<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) JUNE 18, 1998
-------------
NORTON MCNAUGHTON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-23440 13-3747173
- ------------------- ---------------- ------------------
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation or organization)
463 SEVENTH AVENUE
NEW YORK, N.Y. 10018
----------------------- --------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (212) 947-2960
<PAGE>
The undersigned registrant hereby amends Item 7, sections (a) and (b), of
its Current Report on Form 8-K reporting the acquisition of substantially all of
the assets of Jeri-Jo Knitwear Inc. and Jamie Scott, Inc. (collectively the
"Jeri-Jo Companies") on June 18, 1998, to include financial statements and pro
forma financial data information as set forth herein.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 18, 1998, Norton McNaughton, Inc. (the "Company") completed the
acquisition of the Jeri-Jo Companies by Jeri-Jo Knitwear, Inc., a wholly-owned
subsidiary of the Company ("Jeri-Jo") and the purchaser of substantially all the
assets and assumption of substantially all the liabilities of the privately-held
apparel importers of moderately-priced juniors' and misses' updated sportswear
(the "Jeri-Jo Acquisition"). Jeri-Jo will operate as a separate subsidiary under
the direction of current management. The purchase price paid in the Jeri-Jo
Acquisition was (i) $55.0 million in cash at the closing of the acquisition,
(ii) the assumption of indebtedness of $10.9 million for borrowed money and
certain other contractual obligations. In addition, the Company agreed to pay an
additional contingent payment in cash and its Common Stock, $0.01 par value, in
the event that certain earnings targets are achieved by Jeri-Jo for the two
years subsequent to the closing of the Jeri-Jo Acquisition. The Jeri-Jo purchase
agreement requires that the Company pay at least 50% of the required contingent
payment in cash. The aggregate contingent payment, if any, payable by the
Company is equal to the excess of (1) the sum of (A) five times Jeri-Jo's
average EBITDA (as defined in the Jeri-Jo purchase agreement) for the two years
ended June 30, 2000, plus (B) 0.50 times any such average EBITDA between $17.0
million and $20.0 million, plus (C) one times any such average EBITDA over $20.0
million, over (2) $55.0 million. The foregoing purchase price and additional
contingent payment was determined pursuant to arms length negotiations among the
parties.
Concurrent with the closing of the acquisition of the Jeri-Jo Companies,
the Company entered into a $175.0 million secured revolving credit and letter of
credit facility with NationsBanc Commercial Corporation, The CIT
Group/Commercial Services, Inc. and Fleet Bank N.A. (the "Current Credit
Agreement"). The facility will be used to finance ongoing working capital
requirements of the combined entity. The Current Credit Agreement is a three-
year secured revolving credit and letter of credit facility, with interest on
outstanding borrowings determined, at the Company's option, based upon stated
margins below the prime rate or in excess of LIBOR rates. Initially, the
interest rate under the Current Credit Agreement is 75 basis points below the
prime rate (based upon the current prime rate, the interest rate under the
Current Credit Agreement will be 7.75% per annum). Available credit under the
Current Credit Agreement is as follows: revolving credit advances not to exceed
$60.0 million, documentary letters of credit not to exceed $130.0 million and
stand-by letters of credit not to exceed $45.0 million (including $30.0 million
of stand-by letters of credit necessary to secure the Company's cash contingent
payment obligation in connection with the Jeri-Jo Acquisition), with the
aggregate credit available to the Company equal to the lesser of (i) $175.0
million or (ii) the sum of 85% of the eligible accounts receivable and 60% of
the eligible inventory.
The Current Credit Agreement contains a number of restrictive covenants,
including covenants which limit incurrence of liens and indebtedness, limit
transactions with affiliates, acquisitions, sales of assets, investments and
other restricted payments, and require that the
2
<PAGE>
Company maintain certain fixed charge coverage, cash flow coverage and leverage
ratios and meet specified minimum levels of working capital and net worth.
On June 18, 1998, the Company also closed the sale of $125.0 million of 12
1/2% Senior Notes due 2005 (the "Offering"). The proceeds of the sale were used
to finance the Jeri-Jo Acquisition and to refinance existing indebtedness of the
Company and the Jeri-Jo Companies. The Notes have not been registered under the
Securities Act of 1933, as amended, and may not be offered and sold in the
United States absent registration under such act or an applicable exemption from
registration. The Company's obligations under the Notes are guaranteed by all of
the Company's subsidiaries.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
<TABLE>
<S> <C>
(a) Financial statements of business acquired
Jeri-Jo Knitwear Inc. and Affiliate
Reports of Independent Auditors................................................................................. 5
Combined Balance Sheets as of December 31, 1997 and 1996........................................................ 7
Combined Statements of Income and Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995........ 8
Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995.......................... 9
Notes to Combined Financial Statements.......................................................................... 10-13
Unaudited Combined Balance Sheet as of March 31, 1998........................................................... 14
Unaudited Combined Statements of Income and Retained Earnings for the Three Months Ended March 31, 1998 and 1997 15
Unaudited Combined Statements of Cash Flows for the Three Months Ended March, 31, 1998 and 1997................. 16
Notes to Combined Financial Statements (Unaudited).............................................................. 17-20
(b) Pro-forma financial information.
Unaudited Pro Forma Financial Information........................................................................ 21
Unaudited Pro Forma Condensed Combined Balance Sheet as of May 2, 1998........................................... 22
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet.................................................... 23
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended November 1, 1997................ 24
Unaudited Pro Forma Condensed Combined Statements of Operations for the for the twenty-six weeks ended May 2, 1998
for Norton McNaughton, Inc. and March 31, 1998 for Jeri-Jo........................................................ 25
Notes to Unaudited Pro Forma Condensed Combined Statements of
Operations......................................................................................................... 26-27
</TABLE>
(c) Exhibit Index
10.1 Lease dated as of June 1, 1998 between Jeri-Jo Knitwear, Inc.
and Gettinger Associates
27 Financial Data Schedule (For SEC use only)
4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Jeri-Jo Knitwear, Inc. and Affiliate
We have audited the accompanying combined balance sheet of Jeri-Jo
Knitwear, Inc. and Affiliate as of December 31, 1997, and the related combined
statements of income and retained earnings and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Jeri-Jo Knitwear,
Inc. and Affiliate as of December 31, 1997, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
Ernst & Young LLP
New York, New York
February 27, 1998
5
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Shareholders of
Jeri-Jo Knitwear, Inc. and Affiliate
We have audited the accompanying combined balance sheet of Jeri-Jo
Knitwear, Inc. and Affiliate as of December 31, 1996, and the related combined
statements of income and retained earnings and cash flows for each of the two
years in the period 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, 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Jeri-Jo Knitwear,
Inc. and Affiliate as of December 31, 1996, and the results of their operations
and their cash flows for the years ended December 31, 1996 and 1995 in
conformity with generally accepted accounting principles.
Friedman Alpren & Green LLP
New York, New York
February 14, 1997
6
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $12,713 $17,672
Accounts receivable, less allowance for doubtful accounts of $31 in 1997 and
$35 in 1996.................................................................... 5,485 7,398
Inventories.................................................................... 9,265 10,227
Prepaid expenses and other current assets...................................... 297 425
------- -------
Total current assets........................................................ 27,760 35,722
Property and equipment at-cost less accumulated depreciation and amortization.... 1,359 1,519
Other assets..................................................................... 43 45
------- -------
$29,162 $37,286
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable (including commissions payable)............................... $ 5,758 $ 8,373
Accrued expenses and other current liabilities................................. 1,190 1,027
Dividends payable.............................................................. 4,000 9,000
------- -------
Total current liabilities................................................... 10,948 18,400
------- -------
Commitments
Shareholder's equity:
Common stock................................................................... 121 121
Additional paid-in capital..................................................... 204 204
Retained earnings.............................................................. 18,127 18,799
------- -------
18,452 19,124
Less treasury stock, at cost................................................... 238 238
------- -------
Total shareholder's equity..................................................... 18,214 18,886
------- -------
Total liabilities and shareholder's equity..................................... $29,162 $37,286
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................................... $ 95,080 $ 89,400 $120,918
Cost of sales....................................................... 67,419 62,586 88,559
-------- -------- --------
Gross profit........................................................ 27,661 26,814 32,359
Operating expenses:
Employee compensation............................................. 5,525 5,264 5,952
Selling and shipping.............................................. 2,247 2,347 2,752
General and administrative........................................ 2,967 2,909 3,528
-------- -------- --------
Total operating expenses....................................... 10,739 10,520 12,232
-------- -------- --------
Income from operations.............................................. 16,922 16,294 20,127
Interest and financing, net of interest income of $235,
$482 and $507...................................................... (104) (382) (345)
-------- -------- --------
Income before income taxes.......................................... 17,026 16,676 20,472
Income taxes........................................................ 839 831 1,049
-------- -------- --------
Net income.......................................................... 16,187 15,845 19,423
Retained earnings, beginning of year................................ 18,799 30,001 32,409
Dividends........................................................... (16,859) (27,047) (21,831)
-------- -------- --------
Retained earnings, end of year...................................... $ 18,127 $ 18,799 $ 30,001
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 16,187 $ 15,845 $ 19,423
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.............................................. 287 306 376
Provision for doubtful accounts............................................ 141 9 271
Changes in assets and liabilities:
Account receivable...................................................... 1,772 2,230 5,186
Inventories............................................................. 962 (2,474) 22,495
Prepaid expenses and other current assets............................... 128 73 450
Other assets............................................................ 2 2 81
Accounts payable........................................................ (2,615) 3,839 (5,337)
Accrued expenses and other current liabilities.......................... 163 247 (97)
-------- -------- --------
Net cash provided by operating activities..................................... 17,027 20,077 42,848
-------- -------- --------
Cash flows from investing activities:
Additions to property and equipment--net.................................... (127) (124) (851)
Loan receivable, shareholder................................................ -- -- 3,576
-------- -------- --------
Net cash provided by (used in) investing activities........................... (127) (124) 2,725
Cash flows from financing activities:
Proceeds from sale of treasury stock........................................ -- -- 4,076
Dividends paid.............................................................. (21,859) (20,247) (30,631)
Distribution charged to additional paid-in capital.......................... -- (1,051) (2,291)
-------- -------- --------
Net cash used in financing activities......................................... (21,859) (21,298) (28,846)
Net increase (decrease) in cash and cash equivalents.......................... (4,959) (1,345) 16,727
Cash and cash equivalents, beginning of year.................................. 17,672 19,017 2,290
-------- -------- --------
Cash and cash equivalents, end of year........................................ $ 12,713 $ 17,672 $ 19,017
======== ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid............................................................... $ 26 $ 1 $ 41
Income taxes paid........................................................... 657 707 924
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accompanying combined financial statements include the accounts of Jeri
Jo Knitwear, Inc. (the "Company") and Jamie Scott, Inc., a company affiliated
through common ownership (collectively, the "Companies"). All significant
intercompany transaction and balances have been eliminated.
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities. The disclosure of contingent assets and liabilities, and
the reported revenues and expenses.
Inventories
Inventories which are comprised of finished goods, are valued at the lower
of cost (first-in, first-out) or market.
Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is calculated
using straight-line and accelerated methods over the estimated useful lives of
the assets. Leasehold improvements are amortized over the term of the lease.
Income Taxes
Jeri-Jo Knitwear, Inc. has elected S Corporation status for Federal income
tax purposes only. Under this election, taxable income is reportable by the
shareholder on his individual income tax return, and no provision is made for
Federal income tax. Provisions are made for New Jersey corporation business tax,
New York State franchise tax and New York City general corporation tax.
Jamie Scott, Inc. has elected S Corporation status for Federal New Jersey
and New York State income tax purposes. Under these elections, its taxable
income is reportable by the shareholders on their individual income tax returns,
and no provision is made for Federal income tax. Provisions are made for New
Jersey S Corporation business tax, New York State S Corporation franchise tax
and New York City general corporation tax.
