as follows:
(i) Except for proceeds payable to a Person
other than Landlord, Tenant or Lender, all proceeds of
insurance
required under clauses (ii), (iii), (iv), (v) and (vii) of
Paragraph 16(a) and proceeds attributable to the general
liability coverage provisions of Builder's Risk insurance
under
clause (vi) of Paragraph 16(a) shall be payable to Landlord
or,
if required by the Mortgage, to Lender.
(ii) Proceeds of insurance required under
clause (i) of Paragraph 16(a) and proceeds attributable to
Builder's Risk insurance (other than its general liability
coverage provisions) under clause (vi) of Paragraph 16(a)
shall
be payable to Landlord (or Lender) and applied as set forth
in
Paragraph 17. Tenant shall apply the Net Award to
restoration of
the Leased Premises in accordance with the applicable
provisions
of this Lease.
17. Casualty and Condemnation.
(a) If any Casualty occurs to the Leased
Premises, Tenant shall give Landlord and Lender immediate
notice
thereof. Landlord and Lender are hereby authorized to
adjust,
collect and compromise, in their discretion and upon notice
to
Tenant (except that no notice to Tenant shall be required if
an
Event of Default has occurred and is continuing), all claims
under any of the insurance policies required by Paragraph
16(a)
(except public liability insurance claims payable to a
Person
other than Tenant, Landlord or Lender) and to execute and
deliver
on behalf of Tenant all necessary proofs of loss, receipts,
vouchers and releases required by the insurers; provided,
<PAGE>
however, that so long as no Event of Default has occurred,
Landlord and Lender shall not adjust or compromise any such
claim
without the prior written consent of Tenant, which consent
shall
not be unreasonably withheld. Provided that no Event of
Default
has occurred and is continuing, Tenant shall be entitled to
participate with Landlord and Lender in any adjustment,
collection and compromise of the Net Award payable in
connection
with a Casualty. Tenant agrees to sign, upon the request of
Landlord and Lender, all such proofs of loss, receipts,
vouchers
and releases. If Landlord or Lender so requests, Tenant
shall
adjust, collect and compromise any and all such claims, and
Landlord and Lender shall have the right to join with Tenant
therein. Any adjustment, settlement or compromise of any
such
claim shall be subject to the prior written approval of
Landlord
and Lender, and Landlord and Lender shall have the right to
prosecute or contest, or to require Tenant to prosecute or
contest, any such claim, adjustment, settlement or
compromise.
Each insurer is hereby authorized and directed to make
payment
under said policies, directly to Landlord or, if required by
the
Mortgage, to Lender instead of to Landlord and Tenant
jointly,
and Tenant hereby appoints each of Landlord and Lender as
Tenant's attorneys-in-fact to endorse any draft therefor.
The
rights of Landlord under this Paragraph 17(a) shall be
extended
to Lender if and to the extent that any Mortgage so
provides.
(b) Tenant, immediately upon receiving a
Condemnation Notice, shall notify Landlord and Lender
thereof.
Landlord and Lender are authorized to collect, settle and
compromise, in their discretion (and, if no Event of Default
exists, upon notice to Tenant), the amount of any Net Award.
Provided that no Event of Default has occurred and is
continuing,
Tenant shall be entitled to participate with Landlord and
Lender
in any Condemnation proceeding or negotiations under threat
thereof and to contest the Condemnation or the amount of the
Net
<PAGE>
Award therefor. No agreement with any condemnor in
settlement or
under threat of any Condemnation shall be made by Tenant
without
the written consent of Landlord and Lender. Subject to the
provisions of this Paragraph 17(b), Tenant hereby
irrevocably
assigns to Landlord any award or payment to which Tenant is
or
may be entitled by reason of any Condemnation, whether the
same
shall be paid or payable for Tenant's leasehold interest
hereunder or otherwise; but nothing in this Lease shall
impair
Tenant's right to any award or payment on account of
Tenant's
trade fixtures, equipment or other tangible property which
is not
part of the Equipment, moving expenses or loss of business,
if
available, to the extent that and so long as (i) Tenant
shall
have the right to make, and does make, a separate claim
therefor
against the condemnor and (ii) such claim does not in any
way
reduce either the amount of the award otherwise payable to
Landlord for the Condemnation of Landlord's fee interest in
the
Leased Premises or the amount of the award (if any)
otherwise
payable for the Condemnation of Tenant's leasehold interest
hereunder. The rights of Landlord under this Paragraph
17(b)
shall also be extended to Landlord if and to the extent that
any
Mortgage so provides.
(c) If any Partial Casualty (whether or not
insured against) or Partial Condemnation shall occur, this
Lease
shall continue, notwithstanding such event, and there shall
be no
abatement or reduction of any Monetary Obligations.
Promptly
after such Partial Casualty or Partial Condemnation, Tenant,
as
required in Paragraphs 12(a) and 13(b), shall commence and
diligently continue to restore the Leased Premises as nearly
as
possible to their value, condition and character immediately
prior to such event (assuming the Leased Premises to have
been in
the condition required by this Lease). So long as no Event
<PAGE>
of
Default exists, any Net Award up to and including $250,000
shall
be reasonably paid by Landlord to Tenant and Tenant shall
restore
the Leased Premises in accordance with the requirements of
Paragraphs 12(a) and 13(b) of this Lease. Any Net Award in
excess of $250,000 shall (unless such Casualty resulting in
the
Net Award is a Termination Event) be made available by
Landlord
(or Lender, if required by the terms of any Mortgage) to
Tenant
for the restoration of any of the Leased Premises pursuant
to and
in accordance with the provisions of Paragraph 19 hereof. If
any
Casualty or Condemnation which is not a Partial Casualty or
Partial Condemnation shall occur, Tenant shall comply with
the
terms and conditions of Paragraph 18.
18. Termination Events.
(a) If (i) the entire Leased Premises shall be
taken by a Condemnation or (ii) any substantial portion of
the
Leased Premises shall be taken by a Condemnation or all or
any
substantial portion of the Leased Premises shall be damaged
or
destroyed by a Casualty and, in such case, Tenant certifies
and
covenants to Landlord that it will forever abandon
operations at
the Leased Premises (each of the events described in the
above
clauses (i) and (ii) shall hereinafter be referred to as a
"Termination Event"), then (x) in the case of (i) above,
Tenant
shall be obligated, within thirty (30) days after Tenant
receives
a Condemnation Notice and (y) in the case of (ii) above,
Tenant
shall have the option, within thirty (30) days after Tenant
receives a Condemnation Notice or thirty (30) days after the
Casualty, as the case may be, to give to Landlord written
notice
of Tenant's option to terminate this Lease (a "Termination
Notice") in the form described in Paragraph 18(b).
(b) A Termination Notice shall contain (i) notice
of Tenant's intention to terminate this Lease on the first
<PAGE>
Basic
Rent Payment Date which occurs at least sixty (60) days
after the
Fair Market Value Date (the "Termination Date"), (ii) a
binding
and irrevocable offer of Tenant to pay to Landlord the
Termination Amount and (iii) if the Termination Event is an
event
described in Paragraph 18(a)(ii), the certification and
covenants
described therein and a certified resolution of the Board of
Directors of Tenant authorizing the same. Promptly upon the
delivery to Landlord of a Termination Notice, Landlord and
Tenant
shall commence to determine the Fair Market Value.
(c) If Landlord shall reject such offer to
terminate this Lease by written notice to Tenant (a
"Rejection"),
which Rejection shall contain the written consent of Lender,
not
later than thirty (30) days following the Fair Market Value
Date,
then this Lease shall terminate on the Termination Date;
provided
that, if Tenant has not satisfied all Monetary Obligations
and
all other obligations and liabilities under this Lease which
have
arisen on or prior to the Termination Date (collectively,
"Remaining Obligations") on the Termination Date, then
Landlord
may, at its option, extend the date on which this Lease may
terminate to a date which is no later than the first Basic
Rent
Payment Date after the Termination Date on which Tenant has
satisfied all Remaining Obligations. Upon such termination
(i) all obligations of Tenant hereunder shall terminate
except
for any Surviving Obligations, (ii) Tenant shall immediately
vacate and shall have no further right, title or interest in
or
to any of the Leased Premises and (iii) the Net Award shall
be
retained by Landlord. Notwithstanding anything to the
contrary
hereinabove contained, if Tenant shall have received a
Rejection
and, on the date when this Lease would otherwise terminate
as
provided above, Landlord shall not have received the full
amount
of the Net Award payable by reason of the applicable
Termination
<PAGE>
Event, then the date on which this Lease is to terminate
automatically shall be extended to the first Basic Rent
Payment
Date after the receipt by Landlord of the full amount of the
Net
Award; provided that, if Tenant has not satisfied all
Remaining
Obligations on such date, then Landlord may, at its option,
extend the date on which this Lease may terminate to a date
which
is no later than the first Basic Rent Payment Date after
such
date on which Tenant has satisfied all such Remaining
Obligations.
(d) Unless Tenant shall have received a Rejection
not later than the thirtieth (30th) day following the Fair
Market
Value Date, Landlord shall be conclusively presumed to have
accepted such offer. If such offer is accepted by Landlord
then,
on the Termination Date, Tenant shall pay to Landlord the
Termination Amount and all Remaining Obligations and, if
requested by Tenant, Landlord shall (i) convey to Tenant the
Leased Premises or the remaining portion thereof, if any,
and
(ii) pay to or assign to Tenant Landlord's entire interest
in and
to the Net Award, all in accordance with Paragraph 20.
