<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended December 31, 1998.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________________ to
_______________.
Commission file number: 0-24636
THE SIRENA APPAREL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2998726
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10333 VACCO STREET
SOUTH EL MONTE, CALIFORNIA 91733
(Address of principal executive offices)(Zip code)
(626)442-6680
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
AT JANUARY 31, 1999, 5,067,391 SHARES OF $0.01 PAR VALUE COMMON STOCK OF THE
REGISTRANT WERE OUTSTANDING.
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FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31,
1998 (unaudited) and June 30, 1998 3
Consolidated Statements of Operations for the
Three and Six months ended December 31, 1998
and 1997 (unaudited) 5
Consolidated Statements of Cash Flows for the six
months ended December 31, 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements
December 31, 1998 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE SIRENA APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 321,000 $ 95,000
Accounts receivable, net of
allowance of $ 1,661,000
(December 31, 1998) and
$1,908,000 (June 30, 1998)
(Note 3) 4,999,000 6,884,000
Inventories (Note 4) 19,554,000 7,016,000
Prepaids and other current assets 1,050,000 408,000
------------ ------------
Total current assets 25,924,000 14,403,000
Equipment and leasehold improvements:
Furniture, fixtures and equipment 3,989,000 3,917,000
Leasehold improvements 1,023,000 903,000
Computer projects in progress 913,000 778,000
------------ ------------
5,925,000 5,598,000
Less accumulated depreciation
and amortization (3,747,000) (3,526,000)
------------ ------------
2,178,000 2,072,000
Equipment under capital lease,
less accumulated amortization
of $101,000 (December 31, 1998)
and $79,000 (June 30, 1998) 113,000 135,000
Intangible assets, less accumu-
lated amortization of $1,301,000
(December 31, 1998) and $1,145,000
(June 30, 1998) 5,117,000 5,271,000
Deposits 241,000 149,000
------------ ------------
Total assets $ 33,573,000 $ 22,030,000
============ ============
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Bank overdraft $ 2,002,000 $ 920,000
Due to factor 7,000,000 --
Accounts payable 8,255,000 1,968,000
Note payable (Note 6) 237,000 237,000
Accrued liabilities 506,000 1,855,000
Current portion of
capital lease obligations 43,000 46,000
Current portion-note payable
to factor 200,000 200,000
------------ ------------
Total current liabilities 18,243,000 5,226,000
Capital lease obligations,
less current portion 73,000 95,000
Note payable to factor, less
current portion 117,000 217,000
Stockholders' equity
Common Stock,$0.01 par value
Authorized, 20,000,000 shares
Issued and outstanding,
5,067,391 shares (December 31,
1998) and 5,019,391 (June 30, 1998) 51,000 50,000
Additional paid-in capital 34,064,000 33,897,000
Accumulated deficit (18,975,000) (17,455,000)
------------ ------------
Total stockholders' equity 15,140,000 16,492,000
------------ ------------
Total liabilities and stock-
holders' equity $ 33,573,000 $ 22,030,000
============ ============
</TABLE>
See accompanying notes
4
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THE SIRENA APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 11,760,000 $ 9,627,000 $ 14,056,000 $ 11,160,000
Cost of goods sold 5,966,000 5,529,000 7,668,000 7,055,000
------------ ------------ ------------ ------------
Gross profit 5,794,000 4,098,000 6,388,000 4,105,000
Selling, general, & administrative expenses 4,696,000 3,266,000 7,279,000 5,395,000
Depreciation and amortization 122,000 82,000 268,000 160,000
------------ ------------ ------------ ------------
Total operating expenses 4,818,000 3,348,000 7,547,000 5,555,000
------------ ------------ ------------ ------------
Income (loss) from operations 976,000 750,000 (1,159,000) (1,450,000)
Interest expense (243,000) (133,000) (332,000) (168,000)
------------ ------------ ------------ ------------
Income (loss) before provision
for income taxes 733,000 617,000 (1,491,000) (1,618,000)
Provision for income taxes (Note 5) 29,000 25,000 29,000 25,000
------------ ------------ ------------ ------------
Net income (loss) $ 704,000 $ 592,000 $ (1,520,000) $ (1,643,000)
============ ============ ============ ============
Net income (loss) per share-basic $ 0.14 $ 0.13 $( 0.30) $( 0.35)
============ ============ ============ ============
Net income (loss) per share-diluted $ 0.14 $ 0.13 $( 0.30) $( 0.35)
============ ============ ============ ============
Weighted average number of
common shares outstanding:
Basic 5,041,791 4,649,230 5,030,591 4,649,230
Diluted 5,201,712 4,695,462 5,030,591 4,649,230
</TABLE>
See accompanying notes.
5
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THE SIRENA APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (1,520,000) $ (1,643,000)
Adjustments to reconcile
net (loss) to net
cash used in
operating activities:
Depreciation and amortization 399,000 273,000
Changes in operating
assets and liabilities:
Accounts receivable and
due to/from factor 8,885,000 6,776,000
Inventories (12,538,000) (8,937,000)
Prepaid and other assets (734,000) (147,000)
Accounts payable 6,287,000 3,673,000
Accrued liabilities (1,349,000) (681,000)
------------ ------------
Net cash used in operat-
ing activities (570,000) (686,000)
INVESTING ACTIVITIES
Purchases of property,
plant and equipment (328,000) (139,000)
------------ ------------
Net cash used in investing
activities (328,000) (139,000)
FINANCING ACTIVITIES
Payment on capital lease
obligations (25,000) (19,000)
Payment on note payable (100,000) --
Increase in bank
overdraft 1,082,000 1,142,000
Proceeds from options
exercised 167,000 --
------------ ------------
Net cash provided by
financing activities 1,125,000 1,123,000
------------ ------------
Increase in cash 226,000 298,000
Cash at beginning of period 95,000 202,000
------------ ------------
Cash at end of period $ 321,000 $ 500,000
============ ============
</TABLE>
See accompanying notes.
6
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THE SIRENA APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the results of
operations for the periods presented have been included. Operating
results for the six months ended December 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending June
30, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report
on Form 10-K for the year ended June 30, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY BACKGROUND AND NATURE OF BUSINESS - The Sirena Apparel Group,
Inc. (the "Company ") was incorporated in Delaware and designs,
manufactures and markets branded and private label swimwear, resortwear
and intimate apparel for each principal part of the women's market.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary,
SIRENAMEX S.A. de C.V., a Mexican corporation. All the significant
intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION - The Company recognizes revenue as of the date the
merchandise is shipped to its customers. Allowance for estimated returns
and discounts is provided when the related revenue is recorded.
ADVERTISING COSTS - The Company expenses nonreimbursable advertising
costs in the period incurred.
3. ACCOUNTS RECEIVABLE
The Company factors substantially all of its accounts receivable with
Heller Financial ("Heller"). Under the
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factoring agreement the Company may draw short-term advances up to 80%
of uncollected receivables, less reserves as determined by the factor.
In addition, the Company may draw short-term advances up to 50% of
eligible inventory, as defined in the factoring agreement, to a maximum
of $5.0 million (in January, February and March) and ranging to a
maximum of $1.0 million (in June and July). The Company may also borrow
seasonal over-advances from September 1 to March 31 each year up to a
maximum of $2.0 million (in December and January). Interest at the prime
rate plus 0.375%, 2.0% and 2.0% is to be charged on factor advances,
short-term advances and seasonal over-advances, respectively. Aggregate
obligations under the agreement cannot exceed $20.0 million. The
agreement expires on August 18, 2000 and includes certain financial
covenants, including minimum tangible net worth, working capital, and
debt to tangible net worth ratio requirement. The Company was in
compliance with all the covenants at December 31, 1998.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
----------- -----------
<S> <C> <C>
Raw materials $ 6,298,000 $ 4,001,000
Work-in-process 4,997,000 989,000
Finished goods 8,259,000 2,026,000
----------- -----------
Total $19,554,000 $ 7,016,000
=========== ===========
</TABLE>
5. INCOME TAXES
No benefit for income taxes for the loss incurred during the six months
ended December 31, 1998 and 1997 has been recorded as the Company has
historically not been a taxpayer.
6. NOTE PAYABLE
The Company has entered into a $500,000 term loan with Heller to finance
the acquisition of Jezebel (balance was $317,000 at December 31, 1998).
The term loan bears interest at the rate established from time to time
by Bank of America (7.75% at December 31, 1998) plus 1.5%, commenced on
January 29, 1998, and is payable in 29 equal monthly installments of of
$16,667, with the remainder to be paid in full on June 30, 2000. Annual
maturities of the note for the fiscal years ended June 30, 1999 and 2000
are $199,902 and $216,678, respectively.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 which are subject to a variety
of risks and uncertainties. The Company's actual results, performance, or
achievements may differ significantly from the results, performance, or
achievements expressed or implied in such forward-looking statements. For a
discussion of some of the factors that could cause actual results to differ
materially from the Company's expectations, see "Item 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Factors That May
Affect Future Results" contained in the Company's Annual Report on Form 10-K for
the year ended June 30, 1998.
The following discussion is intended to provide a better understanding of the
significant changes in the trends relating to the Company's financial condition
and results of operations. Managements Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
accompanying consolidated financial statements and the notes thereto.
NET SALES. Net sales increased to $11,760,000 for the second quarter ended
December 31 1998 from $9,627,000 in the comparable period last year, an increase
of 22.2%. Net sales in the six months ended December 31, 1998 increased to
$14,056,000 from $11,160,000 in the comparable period last year, an increase of
25.9%. The increase of $2.1 million in net sales for the second quarter is
mainly due to: (i) a 100% ($1.5 million) increase in the revenues of the new
Jezebel intimate apparel division, for which there were no comparable revenues
last year,(ii) a 9.8% increase in the revenues of the Branded swimwear division
which resulted from the re-launched Rose Marie Reid brand ($0.2 million), Anne
Klein Brand ($0.2 million) and the new Hang Ten brand ($0.2 million), for which
there were no comparable revenues in the prior year; and (iii) lower levels of
returned merchandise.
The $2.9 million increase in net sales for the six months ended December 31,
1998 over the comparable period last year resulted from: (i) increased revenues
of $2.8 million of the new Jezebel intimate apparel division, for which there
were no comparable revenues last year; and (ii) lower levels of returned
merchandise.