10
<PAGE>
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Furniture and equipment ..................................... $1,555,913 $1,498,306
Automobiles ................................................. 95,913 102,792
Leasehold improvements ...................................... 842,872 842,872
---------- ----------
2,494,698 2,443,970
Less accumulated depreciation and amortization .............. 1,135,611 925,238
---------- ----------
$1,359,087 $1,518,732
========== ==========
</TABLE>
3. LINE OF CREDIT
The Companies have a line of credit with two banks for $50,000,000, which
includes direct borrowing, acceptance financing and letters of credit. Interest
is charged at 1% over the prevailing Federal funds rate. The line of credit is
collateralized by a security interest in the Companies' accounts receivable and
all inventories. At December 31, 1997, 1996 and 1995, there were no outstanding
balances.
Interest expense under the line of credit for the years ended December 31,
1997 and 1995 were $18,859 and $26,988, respectively. There were no borrowings
and no interest expense for the year ended December 31, 1996.
4. COMMON STOCK AND TREASURY STOCK
Common stock consists of the following:
<TABLE>
<S> <C>
Jeri-Jo Knitwear, Inc., no par value; 200 shares authorized, 10 shares
issued.................................................................... $ 21,000
Jamie Scott, Inc., no par value; 200 shares authorized, 30 shares
issued.................................................................... 100,000
--------
$121,000
========
</TABLE>
Treasury stock at December 31, 1997 and 1996 consists of 2 1/2 shares of
the common stock of Jeri-Jo Knitwear, Inc., with a cost of $238,250.
11
<PAGE>
On March 1, 1995, twelve shares of common stock of Jamie Scott, Inc.
previously held in the treasury were sold for $4,075,616. Additional paid-in
capital was credited for $3,475,616, the excess of the sales price over cost of
the treasury stock.
5. MAJOR CUSTOMER
Sales to one customer for the year ended December 31, 1997 accounted for
approximately 11.1% of the Companies' net sales. There were no major customers
for the years ended December 31, 1996 and 1995.
6. PENSION PLAN
The Company has a savings and investment plan which qualifies under Section
401(k) of the Internal Revenue Code (the "Code"). The Plan allows eligible
employees to voluntarily contribute up to 15% of compensation limited to the
maximum allowed under the Code. The Company contributes 3% of all eligible
employees' compensation to the plan and matches employee contributions up to 50%
of the first 5% of compensation. In addition, the Company may contribute
additional amounts, as determined by the Board of Directors. Pension plan
expense for the years ended December 31, 1997, 1996 and 1995 was $216,000,
$190,390 and $195,026, respectively.
7. COMMITMENTS
Lease Commitments
The Company occupies warehouse, distribution and office space in Edison,
New Jersey. The premises are owned by a partnership whose partners are
shareholders of the Companies. The Partnership's obligation of $1,440,000 at
December 31, 1997, incurred in the purchase of the property, is guaranteed by
the Company. The Company entered into a lease agreement with the partnership
expiring June 30, 2003, with a five-year renewal option. The operating lease
requires the Company to pay all costs and expenses related to the property, in
addition to the minimum rentals. The minimum annual rental payments are
$396,000.
The Company also has executed noncancelable operating leases for its New
York City showroom which expire on May 31, 1998. The Company anticipates
entering into a new lease for the same premises. At December 31, 1997,
approximate future minimum rentals through May 31, 1998, exclusive of required
payments for increases in real estate taxes and operating expenses, are
$177,000.
Rent expense for the years ended December 31, 1997, 1996 and 1995 was
$832,696, $829,186 and $967,545, respectively, of which $395,884 in each year is
for the property leased from the related partnership.
12
<PAGE>
Letters of Credit
At December 31, 1997, open letters of credit totaled approximately
$20,211,000.
8. CONCENTRATIONS OF CREDIT RISK
The Companies import ladies' apparel, predominantly from the Far East and
Europe. Their customers include a cross section of retailers throughout the
United States.
The Company's total cash includes $10,233,149, $16,676,979 and $18,636,773
held in an uninsured money market fund at December 31, 1997, 1996 and 1995,
respectively. In addition, the Companies had $2,480,771, $995,578 and $379,066
in four banks at December 31, 1997, 1996 and 1995, respectively. Accounts at
each bank are insured by the Federal Deposit Insurance Corporation for up to
$100,000.
13
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
COMBINED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
1998
------------------
<S> <C>
Current assets
Cash and cash equivalents $ 6,011,562
Accounts receivable, net 10,008,369
Inventories 10,092,138
Prepaid expenses and other current assets 249,458
------------------
Total current assets 26,361,527
Property and equipment, net 1,328,234
Other assets 37,000
------------------
$ 27,726,761
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 3,080,948
Dividends payable 5,500,000
Accrued expenses and other current liabilities 350,647
------------------
Total current liabilities 8,931,595
------------------
Shareholders' equity
Common stock 121,000
Additional paid-in capital 204,068
Retained earnings 18,708,348
------------------
19,033,416
Less - Treasury stock, at cost (238,250)
------------------
18,795,166
------------------
$ 27,726,761
==================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
14
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Net sales $18,508,780 $21,882,545
Cost of sales 11,994,606 15,035,520
----------- -----------
Gross profit 6,514,174 6,847,025
----------- -----------
Operating expenses
Employee compensation 1,246,392 1,292,443
Selling and shipping 465,609 621,383
General and administrative 1,133,032 864,138
Interest and financing, net (29,193) (48,038)
----------- -----------
2,815,840 2,729,926
----------- -----------
Income before income taxes 3,698,334 4,117,099
Income taxes 160,000 205,000
----------- -----------
Net income 3,538,334 3,912,099
Retained earnings, beginning of period 18,127,014 18,799,064
Dividends paid (2,957,000) (3,777,475)
----------- -----------
Retained earnings, end of period $18,708,348 $18,933,688
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
15
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,538,334 $ 3,912,099
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization 60,296 72,000
Provision for doubtful accounts 53,861 32,614
Changes in assets and liabilities
Accounts receivable (4,577,001) (4,036,250)
Inventories ( 826,641) 1,299,545
Prepaid expenses and other current assets 46,185 ( 81,897)
Other assets 5,913 5,350
Accounts payable (2,677,455) (5,464,769)
Accrued expenses and other current liabilities ( 839,407) ( 453,102)
----------- -----------
Net cash used in operating activities (5,215,915) (4,714,410)
Cash flows from investing activities
Additions to property and equipment ( 29,443) ( 46,046)
Cash flows from financing activities
Dividends paid (1,457,000) (2,477,475)
----------- -----------
Net decrease in cash and cash equivalents (6,702,358) (7,237,931)
Cash and cash equivalents, beginning of year 12,713,920 17,672,557
----------- -----------
Cash and cash equivalents, end of year $ 6,011,562 $10,434,626
=========== ===========
Supplemental cash flow disclosures
Income taxes paid $ 223,000 $ 161,000
=========== ===========
</TABLE>
16
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accompanying combined financial statements include the accounts of
Jeri-Jo Knitwear, Inc. (the "Company") and Jamie Scott, Inc., a company
affiliated through common ownership (collectively, the "Companies"). All
significant intercompany transactions and balances have been eliminated.
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Inventories
Inventories, which are comprised of finished goods, are valued at the
lower of cost (first-in, first-out) or market.
Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is
calculated using straight-line and accelerated methods over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
term of the lease.
Income Taxes
Jeri-Jo Knitwear, Inc. has elected S Corporation status for Federal
income tax purposes only. Under this election, taxable income is reportable
by the shareholder on his individual income tax return, and no provision is
made for Federal income tax. Provisions are made for New Jersey corporation
business tax, New York State franchise tax and New York City general
corporation tax.
Jamie Scott, Inc. has elected S Corporation status for Federal, New
Jersey and New York State income tax purposes. Under these elections, its
taxable income is reportable by the shareholders on their individual income
tax returns, and no provision is made for Federal income tax. Provisions
are made for New Jersey S Corporation business tax, New York State S
Corporation franchise tax and New York City general corporation tax.
17
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
2 - PROPERTY AND EQUIPMENT
Property and equipment consists of:
Furniture and equipment $1,590,356
Automobiles 90,913
Leasehold improvements 842,872
----------
2,524,141
Less - Accumulated depreciation
and amortization 1,195,907
----------
$1,328,234
==========
3 - LINE OF CREDIT
The Companies have a line of credit with two banks for $50,000,000,
which includes direct borrowing, acceptance financing and letters of
credit. Interest is charged at 1% over the prevailing Federal funds rate.
The line of credit is collateralized by a security interest in the
Companies' accounts receivable and inventories. At March 31, 1998, there
were no outstanding balances.
There was no borrowings and no interest expense for the three months
ended March 31, 1998.
18
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
4 - COMMON STOCK AND TREASURY STOCK
Common stock consists of the following:
Jeri-Jo Knitwear, Inc., no par value;
200 shares authorized, 10 shares issued $ 21,000
Jamie Scott, Inc., no par value;
200 shares authorized, 30 shares issued 100,000
--------
$121,000
========
Treasury stock consists of 2-1/2 shares of the common stock of Jeri-Jo
Knitwear, Inc., with a cost of $238,250 .
5 - MAJOR CUSTOMERS
Sales to one customer for the three months ended March 31, 1998
accounted for approximately 26.3% of the Companies' net sales.
6 - PENSION PLAN
The Company has a savings and investment plan which qualifies under
Section 401(k) of the Internal Revenue Code (the "Code"). The plan allows
eligible employees to voluntarily contribute up to 15% of compensation,
limited to the maximum allowed under the Code. The Company contributes 3%
of all eligible employees' compensation to the plan and matches employee
contributions up to 50% of the first 5% of compensation. In addition, the
Company may contribute additional amounts, as determined by the Board of
Directors. Pension plan expense for the three months ended March 31, 1998
was $42,000.
7 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company occupies warehouse, distribution and office space in
Edison, New Jersey. The premises are owned by a partnership whose partners
are shareholders of
19
<PAGE>
JERI-JO KNITWEAR, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
the Companies. The partnership's obligation of $1,260,000 at March 31,
1998, incurred in the purchase of the property, is guaranteed by the
Company. The Company entered into a lease agreement with the partnership
expiring December 31, 2001, with a five-year renewal option. The operating
lease requires the Company to pay all costs and expenses related to the
property, in addition to the minimum rentals. Minimum annual rental
payments are $396,000.
The Company has also entered into noncancelable operating leases for
its New York City showroom which expire on May 31, 1998. The Company
anticipates entering into a new lease for the same premises. At March 31,
1998, approximate future minimum rentals through May 31, 1998, exclusive of
required payments for increases in real estate taxes and operating
expenses, are $177,000.
Rent expense for the three months ended March 31, 1998 was $208,817,
of which $98,971 is for the property leased from the related partnership.
Letters of Credit
At March 31, 1998, open letters of credit totaled approximately
$33,591,000.
8 - CONCENTRATIONS OF CREDIT RISK
The Companies import ladies' apparel, predominantly from the Far East
and Europe. Their customers include a cross section of retailers throughout
the United States.
The Company's total cash includes $4,187,604 held in an uninsured
money market fund at March 31, 1998. In addition, the Companies had
$1,823,958 in four banks at March 31, 1998. Accounts at each bank are
insured by the Federal Deposit Insurance Corporation for up to $100,000.
20
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information presented herein gives effect to
(i) the Miss Erika acquisition, (ii) the Jeri-Jo acquisition, (iii) borrowings
under the Current Credit Agreement and (iv) the Offering (collectively, the
"Transactions") and the application of the net proceeds therefrom to finance the
Jeri-Jo acquisition and repay amounts outstanding under the prior credit
agreement after giving effect to the application of the net proceeds from the
Offering. The pro forma financial information is based on the historical
financial statements of Norton McNaughton, Inc., Miss Erika, Inc. and the Jeri-
Jo Companies. The Company's fiscal year end is October 31, if such date falls on
a Saturday, or the first Saturday following October 31 and, prior to the
Acquisitions by the Company, Miss Erika, Inc.'s fiscal year ended on January 31
and the Jeri-Jo Companies' fiscal year ended on December 31.
The acquisitions have been accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed have been
recorded at their estimated fair values, which are subject to further adjustment
based upon appraisals and other analyses, with appropriate recognition given to
the effect of the Company's borrowing rates and income tax rates.