19. Restoration.
(a) Landlord (or Lender if required by any
Mortgage) shall hold any Net Award in excess of $250,000 in
a
fund (the "Restoration Fund") and disburse amounts from the
Restoration Fund only in accordance with the following
conditions:
(i) prior to commencement of restoration,
(A) the architects, contracts, contractors, plans and
specifications for the restoration shall have been approved
by
Landlord, (B) Landlord and Lender shall be provided with
mechanics' lien insurance (if available) and acceptable
performance and payment bonds which insure satisfactory
completion of and payment for the restoration, are in an
amount
and form and have a surety acceptable to Landlord, and name
Landlord and Lender as additional dual obligees, and
(C) appropriate waivers of mechanics' and materialmen's
liens
shall have been filed;
<PAGE>
(ii) at the time of any disbursement, no
Event of Default shall exist and no mechanics' or
materialmen's
liens shall have been filed against any of the Leased
Premises
and remain undischarged;
(iii) disbursements shall be made from time
to time in an amount not exceeding the cost of the work
completed
since the last disbursement, upon receipt of (A)
satisfactory
evidence, including architects' certificates, of the stage
of
completion, the estimated total cost of completion and
performance of the work to date in a good and workmanlike
manner
in accordance with the contracts, plans and specifications,
(B) waivers of liens, (C) contractors' and subcontractors'
sworn
statements as to completed work and the cost thereof for
which
payment is requested, (D) a satisfactory bringdown of title
insurance and (E) other evidence of cost and payment so that
Landlord can verify that the amounts disbursed from time to
time
are represented by work that is completed, in place and free
and
clear of mechanics' and materialmen's lien claims;
(iv) each request for disbursement shall be
accompanied by a certificate of Tenant, signed by the
president
or a vice president of Tenant, describing the work for which
payment is requested, stating the cost incurred in
connection
therewith, stating that Tenant has not previously received
payment for such work and, upon completion of the work, also
stating that the work has been fully completed and complies
with
the applicable requirements of this Lease;
(v) Landlord may retain ten percent (10%) of
the Restoration Fund until the restoration is fully
completed;
(vi) if the Restoration Fund is held by
Landlord, the Restoration Fund shall not be commingled with
Landlord's other funds and shall bear interest at a rate
agreed
to by Landlord and Tenant; and
<PAGE>
(vii) such other reasonable conditions as
Landlord or Lender may impose.
(b) Prior to commencement of restoration and at
any time during restoration, if the estimated cost of
completing
the restoration work free and clear of all liens, as
determined
by Landlord, exceeds the amount of the Net Award available
for
such restoration, the amount of such excess shall, upon
demand by
Landlord, be paid by Tenant to Landlord to be added to the
Restoration Fund. Any sum so added by Tenant which remains
in
the Restoration Fund upon completion of restoration shall be
refunded to Tenant. For purposes of determining the source
of
funds with respect to the disposition of funds remaining
after
the completion of restoration, the Net Award shall be
deemed to
be disbursed prior to any amount added by Tenant.
(c) If any sum remains in the Restoration Fund
after completion of the restoration and any refund to Tenant
pursuant to Paragraph 19(b), such sum (the "Remaining Sum")
shall
be retained by Landlord or, if required by a Note or
Mortgage,
paid by Landlord to a Lender. If the Remaining Sum is (i)
retained by Landlord, each installment of Basic Rent payable
on
or after the Retention Date shall be reduced by a fraction,
the
denominator of which shall be the total amount of all Basic
Rent
due from such date to and including the last Basic Rent
Payment
Date for the then existing Term and the numerator of which
shall
be the Remaining Sum, or (ii) paid to Lender, then each
installment of Basic Rent thereafter payable shall be
reduced in
the same amount as payments are reduced under any Note if
the
Loan corresponding to such Note is reamortized to reflect
such
payment, in each case until such Remaining Sum has been
applied
in full or until the Term has expired, whichever occurs
first.
Upon the expiration of the Term, any portion of the
<PAGE>
Remaining Sum
which has not been so applied shall be retained by Landlord.
20. Procedures Upon Purchase.
(a) If the Leased Premises is purchased by Tenant
pursuant to any provision of this Lease, Landlord need not
convey
any better title thereto than that which was conveyed to
Landlord, and Tenant shall accept such title, subject,
however,
to the Permitted Encumbrances and to all other liens,
exceptions
and restrictions on, against or relating to any of the
Leased
Premises and to all applicable Laws, but free of the lien of
and
security interest created by any Mortgage or Assignment and
liens, exceptions and restrictions on, against or relating
to the
Leased Premises which have been created by or resulted
solely
from acts of Landlord after the date of this Lease, unless
the
same are Permitted Encumbrances or customary utility
easements
benefiting the Leased Premises or were created with the
concurrence of Tenant or as a result of a default by Tenant
under
this Lease.
(b) Upon the date fixed for any such purchase of
the Leased Premises pursuant to any provision of this Lease
(any
such date the "Purchase Date"), Tenant shall pay to
Landlord, or
to any Person to whom Landlord directs payment, the Relevant
Amount therefor specified herein, in Federal Funds, less any
credit of the Net Award received and retained by Landlord or
a
Lender allowed against the Relevant Amount, and Landlord
shall
deliver to Tenant (i) a special warranty deed which
describes the
premises being conveyed and conveys the title thereto as
provided
in Paragraph 20(a), (ii) such other instruments as shall be
necessary to transfer to Tenant or its designee any other
property (or rights to any Net Award not yet received by
Landlord
or a Lender) then required to be sold by Landlord to Tenant
pursuant to this Lease and (iii) any Net Award received by
Landlord, not credited to Tenant against the Relevant Amount
and
<PAGE>
required to be delivered by Landlord to Tenant pursuant to
this
Lease; provided, that if any Monetary Obligations remain
outstanding on such date, then Landlord may deduct from the
Net
Award the amount of such Monetary Obligations; and further
provided, that if any event has occurred which, in
Landlord's
reasonable judgment, is likely to subject any Indemnitee to
any
liability which Tenant is required to indemnify against
pursuant
to Paragraph 15, then an amount shall be deducted from the
Net
Award which, in Landlord's reasonable judgment, is
sufficient to
satisfy such liability, which amount shall be deposited in
an
escrow account with a financial institution reasonably
satisfactory to Landlord and Tenant pending resolution of
such
matter. If on the Purchase Date any Monetary Obligations
remain
outstanding and no Net Award is payable to Tenant by
Landlord or
the amount of such Net Award is less than the amount of the
Monetary Obligations, then Tenant shall pay to Landlord on
the
Purchase Date the amount of such Monetary Obligations. Upon
the
completion of such purchase, this Lease and all obligations
and
liabilities of Tenant hereunder shall terminate, except any
Surviving Obligations.
(c) If the completion of such purchase shall be
delayed after (i) the Termination Date, in the event of a
purchase pursuant to Paragraph 18 or, (ii) the date
scheduled for
such purchase, in the event of a purchase under any other
provision of this Lease then (x) Rent shall continue to be
due
and payable until completion of such purchase and (y) at
Landlord's sole option, Fair Market Value shall be
redetermined
and the Relevant Amount payable by Tenant pursuant to the
applicable provision of this Lease shall be adjusted to
reflect
such redetermination.
(d) Any prepaid Monetary Obligations paid to
Landlord shall be prorated as of the Purchase Date, and the
prorated unapplied balance shall be deducted from the
<PAGE>
Relevant
Amount due to Landlord. Apportionment of any Impositions
shall
be made upon any such purchase.
21. Assignment and Subletting; Prohibition against
Leasehold Financing.
(a) Except as provided in Paragraph 1(a) of
Exhibit "E", Tenant may not assign this Lease, voluntarily
or
involuntarily, whether by operation of law or otherwise, or
sublet any of the Leased Premises at any time to any other
Person
without the prior written consent of Landlord, which
consent, in
the event of an assignment, may be withheld by Landlord for
any
or no reason.
(b) If Tenant assigns all its rights and interest
under this Lease, the assignee under such assignment shall
expressly assume all the obligations of Tenant hereunder,
actual
or contingent, including obligations of Tenant which may
have
arisen on or prior to the date of such assignment, by a
written
instrument delivered to Landlord at the time of such
assignment.
Each sublease of any of the Leased Premises shall be subject
and
subordinate to the provisions of this Lease. No assignment
or
sublease shall affect or reduce any of the obligations of
Tenant
hereunder, and all such obligations shall continue in full
force
and effect as obligations of a principal and not as
obligations
of a guarantor, as if no assignment or sublease had been
made.
No assignment or sublease shall impose any additional
obligations
on Landlord under this Lease.
(c) Tenant shall, within ten (10) days after the
execution and delivery of any assignment or sublease
consented to
by Landlord, deliver a duplicate original copy thereof to
Landlord which, in the event of an assignment, shall be in
recordable form.
(d) As security for performance of its
<PAGE>
obligations under this Lease, Tenant hereby grants, conveys
and
assigns to Landlord all right, title and interest of Tenant
in
and to all subleases now in existence or hereafter entered
into
for any or all of the Leased Premises, any and all
extensions,
modifications and renewals thereof and all rents, issues and
profits therefrom. Landlord hereby grants to Tenant a
license to
collect and enjoy all rents and other sums of money payable
under
any sublease of any of the Leased Premises; provided,
however,
that Landlord shall have the absolute right at any time
following
the occurrence of an Event of Default to revoke said license
and
to collect such rents and sums of money and to retain the
same.
Tenant shall not consent to, cause or allow any modification
or
alteration of any of the terms, conditions or covenants of
any of
the subleases or the termination thereof, without the prior
written approval of Landlord, which consent shall not be
unreasonably withheld, nor shall Tenant accept any rents
more
than thirty (30) days in advance of the accrual thereof nor
do
nor permit anything to be done, the doing of which, nor omit
or
refrain from doing anything, the omission of which, will or
could
be a breach of or default in the terms of any of the
subleases.
(e) Tenant shall not have the power to mortgage,
pledge or otherwise encumber its interest under this Lease
or any
sublease of the Leased Premises, and any such mortgage,
pledge or
encumbrance made in violation of this Paragraph 21 shall be
void
and of no force and effect.
(f) Subject to the provisions of Paragraph 35 and
36 below, Landlord may sell or transfer the Leased Premises
at
any time without Tenant's consent to any third party (each a
"Third Party Purchaser"). In the event of any such
transfer,
<PAGE>
Tenant shall attorn to any Third Party Purchaser as Landlord
so
long as such Third Party Purchaser and Landlord notify
Tenant in
writing of such transfer. At the request of Landlord,
Tenant
will execute such documents confirming the agreement
referred to
above and such other agreements as Landlord may reasonably
request, provided that such agreements do not increase the
liabilities and obligations of Tenant hereunder.