GROSS PROFIT. Gross profit increased to $5,794,000 (49% of net sales) for the
second quarter ended December 31, 1998 from $4,098,000 (43% of net sales) for
the comparable period last year, an increase of $1.7 million or 41%. Gross
profit in the six months ended December 31, 1998 increased to $6,388,000 (45% of
net sales) from $4,105,000 (37% of net sales) for the comparable period last
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year, an increase of $2.3 million or 56%. The increase in gross profit for the
second quarter resulted from the increase in net sales, and an increase in gross
profit as a percentage of net sales. Gross margin increased in the second
quarter due to improved performance of the Branded and Resortwear divisions and
the increased shipments in the Jezebel intimate apparel division, reflecting the
impact of favorable higher initial selling prices, lower returned merchandise
levels, and less inventory liquidation.
The increase in gross profit and gross margin for the six months ended December
31, 1998 resulted from increased net sales generally including increased net
sales in branded merchandise as compared to off-price merchandise, less
inventory liquidation sales at low margins due to the lower inventory levels of
such merchandise and the impact of lower levels of returned merchandise compared
to the same period in the prior year.
OPERATING EXPENSES. Operating expenses increased to $4,818,000 (41% of net
sales) for the second quarter ended December 31, 1998 from $3,348,000 (35% of
net sales) in the comparable period last year, an increase of 44%. Operating
expenses increased to $7,547,000 (54% of net sales) for the six months ended
December 31, 1998 from $5,555,000 (50% of net sales) in the comparable period
last year, an increase of 26%. The increase in such expenses in both the three
and six month periods ended December 31, 1998 was due to (i)higher selling and
design expenses associated with the new Hang Ten line and Jezebel intimate
apparel division, the re-launching of the Rose Marie Reid label and the costs
associated with entering into the license agreement for the new Anne Klein
intimate line, (ii) charges relating to upgrading the Company's computer system
and (iii) costs related to the move and relocation to the Company's new
headquarters.
INTEREST EXPENSE. Interest expense increased to $243,000 (2% of net sales) for
the second quarter ended December 31, 1998 from $133,000 (1% of net sales) in
the comparable period last year, an increase of 83%. Interest expense increased
to $332,000 (2% of net sales) in the six months ended December 31, 1998 from
$168,000 (2% of net sales) in the comparable period last year, an increase of
98%. Such increase resulted from higher borrowings on the seasonal line of
credit from the Company's factor in the three and six month periods.
NET INCOME. Net income increased to $704,000, $0.14 per common share (Basic and
Diluted), for the second quarter ended December 31, 1998 from $592,000, $0.13
per common share (Basic and Diluted), in the comparable period last year. Net
loss decreased to $1,520,000, ($0.35) per common share (Basic and Diluted), for
the six months ended December 31, 1998 from a loss of $1,643,000, ($0.35) per
common share (Basic and Diluted), in the comparable period last year. The
increase in net income for the three months ended December 31, 1998 and the
decrease in net loss for the six months ended December 31, 1998 was due to (i)
an increase in net
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sales, (ii) increased gross profit, and(iii) higher gross margin percentages.
These effects were partially offset by the increase in selling, general, and
administrative expenses and higher interest expenses described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for funds has been to finance its growth in sales and
inventory, the development of new product lines and the improvement of its
operating, manufacturing and customer service capabilities. The Company has
financed its working capital requirements from its cash flow from operations,
advances drawn under its factoring and revolving credit arrangements and
proceeds from its initial public offering in 1994 and secondary public offering
in November 1995. The Company regularly evaluates its sources of working capital
to enable it to finance its growth for the foreseeable future. There can be no
assurance that such sources will be available or sufficient to meet the
Company's needs.
Net cash used in operating activities for the six months ended December 31, 1998
was $570,000 compared to $686,000 in the comparable period last year. Increased
bookings of sales for future delivery required the Company to carry higher
inventory levels, which consumed more cash.
At December 31, 1998, working capital was approximately $8,017,000 compared to
approximately $6,564,000 at December 31, 1997. The decrease in working capital
resulted primarily from increased accounts payable related to the purchases of
raw material inventory. Inventory increased to $19,554,000 at December 31, 1998
from $13,188,000 at December 31, 1997, an increase of 48.3%. This increase was a
result of a higher work-in-process level, which is consistent with the level of
bookings activity in the period and the addition of the Jezebel intimate apparel
division.
The Company has an accounts receivable, inventory, seasonal overadvance and
factoring services arrangement with Heller pursuant to which the Company sells
to Heller all of the Company's accounts receivable at their net invoice price
less a commission of 0.60% with no minimum or ancillary fees. Advances are made
without recourse for the financial inability of the customer to pay with respect
to all accounts receivable approved by Heller. The Company bears the entire risk
of non-approved receivables and accounts receivable returned by the factor to
the Company. Prior to Heller's payment, the Company may draw short-term advances
from Heller up to 80% of the uncollected receivables less reserves as determined
by Heller, which advances bear interest at an annual rate of 0.375% over the
prime rate established from time to time by Bank of America (7.75% at December
31, 1998). Additional interest of 1% is due on excess inventory levels, as
defined in
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the factoring agreement, over short-term advances. Heller collects such advances
and interest by offsetting against amounts due to the Company upon the
collection of factored receivables. In addition, the Company may draw short-term
advances from Heller of (i) up to 50% of eligible inventory which is current
season inventory and (ii) up to 40% prior to October 31 and up to 25% during the
period between November 1 and June 30, in each case of eligible inventory which
is not current season inventory, less (iii) such reserves as Heller elects to
establish.
The Company's short-term advances are limited to a maximum of $5,000,000 (in
January and February) and ranging downward to a maximum of $1,000,000 (in June
and July) or $1,000,000 in excess of the Company's projected short-term advance
requirements, whichever is less. The Company may also borrow seasonal
overadvances of up to $500,000 from September 1 to September 30, $1,000,000 from
October 1 to October 30, $1,500,000 from November 1 to November 30, $2,000,000
from December 1 to January 31, $1,000,000 from February 1 to March 31, and $0
from April 1 through August 30 of each year. The inventory advances and the
overadvances bear interest at an annual rate of 2% over the prime rate
established from time to time by Bank of America. Finally, the Company may
request Heller to issue guarantees for the Company's purchase of raw materials
for up to $575,000 at any one time. Under the Company's agreement with Heller,
the maximum credit available to the Company at any time is limited to $20
million. The Company's agreement with Heller has a term expiring on August 18,
2000, after which time either party may terminate upon 60 days written notice.
The Company's obligations to Heller are secured by the Company's accounts
receivable, inventory, general intangibles, other than trademarks or trade
names, and cash deposit accounts. In addition, the agreement provides for
various financial covenants to be maintained.
The balance of seasonal short-term advances from the factor ("due to factor")
was $7,000,000 at December 31, 1998, compared to $2,615,000 at December 31,
1997. At December 31, 1998, the amount payable to factored receivables upon the
collection thereof less the amount of outstanding advances to the Company
("amount due from factor ") was $3,896,000, compared to $3,566,000 at December
31, 1997.
During the second quarter of fiscal 1999 the Company developed plans for sales
of its products over the Internet. The Company's Online Store, which is expected
to be open to consumers sometime in March 1999, will initially feature swimwear,
intimates and active wear under the Company's Rose Marie Reid and Hot Water
labels at normal retail prices. The initial cost for the development of the
Online Store is expected to be approximately $50,000. The Company plans to
support the Online Store with on-line advertising, through hyperlinks to other
web pages.
The Company leases the premises of its manufacturing facilities in
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Sonora, Mexico from American Industries, Inc. ("AII"), a corporation controlled
by Howard Hedinger, a principal stockholder and a director of the Company. In
late December 1998, the second factory building was completed by AII. The
Company will lease the new premises from AII. The Company currently is in a
process of hiring new factory workers. The Mexican factory currently operates at
50% of capacity. Production is expected to be 100% by the end of February 1999.
In December 1998, the Company finalized its plans to relocate its South El Monte
executive offices, manufacturing and distribution facilities to a new location
in Vernon, California, formerly the manufacturing site for another apparel firm.
It is anticipated that the new facilities will require minimal leasehold
improvements and capital investments to make the facility fully functional for
the Company's needs. In addition, the Company will acquire specialized apparel
production equipment, worth approximately $1.5 million, at minimal additional
cost to the Company. The Company also negotiated the lease for a seven year
term, commencing on June 1, 1999 at a base rate of $62,500 per month for the
first 21 months, increasing to $68,310 per month for the following 30 months and
increasing to $76,600 per month for the remaining 33 months.
YEAR 2000 COMPLIANCE
Following a comprehensive study of the Company's current systems and future
system requirements, the Company initiated a program in October 1997 to update
or replace existing systems with enhanced hardware and software applications.
The objectives of the new program are to achieve competitive benefits for the
Company, as well as assuring that all systems are Year 2000 compliant.
Implementation of this program is expected to require expenditures of
approximately $1,100,000 and to be completed in three phases by June 30, 1999,
of which the first two phases have already been completed. The first phase of
the program, which involved updating the Company's financial systems, was
completed by August 30, 1998 at a cost of $450,000. The second phase involved
updating and replacing the Company's systems relating to distribution and
manufacturing and was completed on October 19, 1998 at a cost of approximately
$400,000. Under the third and final phase of the program, which is expected to
be completed by March 31, 1999 at a cost of approximately $250,000, the Company
will update its manufacturing system, the software connecting the Company to its
other offices and replace and upgrade hardware.
The Company has not yet established a contingency plan in the event that the
Company's Year 2000 program does not successfully convert its software and
hardware to be Year 2000 compliant. However, the Company intends to establish a
contingency plan by May 1999. Funding requirements have been incorporated into
the
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Company's capital and operating expenditure plans and are not expected to
have a material adverse effect on the Company's financial condition or results
of operations. The Company initiated formal communications with its major
customers, vendors and others in November 1997 to determine the extent to which
the Company is vulnerable to those third parties' failure to remediate their own
Year 2000 compliance issue and at this time does not believe that such third
parties' failure will have a material adverse effect on the Company's financial
condition or results of operations.
SUBSEQUENT EVENTS
During February 1999, the Company borrowed from AII $2,000,000 to be payable
under two separate promissory notes payable sixty days from the date of issuance
at the rate of 12% per annum. The Company believes that such promissory notes
were issued to AII on standard market terms and conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On September 30,1998, Mr. Ellison C. Morgan, a director of the Company,
settled an action brought by the Securities and Exchange Commission
(the"SEC") alleging a violation of Section 10(b) of the Securities
Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder
that is unrelated to Mr. Morgan's position with the Company. Without
admitting or denying the allegations of the SEC's complaint, Mr. Morgan
agreed to disgorge profits and pay civil penalties totaling $229,808,
and consented to a permanent injunction requiring him to comply with the
relevant sections of the federal securities laws and rules.
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on November 19, 1998.