The unaudited pro forma condensed combined statement of operations for the
fiscal year ended November 1, 1997 gives effect to the acquisitions as if they
had been consummated at the beginning of the Company's fiscal year on November
3, 1996. This pro forma statement of operations combines the historical
consolidated statement of operations for the fiscal year ended November 1, 1997
for Norton McNaughton, Inc., the historical statement of operations for the
eleven months ended September 30, 1997 for Miss Erika, Inc. and the historical
statement of operations for the fiscal year ended December 31, 1997 for the
Jeri-Jo Companies.
The unaudited pro forma condensed combined statement of operations for the
twenty-six weeks ended May 2, 1998 gives effect to the Jeri-Jo Acquisition as if
it had been consummated at the beginning of the Company's fiscal year on
November 2, 1997. This pro forma statement of operations combines the unaudited
historical consolidated statement of operations for the twenty-six weeks ended
May 2, 1998 for the Company and the unaudited historical statement of operations
for the twenty-six weeks ended March 31, 1998 for the Jeri-Jo Companies.
The unaudited pro forma condensed combined balance sheet as of May 2, 1998
gives effect to the Jeri-Jo Acquisition as if it had been consummated on May 2,
1998. This pro forma balance sheet combines the unaudited historical
consolidated balance sheet at May 2, 1998 for the Company and the historical
balance sheet at March 31, 1998 for the Jeri-Jo Companies.
The pro forma adjustments are based upon available information and assumptions
that management believes are reasonable at the time made. The unaudited pro
forma condensed combined financial statements do not purport to present the
financial position or results of operations of the Company had the acquisitions
occurred on the dates specified, nor are they necessarily indicative of the
financial position or results of operations that may be achieved in the future.
The unaudited pro forma condensed combined statements of operations do not
reflect any adjustments for synergies that management expects to realize. No
assurances can be made as to the amount of cost savings or revenue enhancements,
if any, that may be realized.
The Company's ability, including following the acquisitions, to achieve its
projected results is dependent on many factors which are outside of management's
control. Some of the most significant factors, including following the
acquisitions, would be a further deterioration in retailing conditions for
women's apparel, a further increase in price pressures and other competitive
factors, any of which could result in an unanticipated decrease in gross profit
margins, unanticipated problems arising with Miss Erika's and Jeri-Jo's
businesses or the integration of Miss Erika's and Jeri-Jo's businesses with that
of the Company, the unanticipated loss of a major customer, the unanticipated
loss of a major contractor or supplier and weather conditions which could impact
retail traffic and the Company's ability, including following the acquisitions,
to ship on a timely basis. Accordingly, there can be no assurance that the
Company, following the acquisitions, will achieve its anticipated operating
results.
21
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
Jeri-Jo
Norton Companies
McNaughton, as of
Inc. as of March 31, Pro Forma Pro Forma
May 2, 1998 1998 Adjustments Combined
----------- ---------- -------------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 160 $ 6,012 $ (3,795)(1) $ -
(2,377)(4)
Due from factor................................ 69,264 - 10,008 (5) 79,272
Accounts receivable, net....................... - 10,008 (10,008)(5) -
Inventory...................................... 35,583 10,092 - 45,675
Income taxes receivable........................ 2,514 - 838 (7) 3,352
Prepaid expenses and other current assets...... 5,379 250 (1,350)(3)(8) 4,279
----------- ---------- ------------- --------
Total current assets........................ 112,900 26,362 (6,684) 132,578
Fixed assets, net................................ 6,339 1,328 - 7,667
Deferred financing costs......................... 2,044 - 5,700 (2) 6,650
950 (2)
(2,044)(7)
Goodwill......................................... 3,858 - 40,350 (3) 44,208
Notes receivable from management stockholders.... 2,655 - - 2,655
Other assets..................................... 3,083 37 - 3,120
----------- ---------- ------------- --------
Total assets................................ $130,879 $27,727 $ 38,272 $196,878
=========== ========== ============= ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable............................... $ 11,549 $ 3,081 $ - $ 14,630
Revolving credit loans......................... 57,515 - (47,752)(2) 9,788
(3,098)(2)
3,123 (4)
Term loan payable.............................. 3,000 - (3,000)(2) -
Accrued expenses and other current
liabilities.................................. 3,939 5,851 (5,500)(4) 4,290
----------- ---------- ------------- --------
Total current liabilities................... 76,003 8,932 (56,227) 28,708
Term loan payable................................ 10,500 - (10,500)(2) -
Long-term obligations............................ - - 125,000 (2) 125,000
Other long term liabilities...................... 1,730 - - 1,730
----------- ---------- ------------- --------
Total liabilities........................... 88,233 8,932 58,273 155,438
Stockholders' equity............................. 42,646 18,795 (3,795)(1) 41,440
(15,000)(3)
(1,206)(7)
----------- ---------- ------------- --------
Total liabilities and stockholders' equity.. $130,879 $27,727 $ 38,272 $196,878
=========== ========== ============= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined balance sheet.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
(1) Reflects adjustments to the Jeri-Jo Companies' cash and stockholders'
equity in accordance with required book value to be delivered upon closing
of the Jeri-Jo Acquisition. Adjustments assume that excess net book value
above the required amount was paid out prior to the closing of the
Acquisition in the form of cash dividends.
(2) Reflects the consummation of the Transactions at May 2, 1998 as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
----------------------------
<S> <C>
Portion of purchase price funded by Offering proceeds in the Jeri-Jo Acquisition.. $54,000(8)
Estimated Offering expenses....................................................... 5,700
Repayment of outstanding indebtedness of the Jeri-Jo Companies.................... 3,098(6)
Repayment of the Company's term debt.............................................. 13,500
Repayment of the Company's revolving credit loans................................. 47,752
Closing fees for Current Credit Agreement......................................... 950
----------
Proceeds from Offering............................................................ $ 125,000
==========
</TABLE>
(3) The excess of purchase price paid over the fair value of the assets
acquired and the liabilities assumed represents goodwill. Allocation of the
purchase price for the Jeri-Jo Acquisition and the calculation of goodwill
is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
--------------------------
<S> <C>
Closing cash purchase price in the Jeri-Jo Acquisition............................ $55,000(8)
Less: Net assets of the Jeri-Jo Companies......................................... 15,000
----------
Goodwill.......................................................................... 40,000
Add: Jeri-Jo Acquisition expenses................................................. 350
----------
Total goodwill.................................................................... $ 40,350
==========
</TABLE>
(4) Reflects payment of the Jeri-Jo Companies' dividends payable on dividends
declared prior to March 31, 1998.
(5) Reflection of assignment of Jeri-Jo Companies' accounts receivable to the
factor under the Company's new factoring agreement.
(6) As of June 18, 1998, the Jeri-Jo Companies had outstanding indebtedness of
approximately $10.9 million. The effect of this change on the pro forma
combined balance sheet would be an increase of $7.8 million in revolving
credit loans.
(7) To write-off deferred financing costs on the prior credit agreement, net of
taxes.
(8) Total cash purchase price of $55.0 million of the Jeri-Jo Acquisition was
funded by $54.0 million of proceeds from the Offering and $1.0 million from
monies previously placed in escrow.
23
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 1, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NORTON
MCNAUGHTON, MISS ERIKA, JERI-JO PRO FORMA PRO FORMA
INC. INC. COMPANIES ADJUSTMENTS COMBINED
----------- ----------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $218,782 $90,848 $95,080 $ -- $404,710
Cost of goods sold..................... 179,556 70,373 67,419 -- 317,348
-------- ------- ------- ---------- --------
Gross profit........................... 39,226 20,475 27,661 87,362
Selling, general and administrative
expenses.............................. 44,015 16,107 10,453 (271)(1) 69,833
(471)(2)
Depreciation and amortization.......... 984 397 287 2,110 (4) 3,778
-------- ------- ------- ---------- --------
Income (loss) from operations.......... (5,773) 3,971 16,921 (1,368) 13,751
Other expense (income):
Interest expense..................... 2,500 844 131 14,411 (3) 17,886
Interest income...................... (168) (6) (235) 235 (5) (174)
-------- ------- ------- ---------- --------
Income (loss) before provision
(benefit) for income taxes............ (8,105) 3,133 17,025 (16,014) (3,961)
Provision (benefit) for income
taxes................................. (3,400) 1,253 839 (316)(6) (1,624)
-------- ------- ------- ---------- --------
Net income (loss)...................... $ (4,705) $ 1,880 $16,186 $ (15,698) $ (2,337)
======== ======= ======= ========== ========
Other data:
EBITDA(7)............................ $ (4,789) $ 4,368 $17,208 $ 742 $ 17,529
Depreciation and
amortization....................... 984 397 287 2,110 3,778
Capital expenditures................. 1,571 328 127 -- 2,026
</TABLE>
See accompanying notes to unaudited pro forma condensed combined statements of
operations.
24
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWENTY-SIX WEEKS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 2,
1998 MARCH 31,
NORTON 1998
MCNAUGHTON, JERI-JO PRO FORMA PRO FORMA
INC. COMPANIES ADJUSTMENTS COMBINED
-------------- -------------- ------------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................................. $147,624 $40,115 $ -- $187,739
Cost of goods sold.................................... 118,191 28,370 -- 146,561
-------- ------- -------- --------
Gross profit.......................................... 29,433 11,745 -- 41,178
Selling, general and administrative expenses.......... 23,963 5,382 (59)(1) 29,286
Depreciation and amortization......................... 751 131 1,000 (4) 1,882
-------- ------- -------- --------
Income (loss) from operations......................... 4,719 6,232 (941) 10,010
Other expense (income):
Interest expense.................................... 3,815 81 5,623 (3) 9,519
Interest income..................................... (82) (141) 85 (5) (138)
-------- ------- -------- --------
Income (loss) before provision (benefit) for income
taxes................................................ 986 6,292 (6,649) 629
Provision (benefit) for income taxes.................. 515 299 (556)(6) 258
-------- ------- -------- --------
Net income (loss)..................................... $ 471 $ 5,993 $ (6,093) $ 371
======== ======= ======== ========
Other data:
EBITDA(7)........................................... $ 5,470 $ 6,363 $ 59 $ 11,892
Depreciation and amortization....................... 751 131 1,000 1,882
Capital expenditures................................ 1,077 33 -- 1,110
</TABLE>
See accompanying notes to unaudited pro forma condensed combined statements of
operations.
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
Twenty-Six
For the Weeks
Year Ended Ended
November 1, May 2,
1997 1998
------- -------
<S> <C> <C>
(1) Net increase (decrease) to selling, general and administration expenses is as
follows:
Factoring fees under Current Credit Agreement, net of amounts recorded under
prior credit agreement......................................................... $ 339 $ (27)
Elimination of Miss Erika's historical management fee.............................. (550) --
Adjustment of compensation and benefits to current contractual levels (78) --
Other.............................................................................. 18 (32)
------- -------
Net increase (decrease)............................................................ $ (271) $ (59)
======= =======
(2) Reclassification of Miss Erika letter of credit fees from selling, general
and administrative expenses to interest expense to conform to the Company's
accounting policies.
(3) Net increase to interest expense as follows:
Interest on Notes at a rate of 12.5%.............................................. $15,625 $ 7,812
Interest on borrowings under the Current Credit Agreement with assumed -- 321
average annual interest rates of 7.75%.........................................
Amortization of new financing costs (over term of Notes and Current Credit
Agreement)..................................................................... 1,249 624
Letter of credit fees, including reclassification of fees of Miss Erika (see
note(2))....................................................................... 1,084 840
Interest income................................................................... (72) (78)
Elimination of historical interest expense........................................ (3,475) (3,896)
------- -------
Net increase...................................................................... $14,411 $ 5,623
======= =======
(4) Amortization expense as follows:
Goodwill resulting from the Acquisitions (amortization over 20 years)............. $ 2,192 $ 1,000
Elimination of amortization of prior Miss Erika financing costs................... (82) --
------- -------
Net increase...................................................................... $ 2,110 $ 1,000
======= =======
</TABLE>
(5) To eliminate the Jeri-Jo Companies' interest income on amounts not retained
in the business.
(6) To record the net tax effect of the pro forma adjustments at an assumed
effective combined tax rate of 41%. In addition, such amount includes an
incremental tax provision to cause the total estimated provision for income
taxes for the Jeri-Jo Companies to be 41%. The Jeri-Jo Companies are subject
to taxation under subchapter S of the Internal Revenue Code of 1986, as
amended, for federal income tax purposes only.