22. Events of Default.
(a) The occurrence of any one or more of the
following (after expiration of any applicable cure period as
provided in Paragraph 22(b)) shall, at the sole option of
Landlord, constitute an "Event of Default" under this Lease:
(i) a failure by Tenant to make any payment
of any Monetary Obligation, regardless of the reason for
such
failure;
(ii) a failure by Tenant duly to perform and
observe, or a violation or breach of, any other provision
hereof
not otherwise specifically mentioned in this Paragraph
22(a);
(iii) any representation or warranty made by
Tenant herein or in any certificate, demand or request made
pursuant hereto proves to be incorrect, now or hereafter, in
any
material respect;
(iv) a default beyond any applicable cure
period or at maturity by Tenant in any payment of principal
or
interest on any obligations for borrowed money having an
original
principal balance of $3,000,000 or more in the aggregate, or
in
the performance of any other provision contained in any
instrument under which any such obligation is created or
secured
(including the breach of any covenant thereunder), (x) if
such
payment is a payment at maturity or a final payment, or (y)
if an
effect of such default is to cause, or permit any Person to
cause, such obligation to become due prior to its stated
maturity;
<PAGE>
(v) a default by Tenant beyond any
applicable cure period in the payment of rent under, or in
the
performance of any other material provision of, any other
lease
or leases that have, in the aggregate, rental obligations
over
the terms thereof of $1,000,000 or more;
(vi) a final, non-appealable judgment or
judgments for the payment of money in excess of $1,000,000
in the
aggregate shall be rendered against Tenant and the same
shall
remain undischarged for a period of sixty (60) consecutive
days;
(vii) The breach of any Covenant shall
occur;
(viii) Tenant shall (A) voluntarily be
adjudicated a bankrupt or insolvent, (B) seek or consent to
the
appointment of a receiver or trustee for itself or for the
Leased
Premises, (C) file a petition seeking relief under the
bankruptcy
or other similar laws of the United States, any state or any
jurisdiction, (D) make a general assignment for the benefit
of
creditors, or (E) be unable to pay its debts as they mature;
(ix) a court shall enter an order, judgment
or decree appointing, without the consent of Tenant, a
receiver
or trustee for it or for any of the Leased Premises or
approving
a petition filed against Tenant which seeks relief under the
bankruptcy or other similar laws of the United States, any
state
or any jurisdiction, and such order, judgment or decree
shall
remain undischarged or unstayed sixty (60) days after it is
entered;
(x) the Leased Premises shall have been
vacated or abandoned;
(xi) Tenant shall be liquidated or dissolved
or shall begin proceedings towards its liquidation or
dissolution;
(xii) the estate or interest of Tenant in
any of the Leased Premises shall be levied upon or attached
<PAGE>
in
any proceeding and such estate or interest is about to be
sold or
transferred or such process shall not be vacated or
discharged
within sixty (60) days after it is made;
(xiii) a failure by Tenant to perform or
observe, or a violation or breach of, or a misrepresentation
by
Tenant under any provision of any Assignment or any other
document between Tenant and Lender, if such failure,
violation,
breach or misrepresentation gives rise to a default beyond
any
applicable cure period with respect to any Loan;
(xiv) a failure by Tenant to maintain in
effect any license or permit necessary for the use,
occupancy or
operation of the Leased Premises;
(xv) Tenant shall sell or transfer or enter
into an agreement to sell or transfer all or substantially
all of
its assets; or
(xvi) a default shall occur under any Lease
Collateral Document.
(b) No notice or cure period shall be required in
any one or more of the following events: (A) the occurrence
of
an Event of Default under clause (i) (except as otherwise
set
forth below), (iii), (iv), (v), (vi), (vii) (except as
otherwise
set forth below), (viii), (ix), (x), (xi), (xii), (xiii),
(xiv)
or (xv) of Paragraph 22(a); (B) the default consists of a
failure to pay Basic Rent, a failure to provide any
insurance
required by Paragraph 16 or an assignment or sublease
entered
into in violation of Paragraph 21; or (C) the default is
such
that any delay in the exercise of a remedy by Landlord could
reasonably be expected to cause irreparable harm to
Landlord. If
the default consists of the failure to pay any Monetary
Obligation under clause (i) of Paragraph 22(a), the
applicable
cure period shall be three (3) days from the date on which
notice
<PAGE>
is given, but Landlord shall not be obligated to give notice
of,
or allow any cure period for, any such default more than
twice
within any Lease Year. If the default consists of a default
under clause (ii) of Paragraph 22(a), other than the events
specified in clauses (B) and (C) of the first sentence of
this
Paragraph 22(b), the applicable cure period shall be thirty
(30)
days from the date on which notice is given or, if the
default
cannot be cured within such thirty (30) day period and delay
in
the exercise of a remedy would not (in Landlord's reasonable
judgment) cause any material adverse harm to Landlord or any
of
the Leased Premises, the cure period shall be extended for
the
period required to cure the default (but such cure period,
including any extension, shall not in the aggregate exceed
sixty
(60) days), provided that Tenant shall commence to cure the
default within the said thirty-day period and shall
actively,
diligently and in good faith proceed with and continue the
curing
of the default until it shall be fully cured. If the
default
consists of a default under clauses (c), (g) or, if so long
as
the Indebtedness incurred is less than $50,000 in a fiscal
year
of Tenant, (j) of Section 1 of Exhibit E hereto, the
applicable
cure period shall be thirty (30) days from the date on which
notice is given to Lender.
23. Remedies and Damages Upon Default.
(a) If an Event of Default shall have occurred
and is continuing, Landlord shall have the right, at its
sole
option, then or at any time thereafter, to exercise its
remedies
and to collect damages from Tenant in accordance with this
Paragraph 23, subject in all events to applicable Law,
without
demand upon or notice to Tenant except as otherwise provided
in
Paragraph 22(b) and this Paragraph 23.
(i) Landlord may give Tenant notice of
Landlord's intention to terminate this Lease on a date
<PAGE>
specified
in such notice. Upon such date, this Lease, the estate
hereby
granted and all rights of Tenant hereunder shall expire and
terminate. Upon such termination, Tenant shall immediately
surrender and deliver possession of the Leased Premises to
Landlord in accordance with Paragraph 26. If Tenant does
not so
surrender and deliver possession of the Leased Premises,
Landlord
may re-enter and repossess the Leased Premises, with or
without
legal process, by peaceably entering the Leased Premises and
changing locks or by summary proceedings, ejectment or any
other
lawful means or procedure. Upon or at any time after taking
possession of the Leased Premises, Landlord may, by
peaceable
means or legal process, remove any Persons or property
therefrom.
Landlord shall be under no liability for or by reason of any
such
entry, repossession or removal. Notwithstanding such entry
or
repossession, Landlord may (A) exercise the remedy set forth
in
and collect the damages permitted by Paragraph 23(a)(iii) or
(B) collect the damages set forth in Paragraph 23(b)(i) or
23(b)(ii).
(ii) After repossession of the Leased
Premises pursuant to clause (i) above, Landlord shall have
the
right to relet any of the Leased Premises to such tenant or
tenants, for such term or terms, for such rent, on such
conditions and for such uses as Landlord in its sole
discretion
may determine, and collect and receive any rents payable by
reason of such reletting. Landlord may make such
Alterations in
connection with such reletting as it may deem advisable in
its
sole discretion. Notwithstanding any such reletting,
Landlord
may collect the damages set forth in Paragraph 23(b)(ii).
(iii) Landlord may, upon notice to Tenant,
require Tenant to make an irrevocable offer to terminate
this
Lease upon payment to Landlord of an amount (the "Default
Termination Amount") specified in the next sentence. The
"Default Termination Amount" shall be the greatest of (A)
the
Fair Market Value of the Leased Premises, (B) the sum of the
<PAGE>
Acquisition Cost and Prepayment Premium which Landlord will
be
required to pay in prepaying any Loan with proceeds of the
Default Termination Amount or (C) an amount equal to the
Present
Value of the entire Basic Rent from the date of such
purchase to
the date on which the Term would expire, assuming that the
Term
has been extended for all extension periods, if any,
provided for
in this Lease. Upon such notice to Tenant, Tenant shall be
deemed to have made such offer and shall, if requested by
Landlord, within ten (10) days following such request
deposit
with Landlord as payment against the Default Termination
Amount
the amount described in (B) above and Landlord and Tenant
shall
promptly commence to determine Fair Market Value. Within
thirty
(30) days after the Fair Market Value Date, Landlord shall
accept
or reject such offer. If Landlord accepts such offer then,
on
the tenth (10th) business day after such acceptance, Tenant
shall
pay to Landlord the Default Termination Amount and, at the
request of Tenant, Landlord will convey the Leased Premises
to
Tenant or its designee in accordance with Paragraph 20. Any
rejection by Landlord of such offer shall have no effect on
any
other remedy Landlord may have under this Lease.
(iv) Landlord may declare by notice to
Tenant the entire Basic Rent (in the amount of Basic Rent
then in
effect) for the remainder of the then current Term to be
immediately due and payable. Tenant shall immediately pay
to
Landlord all such Basic Rent discounted to its Present
Value, all
accrued Rent then due and unpaid, all other Monetary
Obligations
which are then due and unpaid and all Monetary Obligations
which
arise or become due by reason of such Event of Default
(including
any Costs of Landlord). Upon receipt by Landlord of all
such
accelerated Basic Rent and Monetary Obligations, this Lease
shall
<PAGE>
remain in full force and effect and Tenant shall have the
right
to possession of the Leased Premises from the date of such
receipt by Landlord to the end of the Term, and subject to
all
the provisions of this Lease, including the obligation to
pay all
increases in Basic Rent and all Monetary Obligations that
subsequently become due, except that (A) no Basic Rent which
has
been prepaid hereunder shall be due thereafter during the
said
Term, (B) Tenant shall have no option to extend or renew the
Term
and (C) Tenant shall have no further rights under Paragraph
35 or
under Paragraph 36.
(b) The following constitute damages to which
Landlord shall be entitled if Landlord exercises its
remedies
under Paragraph 23(a)(i) or 23(a)(ii):
(i) If Landlord exercises its remedy under
Paragraph 23(a)(i) but not its remedy under Paragraph
23(a)(ii)
(or attempts to exercise such remedy and is unsuccessful in
reletting the Leased Premises) then, upon written demand
from
Landlord, Tenant shall pay to Landlord, as liquidated and
agreed
final damages for Tenant's default and in lieu of all
current
damages beyond the date of such demand (it being agreed that
it
would be impracticable or extremely difficult to fix the
actual
damages), an amount equal to the Present Value of the
excess, if
any, of (A) all Basic Rent from the date of such demand to
the
date on which the Term is scheduled to expire hereunder in
the
absence of any earlier termination, re-entry or repossession
over
(B) the then fair market rental value of the Leased Premises
for
the same period. Tenant shall also pay to Landlord all of
Landlord's Costs in connection with the repossession of the
Leased Premises and any attempted reletting thereof,
including
all brokerage commissions, legal expenses attorneys' fees,
employees' expenses, costs of Alterations and expenses and
preparation for reletting.