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(b) At the Meeting, management's nominee as set forth in the proxy
statement for the Meeting, Howard H. Hedinger, was elected. The
election of Mr. Hedinger was approved by a vote of 4,438,798
shares in favor and 5,500 shares withheld. Maurice B. Newman and
Douglas Arbetman will continue to serve as directors of the
Company until the Annual Meeting of the Company to be held in
fiscal 2000 and Ellison C. Morgan will continue to serve as a
director of the Company until the Annual Meeting of the Company
to be held in fiscal 2001.
(c) The proposal to ratify the appointment of Ernst & Young LLP as
the Company's independent public accountants for the year ending
June 30, 1999 was approved by a vote of 4,442,598 shares in
favor, 1,700 shares against and zero shares abstained.
There were no broker non-votes for the election of directors or
ratification of independent public accountants at the Annual
Meeting.
Item 5. Other information.
ANNE KLEIN INTIMATE APPAREL AGREEMENT
The Company signed an agreement on December 10, 1998 with Anne Klein Company to
license intimate apparel articles to include bras, daywear and shapewear as well
as large-sizes for these categories under "Anne Klein" and related labels. The
intimate apparel collection is planned to launch to the trade at May 1999 market
for in-store deliveries beginning in September 1999.
NEW CORPORATE HEADQUARTERS
The Company is moving its entire facilities into a 208,000 square foot building
in Vernon, California effective March 1999. The Company's new address and phone
number will be:
The Sirena Apparel Group, Inc.
2825 South Santa Fe Avenue
Vernon, California 90058-1408
Main Phone Number: (323)581-9700
Main Fax Number : (323)581-9100
The new building will house the Company's entire operations, including its
corporate headquarters, manufacturing, raw materials and trimming, design
studios and distribution facilities. The move will begin in January 1999 and
will conclude with the transfer of the manufacturing facilities on June 1, 1999.
The Company's current 126,000 square foot South El Monte facility, in use since
the Company was started in 1959, will continue in operation until June 1, 1999.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1* License Agreement between The Sirena Apparel Group, Inc. and
Anne Klein LLC effective as of December 14, 1998.
10.2 Standard Lease Agreement by and between The Sirena Apparel
Group, Inc. and On Santa Fe Partners, LLC dated November 19,
1998.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
* The Company has requested confidential treatment for a portion
of this exhibit.
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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 thereunto duly authorized.
THE SIRENA APPAREL GROUP, INC.
Date: February 12, 1999 By /S/ RICHARD A. GERHART
----------------- --------------------------------
RICHARD A. GERHART
Chief Financial Officer
Duly Authorized Officer and
Principal Financial and
Chief Accounting Officer)
17
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EXHIBIT 10.1
The Sirena Apparel Group, Inc.
10333 Vacco Street
South El Monte, California 91733-0307
Gentlemen:
When signed below in the places provided, the following shall constitute the
agreement between The Sirena Apparel Group, Inc. (hereinafter referred to as
"LICENSEE") and Anne Klein Company LLC ("LICENSOR") with respect to the subject
matter hereof.
1. DEFINITIONS. Each of the following terms shall have the meanings given
it in this section when used in this Agreement:
1.01. (a) "COMPANY'S MARKS" shall mean the trademarks "ANNE KLEIN",
[ * ].
(b) "LICENSED MARKS" shall mean the trademark "ANNE KLEIN", as
shown on EXHIBIT A attached hereto and made a part hereof, and such logos as may
be approved from time to time.
(c) "COMPANY'S TRADENAME" shall mean the tradename "ANNE KLEIN".
1.02. (a) "ARTICLES" shall mean women's intimate apparel, specifically
bras, shapewear and daywear (i.e., panties, camisoles, slips and other similar
items), excluding those underpants and undershirts generally of a unisex styling
and packaged for sale through various channels of distribution in addition to
women's lingerie departments of traditional department stores and lingerie
specialty stores (the "EXCLUDED ARTICLES").
(b) "LICENSED ARTICLES" shall mean all Articles which are
manufactured by or for Licensee from designs delivered or approved by Licensor
hereunder including any such Licensed Articles distributed by Licensee without
the Licensed Marks.
(c) "PRODUCT CATEGORY" shall mean any specific category of
Articles (i.e., "Bras", "Shapewear" or "Daywear", but not the individual items
within a category) or if the context suggests, each such category treated
separately.
- ---------
* Material omitted in sections 1.01(a), 2.01(c) and (d), 2.02(c), 2.03(c)(iii),
7.01(b)(ii) and (v), 7.02(a)(i), 8.01, 8.02, 9.01, 18, 18.02(a), 18.03 and
18.05(f), and Schedules 1.05(A), 1.05(B), 2.03, 10.02 and 18.06 pursuant to a
request for confidential treatment and filed separately with the Securities
and Exchange Commission.
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1.03. (a) "NET SALES" shall mean the aggregate invoiced amount at the
prevailing wholesale price for all Licensed Articles shipped by Licensee or any
of its affiliates ("GROSS SALES"), less included taxes, returns actually
received and trade discounts customary in Licensee's industry for prompt
payment, but only to the extent such discounts are actually granted by Licensee
and taken by Licensee's customers. No deduction shall be made for any accruals
or reserves for returns, or for discounts, markdowns, allowances or
uncollectible accounts and no deduction shall be taken for bad debts or
collection costs incurred by Licensee. No other costs incurred in the
manufacturing, advertising, promoting, distributing and selling of Licensed
Articles shall be deducted. If a sale, transfer or other disposition is made
otherwise than at arm's length, the "NET SALES" of such Licensed Articles shall
be deemed to be the "Net Sales" of a corresponding sale at arm's length at the
prevailing wholesale price to accounts in Normal Retail Channels (as hereinafter
defined) in the United States.
(b) Without limiting the generality of the foregoing, with
respect to Discontinued Goods (as hereinafter defined), "Net Sales" shall mean
the aggregate invoiced amount for Discontinued Goods shipped by Licensee or any
of its affiliates, less included taxes and returns actually received, but
without deduction for allowances of any kind or for any purpose; provided,
however, that for Discontinued Goods in excess of the quantity permitted in
Paragraph 2.03(b) below, the "Net Sales" of such Discontinued Goods shall be
deemed to be the "Net Sales" of a corresponding sale at arm's length at the
prevailing wholesale price to accounts in Normal Retail Channels in the United
States except as Licensor may from time to time expressly agree otherwise.
(c) Notwithstanding the foregoing, if Licensee (or any parent,
subsidiary or affiliated company of Licensee) operates outlet stores
(hereinafter, "LICENSEE'S OUTLETS") or sells Licensed Articles through
Alternative Distribution Channels (as defined below), then with respect to sales
of Licensed Articles by Licensee's Outlets or through said Alternative
Distribution Channels, "NET SALES" shall mean the actual aggregate amount
received by Licensee's Outlets on account of said sales or by Licensee for sales
made directly through Alternative Distribution Channels, as applicable.
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1.04. "TERRITORY" shall mean the United States of America but not
including its territories and possessions. Upon Licensee's written request,
Licensor may elect in its discretion to grant Licensee permission to distribute
Licensed Articles in a particular country (or countries) of the world outside of
the Territory, including for this purposes territories and possessions of the
United States, (hereinafter referred to as the "FOREIGN TERRITORY"), subject to
the terms and conditions set forth in section 18 below. For the avoidance of
doubt, distribution of Licensed Articles to "duty-free" shops for sale to
international travelers and to airlines and cruise ship lines for on-board sales
shall be deemed distribution in a Foreign Territory, also subject to the terms
and conditions set forth in Section 18 below.
1.05. (a) "NORMAL RETAIL CHANNELS" shall mean (a) those retail outlets
in the Territory to which Licensor sells products bearing the Company's Marks
and (b) subject to Licensor's reasonable approval, such other retail outlets in
the Territory whose location, merchandising and overall operations are
consistent with the high quality of Licensed Articles and the reputation, image
and prestige of the Company's Marks. Attached hereto as Schedule 1.05(A) is a
list of those retail outlets in the Territory approved by Licensor for sale of
products bearing the Company's Marks and attached hereto as Schedule 1.05(B) is
a list of additional approved retail outlets for Licensed Articles. Each
Schedule is current as of the date of execution of this Agreement and may be
modified and supplemented by Licensor and/or by Licensee from time to time.
(b) "Alternative Distribution Channels" shall mean direct mail
or television shopping networks or "on-line" or such other means of reaching the
ultimate consumer (other than through traditional retail outlets) as may
hereafter be devised. Licensor's prior written approval to use an Alternative
Distribution Channel shall be obtained in each instance. Sales by Licensee to
direct mail catalog divisions of traditional retailers shall not be deemed sales
through Alternative Distribution Channels. References in this Agreement to
Normal Retail Channels shall, unless the context indicates otherwise, also mean
approved Alternative Distribution Channels.
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1.06. (a) "CONTRACT YEAR" shall mean the twelve-month period
commencing January 1 and ending the next following December 31, provided,
however, that the "INITIAL CONTRACT YEAR" shall commence on the Effective Date
and shall terminate on December 31, 1999.
(b) "ACCOUNTING PERIOD" shall mean each three-month calendar
period ending March 31, June 30, September 30 and December 31, respectively, or
such shorter period in which Licensee has rights to distribute Licensed Articles
hereunder. Notwithstanding the foregoing, the "INITIAL ACCOUNTING PERIOD" shall
mean the period beginning on the Effective Date and ending September 30, 1999.
(c) "EFFECTIVE DATE" shall mean the later of the date this
Agreement is executed by Licensor and the date it is executed by Licensee.
1.07. "DISCONTINUED GOODS" shall mean only those Licensed Articles
which are sold by Licensee at a wholesale price which is at least thirty-three
percent (33%) less than the prevailing wholesale price at which Licensee has
customarily sold such Licensed Articles and which are shipped (a) at the
end-of-season as closeouts or (b) as damaged goods such as seconds or irregulars
labeled as seconds or irregulars.
2. GRANT.
2.01. (a) Subject to the terms and conditions of this Agreement,
Licensor grants to Licensee during the Term (as hereinafter defined) the
exclusive right only in the Territory to use each Licensed Mark as a trademark
only on and in connection with the manufacture, advertising, promotion,
distribution and sale in Normal Retail Channels, except as otherwise agreed in
paragraph 2.03(b) below, of the Licensed Articles. It is expressly understood
and agreed that the manufacturing rights herein granted to Licensee do not
include the right to manufacture Licensed Articles for the sole purpose of
selling such Licensed Articles as Discontinued Goods.