(7) EBITDA represents earnings before interest expense, interest income,
provision for income taxes, depreciation and amortization. EBITDA is a
widely accepted financial indicator of a company's ability
26
<PAGE>
to service and/or incur debt. EBITDA is not a measurement of operating
performance calculated in accordance with generally accepted accounting
principles and should not be considered as a substitute for operating
income, net income, cash flows from operations, or other consolidated income
or cash flow data prepared in accordance with generally accepted accounting
principles, or as a measure of a Company's profitability or liquidity.
EBITDA has been reduced by the special charges of $5,737,000 and $3,664,000
recorded by Norton in the second and fourth quarters of fiscal 1997,
respectively. In addition, EBITDA is not adjusted for reductions in
compensation expense resulting from personnel reductions at Norton during
fiscal 1997 ($2,817,000), the elimination of rental expense resulting from
the termination of lease obligations by Norton and the reduction in
distribution expenses at Norton during fiscal 1997 ($833,000), charges taken
by Miss Erika during fiscal 1997 in anticipation of the cancellation of
lease obligations and other contingencies ($900,000) or the elimination of
certain professional fees and other expenses at Jeri-Jo following the Jeri-
Jo Acquisition ($269,000).
Cash flow provided by (used for) operations for Norton McNaughton, Inc. for
the fiscal years ended November 2, 1996 and November 1, 1997 was $5.4
million and a use of $(26.5) million, respectively. Cash flow used for
operations in the fiscal year ended November 1, 1997 reflects the
reclassification of short-term advances from due from factor to revolving
credit loans. Excluding the effects of such reclassification, cash flow used
by operations for fiscal 1997 would have been a use of $(4.0) million. Cash
flow provided by operations for Miss Erika, Inc. for the fiscal years ended
January 31, 1996 and 1997 was $5.0 million and $5.5 million, respectively.
Cash flow provided by operations for the Jeri-Jo Companies for the fiscal
years ended December 31, 1996 and 1997 was $20.1 million and $17.0 million,
respectively.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTON MCNAUGHTON, INC.
-----------------------
(Registrant)
Date: August 5, 1998 By:/s/ Sanford Greenberg
---------------------
SANFORD GREENBERG
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
28
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ------------ -----------
10.1 Lease dated as of June 1, 1998 between Jeri-Jo Knitwear, Inc.
and Gettinger Associates
27 Financial Data Schedule (For SEC use only)
29
<PAGE>
EXHIBIT 10.1
================================================================================
GETTINGER ASSOCIATES LANDLORD
To
JERI-JO KNITWEAR, INC. TENANT
----------------------
_____________________
LEASE
PREMISES 1407 BROADWAY
SPACE:
Unit "2806" on the 28th Floor
-----------------------------
Unit "2903-9" on the 29th Floor
-------------------------------
TERM:
from June 1, 1998 to January 31, 2004
----------------------------------------
================================================================================
1
<PAGE>
LEASE, dated May 12, 1998, between GETTINGER ASSOCIATES, a limited
partnership, hereinafter referred to as "Landlord," and JERI-JO KNITWEAR INC., a
New York Corporation, having its principal place of business at 80 Carter Drive,
Edison, New Jersey 08817, hereinafter jointly, severally and collectively
referred to as "Tenant,"
WITNESSETH: The Landlord does hereby lease to Tenant, and Tenant does hereby
take from the Landlord, the space(s) designated as Unit "2806" on the 28th floor
& Unit "2903-9" on the 29th floor, twenty-eighth & substantially as outlined in
red on the plan(s) attached hereto, on the twenty ninth floor of the building
known as 1407 BROADWAY, hereinafter referred to as "the building," in the
Borough of Manhattan, City, County and State of New York, which space, together
with all the fixtures and improvements which, at the commencement of or during
the term, are thereto attached, is hereinafter referred to as "the premises" or
"the demised premises," for a term to commence on June 1, 1998, and to end on
January 31, 2004, at the annual rental of THREE HUNDRED SEVENTY SIX THOUSAND AND
NO/100 ($376,000.00) DOLLARS, which Tenant agrees to pay in lawful money of the
United States of America, in equal monthly installments in advance on the first
day of each month during said term, at the office of Landlord, except that
Tenant shall pay the first monthly installment on the execution hereof unless
this lease (Lease) be a renewal.
The parties hereto, for themselves their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant, as follows:
1. Tenant shall pay the rent and additional rent as above and as hereinafter
provided.
2. Tenant shall use and occupy the premises for SHOWROOM AND OFFICE FOR THE
SALE (WHOLESALE ONLY) AND DISPLAY OF LADIES WEARING APPAREL, and the
premises shall be used for no other purpose.
3. ASSIGNMENT AND SUBLETTING. Tenant for itself, its heirs, distributees,
-------------------------
executors, administrators, legal representatives, successors and assigns
expressly covenants that it shall
2
<PAGE>
not assign, mortgage or encumber this Lease, nor sublet or suffer or permit
the demised premises or any part thereof, to be used by others without the
prior written consent of Landlord in each instance. The transfer of a
majority of any class of the issued and outstanding capital stock of any
corporate Tenant of this Lease or majority of the total interest of any
partnership or individual Tenant, however accomplished, whether in a single
transaction or in series of related or unrelated transactions, shall be
deemed an assignment of this Lease. If this Lease be assigned or if the
demised premises or any part thereof be sublet or occupied by anyone other
than Tenant, Landlord may, after default by Tenant, collect rent,
additional rent and other charges from the assignee, sublessee or occupant,
and apply the net amount so collected to the rent, additional rent or other
charges herein provided, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of
the assignee, sublessee or occupant as tenant, or a release of Tenant from
the further performance by it of the covenants on its part to be performed
hereunder. The consent by Landlord to an assignment or subletting shall not
in any wise be construed to relieve Tenant, subtenant or any assignee from
obtaining the express consent in writing of Landlord to any further
assignment or subletting. The listing of any name other than that of the
Tenant, whether on the doors of the premises or on the building or floor
directories, or otherwise, shall not operate to vest any right or interest
in this Lease or in the premises, or be deemed to be the written consent of
the Landlord mentioned in this paragraph, it being expressly understood
that any such listing is a privilege extended by the Landlord, revocable at
will by written notice to the Tenant, subtenant or assignee where Landlord
has consented in writing to such subleasing or assignment.
4. OBSTRUCTIONS, SIGNS. The Tenant shall not obstruct or permit the
-------------------
obstruction of windows, halls, areas, roofs, stairways or entrances to the
building, and will not affix, erect or inscribe any signs, projections,
awnings, signals, lettering, painting or advertisements of any kind to any
part of the premises including the inside or outside of the windows or
doors and will not paint the inside or outside of the windows or doors
unless and until the style,
3
<PAGE>
size, color, construction and location thereof have been approved in
writing by the Landlord. The Landlord shall have the right to withdraw such
approval at any time and to require the Tenant to remove any such signs,
projections, awnings, signals, lettering, painting or advertisements
without being liable to the Tenant by reason thereof and to charge the cost
of doing so to the Tenant as additional rent. The Landlord also reserves to
itself the sole right to designate the person, firm or corporation which
shall do the work of lettering, painting and erecting of any and all signs
to be affixed to the premises or the building.
5. ALTERATIONS, LIENS. Tenant shall make no alterations, changes, repairs,
------------------
decorations, additions or improvements (structural or non-structural), in
or to the demised premises including any and all mechanical, electrical,
air conditioning, heating, and plumbing systems without Landlord's prior
written consent, and then only by contractors or mechanics approved by
Landlord. All such work shall be done at such times and in such manner as
Landlord may designate. Prior to Tenants commencing any work in and to the
premises as provided in this paragraph, Tenant shall obtain in writing and
deliver to Landlord, written and unconditional waivers of mechanics' and
materialmen's liens from the persons or parties who are to perform such
work and services in the premises, in such form as may be approved by
Landlord. Any mechanic's or other lien filed against the premises or the
building, for work claimed to have been done for or materials claimed to
have been furnished to Tenant, shall be discharged by Tenant within 10 days
thereafter at Tenant's expense, by filing the bond required by law. All
work done or required to be done by the Tenant shall be done with union
labor and union made materials only and shall comply in all respects and at
all times with the rules and regulations of all municipal or other
authorities having jurisdiction thereof. Asbestos encapsulation, removal or
other treatment, respecting asbestos in the confines of the demised
premises, as may be required by law, shall at all times be at Tenant's sole
cost and expense, in the manner as approved by Landlord.
6. All fixtures, equipment, improvements made and appurtenances attached to or
built into the space or premises at the commencement of or during the term,
whether by the Landlord at its
4
<PAGE>
own expense or at the expense of the Tenant, or by the Tenant, shall be and
remain part of the premises and shall not be removed by the Tenant at any
time unless otherwise expressly provided in this Lease. All electric,
plumbing, heating, sprinkling, telephone, telegraph, communication and
radio systems, fixtures and outlets, partitions, railings, gates, doors,
vaults, paneling, molding, shelving, radiator enclosures, corks, rubber,
linoleum and composition floors, ventilating, silencing, air conditioning
and cooling equipment shall be deemed to be included in such fixtures,
equipment, improvements and appurtenances. Where not built into the space
or premises and if furnished by or at the expense of the Tenant, all
removable electric fixtures, carpets, wind deflectors, electric fans, water
coolers, furniture, trade fixtures and business equipment shall not be
deemed to be included in such fixtures, equipment, improvements and
appurtenances, and may be removed by the Tenant upon condition that such
removal does not render any damage to the building or premises and upon
condition also that in the event of any damage the cost of repairing same
shall be paid by the Tenant. All the outside walls of the premises,
including corridor walls and the outside entrance doors to the premises,
any balconies, terraces or roofs adjacent to the premises, and any space in
the premises used for shafts, stacks, pipes, conduits, ducts or other
building facilities and systems and the use thereof, as well as access
thereto in and through the premises for the purpose of operation,
maintenance, decoration and repair, are expressly reserved to the Landlord
and the Landlord does not convey any rights to the Tenant therein.
7. Tenant shall take good care of the premises and fixtures therein and,
subject to the provisions of paragraph 5 hereof shall make, as and when
needed, as a result of misuse or neglect by Tenant or Tenant's servants,
employees, agents, visitors, licensees, contractors, guests or invitees all
repairs in and about the demised premises necessary to preserve them in
good order and condition, which repairs shall be in quality and class equal
to the original work. However, Landlord may repair, at the expense of
Tenant, all damage or injury to the demised premises or to the building or
to its fixtures, appurtenances or equipment, done or caused by Tenant or
Tenant's servants, employees, agents, visitors, licensees, contractors,
guests or
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invitees, or caused by moving property of Tenant in or out of the building,
or by installation or removal of furniture or other property, or resulting
from fire, air-conditioning unit or system short circuits, overflow or
leakage of water, steam, illuminating gas, sewer gas, sewage or odors, or
by frost, or by bursting or leaking of pipes or plumbing works, or gas, or
from any other cause, due to the carelessness, negligence, or improper
conduct of Tenant, or Tenant's servants, employees, agents, visitors,
licensees, contractors, guests or invitees. Except as provided in paragraph
13 hereof, there shall be no allowance to Tenant for a diminution of rental
value, and no liability on the part of Landlord by reason of inconvenience,
annoyance or injury to person(s), property or business arising from the
making of any repairs, alterations, additions or improvements in or to any
portion of the building or the premises or in or to the fixtures,
appurtenances or equipment, nor shall there be any liability upon the
Landlord for failure to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises
or in or to the fixtures, appurtenances or equipment. The Tenant shall and
does hereby indemnify and hold the Landlord harmless and free from all
liability for all injuries suffered by any person(s), and for damages
sustained to property, and for any monies paid out by Landlord in
settlement of any claims or judgements resulting from such damages or
injuries, as well as for all expenses and attorney's fees incurred by
Landlord in connection therewith.
8. Tenant will not clean, nor require, permit, suffer or allow any window in
the premises to be cleaned, from the outside in violation of Section 202 of
the Labor Law or of the rules of the Board of Standards and Appeals, or of
any other board or body having or asserting jurisdiction.