<PAGE>
(ii) If Landlord exercises its remedy under
Paragraph 23(a)(i) or its remedies under Paragraph 23(a)(i)
and
23(a)(ii), then Tenant shall, until the end of what would
have
been the Term in the absence of the termination of the
Lease, and
whether or not any of the Leased Premises shall have been
relet,
be liable to Landlord for, and shall pay to Landlord, as
liquidated and agreed current damages all Monetary
Obligations
which would be payable under this Lease by Tenant in the
absence
of such termination less the net proceeds, if any, of any
reletting pursuant to Paragraph 23(a)(ii), after deducting
from
such proceeds all of Landlord's Costs (including the items
listed
in the last sentence of Paragraph 23(b)(i) hereof) incurred
in
connection with such repossessing and reletting; provided,
that
if Landlord has not relet the Leased Premises, such Costs of
Landlord shall be considered to be Monetary Obligations
payable
by Tenant. Tenant shall be and remain liable for all sums
aforesaid, and Landlord may recover such damages from Tenant
and
institute and maintain successive actions or legal
proceedings
against Tenant for the recovery of such damages. Nothing
herein
contained shall be deemed to require Landlord to wait to
begin
such action or other legal proceedings until the date when
the
Term would have expired by its own terms had there been no
such
Event of Default.
(c) Landlord shall have the right to exercise its
remedies under any one or more of the Lease Collateral
Documents.
(d) Notwithstanding anything to the contrary
herein contained, in lieu of or in addition to any of the
foregoing remedies and damages, Landlord may exercise any
remedies and collect any damages available to it at law or
in
equity. If Landlord is unable to obtain full satisfaction
pursuant to the exercise of any remedy, it may pursue any
<PAGE>
other
remedy which it has hereunder or at law or in equity.
(e) If any Law shall validly limit the amount of
any damages provided for herein to an amount which is less
than
the amount agreed to herein, Landlord shall be entitled to
the
maximum amount available under such Law.
(f) No termination of this Lease, repossession or
reletting of the Leased Premises, exercise of any remedy or
collection of any damages pursuant to this Paragraph 23
shall
relieve Tenant of any Surviving Obligations.
(g) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF
LANDLORD HEREUNDER, LANDLORD AND TENANT WAIVE ANY RIGHT TO A
TRIAL BY JURY.
(h) Upon the occurrence of any Event of Default,
Landlord shall have the right (but no obligation) to perform
any
act required of Tenant hereunder and, if performance of such
act
requires that Landlord enter the Leased Premises, Landlord
may
enter the Leased Premises for such purpose.
(i) No failure of Landlord (i) to insist at any
time upon the strict performance of any provision of this
Lease
or (ii) to exercise any option, right, power or remedy
contained
in this Lease shall be construed as a waiver, modification
or
relinquishment thereof. A receipt by Landlord of any sum in
satisfaction of any Monetary Obligation with knowledge of
the
breach of any provision hereof shall not be deemed a waiver
of
such breach, and no waiver by Landlord of any provision
hereof
shall be deemed to have been made unless expressed in a
writing
signed by Landlord.
(j) Tenant hereby waives and surrenders, for
itself and all those claiming under it, including creditors
of
all kinds, (i) any right and privilege which it or any of
them
may have under any present or future Law to redeem any of
the
<PAGE>
Leased Premises or to have a continuance of this Lease after
termination of this Lease or of Tenant's right of occupancy
or
possession pursuant to any court order or any provision
hereof,
and (ii) the benefits of any present or future Law which
exempts
property from liability for debt or for distress for rent.
(k) Except as otherwise provided herein, all
remedies are cumulative and concurrent and no remedy is
exclusive
of any other remedy. Each remedy may be exercised at any
time an
Event of Default has occurred and is continuing and may be
exercised from time to time. No remedy shall be exhausted
by any
exercise thereof.
24. Notices. All notices, demands, requests,
consents, approvals, offers, statements and other
instruments or
communications required or permitted to be given pursuant to
the
provisions of this Lease shall be in writing and shall be
deemed
to have been given and received for all purposes when
delivered
in person or by Federal Express or other reliable 24-hour
delivery service or five (5) business days after being
deposited
in the United States mail, by registered or certified mail,
return receipt requested, postage prepaid, addressed to the
other
party at its address stated above or when delivery is
refused. A
copy of any notice given by Tenant to Landlord shall
simultaneously be given by Tenant to Reed Smith Shaw &
McClay,
2500 One Liberty Place, Philadelphia, PA 19103, Attention:
Chairman, Real Estate Department. A copy of any notice
given by
Landlord to Tenant shall simultaneously be given by Landlord
to
Dinse, Erdmann, Knapp & McAndrew, P.C., 209 Battery Street,
Burlington, Vermont 05402-0988, Attention: Austin D. Hart,
Esq.
For the purposes of this Paragraph, any party may substitute
another address stated above (or substituted by a previous
notice) for its address by giving fifteen (15) days' notice
of
the new address to the other party, in the manner provided
above.
<PAGE>
25. Estoppel Certificate. At any time upon not less
than ten (10) days' prior written request by either Landlord
or
Tenant (the "Requesting Party") to the other party (the
"Responding Party"), the Responding Party shall deliver to
the
Requesting Party a statement in writing, executed by an
authorized officer of the Responding Party, certifying (a)
that,
except as otherwise specified, this Lease is unmodified and
in
full force and effect, (b) the dates to which Basic Rent,
Additional Rent and all other Monetary Obligations have been
paid, (c) that, to the knowledge of the signer of such
certificate and except as otherwise specified, no default by
either Landlord or Tenant exists hereunder, (d) such other
matters as the Requesting Party may reasonably request, and
(e) if Tenant is the Responding Party that, except as
otherwise
specified, there are no proceedings pending or, to the
knowledge
of the signer, threatened, against Tenant before or by any
court
or administrative agency which, if adversely decided, would
materially and adversely affect the financial condition and
operations of Tenant. Any such statements by the Responding
Party may be relied upon by the Requesting Party, any Person
whom
the Requesting Party notifies the Responding Party in its
request
for the statement is an intended recipient or beneficiary of
the
statement, any Lender or their assignees and by any
prospective
purchaser or mortgagee of any of the Leased Premises. Any
statement required under this Paragraph 25 and delivered by
Tenant shall state that, in the opinion of each person
signing
the same, he has made such examination or investigation as
is
necessary to enable him to express an informed opinion as to
the
subject matter of such statement, and shall briefly state
the
nature of such examination or investigation.
26. Surrender. Upon the expiration or earlier
termination of this Lease, Tenant shall peaceably leave and
surrender the Leased Premises to Landlord in the same
condition
in which the Leased Premises was at the commencement of this
Lease, except as repaired, rebuilt, restored, altered,
replaced
<PAGE>
or added to as permitted or required by any provision of
this
Lease, and except for ordinary wear and tear. Upon such
surrender, Tenant shall (a) remove from the Leased Premises
all
property which is owned by Tenant or third parties other
than
Landlord and (b) repair any damage caused by such removal.
Property not so removed shall become the property of
Landlord,
and Landlord may thereafter cause such property to be
removed
from the Leased Premises. The cost of removing and
disposing of
such property and repairing any damage to any of the Leased
Premises caused by such removal shall be paid by Tenant to
Landlord upon demand. Landlord shall not in any manner or
to any
extent be obligated to reimburse Tenant for any such
property
which becomes the property of Landlord pursuant to this
Paragraph 26.
27. No Merger of Title. There shall be no merger of
the leasehold estate created by this Lease with the fee
estate in
any of the Leased Premises by reason of the fact that the
same
Person may acquire or hold or own, directly or indirectly,
(a) the leasehold estate created hereby or any part thereof
or
interest therein and (b) the fee estate in any of the Leased
Premises or any part thereof or interest therein, unless and
until all Persons having any interest in the interests
described
in (a) and (b) above which are sought to be merged shall
join in
a written instrument effecting such merger and shall duly
record
the same.
28. Books and Records.
(a) Tenant shall keep adequate records and books
of account with respect to the finances and business of
Tenant
generally and with respect to the Leased Premises, in
accordance
with generally accepted accounting principles ("GAAP")
consistently applied, and shall permit Landlord and Lender
by
their respective agents, accountants and attorneys, upon
reasonable notice to Tenant, to visit and inspect the Leased
<PAGE>
Premises and examine (and make copies of) the records and
books
of account and to discuss the finances and business with the
officers of Tenant, at such reasonable times as may be
requested
by Landlord. Upon the request of Lender or Landlord (either
telephonically or in writing), Tenant shall provide the
requesting party with copies of any information to which
such
party would be entitled in the course of a personal visit.
(b) Tenant shall deliver to Landlord and to
Lender within ninety (90) days of the close of each fiscal
year,
annual audited financial statements of Tenant prepared by a
nationally recognized firm of independent certified public
accountants. Tenant shall also furnish to Landlord and to
Lender
(i) within forty-five (45) days after the end of each of the
three remaining quarters unaudited financial statements and
all
other quarterly reports of Tenant, certified by Tenant's
chief
financial officer, (ii) no later than five (5) business days
after filing, all filings, if any, of Form 10-K, Form 10-Q
and
other required filings with the Securities and Exchange
Commission pursuant to
the provisions of the Securities Exchange Act of 1934, as
amended, or any other Law, and (iii) within fifteen (15)
days
after the end of each calendar month, internally prepared
financial statements along with agings of receivables,
payables
and an inventory report indicating raw materials, work in
progress and finished goods. All financial statements of
Tenant
shall be prepared in accordance with GAAP consistently
applied.
All annual financial statements shall be accompanied (i) by
an
opinion of said accountants stating that (A) there are no
qualifications as to the scope of the audit and (B) the
audit was
performed in accordance with GAAP and (ii) by the affidavit
of
the president or a vice president of Tenant, dated within
five
(5) days of the delivery of such statement, stating that (C)
the
affiant knows of no Event of Default, or event which, upon
notice
or the passage of time or both, would become an Event of
<PAGE>
Default
which has occurred and is continuing hereunder or, if any
such
event has occurred and is continuing, specifying the nature
and
period of existence thereof and what action Tenant has taken
or
proposes to take with respect thereto and (D) except as
otherwise
specified in such affidavit, that Tenant has fulfilled all
of its
obligations under this Lease which are required to be
fulfilled
on or prior to the date of such affidavit.
(c) Tenant hereby agrees that it shall provide to
Lender such written authorizations as Lender shall request
so
that the Lender can conduct credit reference checks on the
three
largest creditors of Tenant as determined by the Lender in
its
sole discretion.