(b) Licensee acknowledges that, at the date hereof, Licensor
sells products bearing the Company's Marks in those categories known in the
women's retail apparel industry in the Territory as "bridge" and that such
products address the career and casual needs of Licensor's
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target customer including without limitation so-called "special sizes". Licensee
agrees that the Licensed Articles offered hereunder shall correspond to
Licensor's products; that is, the Licensed Articles shall be manufactured,
advertised, promoted, distributed and sold in a manner and at price-points
appropriate to those categories known in the women's retail apparel industry in
the Territory as "bridge" and the Licensed Articles shall address the career and
casual needs of Licensor's target customer including without limitation
so-called "special sizes". Without limiting the generality of the foregoing,
Licensee acknowledges and agrees that Licensed Articles offered hereunder shall
include so-called "full figure" and "mastectomy" Articles.
(c) Licensee acknowledges that, at the date hereof, Licensor has
not approved the use by Licensee of Company's Mark, [ * ], hereunder. In the
event Licensor determines, in its sole discretion, to permit use of [ * ] as
a trademark on and in connection with Articles, Licensor shall promptly notify
Licensee and thereafter [ * ] shall be deemed a Licensed Mark for all
purposes hereunder.
(d) Licensor reserves all rights to Company's Marks, including
the Licensed Marks, except those rights specifically granted herein to Licensee,
and Licensor may exercise such rights at any time. Without limiting the
generality of the immediately preceding sentence, Licensor's reserved rights
include the right to use and to license any of said Marks as part of a new
trademark (the "NEW TRADEMARK") to be used by Licensor or its designee (which
may or may not be a related company) on or in connection with new product lines
introduced by Licensor or its designee as part of a new apparel business (which
may include Articles) to be conducted by Licensor or said designee. If, during
the Term (as hereinafter defined), Licensor desires to market a line of Articles
bearing a New Trademark (the "NEW LINE"), Licensor shall notify Licensee, in
writing, thereof. Licensee shall have the first right and option to manufacture,
advertise, promote, distribute and sell said New Line pursuant to this
agreement, as amended to include such additional or different terms and
conditions as may be set forth in Licensor's notice. For purposes of this
paragraph, Company's Marks [ * ] and [ * ] shall be deemed New Trademarks.
(e) Nothing in this Agreement shall be construed to limit
Licensor's rights to use the Licensed Marks on or in connection with Articles to
be presented and sold by Licensor as
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part of its collections or by Licensor's designee separately as part of a
"designer collection" line of products intended to be sold at a price structure
relative to Articles in general which is comparable to the price structure of a
"designer" sportswear collection relative to women's better sportswear in
general, as those terms are used in the women's retail apparel industry at the
date of execution of this Agreement.
(f) If, during the Term (as hereinafter defined), Licensor
desires to market a line comprised substantially of Excluded Articles bearing
any of Company's Marks (the "EXCLUDED ARTICLES LINE"), Licensor shall notify
Licensee, in writing, thereof. Licensee shall have the first right and option to
manufacture, advertise, promote, distribute and sell said Excluded Articles Line
pursuant to this agreement, as amended to include such additional or different
terms and conditions as may be set forth in Licensor's notice. If Licensee
desires to exercise such right and option, Licensee shall notify Licensor in
writing within thirty (30) days after its receipt of said written notice from
Licensor. If Licensee fails to exercise its said right and option, Licensor may
grant a license covering the Excluded Articles Line to any third party which
license shall contain material terms and conditions not more favorable to such
third party than the material terms and conditions set forth herein and in
Licensor's notice.
(g) In addition to the rights granted herein for Licensed
Articles, subject to the terms and conditions of this Agreement, Licensor grants
to Licensee during the Term (as hereinafter defined) the right only in the
Territory to use the Licensed Mark only as a trademark on and in connection with
the manufacture, advertising, promotion, distribution and sale in Normal Retail
Channels and in approved Alternative Distribution Channels of lingerie bags,
slippers, boudoir sachets, sleep/eye masks and such other similar items as
Licensor and Licensee may identify from time to time (collectively, "RELATED
ITEMS") from designs delivered or approved by Licensor hereunder. Licensee's
rights with respect to the product categories comprising Related Items shall be
non-exclusive. Related Items shall be distributed by Licensee in conjunction
with its Licensed Articles and shall not be offered as stand-alone products but
only to buyers of Licensed Articles to be merchandised with Licensed Articles.
Except as set forth in this paragraph, Related Items shall be subject to all
conditions applicable to Licensed Articles hereunder.
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2.02. (a) Except as hereinafter provided or otherwise approved by
Licensor, all Licensed Articles shall bear the Licensed Marks, and no Licensed
Articles shall be sold or otherwise distributed by Licensee under any trademark
other than the Licensed Marks including, without limitation, under a private
label of Licensee or any customer of Licensee.
(b) Licensee shall not use the Licensed Marks on or in
connection with any product or activity which is not the subject of this
Agreement, including without limitation on Articles or any other product
manufactured from designs neither provided nor approved by Licensor or on
Articles or any other product distributed by any person or entity, including
Licensee, as premiums, promotions, give-aways or fund-raisers except with
Licensor's express prior approval.
(c) Licensee shall not manufacture, or cause the manufacture of,
any products bearing designs or of a styling or construction the same as or
substantially similar to the designs, styling or construction of any Licensed
Articles regardless of whether from the current season; provided, however, that
(i) the foregoing prohibition shall not apply to those Articles which the
parties designate as "generic" and (ii) with respect to Unique Styles (as
defined in paragraph 4.04(b) below), with Licensor's express prior written
approval (which shall not be unreasonably withheld or delayed) Licensee may
offer for sale and sell Articles of a styling or construction the same as or
substantially similar to the styling of said Unique Styles for delivery not
sooner than the corresponding season following the introductory seasonal
collection incorporating said style or construction as a Licensed Article
hereunder, it being understood and agreed by Licensee that Licensor shall not be
deemed to act unreasonably in denying approval with respect to any element which
constitutes Protectible Material hereunder. Without limiting the generality of
the foregoing, Licensor acknowledges that Licensee produces Articles on a
private label basis for specialty retailers such as [ * ], and Licensee
acknowledges and agrees that the approval requirement stated in subparagraph
(ii) of this paragraph 2.02(c) applies to these or other private label Articles.
With respect to [ * ], Licensor may in its sole discretion condition its
approval under this paragraph on Licensee's agreement to identify particular
such private label Articles derived from Unique Styles
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as [ * ] and all such Articles shall be deemed Licensed Articles for purposes of
computing royalties and Image Fund Payments (as defined below) hereunder.
(d) Except for its licensed use of the Licensed Marks hereunder,
Licensee shall not adopt or use any mark, logo, insignia or design that is
likely to be confusingly similar to or cause deception or mistake with respect
to any of the Licensed Marks. Licensee shall not join any name or logo with the
Licensed Marks so as to form a new mark, except with the prior written approval
of Licensor, nor shall Licensee use any Licensed Marks as part of its corporate
name. However, subject to the terms and conditions of this Agreement, Licensor
hereby grants Licensee the limited, non-exclusive right to use Company's
Tradename in connection with the marketing, distributing, advertising, promotion
and sale of Licensed Articles hereunder. Licensee's employees may represent
themselves as being representatives of or being from "ANNE KLEIN INTIMATES".
2.03. (a) Licensee shall use its best efforts to exploit the rights
herein granted throughout the Territory and to sell the maximum quantity of
Licensed Articles therein consistent with the high standards and prestige
represented by the Licensed Marks. Notwithstanding the foregoing, Licensee shall
not sell Licensed Articles for resale except for resale to a consumer for
personal use and, except for sales made to or for resale in a Foreign Territory
in accordance with Section 18 below, Licensee shall not sell Licensed Articles
to any entity which it knows or has reason to believe intends to export Licensed
Articles from the Territory. Licensor and Licensee acknowledge that the Licensed
Articles are intended to be of the highest quality in the applicable market
segment and marketed in a manner commensurate with Licensor's standing and
reputation in the apparel industry. Accordingly, and in order to maintain the
reputation, image and prestige of Licensor and the Licensed Marks, Licensee's
primary distribution patterns shall consist of Normal Retail Channels. For
clarification: Licensor acknowledges that Licensee has retained representatives
who show the Licensed Articles to customers through regional markets throughout
the United States. Licensee hereby expressly agrees to inform its
representatives of the foregoing and acknowledges that the acts of said
representatives shall be deemed Licensee's acts for all purposes hereunder.
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(b) Notwithstanding the foregoing, Licensee may sell
Discontinued Goods to Licensee's Outlets or to those end-destination outlet
stores operated by Fashions of Seventh Avenue, Inc. under the name "ANNE KLEIN
OUTLET" (collectively, the "OUTLETS") and to other appropriate retail outlets
for Discontinued Goods, subject to Licensor's reasonable approval; provided,
however, that, calculated separately with respect to each Product Category, the
number of units of Licensed Articles sold as Discontinued Goods shall not exceed
twenty percent (20%) of the aggregate manufactured units of such Product
Category (except as Licensor may expressly agree). Seconds, irregulars and
damaged goods shall always be marked as such. Licensee shall advise its buyers
of Discontinued Goods (including the Outlets) that Licensee does not have the
right to use or to authorize others to use the Licensed Marks in advertising or
selling the Discontinued Goods. Attached hereto as Schedule 2.03 is a list of
those currently-approved retail outlets to which Licensee may sell Discontinued
Goods hereunder. Said Schedule is current as of the Effective Date and may be
modified or supplemented from time to time.
(c) Notwithstanding any contrary provision of this Agreement, in
addition to Discontinued Goods, Licensee shall be permitted to offer for sale
and sell certain specially-produced Licensed Articles to the Outlets ("Special
Products"), subject to the following terms and conditions:
(i) Licensor and Licensee shall from time to time review
the quantity and styles of Licensed Articles which may be manufactured, offered
for sale and sold as Special Products to the Outlets.
(ii) All Licensed Articles sold as Special Products shall
bear royalties as provided in paragraph 9.01 below. Such royalties shall be
computed, accounted for and paid in accordance with this Agreement; provided,
however, that (A) the Sales Royalty on Net Sales of Special Products shall not
be reduced by any unrecouped Guaranteed Minimum Royalty payments, returns,
allowances or discounts nor shall such Sales Royalty paid in any particular
Contract Year be included in determining whether any increase is to be made in
the amount of the Guaranteed Minimum Royalty to be paid in the next following
Contract Year and (B) on Licensee's statements, Net Sales of Special Products
shall be shown separately from other sales.
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(iii) All Licensed Articles manufactured for sale as Special
Products shall bear the Licensed Mark [ * ] in a form approved by Licensor.
(iv) For clarification: Special Products shall not be
considered "Discontinued Goods" for any purpose hereunder.