9. REQUIREMENTS OF LAW. Tenant, at Tenant's expense, shall comply with all
-------------------
laws, orders and regulations of federal, state, county and municipal
authorities, and with any direction of any public officer or officers,
pursuant to law, which shall impose any duty upon Landlord or Tenant
arising out of the Tenant's use or occupancy of the demised premises, and
shall not do or permit to be done, any act or thing upon said premises,
which will
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invalidate or be in conflict with fire insurance policies covering the
building, fixtures and property therein, and shall not do or permit to be
done any act or thing upon said premises which shall or might subject the
Landlord to any liability or responsibility for injury to any person or
persons or to any property by reason of any business or operation being
carried on upon said premises; and shall comply with all rules, orders,
regulations or requirements of the New York Board of Fire Underwriters, or
any other similar body and shall not do or permit anything to be done in or
upon said premises, or bring or keep anything therein, which shall increase
the rate of fire insurance on the building or on property located therein.
If by reason of failure of Tenant to comply with the provisions hereof, or
if by reason of the nature of the Tenant's occupancy, the fire insurance
rate shall at any time be higher than it otherwise would be, then Tenant
shall reimburse Landlord as additional rent hereunder, for that part of all
fire insurance premiums thereafter paid by Landlord, which shall have been
charged because of such violation or because of such occupancy by Tenant,
and shall make such reimbursement upon the first day of the month following
such outlay by Landlord. In any action or proceeding wherein Landlord and
Tenant are parties, a schedule or "make up" of rate for the building or the
premises issued by the New York Fire Insurance Exchange or other body
making fire insurance rates for 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.
10. SUBORDINATION. This Lease is and shall remain subject and subordinate to
-------------
all ground or underlying leases, leasehold mortgages, and mortgages and
building loan mortgages which may now or hereafter affect the real property
of which the demised premises form a part and each and every of the
advances which have heretofore been made or which may hereafter be made
thereunder, and to all renewals, modifications, consolidations,
replacements and extensions thereof. In confirmation of such subordination,
Tenant shall execute promptly any instruments or certificate that Landlord
may request. Tenant hereby irrevocably constitutes and appoints Landlord
the Tenant's attorney-in-fact to execute any such
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instrument or certificate for and on behalf of Tenant. This clause shall,
nevertheless, be self-operative.
11. RULES AND REGULATIONS. Tenant and Tenant's agents, employees, visitors,
---------------------
licensees, contractors, guests or invitees, shall faithfully comply with
the Rules and Regulations set forth on the back cover of this Lease, and
with such further reasonable Rules and Regulations as Landlord at any time
may make and communicate to Tenant, which, in the Landlord's judgment,
shall be necessary for the reputation, safety, care or appearance of the
building, or the preservation of good order therein, or the operation or
maintenance of the building, its equipment, or the more useful occupancy or
comfort of the Tenants and others in the building. Landlord shall not be
liable to Tenant for the violation of any said Rules and Regulations, or
the breach of any covenant or condition in any lease by any other tenant in
the building.
12. Landlord or Landlord's agents shall not be liable for any damage to
property entrusted to employees of the building nor for the loss of any
property by theft or otherwise. Landlord or Landlord's agents shall not be
liable for any injury or damage to persons or property resulting from
falling plaster, steam, gas, electricity, water, rain or snow which may
leak from any part of the building or from the pipes, appliances or
plumbing works of the same, or from the street or sub-surface, or from any
other place, or by dampness or any other cause of whatsoever nature, unless
caused by or due to the negligence of Landlord; nor shall Landlord be
liable for any such damage caused by other tenants or persons in the
building, or for interference with the light or other incorporeal
hereditaments, or caused by operations in construction of any public or
quasi public work: nor shall Landlord be liable for any latent defect in
the building. Tenant shall reimburse Landlord as additional rent for all
expenses, damages or fines incurred or suffered by Landlord by reason of
any breach, violation or non-performance of any covenant or provision of
this Lease by Tenant, or Tenant's servants, employees, agents, visitors,
licenses, contractors, guests or invitees, or by reason of damage to person
or property caused by moving property in or out of the building, or by the
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installation or removal of furniture or other property of or for the
Tenant, or by reason of or arising out of the occupancy or use by Tenant of
the premises or of the building, or from any other cause due to the
carelessness, negligence or improper conduct of the Tenants or the Tenant's
servants, employees, agents, visitors, licensees, contractors, guests or
invitees.
13. If the demised premises shall be partially damaged by fire or other cause
without the fault or neglect of Tenant, Tenant's servants, employees,
agents, visitors, licensees, contractors, guests or invitees, the damages
shall be repaired by and at the expense of Landlord and the rent and
additional rent until such repairs shall be made shall be apportioned
according to that part of the premises which is usable by Tenant. No
penalty shall accrue for reasonable delay which may arise by reason of
adjustment of fire insurance on the part of Landlord or Tenant, and for
reasonable delay on account of "labor troubles," or any other cause beyond
Landlord's control. But if the demised premises are totally damaged or are
rendered wholly untenantable by fire or other cause, and the Landlord shall
decide not to rebuild the same, or if the building of which the demised
premises are a part shall be so damaged that Landlord shall decide to
demolish it or to rebuild it, then or in any of such events Landlord may,
within ninety (90) days after such fire or other cause, give Tenant a
notice in writing of such decision, and thereupon the term of this Lease
shall expire by lapse of time upon the third day after such notice is
given, and Tenant shall vacate the demised premises and surrender the same
to Landlord.
14. If the entire land and building of which the demised premises are a part,
shall be taken or condemned by any competent authority 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 when the possession thereof shall
be required for such use or purpose. If any part of the land or the
building of which the demised premises are a part or any part of the
demised premises shall be so acquired or condemned, then and in that event,
the term of this Lease, at the option of the Landlord, on ten (10) days
notice by Landlord to Tenant, shall cease and terminate from the date when
possession of the part so taken shall be required for such use or purpose.
In
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the event that Landlord shall not elect to terminate this Lease and part of
the demised premises shall be so taken or condemned, the annual rental,
additional rent and other charges, shall be apportioned from the date
thereof. In no event, under any of the circumstances described herein,
shall Tenant have any claim for the value of any part of the unexpired term
of the within Lease or any portion of the demised premises so taken or
condemned and shall not share in any award that may be made to Landlord or
others.
15. As long as Tenant is not in default under any of the covenants of this
Lease, Landlord shall, if and insofar as the existing facilities provide,
at Landlord's expense: (a) run elevators on business days from 8 A.M. to 6
P.M. and in addition on Saturdays from 8 A.M. to 1 P.M. and also provide
one elevator which will be subject to call during all other hours on
business days, Saturdays, Sundays and holidays: (b) furnish on business
days from 8 A.M. to 6 P.M. ____________________ heat to warm the demised
premises when and as required by law: (c) cause to be kept clean the halls,
corridors and public portions of the building, which are used in common by
all tenants. Tenant shall, at Tenant's expense, keep the demised premises
clean and in order, to the satisfaction of Landlord, and remove its own
rubbish. Landlord shall have the sole right to designate and appoint the
person or concern to be employed, at Tenant's expense, for the removal of
Tenant's refuse and rubbish from the building. Landlord reserves the right
to stop service of the heat, elevator, air conditioning, cooling, plumbing
and electric systems, when necessary by reason of accident, or for repairs,
alterations or improvements, including conversion of each and any of the
elevators from manual to automatic, in the judgement of Landlord desirable
or necessary to be made, until such repairs, alterations or improvements
shall have been completed, and shall further have no responsibility or
liability for failure to supply heat, elevator, plumbing, air conditioning,
cooling and electric service, when prevented from so doing by strikes or
accidents or by any cause beyond Landlord's reasonable control, or by
orders or regulations of any federal, state, county or municipal authority
or failure of coal, oil or other suitable fuel supply, or inability by
exercise of reasonable diligence to obtain coal, oil or other suitable
fuel. It is expressly
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<PAGE>
understood and agreed that any covenants on Landlord's part to furnish any
service pursuant to any of the terms or provisions of this Lease or to
perform any act or thing for the benefit of Tenant shall not be deemed
breached if Landlord is unable to perform the same by virtue of a strike or
labor trouble or any other cause whatsoever beyond Landlord's control and
Tenant agrees that there shall be no abasement or reduction of rent in the
event that any of said systems or service should fail to function for the
reasons above set forth.
16. WATER. Landlord shall have the right to install a separate water meter or
-----
meters for the demised premises or any part thereof and Tenant shall pay
the cost therefor, and if so installed, Tenant shall keep same in repair
and pay the charges made by the municipality for or in respect of the
consumption of water together with sewer rental charges based thereon as
and when billed therefor. If the building or any part thereof be supplied
with water through a meter or meters, the Tenant shall pay to the Landlord,
as and when billed therefor, the Tenant's proportionate part of all such
charges together with sewer rental based on such meter charges, which
amount shall be determined by multiplying the percentage factor set forth
in paragraph 33(b) by the total of the water bills and sewer charges
rendered by the municipality or other public authority from time to time.
All water and sewer rental bills submitted by any public authority shall be
conclusive evidence of the amount due. All payments required to be made by
the Tenant under this paragraph shall be deemed additional rent.
17. ELECTRIC CURRENT. Landlord shall furnish Tenant with electric current
----------------
(subject to discontinuance as provided herein), at no additional charge
except as may be hereinafter provided in subparagraph (a) hereof and
paragraph 33(d), during business hours on business days, consistent with
the normal purposes for which the demised premises have been leased to
Tenant, subject to all the provisions as may be herein contained.
(a) In the event there is an increase or decrease, as the case
may be, in the rate schedule or rates for the purchase of electric current
or electricity, including demand
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<PAGE>
or energy charges, fuel adjustment rates, service charges or sales taxes,
hereinafter collectively referred to as "electric consumption and demand
charges," from the public utility or other supplier of electricity to the
Landlord, from and after the date hereof, such increase or decrease shall
at Landlord's option, be added to and made a part of, or subtracted from
the annual rental provided for in this Lease, and if this Lease has not yet
commenced, then such increase or decrease shall be added to and made a part
of, or subtracted from the annual rental upon the commencement of the
Lease. The amount of such increase or decrease shall be computed by:
ascertaining the electric consumption and demand charges for the entire
building for the 12 months immediately preceding the effective date of the
increase or decrease; then ascertaining such electric consumption and
demand charges based upon the new rates and charges; then computing the
percentage of increase or decrease, as the case may be, and multiplying
such percentage of increase or decrease by the difference between the
annual rental and the amount set forth in subdivision (c) below.
(b) Tenant shall make no changes in or additions to the
electrical system, wiring, conduits, switches, fixtures, outlets or any
other electrical equipment in the building or demised premises during the
term of this Lease and any extensions or renewals thereof without first
obtaining the written consent of the Landlord thereto. Tenant shall not,
during the term of this Lease, connect to the risers, feeders, outlets,
base receptacles, wiring or installations constituting Landlord's
electrical distribution system, any electrical machinery, electrical
equipment, electrical computers or any other office or electrical
appliances without first obtaining the written consent of the Landlord
thereto. Tenant further agrees not to permit, at any time during the term
of this Lease, its electrical consumption to overtax the capacity of
Landlord's existing electrical distribution system.
(c) The Landlord may discontinue the supply of electric current
to the Tenant, at any time, notwithstanding any contrary provisions of this
Lease, upon giving Tenant thirty (30) days prior written notice of
Landlord's intention so to do and thereupon Tenant may contract or
otherwise arrange with any person, firm or corporation for the
12
<PAGE>
purchase and supply of such electric current, all without affecting or
changing the obligations of the Tenant under this Lease, provided, however,
that in the event of the discontinuance of the electric current by the
Landlord, the annual rental shall be reduced to the sum of $339,613.00 and
Tenant shall have no further rights under this Lease with respect thereto.