29. Determination of Value.
(a) Whenever a determination of Fair Market Value
is required pursuant to any provision of this Lease, such
Fair
Market Value shall be determined in accordance with the
following
procedure:
(i) Landlord and Tenant shall endeavor to
agree upon such Fair Market Value within thirty (30) days
after
the date (the "Applicable Initial Date") on which (A) Tenant
provides Landlord with notice of its intention to terminate
this
Lease and purchase the Leased Premises pursuant to Paragraph
18,
(B) Landlord provides Tenant with notice of its intention to
redetermine Fair Market Value pursuant to Paragraph 20(c),
(C) Landlord provides Tenant with notice of Landlord's
intention
to require Tenant to make an offer to terminate this Lease
pursuant to Paragraph 23(a)(iii) or (D) Tenant exercises an
option to purchase the Leased Premises pursuant to Paragraph
35.
Upon reaching such agreement, the parties shall execute an
agreement setting forth the amount of such Fair Market
Value.
(ii) If the parties shall not have signed
<PAGE>
such agreement within thirty (30) days after the Applicable
Initial Date, Tenant shall within fifty (50) days after the
Applicable Initial Date select an appraiser and notify
Landlord
in writing of the name, address and qualifications of such
appraiser. Within twenty (20) days following Landlord's
receipt
of Tenant's notice of the appraiser selected by Tenant,
Landlord
shall select an appraiser and notify Tenant of the name,
address
and qualifications of such appraiser. Such two appraisers
shall
endeavor to agree upon Fair Market Value based on a written
appraisal made by each of them (and given to Landlord by
Tenant)
as of the Relevant Date. If such two appraisers shall agree
upon
a Fair Market Value, the amount of such Fair Market Value as
so
agreed shall be binding and conclusive upon Landlord and
Tenant.
(iii) If such two appraisers shall be unable
to agree upon a Fair Market Value within twenty (20) days
after
the selection of an appraiser by Landlord, then such
appraisers
shall advise Landlord and Tenant of their respective
determinations of Fair Market Value and shall select a third
appraiser to make the determination of Fair Market Value.
The
selection of the third appraiser shall be binding and
conclusive
upon Landlord and Tenant.
(iv) If such two appraisers shall be unable
to agree upon the designation of a third appraiser within
ten
(10) days after the expiration of the twenty (20) day period
referred to in clause (iii) above, or if such third
appraiser
does not make a determination of Fair Market Value within
twenty
(20) days after his selection, then such third appraiser or
a
substituted third appraiser, as applicable, shall, at the
request
of either party hereto, be appointed by the President or
Chairman
of the American Arbitration Association in New York, New
York.
The determination of Fair Market Value made by the third
<PAGE>
appraiser appointed pursuant hereto shall be made within
twenty
(20) days after such appointment.
(v) If a third appraiser is selected, Fair
Market Value shall be the average of the determination of
Fair
Market Value made by the third appraiser and the
determination of
Fair Market Value made by the appraiser (selected pursuant
to
Paragraph 29(a)(ii) hereof) whose determination of Fair
Market
Value is nearest to that of the third appraiser. Such
average
shall be binding and conclusive upon Landlord and Tenant.
(vi) All appraisers selected or appointed
pursuant to this Paragraph 29(a) shall (A) be independent
qualified MAI appraisers, (B) have no right, power or
authority
to alter or modify the provisions of this Lease, (C) utilize
the
definition of Fair Market Value hereinabove set forth above,
and
(D) be registered in the State if the State provides for or
requires such registration. The Cost of the procedure
described
in this Paragraph 29(a) above shall be split equally by
Landlord
and Tenant.
(b) If, by virtue of any delay, Fair Market Value
is not determined by the expiration or termination of the
then
current Term, then the date on which the Term would
otherwise
expire or terminate shall be extended to the date specified
for
termination in the particular provision of this Lease
pursuant to
which the determination of Fair Market Value is being made.
(c) In determining Fair Market Value as defined
in clause (b) of the definition of Fair Market Value, the
appraisers shall add (a) the present value of the Rent for
the
remaining Term, assuming the Term has been extended for all
extension periods provided herein (with assumed increases in
the
CPI to be determined by the appraisers) using a discount
rate
(which may be determined by an investment banker retained by
<PAGE>
each
appraiser) based on the creditworthiness of Tenant and (b)
the
present value of the Leased Premises as of the end of such
Term
(having assumed the Term has been extended for all extension
periods provided herein). The appraisers shall further
assume
that no default then exists under the Lease, that Tenant has
complied (and will comply) with all provisions of the Lease,
and
that Tenant has not violated (and will not violate) any of
the
Covenants.
30. Non-Recourse as to Landlord. Anything contained
herein to the contrary notwithstanding, any claim based on
or in
respect of any liability of Landlord under this Lease shall
be
enforced only against the Leased Premises and not against
any
other assets, properties or funds of (i) Landlord, (ii) any
director, officer, general partner, shareholder, limited
partner,
beneficiary, employee or agent of Landlord or any general
partner
of Landlord or any of its general partners (or any legal
representative, heir, estate, successor or assign of any
thereof), (iii) any predecessor or successor partnership or
corporation (or other entity) of Landlord or any of its
general
partners, shareholders, officers, directors, employees or
agents,
either directly or through Landlord or its general partners,
shareholders, officers, directors, employees or agents or
any
predecessor or successor partnership or corporation (or
other
entity), or (iv) any Person affiliated with any of the
foregoing,
or any director, officer, employee or agent of any thereof.
31. Financing.
(a) Tenant agrees to pay at the funding of the
Initial Loan any reasonable cost, charge and expense
incurred by
Landlord in obtaining and closing such Loan, including
commitment
fees or points, title insurance, mortgage tax, recording
costs
and legal fees and expenses of Landlord and Lender.
<PAGE>
(b) Tenant agrees to pay, within three (3)
business days of written demand therefor, any cost, charge
or
expense (other than the principal of the Note and interest
thereon at the contract rate of interest specified therein)
imposed upon Landlord by Lender pursuant to the Note, the
Mortgage or the Assignment which is not caused solely by the
gross negligence or willful misconduct of Landlord and which
is
not otherwise reimbursed by Tenant to Landlord pursuant to
any
other provision of this Lease. Landlord agrees that it will
use
good faith efforts to refinance the Initial Loan with a
Lender
that does not require all of the Lease Collateral as
security for
its Loan, provided, however, that Landlord shall have no
obligation to accept a Loan with an interest rate in excess
of
the interest rate then payable on the Initial Loan or an
amortization schedule of less than 20 years.
(c) If Landlord desires to obtain or refinance
any Loan, Tenant shall negotiate in good faith with Landlord
concerning any request made by any Lender or proposed Lender
for
changes or modifications in this Lease. In particular,
Tenant
shall agree, upon request of Landlord, to supply any such
Lender
with such notices and information as Tenant is required to
give
to Landlord hereunder and to extend the rights of Landlord
hereunder to any such Lender and to consent to such
financing if
such consent is requested by such Lender. Tenant shall
provide
any other consent or statement and shall execute any and all
other documents that such Lender requires in connection with
such
financing, including any environmental indemnity agreement
and
subordination, non-disturbance and attornment agreement, so
long
as the same do not materially adversely affect any right,
benefit
or privilege of Tenant under this Lease or materially
increase
Tenant's obligations under this Lease. Such subordination,
nondisturbance and attornment agreement may require Tenant
to
confirm that (a) Lender and its assigns will not be liable
<PAGE>
for
any misrepresentation, act or omission of Landlord and (b)
Lender
and its assigns will not be subject to any counterclaim,
demand
or offset which Tenant may have against Landlord.
32. Subordination. This Lease and Tenant's interest
hereunder shall be subordinate to any Mortgage or other
security
instrument hereafter placed upon the Leased Premises by
Landlord,
and to any and all advances made or to be made thereunder,
to the
interest thereon, and all renewals, replacements and
extensions
thereof, provided that any such Mortgage or other security
instrument (or a separate instrument in recordable form duly
executed by the holder of any such Mortgage or other
security
instrument and delivered to Tenant) shall provide for the
recognition of this Lease and all Tenant's rights hereunder
unless and until an Event of Default exists or Landlord
shall
have the right to terminate this Lease pursuant to any
applicable
provision hereof.
33. Financial Covenants. Tenant hereby covenants and
agrees to comply with all the covenants and agreements
described
in Exhibit "E" hereto.
34. Tax Treatment; Reporting. Landlord and Tenant
each acknowledge that each shall treat this transaction as a
true
lease for state law purposes and shall report this
transaction as
a lease for Federal income tax purposes. For Federal income
tax
purposes each shall report this Lease as a true lease with
Landlord as the owner of the Leased Premises and Equipment
and
Tenant as the lessee of such Leased Premises and Equipment
including: (1) treating Landlord as the owner of the
property
eligible to claim depreciation deductions under Section 167
or
168 of the Internal Revenue Code of 1986 (the "Code") with
respect to the Leased Premises and Equipment, (2) Tenant
reporting its Rent payments as rent expense under Section
162 of
the Code, and (3) Landlord reporting the Rent payments as
<PAGE>
rental
income.
35. Option to Purchase.
(a) Landlord does hereby give and grant to Tenant
the option to purchase the Leased Premises (i) for a
purchase
price (the "Purchase Price") equal to the Offer Amount and
(ii)
on any date (the "Option Purchase Date") between the
nineteenth
(19th) and twentieth (20th) anniversary of the date hereof
and,
if the Term is extended or further extended, as applicable,
in
accordance with and subject to the provisions of Paragraph 5
hereof, between the twenty-fourth (24th) and twenty-fifth
(25th),
between the twenty-ninth (29th) and thirtieth (30th) and
between
the thirty-fourth (34th) and thirty-fifth (35th) anniversary
of
the date hereof, which is mutually agreeable to Landlord and
Tenant, but in any event not sooner than thirty (30) days
after
the Fair Market Value Date. If Tenant intends to exercise
such
option, Tenant shall give written notice to Landlord to such
effect not later than six (6) months prior to the twentieth
(20th) (or if the Term is extended or further extended,
twenty-fifth (25th), thirtieth (30th) or thirty-fifth
(35th), as
applicable) anniversary of the date hereof. Promptly upon
receipt of such notice by Landlord, the parties shall
commence to
determine Fair Market Value.
(b) If Tenant shall exercise the foregoing option
to purchase the Leased Premises, on the later to occur of
(i) the
Option Purchase Date or (ii) the date when Tenant has paid
the
Offer Amount and has satisfied all other Monetary
Obligations,
Landlord shall convey the Leased Premises to Tenant in
accordance
with Paragraph 20 hereof; provided, that if an Event of
Default
has occurred and is continuing on the Option Purchase Date,
Landlord, at its sole option, may terminate Tenant's option
to
purchase hereunder. IF THIS LEASE SHALL TERMINATE FOR ANY
REASON
PRIOR TO THE DATE ORIGINALLY FIXED HEREIN FOR THE EXPIRATION
OF
<PAGE>
THE TERM, OR IF TENANT EXERCISES ANY OPTION NOT TO EXTEND
THE
TERM PURSUANT TO PARAGRAPH 5, OR IF TENANT SHALL FAIL TO
GIVE ANY
OF THE AFORESAID NOTICES OF INTENTION TO PURCHASE, TIME
BEING OF
THE ESSENCE, THE OPTION PROVIDED IN THIS PARAGRAPH 35 AND
ANY
EXERCISE THEREOF BY TENANT SHALL CEASE AND TERMINATE AND
SHALL BE
NULL AND VOID.