2.04. (a) During the Term (as hereinafter defined), Licensee shall not
negotiate with respect to, enter into agreements relating to, or participate in
business transactions which are inconsistent with the purpose of this Agreement
or which would tend to have a material adverse effect on Licensee's ability to
meet its obligations under this Agreement. Without limiting the generality of
the foregoing, during the Term, Licensee shall not manufacture and/or market any
line of Articles bearing the name or trademark of a designer of women's clothing
items or fashion accessories other than the Licensed Articles.
(b) In the event that Licensee contemplates entering into a
license with a designer of women's clothing items or fashion accessories to
manufacture, advertise, promote, distribute and sell Articles in the Territory,
Licensee shall promptly inform Licensor and shall provide Licensor with
sufficient information concerning the proposed transactions to enable Licensor
to make an informed decision whether in its discretion, the nature of the
proposed license or the parties participating therein would materially adversely
impact upon or affect the Licensed Marks or their use in connection with the
Licensed Articles or Licensee's ability to meet all of its obligations under
this Agreement. Licensor shall notify Licensee of its decision within twenty
(20) business days after it receives all of the information referred to in the
preceding sentence or such other additional information as Licensor may
reasonably request. If Licensor approves the proposed license, which approval
must be in writing, and the advertising/exploitation commitments under such
license are greater than that provided for hereunder, this Agreement shall
automatically be deemed to increase the aggregate of the Image Fund Payment and
the Minimum Advertising Obligation (as those are defined below) to the amounts
provided in such license for comparable periods of time. Licensee shall notify
Licensor promptly upon making any such other designer license agreement,
including in such notice the identity of the designer and the
advertising/exploitation commitment contained in said agreement.
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2.05. In the event of any dispute between Licensee and any other
licensee of Licensor in the Territory with respect to the products covered by
their respective licenses, such dispute shall be resolved in good faith by
Licensor in its sole discretion.
(a) Without limiting the generality of the foregoing, Licensee
acknowledges that Licensor has or may enter into licenses with third parties for
hosiery and/or "activewear" and that such licensees may distribute and sell
products (such as, but not limited to, banded body-wear, control-top panty hose
or tights, in the case of hosiery, and banded body-wear, sports-bras or bike
shorts, in the case of activewear) and that the sale of such products by such
licensees other than to intimate apparel buyers of department stores or large
specialty stores (such as Saks Fifth Avenue) who are not also the hosiery or
activewear (as applicable) buyers shall not be deemed a breach of this Agreement
or a violation of or infringement upon Licensee's rights hereunder.
(b) In addition, Licensee acknowledges that Licensor may from
time-to-time grant another licensee a limited non-exclusive right to produce and
distribute Articles bearing the Licensed Marks as so-called "related items"
(e.g., sleep masks distributed to said other licensee's customers of sleepwear)
or as "gifts-with-purchase" (e.g., a lingerie bag). In resolving a dispute with
respect to the products covered by particular licenses or in conjunction with a
grant of rights for related items, if appropriate, Licensor shall notify
Licensee and Licensee shall have the first right and option to manufacture such
product pursuant to an agreement of the parties as to price, quality and timing
of delivery. The parties shall establish an appropriate procedure to effectuate
the option herein given, it being understood that notice and agreement, if oral,
shall be promptly confirmed in writing.
(c) Without limiting the generality of the foregoing, with
respect to those products to be sold by Licensee as Related Items hereunder,
Licensee acknowledges that Licensor may have granted to another licensee the
first right and option to manufacture similar products (an "OPTION") pursuant to
an agreement of the parties as to price, quality and timing of delivery. In the
event Licensee intends to market Related Items to which an option applies,
Licensee shall notify Licensor who will assist Licensee and the licensee holding
such option to establish an appropriate procedure to effectuate the option, it
is being understood that notice and agreement, if oral, shall be promptly
confirmed in writing.
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3. TERM.
3.01. The term of this Agreement (the "TERM") shall commence on the
Effective Date and shall continue in full force and effect until December 31,
2002 unless earlier terminated pursuant to the terms and conditions of this
Agreement or upon the mutual agreement of Licensor and Licensee in a writing
signed by both.
3.02. (a) Time is of the essence with respect to all payments
hereunder. If Licensee fails to make any payment in full due hereunder, (i)
Licensee shall pay interest on such unpaid sum from and including the date such
payment becomes due until the date of payment in full at a rate equal to the
prime rate prevailing in New York, New York at Citibank, N. A., from time to
time during the period of such delinquency, plus two percent (2%) and (ii) if
such default continues uncured for a period of ten business (10) days (the
"PAYMENT GRACE PERIOD") after the date such payment becomes due, Licensor shall
have the right to terminate this Agreement immediately upon written notice to
Licensee. If any payment to be made hereunder shall be due on a day which is not
a business day, the due date of such payment shall be extended to the next
business day.
(b) If Licensee otherwise fails to perform any of the other
material terms, conditions, agreements or covenants it is obligated to perform
hereunder and (i) such breach is curable but continues uncured for a period of
thirty (30) days after Licensor gives Licensee written notice thereof; or (ii)
if said breach is curable but not within thirty (30) days and all reasonable
steps necessary to cure have not been taken within thirty (30) days after
Licensor gives Licensee written notice of breach, Licensor may terminate the
Term immediately upon giving notice at any time after said thirtieth (30th) day,
without prejudice to any other rights of Licensor.
(c) If Licensee otherwise fails to perform any of the other
material terms, conditions, agreements or covenants it is obligated to perform
hereunder and such breach is not curable, Licensor may terminate this Agreement
immediately upon giving notice at any time, without prejudice to any other
rights of Licensor.
(d) Without limiting the generality of the foregoing, if
Licensee conducts its business hereunder in a manner which requires Licensor to
give two (2) or more notices in any
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consecutive twelve 12 month period pursuant to this paragraph 3.02 to obtain
Licensee's compliance with this Agreement, Licensor may elect to terminate this
Agreement forthwith and such termination shall be effective immediately upon
Licensor's giving notice.
3.03. Licensor shall have the right, without prejudice to any other
rights which it may have, to terminate the Term, effective immediately upon
Licensor's giving notice:
(a) If by the time indicated in the introductory marketing plan
described in paragraph 7.01 (a) below (but not later than August, 1999),
Licensee has not begun the bona fide sale of the Licensed Articles and within a
reasonable time thereafter has not achieved commercial distribution through
Normal Retail Channels in the Territory reasonably consistent with the
agreed-upon business plan; or
(b) If with respect to each Product Category bearing a Licensed
Mark, Licensee shall have failed to continue the manufacture and sale of any
Licensed Articles in commercial quantities for a period longer than one selling
season (except as Licensor otherwise expressly agrees) or if with respect to a
particular Licensed Mark, Licensee fails to use said Licensed Mark for a period
longer than one selling season after Licensor expressly requests such use;
provided, however, that Licensor shall terminate this Agreement only as to the
Product Category or Licensed Mark not being manufactured and sold. Thereafter,
notwithstanding any contrary provision hereof or implication contained herein,
Licensor may grant a license for the said Product Category or Licensed Mark to
any third party and such grant shall not be deemed a violation of or
infringement upon any of the rights of Licensee pursuant to the terms of this
Agreement; or
(c) If Licensee shall fail, during any two (2) consecutive
Contract Years (a "TARGET PERIOD") hereunder, to achieve Net Sales from
distribution through Normal Retail Channels in an amount sufficient to allow
Licensee to recoup the aggregate Guaranteed Minimum Royalty payable by Licensee
during said Target Period.
3.04. Licensor shall have the right to terminate the Term effective
immediately upon written notice to Licensee:
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(a) If Licensee commences or becomes the subject of any case or
proceeding under any applicable federal, state or foreign bankruptcy laws or if
a court appoints a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official for Licensee and any such involuntary
proceeding or appointment is not discharged within sixty (60) days; or
(b) if Licensee defaults on any material obligation which is
secured by a security interest in any Licensed Articles; or
(c) if Licensee takes or is the subject of any other action
which may have a material adverse effect on its ability to perform its material
obligations hereunder.
4. DESIGN SERVICES/TECHNICAL ASSISTANCE.
4.01. During each Contract Year, Licensee shall manufacture or have
manufactured, distribute, and sell in each of the usual and customary innerwear
markets (which at the Effective Date of this Agreement are held in New York in
January, March, May, August and November with corresponding regional markets)
collections of Licensed Articles in accordance with the designs and
specifications provided or approved by Licensor from time to time. The first
collection shall be the Holiday 1999 collection.
4.02. (a) Licensee, at its expense, shall employ an appropriate staff
of designers and merchandisers (product development employees/"line builders"),
reasonably acceptable to Licensor, to assure that Licensed Articles are
consistent in design and quality with the highest quality Articles in the
applicable market segment and with Licensor's standing and reputation in the
apparel industry and with the public.
(b) In advance of the design phase for each seasonal collection,
Licensee shall provide Licensor with its merchandising plan for said collection,
including a report (by style) of sales performance of Licensed Articles from
prior collections, Licensee's assessment of market needs and competitive
positioning. Licensee also shall provide Licensor with access to its design
library/ archives, if any, to assist Licensor in connection with development of
ideas for Licensed Articles.
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(c) For each collection of Licensed Articles, at such times as
the parties shall mutually agree, Licensor shall prepare and deliver to Licensee
design direction for the styles of Licensed Articles proposed to be included in
such collection and, in consideration of the technical requirements of Articles,
Licensee shall prepare and deliver to Licensor for its approval specific
designs, which shall reflect Licensor's design direction as well as
Licensee-developed designs, for styles of Licensed Articles proposed to be
included in such collection. The various collections of Licensed Articles shall
aggregate such number of styles of Articles (which may include styles from prior
collections ("CARRYOVERS") as well as styles) as the parties mutually agree, it
being understood and agreed by Licensee that each collection shall have an
appropriate representation of each Product Category. Licensee further agrees
that so long as a particular style remains generally available as a Licensed
Article (including through EDI or "Quick Response" or other replenishment
mechanism) that style shall not be sold as Discontinued Goods (except for
seconds/irregulars or discontinued colors). For purposes of this paragraph, the
term "DESIGN DIRECTION" means general design direction, including pattern,
texture, coloration, materials and fabrications (as defined below). For
clarification: Designs submitted by Licensee, including proposed materials and
fabrications, must be approved by Licensor in accordance with paragraph 4.05
herein.
(d) Licensee shall identify to Licensor (in writing) its
requirements for tags, labels and packaging ("PACKAGING MATERIALS") to be used
in connection with Licensed Articles. Licensor shall provide designs and
specifications for said Packaging Materials and Licensee shall produce the
Packaging Materials in accordance with said designs and specifications.
(e) Licensee shall identify to Licensor (in writing) its
requirements for closures and trim, including without limitation ribbons, laces
and embroideries, embodying the Licensed Mark or logos derived from the Licensed
Mark ("TRIM MATERIALS") to be used in connection with Licensed Articles.