In the event of such discontinuance of electric current, Tenant shall have
no right to use or utilize Landlord's electrical distribution system,
including its risers, feeders, wiring or installations for the supply of
Tenant's electric current. Tenant may install, at its own cost and expense,
any risers, feeders, wiring or installations to enable it to obtain
electric current, subject, however, to there being available space, areas
and facilities in the building for the inclusion and insertion of such
risers, feeders, wiring and installations, of which availability Landlord
shall be the sole judge; provided that same shall not cause damage or
injury to the building or the demised premises, or cause or create a
dangerous or hazardous condition, or interfere with or disturb other
tenants, or overtax the capacity of Landlord's existing electrical
distribution system, and provided further that any such work will at all
times comply with the laws, rule and regulations of all governmental
bureaus, agencies and other subdivisions having jurisdiction over the
demised premises. The aforesaid risers, feeders, wiring and installations
to be installed by Tenant shall, at all times, be and remain the property
of Landlord. "Notwithstanding anything to the contrary contained herein,
Landlord agrees it will not discontinue the supply of electric current to
Tenant unless, at the same time, Landlord disconnects electric to all
tenants above the ground floor."
(d) The Landlord agrees to supply electric current to the Tenant
in the manner as herein set forth, to the extent that the quality,
character and quantity of the supply of electric current shall be available
to the Landlord from the public utility company or other supplier supplying
the same and the Landlord and Tenant further agree that Landlord shall not
be liable to the Tenant for any loss, damage or expense resulting from
change in the quality, character or quantity or due to the cessation or
interruption of said supply without any fault on the part of the Landlord,
or for Landlord's failure to supply such electric current
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<PAGE>
when prevented from so doing by strikes, accidents, repairs, alterations,
improvements or other causes beyond Landlord's control or by orders or laws
of any federal, state, county or municipal authorities, and there shall be
no abatement of rent upon the happening and during the period of such event
or events.
18. The Landlord has installed within the building of which the demised
premises are a part, machinery, appliances, equipment and appurtenances for
the operation and maintenance of a modern peripheral air-conditioning
system which is capable, during the summer time, when the outside
temperature is 95 degrees, of maintaining inside the building a temperature
of approximately 10 degrees less and a proportionately less difference of
temperature between the inside and outside, as the outside temperature
falls to 75 degrees Fahrenheit. The Landlord has provided main cooling
system units at the windows which service the peripheral area and has
installed two or more main ducts and booster units on all floors of the
building as a part of the air-conditioning system.
(a) It is expressly understood by the Tenant that in order for
the air conditioning system to function properly, the Tenant is obliged to,
and the Tenant agrees to keep all windows in the premises closed. Tenant
acknowledges that the air-conditioning system will not function properly if
the demised premises are occupied by more than an average of one person for
each 100 sq. ft., or if Tenant installs or operates lighting loads in
excess of 3 1/2, watts per sq. ft., or if Tenant installs and operates
electrical equipment which gives off heat that cannot be adequately
absorbed by Landlord's existing air-conditioning system in the demised
premises.
(b) Subject always to events and causes, physical, mechanical
and otherwise, beyond the reasonable control of the Landlord, for the
failure of which the Landlord shall not be liable in any event whatever,
the Landlord will service and maintain said air-conditioning system in such
matter as to provide air-conditioning for the premises on
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<PAGE>
business days generally during the hours of 8 A.M. to 6 P.M. during the
months of June, July, August and September, when required, consistent with
the provisions hereof.
(c) Any damage caused to the appliances, equipment or
appurtenances as a result of the negligence of or the careless operation by
the Tenant or the agents, servants, employees, contractors, visitors,
guests, licensees or invitees of the Tenant, shall be repaired by the
Landlord at the cost and expense of the Tenant, which expense shall
constitute additional rent
19. (a) ACCESS TO PREMISES. Tenant shall permit Landlord to erect, use and
------------------
maintain, pipes and conduits in and through the demised premises.
Landlord's agents shall have the right to enter the demised premises at all
time to examine same, to show them to prospective purchasers or lessees of
the building, and to make such decorations, repairs, alterations,
improvements or additions as Landlord may deem necessary or desirable
either to the building or to the demised premises and Landlord shall be
allowed to take all material into and upon said premises that may be
required therefor without the same constituting an eviction of Tenant in
whole or in part and the rent reserved shall in no wise abate while said
decorations, repairs, alterations, improvements or additions are being
made, by reason of loss or interruption of the business of Tenant, because
of the prosecution of any such work or otherwise.
(b) The Tenant shall give prompt notice to the Landlord of any
fire, accident to or defective condition in any part of the demised
premises, including but not limited to the sanitary, electrical, heating,
air conditioning, cooling and other systems located in, or passing through
the premises, and the damage or defective condition shall be remedied by
the Landlord with due diligence, but if such damage or defective condition
was caused by the Tenant or if the system was installed for the particular
use of the Tenant and the damage or defective condition was not caused by
the negligence of the Landlord, the cost of the remedy thereof shall be
paid by the Tenant.
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<PAGE>
(c) During the six months prior to the expiration of the term of
this Lease, Landlord may exhibit the premises to prospective tenants at all
reasonable hours.
(d) If, during the last month of the Term, Tenant shall have
removed all or substantially all of Tenant's property from the premises,
Landlord may immediately enter and alter, renovate and decorate the
premises or any part thereof without affecting this Lease and without
liability to Tenant for an abatement of rent or other compensation.
(e) Landlord may permit access to the premises without incurring
liability to the Tenant, whether or not the Tenant shall be present, upon
demand of any receiver, trustee, assignee for the benefit of creditors,
sheriff, marshal, court officer or government official entitled to, or
reasonably purporting to be entitled to such access for the purpose of
taking possession of or removing Tenant's property or for any other lawful
purpose. This provision and any action by the Landlord hereunder shall not
be deemed a recognition by Landlord that the person or official making such
demand has any right or interest in or to this Lease or on or to the
premises.
(f) Landlord shall have the right to change the arrangement and
location of entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets or other public parts of the building, and after
reasonable notice, to change the name, number or designation by which the
building is commonly known. Nothing herein contained, however, shall be
deemed or construed to impose upon Landlord any obligation, responsibility
or liability whatsoever for the care, supervision or repair of the building
or any part thereof, unless herein otherwise provided.
(g) In the event of a refusal by the Tenant to permit an entry
upon the premises as in this paragraph provided, the Landlord and the
Landlord's agents may forcibly enter the same nevertheless without
incurring any liability by reason thereof.
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<PAGE>
20. PLATE GLASS. The Tenant shall repair, at its own expense, all damage to or
-----------
destruction of any plate or window glass in the demised premises, and shall
maintain adequate plate glass insurance at its own expense for the benefit
of the Landlord. If the Tenant fails to repair the damage to any plate or
window glass in the demised premises, or fails or refuses to maintain
adequate plate glass insurance for the benefit of the Landlord, then the
Landlord may repair said damage or destruction or may insure the plate
glass and charge the cost of such repair or the cost of the premium for the
plate glass insurance to the Tenant and the amount thereof shall be deemed
to be additional rent.
21. VAULTS. No vaults, vault space or space not within the property line of the
------
building is leased hereunder, anything contained in or indicated on any
sketch, blueprint or plan, or anything elsewhere in this Lease to the
contrary notwithstanding. Landlord makes no representation as to the
location of the property line of the building. All vaults and vault space
and all space not within property line of the building, which Tenant may be
permitted to use and occupy, is to be used and occupied under a revocable
license, and if any such license be revoked, or if the amount of such space
be curtailed by any federal, state or municipal authority. Landlord 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
or curtailment be deemed a constructive or actual, total or partial
eviction.
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22. CERTIFICATE OF OCCUPANCY. Tenant will not at any time use or occupy the
------------------------
premises in violation of the certificate of occupancy issued for the
building, and in the event that any department of the City or State of New
York shall hereafter at any time contend that the premises are used for a
purpose which is a violation of such certificate of occupancy, in that
event Tenant shall, upon 5 days written notice from Landlord, immediately
discontinue such use of said premises. Failure by Tenant to discontinue
such use after such notice shall he considered a default in the fulfillment
of a covenant of this Lease and Landlord shall have the right to terminate
this Lease immediately and in addition thereto shall have the right to
exercise any and all rights and privileges and remedies given to Landlord
pursuant to the provisions of paragraph 25 hereof. The statement in this
Lease of the nature of the business to be conducted by Tenant in the
demised premises shall not be deemed or construed to constitute a
representation or guaranty by Landlord that such business is lawful or
permissible under the certificate of occupancy issued for the building or
otherwise permitted by law.
23. SPRINKLERS. If the "sprinkler system" or any of its parts or appliances
----------
shall be damaged or not in proper working order by reason of any act or
omission of Tenant, Tenant shall forthwith at its own expense restore the
same to good working condition: and if the New York Board of Fire
Underwriters or the New York Fire Insurance Exchange or any bureau,
department or official of the state or city government, require or
recommend that any changes, modifications, alterations or additional
sprinkler heads or other equipment, be made or supplied by reason of
Tenant's business, or the location of partitions, trade fixtures, or other
contents of the demised premises, or if any such changes, modifications,
alterations, additional sprinkler heads or other equipment, become
necessary to prevent the imposition of a penalty or charge against the full
allowance for a sprinkler system in the fire insurance rate as fixed by
said Exchange, or by any fire insurance company, Tenant shall, at its
expense, promptly make and supply such changes, modifications, alterations,
additional sprinkler heads or other equipment.
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24. BANKRUPTCY (a) PRIOR TO TERM. If at any time prior to the date herein fixed
----------------------------
as the commencement of the term of this Lease there shall be filed by or
against Tenant in any court pursuant to any statute either of the United
States or of any State a petition in bankruptcy or insolvency, or for
reorganization, or for the appointment of a receiver or trustee of all or a
portion of Tenant's property, or if Tenant makes an assignment for the
benefit of creditors, or petitions for or enters into an arrangement, this
Lease shall at the option of the Landlord, be cancelled and terminated in
which event neither Tenant nor any person claiming through or under Tenant
by virtue of any statute or order of any court shall be entitled to
possession of the demised premises and Landlord, in addition to the other
rights and remedies given by (c) hereof or by virtue of any other provision
herein or elsewhere in this Lease contained, or by virtue of any statute or
rule of law, may retain as liquidated damages any rent, security, deposit
or monies received by it from Tenant or others in behalf of Tenant.
(b) DURING TERM. If at the date fixed as the commencement of the
-----------
term of this Lease or if at any time during the term hereof, there shall be
filed by or against Tenant in any court pursuant to any statute either of
the United States or of any State a petition in bankruptcy or insolvency or
for reorganization or for the appointment of a receiver or trustee of all
or a portion of Tenant's property, and within thirty (30) days thereafter
Tenant fails to secure a discharge thereof, or if Tenant makes an
assignment for the benefit of creditors or petitions for or enters into an
arrangement, this Lease, at the option of Landlord, exercised within a
reasonable time after notice of the happening of any one or more of such
events, may be cancelled and terminated in which event neither Tenant nor
any person claiming through or under Tenant by virtue of any statute or
order of any court shall be entitled to possession or to remain in
possession of the premises but shall forthwith quit and surrender the
premises and Landlord, in addition to the other rights and remedies
Landlord has by virtue of any other provision herein or elsewhere in this
Lease contained, or by virtue of any statute or rule of law, may retain as
liquidated damages, any rent, security, deposit or monies received from
Tenant or others in behalf of Tenant
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(c) MEASURE OF DAMAGES. In the event of the termination of this
------------------
Lease pursuant to (a) or (b) hereof, Landlord 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 then fair and reasonable
rental value of the demised 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 demised premises for the period for which
such installment was payable shall be discounted to the date of termination
at the rate of two per cent (2%) per annum. If such premises or any part
thereof be re-let by the Landlord for the unexpired term of this 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 prima facie to be the fair and reasonable rental
value for the part or the whole of the premises so re-let during the term
of the re-letting. Nothing herein contained shall limit or prejudice the
right of the Landlord to claim 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 such time 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.
25. DEFAULT. (a) If Tenant shall make default in fulfilling any of the
-------
covenants of this Lease other than the covenants for the payment of rent or
additional rent and such default shall continue to exist for 10 days after
notice thereof by Landlord to Tenant, or if the premises become vacant or
deserted, Landlord may give Tenant 5 days notice of intention to end the
term of this Lease and thereupon, at the expiration of said 5 days the term
under this Lease shall expire as fully and completely as if that day were
the day herein definitely fixed for the expiration of the term, and Tenant
will then quit and surrender the premises to Landlord but Tenant shall
remain liable as hereinafter provided.