36. Right of First Refusal.
(a) Except as otherwise provided in clause (e) of
this Paragraph 36, and provided an Event of Default does not
then
exist if Landlord shall enter into a contract for the sale
(the
"Sale Contract") of the Leased Premises with a Third Party
Purchaser, which Sale Contract shall be conditioned upon
Tenant's
failure to exercise its right under this Paragraph 36(a),
Landlord shall give written notice to Tenant of the Sale
Contract, together with a copy of the executed Sale Contract
and
the name and business address of the Third Party Purchaser.
(b) For a period of thirty (30) days following
receipt of such notice, Tenant shall have the right and
option,
exercisable by written notice to Landlord given within said
thirty (30) day period, to elect to purchase the Leased
Premises
at the purchase price and upon all the terms and conditions
set
forth in such Sale Contract except that no contingencies
contained in such Sale Contract as to environmental
assessments,
engineering studies, inspection of the Leased Premises,
availability of financing, sale of other property, state of
the
title to or encumbrances on the Leased Premises, or any
other
condition or contingency to the Third Party Purchaser's
obligation to purchase the Leased Premises which pertains to
the
condition of the Leased Premises, the Third Party
Purchaser's
ability to take certain action or any other factor beyond
the
control of Landlord, shall apply to Tenant's obligation to
purchase the Leased Premises under this Paragraph 36, and
Tenant
shall be obligated to purchase the Leased Premises without
any
<PAGE>
such condition or contingency.
(c) If at the expiration of the aforesaid thirty
(30) day period Tenant shall have failed to exercise the
aforesaid option, Landlord may sell the Leased Premises to
such
Third Party Purchaser upon the terms set forth in such
contract.
(d) Except as otherwise specifically provided
herein, the closing date for any purchase of the Leased
Premises
by Tenant pursuant to this Paragraph 36 shall be the earlier
to
occur of (i) ninety (90) days after the date of Tenant's
notice
to Landlord of its intention to purchase the Leased Premises
upon
the terms of a contract for sale with a Third Party
Purchaser or
(ii) the closing date provided in such contract for sale. At
such
closing Landlord shall convey the Leased Premises to Tenant
in
accordance with, and Tenant shall pay to Landlord the
purchase
price and other consideration set forth in, the applicable
contract.
(e) Tenant shall have the right during the Term
to exercise the foregoing right of first refusal upon (i)
each
proposed sale of the Leased Premises prior to the tenth
(10th)
anniversary of the date of this Lease and (ii) one (1) time
during the period commencing with the tenth (10th)
anniversary of
the date of this Lease and ending with the last day of the
fifteenth (15th) Lease Year hereof; provided, that if,
following
compliance with the procedure described in Paragraph 36(a),
a
Third Party Purchaser does not purchase the Leased Premises,
such
event shall not count as an exercise of Tenant's right of
first
refusal. Notwithstanding anything to the contrary, if
Tenant
fails to exercise the right of first refusal granted
pursuant to
this Paragraph (c), subsection (ii), after the tenth (10th)
anniversary of the date of this Lease and the sale to the
Third
Party Purchaser is consummated or if this Lease terminates
or the
Term expires, such right shall terminate and be null and
<PAGE>
void and
of no further force and effect. In such event Tenant shall
execute a quitclaim deed and such other documents as
Landlord
shall reasonably request evidencing the termination of its
right
of first refusal.
(f) If Tenant does not exercise its right of
first refusal to purchase the Leased Premises and the Leased
Premises are transferred to a Third Party Purchaser, Tenant
will
attorn to any Third Party Purchaser as Landlord so long as
such
Third Party Purchaser and Landlord notify Tenant in writing
of
such transfer. At the request of Landlord, Tenant will
execute
such documents confirming the agreement referred to above
and
such other agreements as Landlord may reasonably request,
provided that such agreements do not increase the
liabilities and
obligations of Tenant hereunder.
(g) The provisions of this Paragraph 36 shall not
apply to or prohibit (i) any mortgaging, subjection to deed
of
trust or other hypothecation of Landlord's interest in the
Leased
Premises, (ii) any sale of the Leased Premises pursuant to a
private power of sale under or judicial foreclosure of any
Mortgage or other security instrument or device to which
Landlord's interest in the Leased Premises is now or
hereafter
subject, (iii) any transfer of Landlord's interest in the
Leased
Premises to a Lender, beneficiary under deed of trust or
other
holder of a security interest therein or their designees by
deed
in lieu of foreclosure, (iv) any transfer of the Leased
Premises
to any governmental or quasi-governmental agency with power
of
condemnation, (v) any transfer of the Leased Premises to any
affiliate of Landlord or to any entity for whom W.P. Carey &
Co.,
Inc., W.P. Carey Incorporated or any of their affiliates
provides
management services or investment advice, (vi) any Person to
whom
Landlord sells all or substantially all of its assets, or
(vii) any transfer of the Leased Premises to any of the
successors or assigns of any of the Persons referred to in
the
<PAGE>
foregoing clauses (i) through (iv).
37. Additional Property.
(a) Tenant has mortgaged and assigned the
Additional Property to Landlord pursuant to the Lease
Collateral
Documents, and Tenant acknowledges and agrees that Landlord
has
pledged and assigned its mortgagee interest in the mortgage
encumbering the Additional Property to Lender to secure its
obligations under the Initial Loan and, upon any refinancing
of
the Initial Loan may pledge and assign its mortgagee
interest in
said mortgage to any subsequent Lender.
(b) Landlord covenants and agrees that it will
release the lien of its mortgage encumbering the Additional
Property from any parcel comprising the Additional Property
that
is sold in an arms-length transaction provided that at the
time
of any such sale no Event of Default exists and the
following
conditions are complied with:
(i) Lender consents in writing to the
release of the mortgage encumbering the Lease Collateral and
releases the assignment of said mortgage from Landlord to
Lender;
(ii) the Leased Premises shall have been
assessed separately from the Additional Property for real
estate
tax purposes; and
(iii) the net proceeds (gross sales prices
less normal and customary closing costs) shall be paid to
and
held by Landlord or Landlord's designee (which may be in the
form
of a certificate of deposit) as part of the Lease
Collateral.
38. Miscellaneous.
(a) The paragraph headings in this Lease are used
only for convenience in finding the subject matters and are
not
part of this Lease or to be used in determining the intent
of the
parties or otherwise interpreting this Lease.
<PAGE>
(b) As used in this Lease, the singular shall
include the plural and any gender shall include all genders
as
the context requires and the following words and phrases
shall
have the following meanings: (i) "including" shall mean
"including without limitation"; (ii) "provisions" shall mean
"provisions, terms, agreements, covenants and/or
conditions";
(iii) "lien" shall mean "lien, charge, encumbrance, title
retention agreement, pledge, security interest, mortgage
and/or
deed of trust"; (iv) "obligation" shall mean "obligation,
duty,
agreement, liability, covenant and/or condition"; (v) "any
of the
Leased Premises" shall mean "the Leased Premises or any part
thereof or interest therein"; (vi) "any of the Land" shall
mean
"the Land or any part thereof or interest therein"; (vii)
"any of
the Improvements" shall mean "the Improvements or any part
thereof or interest therein"; (viii) "any of the Equipment"
shall
mean "the Equipment or any part thereof or interest
therein"; and
(ix) "any of the Adjoining Property" shall mean "the
Adjoining
Property or any part thereof or interest therein".
(c) Any act which Landlord is permitted to
perform under this Lease may be performed at any time and
from
time to time by Landlord or any person or entity designated
by
Landlord. Each appointment of Landlord as attorney-in-fact
for
Tenant hereunder is irrevocable and coupled with an
interest.
Except as otherwise specifically provided herein, Landlord
shall
have the right, at its sole option, to withhold or delay its
consent whenever such consent is required under this Lease
for
any reason or no reason. Time is of the essence with
respect to
the performance by Tenant of its obligations under this
Lease.
(d) Landlord shall in no event be construed for
any purpose to be a partner, joint venturer or associate of
Tenant or of any subtenant, operator, concessionaire or
licensee
<PAGE>
of Tenant with respect to any of the Leased Premises or
otherwise
in the conduct of their respective businesses.
(e) This Lease and any documents which may be
executed by Tenant on or about the effective date hereof at
Landlord's request constitute the entire agreement between
the
parties and supersede all prior understandings and
agreements,
whether written or oral, between the parties hereto relating
to
the Leased Premises and the transactions provided for
herein.
Landlord and Tenant are business entities having substantial
experience with the subject matter of this Lease and have
each
fully participated in the negotiation and drafting of this
Lease.
Accordingly, this Lease shall be construed without regard to
the
rule that ambiguities in a document are to be construed
against
the drafter.
(f) This Lease may be modified, amended,
discharged or waived only by an agreement in writing signed
by
the party against whom enforcement of any such modification,
amendment, discharge or waiver is sought.
(g) The covenants of this Lease shall run with
the land and bind Landlord and Tenant, and their respective
successors and assigns and all present and subsequent
encumbrances and subtenants of any of the Leased Premises,
and
shall inure to the benefit of Landlord and Tenant, and their
respective successors and assigns. If there is more than
one
Tenant, the obligations of each shall be joint and several.
(h) If any one or more of the provisions
contained in this Lease shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect
any
other provision of this Lease, but this Lease shall be
construed
as if such invalid, illegal or unenforceable provision had
never
been contained herein.
(i) This Lease shall be governed by and construed
and enforced in accordance with the Laws of the State.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused
this Lease to be duly executed under seal as of the day and
year
first above written.
LANDLORD:
URSA (VT) QRS 12-30, INC.
_______________________ By:
Witness
Title: Second Vice President
TENANT:
THE VERMONT TEDDY BEAR CO., INC.
By:
_______________________
Witness Title: Senior Vice President and
Chief Financial Officer
STATE OF VERMONT
CHITTENDEN COUNTY, SS.
At Burlington in said County and State this ___ day of July,
1997, personally appeared Anne R. Coolidge, the Second Vice
President and duly authorized agent of URSA (VT) QRS 12-30,
INC.,
and she acknowledged the foregoing instrument, to be her
free act
and deed and the free act and deed of URSA (VT) 12-30, INC.