Licensor shall provide designs and specifications for said Trim Materials and
Licensee shall produce said Trim Materials in accordance with the designs and
specifications. Uses of the Licensed Mark or any of Company's Marks as a design
element may be proposed by either Licensor or Licensee, but all such uses must
have Licensor's express prior approval.
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(f) If Licensor incurs any costs in connection with the
development of Packaging Materials and/or Trim Materials exclusively for
Licensee, Licensee shall reimburse Licensor promptly after receipt of Licensor's
invoice therefor. Without limiting the generality of the foregoing, if Licensee
so requests, Licensor agrees that in development of Packaging Materials and/or
Trim Materials exclusively for Licensee, Licensor will work with Licensee's
usual resources for such Materials, it being the parties' intent to obtain the
highest quality Materials at the most favorable cost.
(g) Given the technical considerations in the design and
development of Articles, particularly Bras and Shapewear, Licensee shall use its
reasonable good faith efforts to seek out and/or to develop fabrications
("LICENSEE FABRICATIONS") for Articles and to submit all such Licensee
Fabrications to Licensor for possible use in connection with Licensed Articles.
If Licensor elects to use a Licensee Fabrication in connection with Licensed
Articles, such Licensee fabrications shall be deemed Unique Styles (as defined
in paragraph 4.04(b) below) hereunder. In addition, at Licensor's request,
Licensee shall attempt to develop new fabrications to respond to Licensor's
specifications ("LICENSOR FABRICATIONS") and all such Licensor fabrications
shall be deemed Unique Styles. As used herein, "FABRICATIONS" shall mean new
fabrics, materials and other potential components (collectively).
4.03. (a) Licensor shall not be responsible for making samples.
However, Licensee agrees that from time to time it may be appropriate for
Licensor's representative to visit Licensee's factories or to attend one or more
appropriate major trade show(s), as agreed by the parties in advance, ("LICENSOR
TRAVEL") and Licensee agrees to reimburse Licensor for Licensee's pro rata
portion of Licensor's expenses incurred with respect to Licensor's Travel.
(b) Licensee expressly acknowledges that all sample Licensed
Articles, whether made by Licensor, Licensee or under their authority, will be
Licensor's property and Licensee shall surrender these samples to Licensor
immediately upon the expiration or termination of the Term or sooner if Licensor
so requests.
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4.04. (a) Licensor acknowledges that Licensee employs quality
standards for Articles manufactured by it and Licensor agrees that, in
connection with the design and development of Articles, it shall take such
standards into account; provided, that where Licensor's design standards and
requirements are of a higher level than Licensee's normal quality standards,
Licensee shall manufacture Licensed Articles in complete compliance with
Licensor's design standards and requirements. Without limiting the generality of
the foregoing, Licensor hereby approves the quality standard reflected in
Articles manufactured for Licensee by those factories identified on Schedule
4.04 attached hereto and made a part hereof at the Effective Date, it being
understood and agreed that if Licensee elects to employ any additional
factory(ies), the employment of such factory(ies) shall be subject to Licensor's
approval in each instance.
(b) Licensee expressly acknowledges that all Protectible
Materials (as defined below) (including but not limited to fabrications and Trim
Materials) designed or, in the case of Licensor fabrications conceptualized, by
Licensor without input from Licensee which are clearly unique or distinctive
("UNIQUE STYLES") and all rights therein or thereto are and shall be the
property of Licensor, it being understood and agreed that Protectible Materials
which embody Company's Marks or a Company logo shall be designated Unique Styles
whether designed by Licensor, Licensee or both. Except as otherwise expressly
approved by Licensor in accordance with paragraph 2.02(c) above, all Unique
Styles shall be used by Licensee solely in connection with the manufacture,
distribution and sale of Licensed Articles in the Territory and pursuant to this
Agreement. Licensor may use and permit others to use the Unique Styles in any
manner it desires, provided that such use does not conflict with any rights
granted to Licensee hereunder and provided further that Licensor does not sell
or otherwise give any Unique Styles to any other manufacturer of Articles unless
the Articles incorporating such Unique Styles are to be sold outside of the
Territory.
4.05. Without limiting the generality of the foregoing, so that
Licensor shall be satisfied that Licensee continuously will be able to meet and
maintain the standards and specifications established by Licensor for the
Licensed Articles:
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(a) Licensor and Licensee shall establish appropriate timetables
and procedures under which periodically throughout the development process of
Licensed Articles Licensee shall make available to Licensor the styles, designs,
materials, fabrications, Trim Materials, Packaging Materials and contents of
each collection of all Licensed Articles for Licensor's approval as to design
interpretation, workmanship and quality and to assure that all Licensed Articles
are reasonable facsimiles of designs approved by Licensor. In advance of
Licensee's Market opening of each collection Licensee shall make available to
Licensor for approval samples of each complete collection of Licensed Articles
intended to be offered in that Market together with or including the Packaging
Materials intended to be used with them. Licensee expressly acknowledges and
agrees that if samples are not made available to Licensor in sufficient time
prior to Market opening for Licensee to make changes requested by Licensor in
unapproved Articles, Licensor and Licensee shall agree upon changes to be made
prior to commercial production and Licensee shall submit production samples for
Licensor's approval or Licensee shall remove said unapproved Articles from its
collection of Licensed Articles.
(b) After Licensor's approval of a collection of Licensed
Articles is given, Licensee shall not make any change in the Licensed Articles
or the Packaging Materials for Licensed Articles without Licensor's express
prior approval, it being the intent of the parties that the Licensed Articles
offered for sale and sold in any collection shall be those approved for
inclusion in said collection. No Licensed Articles shall be manufactured in
commercial quantities, sold or distributed by Licensee without Licensor's
express prior approval.
(c) Licensee expressly agrees and acknowledges that Licensor's
decision to give its approval pursuant to this Agreement may be based solely on
Licensor's subjective standards and may be withheld in Licensor's sole and
absolute discretion. For purposes of this Agreement, only the President of
Licensor, or a designated alternate, may give approval on behalf of Licensor.
(d) An approval given by Licensor for Licensed Articles to be
included in or Packaging Materials to be used by Licensee with one collection
shall not be construed as approval to include or use said Licensed Articles or
Packaging Materials in or with any other collection except as Licensor may
expressly agree with respect to carryovers. Licensor expressly reserves
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the right to review Licensee's entire line of Licensed Articles from time to
time for the purpose of deleting any previously-approved style which Licensor
deems, in its sole discretion (which shall not be unreasonably applied), no
longer appropriate for distribution as a Licensed Article. Following such
deletion, Licensee may, for a reasonable period (which shall not exceed six
months) to be mutually agreed, fill its existing orders for deleted styles
and/or sell off its existing on-hand inventory of deleted styles.
(e) With respect to any matter hereunder for which Licensor's
approval is required, if Licensee timely submits Licensed Articles and/or
Packaging Materials or other materials for which Licensor's approval is required
and Licensor fails to disapprove any of them within ten (10) business days after
Licensor's receipt thereof (or such longer period as Licensor may reasonably
request), Licensor's approval shall be deemed given solely for the use for which
approval was sought.
5. CONFIDENTIALITY.
5.01. Licensee and Licensor acknowledge that all information relating
to the business and operations of the other which each acquires, learns or has
learned during or prior to the Term, all special design concepts which either
party provides and has provided to the other and all sketches and designs,
including without limitation coloration and fabrication, and sourcing
information and manufacturing contractors, (the "CONFIDENTIAL INFORMATION")
received by either party from the other which are not commonly or currently
known in the marketplace are valuable property of the applicable party. Each
Party acknowledges the need to preserve the confidentiality and secrecy of such
Confidential Information and agrees that, during the Term and after the
expiration or other termination thereof, it shall not use or disclose same,
except to the extent expressly provided herein, and it shall take all necessary
steps to ensure that use of Confidential Information by it or by its contractors
and suppliers (which use shall be solely as necessary for, and in connection
with, the manufacture, distribution, sale, advertising and promotion of Licensed
Articles) shall preserve such confidentiality and secrecy in all respects.
Without limiting or impairing any other indemnification provision contained
herein, each party hereby agrees to release, defend, hold harmless and indemnify
the other against any and all claims,
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damages, causes of action, judgements, settlements, fines and other costs of any
kind, (including reasonable attorneys' fees) which may be suffered by the
indemnified party as a result of any breach by the breaching party or any of its
contractors of the provisions of this paragraph. The provisions of this
paragraph and the parties' obligations hereunder shall survive the expiration or
termination of the Term.
6. MANUFACTURE OF LICENSED ARTICLES; QUALITY CONTROL.
6.01. Licensee shall not use the Licensed marks in a manner that would
be offensive to good taste or would injure the reputation of Licensor and/or the
Licensed Marks. The contents and workmanship of Licensed Articles shall at all
times be of the highest quality in the applicable market segment and Licensed
Articles shall be distributed, offered for sale and sold with Packaging
Materials and Trade Materials (as defined below) appropriate for said highest
quality Articles and consistent with Licensor's standing and reputation in the
apparel industry and with the public as a first rate apparel firm.
6.02. (a) In connection with its manufacture of Licensed Articles,
Licensee shall assure that, in addition to abiding by the terms of this
Agreement, the following conditions are met:
(i) Licensed Articles are produced under satisfactory
working conditions and in accordance with all applicable laws and regulations
(including those regarding wages and hours); and
(ii) Convict or forced or child labor shall not be used.
(b) In the event Licensee engages a contractor or supplier
(hereinafter, "CONTRACTOR"), including without limitation an affiliate of
Licensee, in connection with the manufacture of the Licensed Articles, of any
Protectible Materials (as defined below) and/or of a significant component of
the Licensed Articles themselves and/or of any component thereof bearing any of
the Licensed Marks, Licensee shall, immediately upon retention of such
Contractor furnish Licensor, in writing, with the name and address of the
Contractor and a description of the Licensed Articles or components involved.