20
<PAGE>
(b) If the second notice provided for in (a) hereof shall have
been given and the term shall expire as aforesaid: or (1) if Tenant shall
make default in the payment of the rent reserved herein or any item of
additional rent as and when such rent or additional rent becomes due and
payable or any part of either or in making any other payment herein
provided: or (2) if any execution or attachment shall be issued against
Tenant or any of Tenant's property whereupon the premises shall be taken or
occupied or attempted to be taken or occupied by someone other than Tenant:
or (3) if Tenant shall be in default with respect to any other lease
between Landlord and Tenant: or (4) if Tenant shall fail to move into or
take possession of the premises within fifteen (15) days after the
commencement of the term of this Lease, then, and in any of such events
Landlord may without notice, re-enter the premises either by force or
otherwise, and dispossess Tenant or the legal representatives of Tenant or
other occupant of the premises, by summary proceeding or otherwise, and
remove their effects and hold the premises as if this Lease had not been
made and Tenant hereby waives any notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall be in default
hereunder prior to the date fixed as the commencement of any renewal or
extension of this Lease then any renewal, extension or other lease shall,
at Landlord's sole option, be cancelled and terminated.
(c) REMEDIES OF LANDLORD. In case of any such default, re-entry,
--------------------
expiration or dispossess by summary proceedings or otherwise, as provided
above: (1) the rent shall become due thereupon and be paid up to the time
thereof together with such expenses as Landlord may incur for legal
expenses, attorneys' fees, brokerage, and putting the premises in good
order and in preparing the same for re-rental: (2) Landlord may re-let the
premises or any part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms which may at Landlord'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: (3) Tenant
or the legal representatives of Tenant shall also pay Landlord as
liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants
21
<PAGE>
herein contained, any deficiency between hereby reserved and covenanted to
be paid and the net amount, if any, of the rents collected on account of
the leasing of the premises for each month of the period which would
otherwise have constituted the balance of the term of this Lease. In
computing such liquidated damages there shall be added to the said
deficiency such expenses as Landlord may incur in connection with re-
letting, such as legal expenses, attorneys' fees, brokerage and for keeping
the 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 and any suit brought to collect the
amount of the deficiency for any month shall not prejudice in any way the
rights of Landlord to collect the deficiency for any subsequent month by a
similar proceeding. Landlord, at its option, may make such alterations and
decorations in the premises as Landlord in its sole judgment considers
advisable and necessary for the purpose of ret-letting the premises and the
making of such alterations and decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Landlord
shall in no event be liable in any way whatsoever for failure to re-let the
premises, or in the event that the premises are re-let, for failure to
collect the rent thereof under such re-letting. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof,
Landlord 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. The mention in this Lease of
any particular remedy, shall not preclude Landlord from using any other
remedy, in law or in equity.
(d) WAIVER OF REDEMPTION. Tenant for itself and on behalf of any
--------------------
and all persons or parties claiming through or under the Tenant, including
creditors, hereby expressly waives any and all rights of redemption granted
by or under any present or future laws in the event of Tenant being evicted
or dispossessed for any cause, or in the event of Landlord obtaining
possession of the demised premises by reason of the violation by Tenant of
any of the covenants and conditions of this Lease or otherwise.
22
<PAGE>
26. FEES AND EXPENSES. If Tenant shall default in the performance of any
------------------
covenant, term or condition on Tenant's part to be performed as in this
Lease contained, Landlord may immediately, or at any time thereafter,
without notice, perform the same for the account of Tenant. If Landlord at
any time is compelled to pay or erects to pay any sum of money, or do any
act which will require the payment of any sum of money, by reason of the
failure of Tenant to comply with any provision hereof, or if Landlord is
compelled to or does incur any expense including reasonable attorneys'
fees, instituting, prosecuting or defending any action or proceeding,
whether instituted by Landlord or Tenant, by reason of any cause
whatsoever, including a default of Tenant hereunder, the sum or sums so
paid by Landlord with all interest, costs and damages, shall be deemed to
be additional rent hereunder and shall be due from Tenant to Landlord on
the first day of the month following the incurring of such respective
expenses or at the Landlord's option on the first day of any subsequent
month.
27. REPRESENTATIONS BY LANDLORD. Landlord or Landlord's agents have made no
---------------------------
representations or promises with respect to the said building or demised
premises except as herein expressly set forth. The taking possession of the
premises by Tenant shall be conclusive evidence, against Tenant, that the
demised premises and the building were in good and satisfactory condition
at the time such possession was taken. Tenant has inspected the building
and the demised premises and is thoroughly acquainted with their condition
and agrees to take same "as is."
28. END OF TERM. Upon the expiration or other termination of the term hereof,
-----------
Tenant shall quit and surrender to Landlord the premises, broom clean, in
good order and condition, ordinary wear excepted. Tenant shall remove all
property of Tenant as directed by Landlord. If the last day of the term of
this Lease or any renewal thereof falls on a Sunday or a legal holiday this
Lease shall expire at 12 noon on the business day immediately proceeding.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of the term of this Lease. Any personal
property of the Tenant or other occupant which shall remain in the premises
or building after the expiration or other termination of the
23
<PAGE>
term shall be deemed to have been abandoned by the Tenant or other occupant
and either may be retained by the Landlord as its property or may be
disposed of in such manner as the Landlord may see fit. If such personal
property or any part thereof shall be sold, the Landlord may receive and
retain the proceeds of such sale and apply the same, at its option, against
the expenses of the sale, the cost of moving and storage, any arrears of
rent or additional rent payable hereunder and any damages to which the
Landlord may be entitled under paragraph 25 hereof or pursuant to law. In
the event Landlord shall notify Tenant not later than ninety (90) days
after the expiration or other termination of this Lease, Tenant shall
restore the premises to the condition existing immediately prior to the
commencement of this Lease. Such restoration shall include demolition of
walls and other structures, construction and erection of walls, ceilings
and other structures, ceiling patching, duct-work, sprinkler-head changes,
electric work and such other alterations, decorations or repairs as may be
necessary to restore the premises to the condition existing immediately
prior to the commencement of this Lease.
29. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant
---------------
paying the rent and additional rent and performing all the covenants and
conditions aforesaid, on Tenant's part to be observed and performed, Tenant
shall and may peaceably and quietly have, hold and enjoy the demised
premises for the term aforesaid, subject, however, to the terms of this
Lease, the ground and underlying leases, if any, and mortgages hereinbefore
mentioned, except that the provisions hereof shall only apply so long as
Landlord or any successor to Landlord's interest is in possession and is
collecting rent from Tenant but not thereafter.
30. FAILURE TO GIVE POSSESSION. If the Landlord shall be unable to give
--------------------------
possession of the demised premises on the date of the commencement of the
term of this Lease, such failure to give possession shall not in any way
affect the obligations of the Tenant except that the rent and additional
rent, reserved and covenanted to be paid hereunder, shall not commence
until possession of the demised premises are made available for occupancy
by the
24
<PAGE>
Tenant; nor shall such failure to give or afford possession be construed in
any way to extend the term of this Lease. No liability whatever shall arise
or accrue against the Landlord by reason of its failure to deliver
possession and the Tenant hereby releases and discharges the Landlord from
any claim for damage, loss or injury of every kind whatever, for such
period of time as Landlord may be unable to give or deliver possession of
the demised premises.
31. RECAPTURE OF CERTAIN ELEVATOR SPACE. The Landlord expressly reserves the
-----------------------------------
right, upon 10 days' written notice sent by ordinary mail, to recapture
that part or portion of the demised premises shown and designated on the
filed plans as a frame for an elevator on the Seventh Avenue side of the
building in which the demised premises are located, and that part or
portion of the demised premises shown or designated on the filed plans as a
frame for a passenger and freight elevator on the Broadway side of the
building in which the demised premises are located, without in any way
whatever affecting this Lease or the term thereof or the rent or additional
rent payable hereunder. The failure of the Tenant to comply with this
covenant and to surrender such part or portion of the demised premises
shall constitute a default.
32. NO WAIVER. The failure of Landlord to seek redress for violation of, or to
---------
insist upon the strict performance of any covenant or condition of this
Lease, or any of the Rules and Regulations set forth on the inside cover of
this Lease or hereafter adopted by Landlord, 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 Landlord of
rent, additional rent or other charges, with or without knowledge of the
breach of any covenant or condition of this Lease or the Rules and
Regulations, shall not be deemed a waiver of such breach. The failure of
Landlord to enforce any of the covenants, conditions or Rules and
Regulations against Tenant or any other tenant in the building shall not be
deemed a waiver of any such covenants, conditions or Rules and Regulations.
No provision of this Lease or the Rules and Regulations shall be deemed to
have been waived by Landlord, unless such waiver be in writing signed by
Landlord. No payment by Tenant or receipt by Landlord of
25
<PAGE>
any amount, whether designated by Tenant as rent, past rent, additional
rent, tax or operating expense escalation charges under paragraph 33 or
otherwise, shall be binding upon Landlord and Landlord may apply any such
amount, however designated by Tenant, to rent, past rent, additional rent,
tax or operating expense escalation charges under paragraph 33 or
otherwise, as Landlord in its sole discretion may determine; nor shall any
endorsement or statement on any check or any letter or direction by Tenant
or someone on its behalf, whether or not accompanying any check or payment
of any such items or charges, be deemed an accord and satisfaction or
binding upon Landlord, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of any such
items or charges or pursue any other remedy provided in this Lease. The
acceptance of payment of any such items or charges by Landlord from any
party other than Tenant, or if such payment is made on behalf of Tenant by
any party other than Tenant, shall not constitute a waiver of the
provisions of paragraph 3 respecting the assignment of the Lease or
subletting of the premises. If the term "Tenant" as used herein refers to
more than one person, party, corporation, company or other entity, Landlord
may treat any breach of this Lease by one of such parties as a breach by
all.
33. (a) LEASE YEAR AND TAX YEAR. For the purposes of this paragraph, the term
-----------------------
"tax year" shall mean each consecutive 12-month period commencing July 1st,
all or any part of which falls within the term of this Lease: the term
"lease year" shall mean each calendar year, all or any part of which falls
within the term of this Lease. If the first or the final tax year or lease
year shall contain less then 12 months, the additional rent payable under
subdivisions (b) and (c) of this paragraph with respect to such tax years
or (d) with respect to such lease years shall be pro-rated by multiplying
such amount by a fraction which has as a numerator the number of months in
such tax or lease year and a denominator of 12. In the event Landlord has
not computed the operating expenses for the next-to-last or last lease year
prior to the expiration date of this Lease, the additional rent payable
under subdivision (d) of this paragraph for such next-to-last or last lease
year shall be based upon either the operating
26
<PAGE>
expenses for the last full lease year where such figures are available, or
Landlord, at its option, shall have the right to estimate the operating
expenses for such next-to-last or last lease year, and the additional rent
due under subdivision (d) of this paragraph for such next-to-last or last
lease year shall be due and payable by Tenant to Landlord sixty (60) days
prior to the expiration or earlier termination of this Lease.
(b) REAL ESTATE TAXES. In the event that the real estate taxes
-----------------
payable with respect to the building and the land on which it is located,
for any tax year in which this Lease shall be in effect (inclusive of any
certiorari fees paid or to be paid with respect thereto) shall be greater
than the amount of such taxes due and payable for the tax year next
preceding the term commencement date (sometimes hereinafter referred to as
"base tax year,") whether by reason of an increase in either the tax rate
or the assessed valuation, or by reason of the levy, assessment or
imposition of any tax on real estate as such, not now levied, assessed or
imposed, or for any other reason, Tenant shall pay to Landlord, when
billed, after the date on which the real estate taxes for such tax year
shall be fixed and determined, as additional rent for the lease year in
which such date occurs, an amount equal to 1.270% of the difference between
the amount of such tax or installment and the corresponding tax or
installment paid for the base tax year. The base tax year, as referred to
in this subparagraph, notwithstanding anything to the contrary otherwise
contained within, shall, for the purposes hereof, be deemed to mean the tax
year 1998/99.
(c) ASSESSMENTS. Tenant shall also pay to Landlord, within
-----------
thirty (30) days after the same shall be payable by Landlord and as
additional rent for the lease year in which the same shall be so payable,
an amount equal to 1.270 % of any assessment or installment thereof for
public betterments or improvements which may be levied upon the said land
and building.