Before me:____________________
Notary Public
STATE OF VERMONT
CHITTENDEN COUNTY, SS.
At Burlington in said County and State this ___ day of July,
1997, personally appeared Elizabeth B. Robert, the Senior
Vice
President, Chief Financial Officer and duly authorized agent
of
<PAGE>
THE VERMONT TEDDY BEAR CO., INC., and she acknowledged the
foregoing instrument, to be her free act and deed and the
free
act and deed of THE VERMONT TEDDY BEAR CO., INC.
Before me:____________________
Notary Public
PREMISES
ADDITIONAL PROPERTY
MACHINERY AND EQUIPMENT
All fixtures, machinery, apparatus, equipment, fittings and
appliances of every kind and nature whatsoever now or
hereafter
affixed or attached to or installed in any of the Leased
Premises
(except as hereafter provided), including all electrical,
anti-pollution, heating, lighting (including hanging
fluorescent
lighting), incinerating, power, air cooling, air
conditioning,
humidification, sprinkling, plumbing, lifting, cleaning,
fire
prevention, fire extinguishing and ventilating systems,
devices
and machinery and all engines, pipes, pumps, tanks
(including
exchange tanks and fuel storage tanks), motors, conduits,
ducts,
steam circulation coils, blowers, steam lines, compressors,
oil
burners, boilers, doors, windows, loading platforms,
lavatory
facilities, stairwells, fencing (including cyclone fencing),
passenger and freight elevators, overhead cranes and garage
units, together with all additions thereto, substitutions
therefor and replacements thereof required or permitted by
this
Lease, but excluding all personal property and all trade
<PAGE>
fixtures, machinery, office, manufacturing and warehouse
equipment which are not necessary to the operation, as
buildings,
of the buildings which constitute part of the Leased
Premises.
PERMITTED ENCUMBRANCES
BASIC RENT PAYMENTS
1. Basic Rent. Subject to the adjustments provided
for in Paragraphs 2, 3 and 4 below, Basic Rent payable in
respect
of the Term shall be $652,400 per annum, payable monthly in
advance on each Basic Rent Payment Date, in equal
installments of
$54,366.67 each.
2. CPI Adjustments to Basic Rent. The Basic Rent
shall be subject to adjustment, in the manner hereinafter
set
forth, for increases in the index known as United States
Department of Labor, Bureau of Labor Statistics, Consumer
Price
Index, All Urban Consumers, United States City Average, All
Items, (1982-84=100) ("CPI") or the successor index that
most
closely approximates the CPI. If the CPI shall be
discontinued
with no successor or comparable successor index, Landlord
and
Tenant shall attempt to agree upon a substitute index or
formula,
but if they are unable to so agree, then the matter shall be
determined by arbitration in accordance with the rules of
the
American Arbitration Association then prevailing in New York
City. Any decision or award resulting from such arbitration
shall be final and binding upon Landlord and Tenant and
judgment
thereon may be entered in any court of competent
jurisdiction.
<PAGE>
In no event will the Basic Rent as adjusted by the CPI
adjustment
be less than the Basic Rent in effect for the three (3) year
period immediately preceding such adjustment.
3. Effective Dates of CPI Adjustments. Basic Rent
shall not be adjusted to reflect changes in the CPI until
the
third (3rd) anniversary of the Basic Rent Payment Date on
which
the first full monthly installment of Basic Rent shall be
due and
payable (the "First Full Basic Rent Payment Date"). As of
the
third (3rd) anniversary of the First Full Basic Rent Payment
Date
and thereafter on the sixth (6th), ninth (9th), twelfth
(12th),
fifteenth (15th) and eighteenth (18th) and, if the initial
Term
is extended, on the twenty-first (21st), twenty-fourth
(24th),
twenty-seventh (27th), thirtieth (30th) and thirty-third
(33rd)
anniversaries of the First Full Basic Rent Payment Date,
Basic
Rent shall be adjusted to reflect increases in the CPI
during the
most recent three (3) year period immediately preceding each
of
the foregoing dates (each such date being hereinafter
referred to
as a "Basic Rent Adjustment Date").
4. Method of Adjustment for CPI Adjustment.
(a) As of each Basic Rent Adjustment Date, the
Basic Rent in effect immediately prior to such date shall be
multiplied by the Aggregate CPI Increase (as hereinafter
defined)
and the product of such multiplication shall be added to the
Basic Rent in effect immediately prior to such Basic Rent
Adjustment Date.
"Aggregate CPI Increase" shall mean the sum of the
compounded increases (but not decreases) in the Relevant CPI
(as
hereinafter defined) for each of the three (3) 12-month
periods
ending on the first, second and third anniversaries (each
such
anniversary being a "Calculation Date") of the first full
Basic
Rent Payment Date (in the case of the First Basic Rent
<PAGE>
Adjustment
Date) or the preceding Basic Rent Adjustment Date (in the
case of
each subsequent Basic Rent Adjustment Date) over the
Relevant CPI
for the previous 12-month period (each an "Annual Increase")
plus
one (1); provided, that if the Annual Increase for any 12-
month
period is greater than four percent (4)%, then the Annual
Increase for such 12-month period shall be deemed to be four
percent (4%). The Relevant CPI for the 12-month period
ending on
any Calculation Date shall be equal to the average CPI for
the
three (3) calendar months published on or before the forty-
fifth
day preceding such Calculation Date (the "Prior Months"),
and the
Relevant CPI for each of the preceding 12-month periods
shall be
equal to the average CPI for the three (3) months of such
12-month period which correspond to the Prior Months.
By way of example and not of limitation, if,
immediately prior to the Basic Rent Adjustment Date
occurring on
the ninth (9th) anniversary of the First Full Basic Rent
Payment
Date, Basic Rent is $100 and the increases in the Relevant
CPI
for the three (3) preceding years are 2%, 0% and 12%,
respectively, the Aggregate CPI Increase will be as follows:
(1.02 x 1.0 x 1.04) = 1.0608 - 1 = 0.608, then, .0608 x $100
-
$6.08; thence $100 + $6.08 = $106.08, which is the new Basic
Rent. Said another way, .0608 + 1 = 1.0608; then, $100 x
1.0608
= $106.08, which is the new Basic Rent.
(b) Notice of the new annual Basic Rent shall be
delivered to Tenant on or before the tenth (10th) day
preceding
each Basic Rent Adjustment Date.
COVENANTS
1. Negative Covenants. Tenant shall not and shall
not permit any Subsidiary to do any of the following without
the prior written consent of Landlord and the Lender:
(a) Merge or consolidate with or acquire any
Person, entity, revise the status of ownership (as
shareholder partner or otherwise) in Tenant, or change the
name of Tenant, except that Tenant shall have the right to
<PAGE>
consolidate with or merge into another Person, if,
immediately following such merger or consolidation the
surviving corporation shall have a publicly traded unsecured
debt rating of Baa2 or better from Moody's Investors
Services, Inc. or a rating of BBB or better from Standard &
Poor's Corporation, and in the event all of such rating
agencies cease to furnish such ratings, then a comparable
rating by any rating agency reasonably acceptable to
Landlord and Lender.
(b) Except as specifically provided in Paragraph
37 of this Lease with respect to the Additional Property
sell, lease, assign, transfer or otherwise dispose of any of
its assets other than (1) obsolete or worn out property not
used or useful in its business, whether now or hereafter
acquired, and (2) assets disposed of or leased in the
ordinary and normal course of business operations as
presently conducted and for full and adequate consideration.
(c) Directly or indirectly make any loans or
advances other than travel advances, to any employees,
officers or directors or relatives of such persons, except
for advances on salaries already earned and normal and
customary advances against sales commissions.
(d) Replace or remove Patrick Burns from the
position of President of Tenant, or materially alter his
duties as President and chief executive officer of Tenant.
(e) Enter into any purchase, sale, lease or
exchange of property or the exchange of any service with any
affiliated organization except in the ordinary course of
business and for full and adequate consideration.
(f) Create, incur or suffer any lien, security
interest or other encumbrance in the Lease Collateral, other
than (i) those granted pursuant to the Lease Collateral
Documents, (ii) purchase money security interests in
equipment not exceeding $500,000 in the aggregate at any
time and (iii) those granted to Green Mountain Capital which
secure a loan in the amount of $500,000.
(g) Make Capital Expenditures in any fiscal year
of Tenant in excess of the Capital Expenditure Limitation.
(h) Redeem, purchase or otherwise acquire,
directly or indirectly, any of its stock;
(i) Directly or indirectly to, become or be a
guarantor or surety of, or otherwise incur any Contingent
Obligation or become or be responsible in any manner
(whether by agreement to purchase any obligations, stock,
assets, goods or services, or to supply or advance any
funds, assets, goods or services, or otherwise) with respect
to, any undertaking of any other Person;
(j) Directly or indirectly incur, create, assure
or permit to exist any Indebtedness except for Indebtedness
in existence on the date hereof and Indebtedness described
in subclause (ii) of clause (f) above; or
(k) Change its fiscal year.
2. Financial Covenants. Tenant shall not
<PAGE>
(a) Permit its Consolidated Current Ratio to be
less than 1.25 to 1 at any time.
(b) Permit the Debt Service Coverage Ratio of
Tenant and its consolidated Subsidiaries to be less than
1.25 to 1 as of the end of each fiscal year.
(c) Permit the Indebtedness of Tenant and its
consolidated Subsidiaries to Consolidated Tangible Net Worth
Ratio to be more than 1.25 to 1 at any time.
3. Definitions. For the purpose of this Exhibit "E"
the following terms shall have the following meanings:
"Capital Expenditures" of any Person shall mean,
for any period, all expenditures (whether paid in cash or
received as liability during such period) of such Person
during such period which would be classified as Capital
Expenditures in accordance with GAAP (including without
limitation, expenditures for maintenance and repairs which
are capitalized and leases to the extent an asset is
recorded in connection therewith in accordance with GAAP).
"Capital Expenditures Limitation" shall mean (a)
If Tenant realizes a net profit after tax for any fiscal
year of at least $50,000, then the limit on Capital
Expenditures during that fiscal year shall be calculated as
follows (all terms used in this definition shall be ascribed
the meanings provided by GAAP and used in a GAAP Uniform
Cash Flow analysis):
Net Sales less Cost of Goods Sold less Cash Operating
Expenses (defined as: selling, general and
administrative expenses + changes in prepaid expenses,
changes in accrued expenses) plus Miscellaneous Cash
Income less Income Taxes
Paid plus changes in receivables + changes in payables
+ changes in inventory plus Changes in Short Term Debt
less Debt Service Coverage (defined as: 1.20 times
(interest expense + current maturities of Long Term
Debt + lease payments)) plus changes in Long Term Debt
plus Changes in Equity (defined as: common stock +
preferred stock + additional paid in capital); or
(b) if Tenant does not realize a net profit after tax
of $50,000 or more during any fiscal year, then the limit on
aggregate Capital Expenditures during that year shall be
$200,000.