Licensee shall specifically obtain and maintain in its files the Contractor's
written agreement (a) to abide by the provisions of this Agreement relating
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to confidentiality, quality standards and trademark protection (including,
without limitation, a prohibition against distribution by the Contractor of any
Licensed Articles or Protectible Materials (if any)--including overruns or
Articles which are unacceptable because damaged or defective--to any person
other than Licensee), (b) to produce Licensed Articles under satisfactory
working conditions and in accordance with all applicable laws and regulations
(including those regarding wages and hours), (c) to refrain from using convict
or forced or child labor and (d) to permit Licensor to exercise its rights to
obtain current production samples and of inspection set forth in paragraph 6.03
below (together, the "CONTRACT CONDITIONS"). Notwithstanding any contrary
provision of paragraph 2.01 above, Licensor acknowledges that, due to the
particular nature of manufacturing demands associated with Articles, Licensee
may find it necessary to manufacture Licensed Articles or Protectible Materials
(if applicable) outside of the Territory and Licensor agrees that Licensee may
do so, subject to prior notice to Licensor and to strict compliance with this
paragraph 6.02. Licensee shall take all steps necessary to ensure that any
subcontractor of any Contractor is subject to the Contract Conditions applicable
to Contractors hereunder to the same extent such Contract Conditions are
applicable to Contractors. The engagement of a Contractor by Licensee in
compliance with the terms of this paragraph 6.02 shall not be deemed a
sublicense hereunder and no such Contractor shall acquire any rights with
respect to the Licensed Mark or any of the Company's Marks.
6.03. (a) During the Term, Licensee, periodically, but at least once
for each collection and at any other time as requested by Licensor, shall
submit, free of any charge to Licensor, randomly selected then-current
production samples of each Licensed Article and Packaging Materials so that
Licensor may assure itself of the maintenance of the standards and
specifications for each. Licensor may, at its election, retain any of such
samples for its archival purposes. Licensor also shall have the right, upon
reasonable advance notice to Licensee, to inspect the manufacturing process for
each Licensed Article produced under this Agreement, at whatever place or places
as such Licensed Articles are manufactured.
(b) Notwithstanding any contrary provision herein, if, at any
time, any, production sample is disapproved by Licensor on the grounds that such
sample does not conform
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to the approved pre-production sample, Licensor shall so advise Licensee and,
upon Licensee's receipt of such advice by any means, approval with respect to
that Licensed Article shall be deemed revoked. If such advice is given orally,
Licensor shall promptly confirm the content of such communication in writing;
provided, that, notwithstanding any other provision of this Agreement to the
contrary, the advice shall be deemed effective when made orally by Licensor.
Upon Licensee's receipt of such advice, Licensee shall not manufacture or
release that Licensed Article for public distribution until a new approval has
been given for that Licensed Article.
(c) Prior to the initial production of any stationery, invoices
and other similar business papers (collectively, "BUSINESS DOCUMENTS") bearing
the Licensed Marks or Company's Tradename and, thereafter, once during each
Contract Year and at any other time upon Licensor's reasonable request, Licensee
shall furnish Licensor with a reasonable number of samples of such business
documents for approval by Licensor and its legal counsel. Licensee shall not
modify approved business documents except upon prior express approval by
Licensor and its legal counsel of any such modification.
6.04. (a) Each licensed Article shall be manufactured, packaged,
labeled, sold and distributed in accordance with all applicable international,
national, state, provincial, local and other laws, rules and regulations (any of
these a "LAW") governing the design, quality or safety of such Articles.
Licensee expressly acknowledges that Licensor shall rely on Licensee to ensure
that the manufacture, packaging, labeling, advertising, sale and distribution of
Licensed Articles hereunder shall conform in all respects with all applicable
Laws. Licensor's approval of any sample shall not be construed to mean that
Licensor has determined that the sample conforms to the Laws.
(b) Licensee shall display, including, without limitation, on
all Packaging Materials for each Licensed Article and on all business documents,
advertising, promotional, publicity and exploitation material relating to it,
any Licensed Mark or Company's Tradename only in such form and manner as is
consistent with standards promulgated by Licensor from time to time and
specifically approved by Licensor and its legal counsel. Licensee also shall
cause to appear on all such items, such legends, markings and notices as either
may be required by any Law in the Territory or as Licensor reasonably may
request. Licensee expressly acknowledges
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that it shall acquire no proprietary rights in the Licensed Marks by virtue of
such use. Without limiting the generality of the foregoing, Licensee shall not
use any tradename or other identifying marking owned by or associated with any
department store or other retail establishment, wholesale outlet or other
person, firm or corporation on Licensed Articles or containers therefore bearing
the License Marks.
6.05. With respect to any matter hereunder for which Licensor's
approval is required, if Licensee timely submits those materials for which
Licensor's approval is required and Licensor fails to disapprove any of them
within ten (10) business days after Licensor's receipt thereof (or such longer
period as Licensor may reasonably request), Licensor's approval shall be deemed
given solely for the use for which approval was sought.
7. ADVERTISING; SHOWROOM; MARKETING.
7.01. (a) Prior to the "LAUNCH" of the initial collection of Licensed
Articles, Licensee shall provide for Licensor's approval, an introductory
marketing plan stating anticipated sales volume, accounts, product positioning
(viz. competition), advertising and promotional support and such other relevant
information as Licensor may reasonably request. Further, in addition to the
advertising described below, Licensor and Licensee shall endeavor to agree upon
the manner and media to be utilized in advertising and promoting and staging the
launch (including the amounts to be expended by Licensee in connection
therewith), provided, however, that Licensor's decision shall be final.
(b) (i) Licensee acknowledges that, in recognition of the
importance of advertising in developing and projecting the image of the Licensed
Marks and in enhancing the sales of Licensed Articles, Licensor will conduct a
program for all products bearing the Licensed Marks (the "IMAGE PROGRAM").
Licensor will develop and control the creative components of all advertising and
related promotional material (including all publicity, whether through media
placement or "events") to be used in the Image Program. Licensor will determine
the media to be used for advertisements and the advertising agency(ies) to be
used and all national (including for purposes of this paragraph Licensor-placed
regional and local) advertisements will be placed by
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Licensor. The Image Program shall include all of the activities undertaken by
Licensor to develop and promote the Company's Marks.
(ii) In connection with the Image Program, Licensee shall
pay to Licensor in each Contract Year an amount equal to [ * ] of Net Sales
hereunder for said Contract Year (the "IMAGE FUND PAYMENT"); provided, however,
that the Image Fund Payment for any Contract Year, after the Initial Contract
Year, shall be not less than [ * ] (the "MINIMUM IFP") which shall be payable
in accordance with paragraph 7.01(b)(v) below. Notwithstanding the generality of
the foregoing, in the Initial Contract Year the Image Fund Payment shall be
[ * ], of which a portion to be determined by Licensor shall be utilized in
advertising, promoting and staging the launch, as contemplated in paragraph
7.01(a) above.
(iii) The Image Fund Payment shall be used by Licensor for
purposes of advertising and promoting the Licensed Articles. However, if
Licensor elects to do brand advertising of the Licensed Mark on television,
Licensor may apply up to one-half (1/2) of the Image Fund Payment for such
purpose.
(iv) The Image Fund Payment shall be computed and paid
quarterly at the time Licensee renders it statements in accordance with
Paragraph 10.01 hereunder. The Image Fund Payment shall be due and payable
whether or not a payment of Sales Royalty is due for any particular Accounting
Period. The Image Fund Payment shall be in addition to any other monies payable
hereunder and shall not be credited against and/or recoupable from Sales
Royalties otherwise payable to Licensor hereunder.
(v) Without limiting the generality of the foregoing,
after the Initial Contract Year Licensee shall pay an amount equivalent to [ * ]
of the Minimum IFP at the beginning of each calendar quarter and, in addition,
during any Contract Year, if Licensor incurs Image Program expenses in
connection with Licensed Articles which exceed the Image Fund Payment made to
date in such Contract Year, Licensor shall render, and Licensee shall promptly
pay, Licensor's invoice in the amount of such excess. Each amount paid by
Licensee under this paragraph shall be treated as an advance against and
deductible from Licensee's next-following Image Fund Payment when it comes due
in the ordinary course. For clarification: The Image Program expenses for which
Licensor may request an advance pursuant to this paragraph shall be
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in an amount consistent with Licensor's Image Program budget (which shall be
known to Licensee). To the extent that Licensee's Image Fund Payments in any
Contract Year exceed the actual Image Program expenses in connection with
Licensed Articles for such Contract Year, the excess will be added to the Image
Program budget in connection with Licensed Articles for the next Contract Year;
provided, however, that at the normal expiration of this Agreement, if Licensee
has paid excess Image Fund Payments in the final Contract Year, the amount of
such excess shall be repaid to Licensee by Licensor within a reasonable period
after Licensor receives Licensee's final accounting statement hereunder.
7.02. (a) (i) In addition to its participation in the Image Program,
in each Contract Year, Licensee shall fund a budget in an amount not less than
[ * ] ([ * ] in the Initial Contract Year) of its projected Net Sales of
Licensed Articles to enable Licensee to conduct other advertising and promotion,
including in-store sales promotion, as it deems appropriate for the successful
implementation of its business plan for the sale of Licensed Articles (the
"MINIMUM ADVERTISING OBLIGATION"). At least fifty percent (50%) of Licensee's
Minimum Advertising Obligation shall be expended for purposes other than co-op
advertising.
(ii) To satisfy the Minimum Advertising Obligation, under
and with the direction and supervision of Licensor, Licensee will develop
advertising and marketing plans and programs for each collection of Licensed
Articles (including but not limited to such items as the amounts to be spent by
the Licensee upon trade, consumer and co-op advertising for the Licensed
Articles) for each Contract Year. Licensor shall develop and control the
creative components of all advertising material. All advertising and all
marketing plans and programs, including without limitation advertising visuals
and copy, media selection and schedules and sales promotions (such as, but not
limited to, "gifts with purchase") whether developed by Licensor or Licensee
shall be subject to the prior express written approval of Licensor.
(iii) With respect to co-op ads, Licensee shall obtain
Licensor's prior approval of the creative components of any advertising
materials Licensee elects to provide to its customers for use in co-op ads,
store catalogs and the like. In addition, Licensor and Licensee
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shall jointly develop guidelines with respect to Licensed Articles which
Licensee shall furnish to its customers who wish to participate in Licensee's
co-op advertising program, but Licensee shall not be deemed to have breached
this Agreement if its customers fail to follow such guidelines.
(b) (i) The following items shall be considered expenditures
which will be included in determining whether Licensee has satisfied the Minimum
Advertising Obligation: cooperative advertising; trade advertising; additional
related materials, such as printed materials, brochures, post cards and product
guides; visual merchandise, such as display materials and point-of-purchase
materials; and consumer media/print advertising.
(ii) Licensee shall reimburse Licensor, promptly after
receipt of Licensor's invoice, for Licensor's reasonable costs incurred in
connection with the development of materials for Licensee's use in satisfying
its Minimum Advertising Obligation, it being acknowledged and agreed that costs
incurred in connection with the development of materials requested by Licensee
or in accordance with a budget developed by the parties shall be deemed
"reasonable".
(iii) For clarification: The cost of printing and producing
Packaging Materials and the like shall not be credited against the Minimum
Advertising Obligation nor shall any product design expenses incurred by
Licensee be credited against the Minimum Advertising Obligation.