See paragraph 44
27
<PAGE>
(d) Landlord shall have the further right, at its option, to
bill Tenant monthly, in any lease year during the term of this Lease, for
1/12 of its share of the difference between the operating expenses for the
Tenant's base expense year and the previous calendar year's operating
expenses, plus the then current calendar year's estimated expense increase
which shall not be less than the difference between the preceding two
calendar years' operating expenses. At the end of each such lease year,
Landlord shall bill the Tenant for the difference between what Tenant paid
during such lease year and the amount computed to be due for such lease
year, which shall be paid when billed, or conversely, if Tenant's payment
exceeded the amount due for such lease year, Landlord shall then refund
such difference to Tenant. Landlord shall furnish Tenant with a brief
Summary Schedule in each lease year, which shall be deemed final and
conclusive if not contested by Tenant within 30 days after delivery thereof
to Tenant.
34. WAIVER OF TRIAL BY JURY. It is mutually agreed by and between Landlord 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 on any matters whatsoever arising
out of or in any way connected with this Lease, any extension or renewal
thereof or the Tenant's use or occupancy of said premises.
35. SHIPPING RESTRICTION. Tenant shall not ship or receive goods, merchandise
--------------------
or inventory other than for sample purposes, or use the public corridors of
the building to ship or receive same and Tenant shall not at any time use
any hand trucks or other wheeled vehicles in the public or other corridors
of the building.
36. NOTICES, BILLS AND STATEMENTS. Except as otherwise in this Lease provided,
-----------------------------
any notice, bill or statement by either party to the other may be given or
sent and shall be deemed to have been duly given or sent if either
delivered personally or mailed in a post-paid envelope, addressed to the
Landlord at 1407 Broadway, New York, N.Y., and to the Tenant at the
premises (or at the Tenant's present address as above set forth, if mailed
prior to the
28
<PAGE>
Tenant's occupancy of the premises), or if any address for notices shall
have been truly changed as hereinafter provided, if mailed to the party at
such changed address. Either party may at any time change the address for
notices, bills or statement by delivering or mailing, as aforesaid, a
notice stating the change and setting forth the changed address.
Should the term "Tenant", as used in this Lease, refer to more
than one person, party, corporation, company or other entity, any notice,
bill or statement given or sent as aforesaid to any one of such entities
shall be deemed to have been duly given or sent to the Tenant.
37. SECURITY. The Tenant has deposited with the Landlord the sum of $35,375.00
--------
as security for the performance by the Tenant of the terms of this Lease.
The Landlord 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 other sum as to which the Tenant is in default in
respect of any of the terms of this Lease, including, but not limited to,
any damage or deficiency in the reletting of the demised premises, whether
such damages or deficiency accrued before or after summary proceedings or
other reentry by the Landlord, including, but not limited to, leasing
commissions incurred in connection with the leasing of the premises and
legal or other fees which Landlord may incur. In the event that the Tenant
shall comply with all of the terms of this Lease, the security shall be
returned to the Tenant after the date fixed as the end of the Lease and
after delivery of possession of the demised premises to the Landlord. In
the event of a sale or lease of the premises of which the demised premises
forms a part, the Landlord shall have the right to transfer the security to
the vendee or lessee and the Landlord shall thereupon be released from all
liability for the return of such security and the Tenant shall look solely
to the new, landlord for the return of such security. The Tenant shall not
assign or encumber the money deposited as security, and neither the
Landlord nor its successors or assigns shall be bound by any such
assignment or encumbrance.
29
<PAGE>
38. MARGINAL NOTES. The marginal notes are inserted only as a matter of
--------------
convenience and for reference and in no way define, limit or describe the
scope or intent of this Lease nor in any way affect this Lease.
39. DEFINITION. (a) The term "Landlord" 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), 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 other disposition of said land and
building or said leasehold, the said Landlord shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord
hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest, or between the parties
and the purchaser, at any such sale, or the said lessee of the building,
that the purchaser or the lessee of the building has assumed and agreed to
carry out any and all covenants and obligations of Landlord hereunder
(b) The term "business days" shall be construed to mean Monday
to Friday inclusive, excluding holidays.
(c) The words "re-enter" and "re-entry" as used in this Lease
are not restricted to their technical legal meaning.
(d) The term "gross square feet" if and when used herein,
shall be deemed to mean and include all the space taken up by and for
stairways, stairwells, lobbies, elevator shafts, lavatories, washrooms,
utilities, air-conditioning and mechanical equipment in the building,
whether or not all or any part of such space or equipment is located in the
demised premises, the determination of which, as computed by Landlord,
shall be final and conclusive.
(e) The term "additional rent" as used herein, shall be deemed
to mean any and all costs, charges, expenses, adjustments of rent and
electricity which Tenant
30
<PAGE>
assumes, agrees or is obligated to pay to Landlord or others pursuant to
the provisions of this Lease or any other agreement, and in the event of
the non-payment thereof, Landlord shall have all of the rights and remedies
with respect thereto as provided for herein or by applicable law in case of
the non-payment of annual rent.
40. The covenants, conditions and agreements contained in this Lease shall bind
and inure to the benefit of Landlord and Tenant and their respective heirs,
distributees, executors, administrators, successors, and, except as
otherwise provided in this Lease, their assigns.
41. This Lease contains the entire agreement between the parties and may not be
modified or amended except by an agreement in writing signed by the parties
hereto.
42. The parties herein agree that NO BROKERS brought about or had any
connection with the procuring, execution and delivery of this Lease.
43. The riders annexed hereto as paragraphs 44 to 45 are incorporated herein
and made a part of this Lease.
31
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have respectively
signed and sealed this lease as of the day and year
GETTINGER ASSOCIATES "LANDLORD"
By _________________________
GENERAL PARTNER
____________________________
Tenant
By _________________________ (L.S.)
Title
____________________________ (L.S.)
WITNESS FOR TENANT:
____________________________
32
<PAGE>
ACKNOWLEDGEMENTS
<TABLE>
<CAPTION>
PARTNERSHIP LANDLORD CORPORATE TENANT
STATE OF NEW YORK, ) STATE OF NEW YORK, )
COUNTY OF NEW YORK, ) SS.: COUNTY OF NEW YORK, ) SS.:
City of New York ) City of New York )
<S> <C>
ON THIS DAY OF , 19 , ON THIS DAY OF , 19 , BEFORE ME
BEFORE ME PERSONALLY CAME PERSONALLY CAME TO
TO ME KNOWN AND KNOWN TO ME TO BE A MEMBER OF ME KNOWN, WHO BEING BY ME DULY SWORN, DID DEPOSE
THE FIRM OF GETTINGER ASSOCIATES AND THE AND SAY THAT HE RESIDES IN
PERSON DESCRIBED IN AND WHO EXECUTED THE
FOREGOING INSTRUMENT IN THE NAME OF SAID FIRM, THAT HE IS THE
AND HE DULY ACKNOWLEDGED TO ME THAT HE OF
EXECUTED THE SAME FOR AND AS THE ACT AND DEED THE CORPORATION DESCRIBED IN AND WHICH EXECUTED
OF SAID FIRM. THE FOREGOING INSTRUMENT AS
TENANT: THAT HE KNOWS THE SEAL OF SAID CORPORATION:
THAT THE SEAL AFFIXED BY ORDER OF THE BOARD OF DIRECTORS
OF SAID CORPORATION, AND THAT HE SIGNED
HIS NAME THERETO BY LIKE ORDER.
- -------------------------------------------------- ---------------------------------------------------------------
CO-PARTNERSHIP TENANT INDIVIDUAL TENANT
STATE OF NEW YORK, STATE OF NEW YORK,
COUNTY OF NEW YORK, SS.: COUNTY OF NEW YORK, SS.:
City of New York City of New York
ON THIS DAY OF , 19 , ON THIS DAY OF , 19 , BEFORE ME
BEFORE ME PERSONALLY CAME PERSONALLY CAME TO
TO ME KNOWN AND KNOWN TO ME TO BE A MEMBER OF ME KNOWN AND KNOWN TO ME TO BE THE INDIVIDUAL
THE FIRM OF DESCRIBED IN AND WHO, AS TENANT, EXECUTED THE
FOREGOING INSTRUMENT AND ACKNOWLEDGED TO ME THAT
AND THE PERSON DESCRIBED IN AND WHO EXECUTED
THE FOREGOING INSTRUMENT IN THE NAME OF SAID BE
FIRM, AND HE DULY ACKNOWLEDGED TO ME THAT HE
EXECUTED THE SAME FOR AND AS THE ACT AND DEED EXECUTED THE SAME.
OF SAID FIRM.
- -------------------------------------------------- ---------------------------------------------------------------
</TABLE>
33
<PAGE>
ADDITIONAL PARAGRAPHS attached to and forming a part of Lease dated May 12,
1998, between GETTINGER ASSOCIATES and JERI-JO KNITWEAR INC.
-----------------------------------------------------------
44. The term "Basic Rate" shall mean the rate of wages excluding all fringe
benefits and adjustments of every kind paid to building porters for Class A
Office Buildings as established by Local 32B-J, Building Service Employees
International Union AFL-CIO or their successors on December 31, 1998.
If, at any time (subsequent to the date of execution of this Lease) during the
term of this Lease, the Rate of Wages shall exceed the Basic Bate, the annual
rental payable under this Lease shall be increased by one cent ($.01) times the
Basic Rate Multiple per anum for each cent of fraction thereof by which the rate
of wages is greater than the Basic Rate. The "Basic Rate Multiple" shall mean
12,129.
In no event shall any rent adjustment result in a decrease in the annual rent
payable hereunder.
Any Amount due Landlord under the provisions of this paragraph shall be after
Landlord shall have submitted a bill and statement to Tenant, showing in
reasonable detail the computations of the amount due Landlord. At Lease
termination, other than by reason of Tenant's default, Landlord will submit a
pro-rated and apportioned invoice to Tenant for any increase in the Rate of
Wages above the Basic Rate for the period from January 1st of that year to the
date of Lease termination.
Notwithstanding anything to the contrary contained in this paragraph, increases
in annual rental calculated pursuant to this paragraph shall not commence until
June 1, 1999, and shall be payable by Tenant in equal monthly installments.
45. Notwithstanding anything to the contrary contained in paragraph 5 of this
Lease, Landlord and Tenant agree that the last sentence of paragraph 5 hereof
shall be deleted and replaced by the following:
34
<PAGE>
(a) "Asbestos encapsulation, removal or other treatment
respecting asbestos in the confines of the demised premise, as may be
required by law, shall, at all times, be at Landlord's cost and expense,
except if Tenant breaches subdivision (b) below, in which event, same shall
be at Tenant's cost and expense, and Landlord shall retain and hire the
contractor or contractors to render or perform such work.
(b) Tenant agrees not to make any alterations, changes, repairs,
decorations, additions or improvements, structural or non-structural, in
and to any mechanical, electrical, air conditioning, heating or plumbing
systems, which would require the dismantling or removal of the heating or
air conditioning ducts around the perimeter of the demised premises, known
by the trade name "Weathermaster", which shall at all times remain and
continue to remain in the condition as rented to Tenant, and Landlord shall
have the responsibility for maintaining same, except as same may be damaged
by Tenant."
35
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
8-K/A and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> NOV-01-1997 OCT-31-1998
<PERIOD-START> NOV-02-1996 NOV-02-1997
<PERIOD-END> NOV-01-1997 MAY-02-1998
<EXCHANGE-RATE> 1 1
<CASH> 529 160
<SECURITIES> 0 0
<RECEIVABLES> 64,644 69,264
<ALLOWANCES> 0 0
<INVENTORY> 28,590 35,583
<CURRENT-ASSETS> 102,191 112,900
<PP&E> 8,215 9,290
<DEPRECIATION> 2,316 2,951
<TOTAL-ASSETS> 118,762 130,879
<CURRENT-LIABILITIES> 62,879 76,003
<BONDS> 0 0
0 0
0 0
<COMMON> 81 81
<OTHER-SE> 42,082 42,565
<TOTAL-LIABILITY-AND-EQUITY> 118,762 130,879
<SALES> 218,782 147,624
<TOTAL-REVENUES> 218,782 147,624
<CGS> 179,556 118,191
<TOTAL-COSTS> 44,999 24,714
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
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