"Closing Date" shall mean July ____, 1997.
"Consolidated Current Assets" at any time
shall mean the "current assets" of the Tenant and its
consolidated Subsidiaries determined on a consolidated basis
in accordance with GAAP.
"Consolidated Current Liabilities" at any
time shall mean the "current liabilities" of the Tenant and
its consolidated Subsidiaries determined on a consolidated
basis in accordance with GAAP.
<PAGE>
"Consolidated Current Ratio" shall mean at
any time the ratio of the Consolidated Current Assets at
such time to the Consolidated Current Liabilities at such
time.
"Consolidated Interest Expenses" for any
period shall mean the total interest expense of the Tenant
and its Consolidated Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP.
"Consolidated Tangible Net Worth" at any time
shall mean the total amount of stockholder' equity of the
Tenant and its consolidated Subsidiaries at such time
determined on a consolidated basis in accordance with GAAP,
except that there shall be deducted therefrom the book value
of all intangible assets and deferred charges and prepaid
expenses of the Tenant and its consolidated Subsidiaries at
such time determined on a consolidated basis in accordance
with GAAP.
"Contingent Obligation" as to any Person
shall mean the undrawn face amount of any letters of credit
issued for the account of such Person and shall also mean
any obligation of such Person guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends, letters of
credit or other obligations ("primary obligations") of any
other Person other than a Subsidiary (the "primary obligor")
in any manner, whether directly or indirectly including,
without limitation, any obligation of such Person, whether
or not contingent, (a) to purchase any such primary
obligation or any property constituting direct or indirect
security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the
financial condition or solvency of the primary obligor, (c)
to purchase property, securities or services primarily for
the purpose of assuring the obligee under any such primary
obligation of the ability of the primary obligor to make
payment of such primary obligation or (d) otherwise to
assure or hold harmless the obligee under such primary
obligation against loss in respect thereof; provided,
however, that the term Contingent Obligation shall not
include (x) endorsements of instruments for deposit or
collection in the ordinary course of business or (y) usual
and customary representations and warranties contained in
loan and other financing agreements. The amount of any
Contingent Obligation shall be deemed to be an amount equal
to the stated or determinable amount of the primary
obligation or, where such Contingent Obligation is
specifically limited to a portion of any such primary
obligation, that portion to which it is limited.
<PAGE>
"Debt Service Coverage Ratio" shall mean at
any time the ratio of the sum of net income after taxes plus
depreciation plus Consolidated Interest Expenses plus rent
payments to the sum of payments on Indebtedness plus rent
payments.
"GAAP" shall mean generally accepted
accounting principles as in effect from time to time in the
United States of America, applied on a consistent basis.
"Indebtedness" of any Person shall mean, as
of any date, all obligations which would in accordance with
GAAP be classified as debt, and shall include (a) all
obligations of such Person for borrowed money, (b) all
obligations of such person in respect of letters of credit,
surety bonds or similar obligations issued for the account
of such Person, (c) all obligations of such Person as
lessee, user of obligor under any lease of real or personal
property whether or not in accordance with GAAP, are or
should be capitalized on the books of the lessee, user or
obligor (including any lease classified in accordance with
GAAP as an operating lease and any so called "synthetic
lease"), (d) all obligations of such Person in respect of
the deferred purchase price for goods, property or services
acquired by such Person, (e) all obligations of such Person
to purchase goods, property or services where payment
therefor is required regardless of whether delivery of such
goods or property or the performance of such services is
ever made or tendered, (f) all obligations of such Person in
respect of any interest rate or currency swap, rate cap or
other similar transaction (valued in any amount equal to the
highest termination payment, if any, that would be payable
by such Person upon termination for any reason on the date
of determination), and (g) all obligations of others similar
in character to those described in clauses (a) through (f)
of this definition to the extent such person is liable,
contingently or otherwise, as obligor, guarantor or in any
other capacity, or in
respect of which obligations such Person assures a creditor
against loss or agrees to take any action to prevent any
such loss (other than endorsements of negotiable instruments
for collection in the ordinary course of business),
including, without limitation, all obligations of such
Person to advance funds to, or to purchase property or
services from, any other Person in order to maintain the
financial condition of such other Person and, in the case of
Tenant, all Indebtedness which is non-recourse to the credit
of Tenant but which is secured by the assets or property of
Tenant (but excluding any such non-recourse Indebtedness of
Subsidiaries of Tenant in which Tenant has no liability).
Indebtedness shall not include trade payables incurred in
the ordinary course of business. Any Indebtedness which is
<PAGE>
extended or renewed (other than by an option created with
the original creation of such Indebtedness) will be deemed
to have been created when extended or renewed.
"Person" shall mean an individual,
partnership, association, corporation or other entity.
"Subsidiary" of any Person means a
corporation a majority of the Voting Stock of which is at
the time owned, or the management of which is otherwise
controlled, directly or indirectly, through one or
intermediaries, or both, by such Person.
"Voting Stock" means shares of stock of a
corporation having ordinary voting power to elect the board
of directors or other managers of such corporation.
EXHIBIT 10.38
Green Mountain Capital, L.P.
RD 1, Box 1503
Waterbury, Vermont 05676
October 10, 1997
Elizabeth B. Robert
The Vermont Teddy Bear Co. Inc.
P.O. Box 965
2236 Shelburne Road
Shelburne, Vermont 05482
Re: $200,000 Term Loan
Dear Liz:
We are pleased to advise you that Green Mountain
Capital, L.P., (the "Lender") hereby agrees to make to The
Vermont Teddy Bear Co., Inc., a New York corporation with
its principal place of business in Shelburne, Vermont (the
"Borrower"), a term loan (the "Loan") on the terms and
conditions of this commitment letter to provide working
capital. This commitment shall be subject to definitive
<PAGE>
documentation in form and substance satisfactory to the
Lender.
1. Description of The Loan.
a. Amount. $200,000.00 to be evidenced by a note.
b. Interest Rate. 12% per annum fixed.
c. Term. 60 months.
d. Repayment. Interest payable monthly in arrears.
Principal payable in equal consecutive monthly installments
in such amount as will amortize the Loan over the five year
term. The Loan shall be subject to the same
terms and conditions in the Loan Agreement, Stock Purchase
Warrant Agreement and Security Agreement, dated December 26,
1995, which will be amended to reflect this transaction and
the conditions contained herein.
e. Points. 1 R to be paid at Closing.
2. Security. The Loan, together with existing indebtedness
of the Borrower to the Lender, which indebtedness is
evidenced by a certain Convertible Note, dated December 26,
1995 and November 19, 1996, in the original principal amount
of $500,000, shall be secured by the following Collateral:
a. a second mortgage from URSA QRS 12-30, INC., on
Lot 9 at the Shelburne South Commercial Park, together with
the building and other improvements located thereon, subject
and subordinate to an existing mortgage held by URSA and
agreed to by Vermont National Bank.
b. the Lender's existing security interest in all
personal property of the Borrower, which is also subordinate
to a security interest of URSA assigned to Vermont National
Bank.
c. a second mortgage from the Borrower on the land it
owns at Shelburne South Commercial Park subject to URSA
mortgage deed.
3. Warrants. As additional consideration for the Loan, the
Borrower shall issue to the Lender at closing a warrant
entitling the Lender to purchase up to 100,000 shares of the
common stock of the Borrower. The exercise price of the
warrant shall be One Dollar ($1.00) per share. The warrant
shall expire at the expiration of seven (7) years from the
date of the Loan.
4. Release. As a condition to the Closing, the Borrower
shall have provided the Lender with a release whereby the
Borrower releases the Lender from any liability to the
<PAGE>
Borrower arising out of any conflict of interest that may
have been created by the fact that partners of the Lender
are also shareholders of the Borrower.
5. Borrower's Responsibility for Fees. The Borrower shall
pay all fees, expenses, and other charges with respect to
the Loan, including recording and filing fees and expenses
of the Lender's counsel.
6. Acceptance of Commitment. The Borrower shall accept
this commitment letter by signing and returning the enclosed
copy of this letter to the Lender within two (2) days
from the date hereof; otherwise, this commitment letter
shall be null and void.
Sincerely,
GREEN MOUNTAIN CAPITAL,
L.P.
By Catamount Capital,
Inc., General Partner
By:
_____________________________
Its Duly Authorized Agent
EXAMINED, APPROVED AND ACCEPTED
The Vermont Teddy Bear Co., Inc.
By: _____________________________
Its Duly Authorized Agent
Dated: _________________________
EXHIBIT 23.1
[Arthur Andersen LLP letterhead]
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our reports, dated September
10, 1997 (except with respect to the matter discussed in
Note 11, as to which the date is October 10, 1997) and
August 30, 1996, included in The Vermont Teddy Bear Co.,
Inc.'s Annual Report on Form 10-KSB for the years ended
<PAGE>
June 30, 1997 and 1996 into the Company's previously files
Registration Statement on Form S-8 No. 33-84586 (filed on
September 26, 1995).
Arthur Andersen LLP
Boston, Massachusetts
October 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE JUNE 30, 1997 BALANCE SHEET
AND THE TWELVE MONTH STATEMENT OF OPERATIONS ENDED
JUNE 30, 1997 FOR THE VERMONT TEDDY BEAR CO., INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 441,573
<SECURITIES> 0
<RECEIVABLES> 46,304
<ALLOWANCES> 0
<INVENTORY> 3,302,313
<CURRENT-ASSETS> 4,436,153
<PP&E> 12,417,891
<DEPRECIATION> 2,571,956
<TOTAL-ASSETS> 14,649,436
<CURRENT-LIABILITIES> 7,316,738
<BONDS> 4,128,908
0
910,245
<COMMON> 258,638
<OTHER-SE> 5,322,746
<TOTAL-LIABILITY-AND-EQUITY> 14,649,436
<SALES> 16,489,482
<TOTAL-REVENUES> 16,489,482
<CGS> 7,068,549
<PAGE>
<TOTAL-COSTS> 7,068,549
<OTHER-EXPENSES> 10,911,217
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 411,498
<INCOME-PRETAX> (1,901,782)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,973,782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,973,782)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