7.03. Licensee agrees to create a separate division (the "DIVISION")
to conduct its business in Licensed Articles pursuant to this Agreement, which
Division may share general administration, operations, warehousing and
manufacturing facilities and functions with Licensee's other divisions. Licensee
shall employ an executive, reasonably acceptable to Licensor, to be in charge of
and work exclusively for the Division and a Marketing and Sales Manager, also
reasonably acceptable to Licensor, who shall devote his time exclusively to the
marketing and sale of the Licensed Articles. In addition, Licensee shall
maintain an adequate staff, including a sales force and in-store consultants,
solely for the sale of Licensed Articles and service to Licensee's customers for
Licensed Articles.
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7.04. (a) During the Term, Licensee shall maintain a separate showroom
exclusively for the display of Licensed Articles. Said showroom shall be
decorated in a manner approved by Licensor to be consistent in design and
appearance with Licensor's designated showroom concept. Licensee's showroom
shall be staffed and maintained in a manner commensurate with the reputation and
prestige of the Licensed Marks as a designation for highest quality products.
For clarification: Licensor acknowledges that Licensee has retained
representatives who show the Licensed Articles to customers through regional
markets throughout the United States. Licensee hereby expressly agrees to inform
its representatives of the requirement to maintain a separate area, visibly and
clearly, demarcated from other areas of its showroom and decorated in a suitable
manner, for the display of Licensed Articles. Licensee acknowledges that the
acts of said representatives shall be deemed Licensee's acts for all purposes
hereunder. As used in this paragraph 7.04, references to "SHOWROOM" shall be
deemed to include exhibit facilities maintained by Licensee or its
representatives at trade shows where Licensed Articles are shown and/or sold.
(b) (i) It is the parties' intent and Licensee agrees that an
essential element of marketing Licensed Articles shall be the development and
installation of in-store shops to house only Licensed Articles ("SHOPS").
Licensor and Licensee shall mutually agree as to those accounts where a Shop
will be required (each, a "KEY ACCOUNT"), it being acknowledged by Licensee that
the establishment of Shops in Key Accounts is a material obligation of Licensee
hereunder. In those accounts which are not Key Accounts, Licensee will require a
so-called "soft shop" to house the Licensed Articles. As used herein, a "SOFT
SHOP" means a separate area for Licensed Articles within a larger department for
Articles generally, which shall be appropriate in size to carry a representative
assortment of each Product Category and which shall feature signage and other
fixtures or icons bearing the Licensed Marks.
(ii) With respect to all material aspects of the design and
construction of Shops, including fixtures, furnishings and signage, Licensee
shall consult with Licensor. Licensee shall not modify Licensor's direction
except with Licensor's express prior approval which shall not be unreasonably
withheld or delayed. Through its store customer service program,
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Licensee shall, at all times, assure that each Key Account maintains its Shops
in a clean and attractive condition equal to the standard of competitors'
in-store shops.
(iii) Licensee shall be responsible for all expenses
incurred in carrying out its obligations under this paragraph 7.04(b). If
Licensor incurs any costs primarily in connection with the foregoing, Licensee
shall reimburse Licensor promptly after receipt of Licensor's invoice therefor.
7.05. (a) Licensee acknowledges the importance to the development of
the image and reputation of the Licensed Marks of displaying the full range of
products bearing the Licensed Marks. Accordingly, in each season Licensee shall
provide representative samples of Licensed Articles to Licensor, without charge,
for display in the New York showroom maintained by Licensor for its apparel
bearing the Licensed Marks or for its licensed products generally. Such samples
shall be made available to Licensor upon Licensor's reasonable request, so that
the Licensed Articles may be merchandised and shown with the applicable clothing
line and with other products bearing the Licensed Marks. Licensee shall also
provide to Licensor, without charge, additional samples as may be required for
advertising and publicity needs.
(b) Upon Licensor's request, Licensee shall provide Licensor
with a reasonable number of Licensed Articles as requested by Licensor, for use
in connection with its fashion shows, which Licensed Articles shall be from the
current collection in process. Licensee acknowledges that some of such shows
shall take place prior to the commencement of production of such Licensed
Articles and that License shall be required to provide pre-production samples.
(c) For control purposes, Licensee may elect to "memo bill"
Licensor, at Licensee's direct cost therefor, for the samples provided. Upon
return of the samples, the "memo bill" shall be promptly canceled.
8. GUARANTEED MINIMUM ROYALTY.
8.01. In consideration of both the license granted and the services to
be performed by Licensor hereunder, during the Initial Contract Year of the
Term, Licensee shall pay the Licensor
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a Guaranteed Minimum Royalty in the amount of [ * ], and for each succeeding
Contract Year during the Term, a Guaranteed Minimum Royalty in an amount equal
to [ * ] of the Sales Royalty (as hereinafter defined) earned hereunder for the
preceding Contract Year, but not less than [ * ] in the second Contract Year
and, thereafter, [ * ] (the "BASE AMOUNT").
8.02. The Guaranteed Minimum Royalty payable for each Contract Year
shall be paid to Licensor in equal monthly installments on the first business
day of each month during each such Contract Year, except that, for the Initial
Contract Year, the Guaranteed Minimum Royalty shall be paid as follows:
(a) [ * ], upon execution of this Agreement and (b) the balance in equal monthly
installments commencing July 1, 1999. If [ * ] of the Sales Royalty exceeds the
Base Amount, the increase in the amount of the Guaranteed Minimum Royalty to be
paid over the Base Amount will be determined at the time Licensee renders its
accounting for the just-concluded Contract Year and appropriate adjustments to
the amount of the monthly installments in the current Contract Year will be
made.
8.03. The Guaranteed Minimum Royalty paid for each Contract Year is
non-refundable but shall be credited against and recouped from the Sales Royalty
otherwise payable for that Contract Year, as provided in Section 9 below.
9. SALES ROYALTY.
9.01. In consideration of both the license granted and the services to
be performed by Licensor hereunder, Licensee shall pay to Licensor a Sales
Royalty equal to [ * ] of all Net Sales.
9.02. The Sales Royalty hereunder shall be accounted for and paid
quarterly within thirty (30) days after the last business day of each Accounting
Period during the Term. The Sales Royalty earned for each Accounting Period
shall be computed in accordance with paragraph 10.01 below.
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9.03. No payment of Sales Royalty for any Accounting Period shall
reduce the Guaranteed Minimum Royalty due to Licensor for said Contract Year;
provided, however, that if the aggregate of the Guaranteed Minimum Royalty and
any additional Sales Royalty actually paid to Licensor for a particular Contract
Year (the "TOTAL PAID ROYALTY") exceeds the aggregate Sales Royalty earned by
Licensor hereunder for said Contract Year, then the amount by which the Total
Paid Royalty exceeds the greater of the Guaranteed Minimum Royalty or the Sales
Royalty earned shall be deemed "EXCESS ROYALTY" and Licensee may recoup the
amount of the Excess Royalty from the Sales Royalty otherwise payable to
Licensor in the next Contract Year, not withstanding any contrary provision of
this Agreement. Except as expressly provided in the immediately preceding
sentence, no payment of Sales Royalty for any Contract Year shall reduce the
Guaranteed Minimum Royalty or the Sales Royalty due to Licensor for any other
Contract Year. Without limiting the generality of the foregoing, if Licensee
pays an Excess Royalty in the final Contract Year, Licensor shall repay the
amount of such Excess Royalty to Licensee within thirty (30) days after
Licensor's receipt of Licensee's final accounting statement documenting such
Excess Royalty.
10. ACCOUNTING STATEMENTS AND OPERATING REPORTS.
10.01. Licensee shall deliver to Licensor at the time each Sales
Royalty payment is due, a statement in the form set forth in Schedule 10.01
attached hereto and made a part hereof, signed and certified as accurate by the
Chief Financial Officer of Licensee. With respect to each Licensed Mark and
Product Category, the statement shall provide the following information
concerning the calculation of the amount payable for the period covered by the
statement (the "REPORTING PERIOD"):
(a) the gross sales of all Licensed Articles shipped during the
Reporting Period;
(b) the amount of any approved deductions from gross sales
including for allowable returns actually received during the Reporting Period,
or trade discounts actually taken;
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(c) the Net Sales;
(d) the amount of Sales Royalty earned hereunder on said Net
Sales for the Reporting Period;
(e) the total amount of Sales Royalty earned in the current
Contract Year (including Sales Royalty earned in the Reporting Period); and
(f) the amount of Sales Royalty payable this Reporting Period
after deduction from the amount shown in (e) of the amount of the Guaranteed
Minimum Royalty and Sales Royalty actually paid in the current Contract Year
through the end of the Reporting Period.
The amount payable for the Reporting Period shall be the
aggregate of the amount calculated in accordance with the preceding
sub-paragraphs (a) through (f) and the amount of the Image Fund Payment due
hereunder for the Reporting Period. The Image Fund Payment shall be in addition
to any other monies payable hereunder and shall not be credited against and/or
recoupable from Sales Royalties otherwise payable to Licensor hereunder. In a
supplemental statement for the Reporting Period, Licensee shall show the amount
of Net Sales through Normal Retail Channels, the amount of Special Promotion
Sales, the amount of Net Sales of Discontinued Goods, and, by country, the Net
Sales made pursuant to a distribution right granted under Section 18 below. Such
statement shall be furnished to Licensor irrespective of the quantity of
Licensed Articles that have been sold during the Reporting Period. Accounting
statements and payments shall be sent to Licensor to the attention of the Chief
Financial Officer, with a copy to the President of Licensor's Licensing
Division.
10.02. During each Contract Year, Licensee shall provide Licensor with
additional information concerning its business hereunder. Licensor intends that
this information shall be the basis for its periodic business-review meetings
with Licensee.
(a) Within thirty (30) days after the last business day of the
second and fourth Accounting Periods of each Contract Year during the Term,
Licensee shall deliver to Licensor an Operating Report setting forth, separately
for each Product Category (if applicable), the following: (i) the total amount
spent by Licensee, in addition to the Image Fund Payments, for
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the advertising and promotion of Licensed Articles during the particular
Contract Year through the end of the most recently completed two (2) Accounting
Periods indicating the amounts paid for cooperative advertisements separately
from other advertising and promotion; (ii) stated separately, by account, those
amounts paid for promotions and/or cooperative advertisements (indicating the
medium in which said advertising appeared); (iii) by account, including accounts
in any Foreign Territory where sale of Licensed Articles is permitted in
accordance with Section 18 below, Net Sales (in dollars and units), and (iv) Net
Sales by style (in dollars, units and average price and accompanied by a photo
or line drawing), for the top 20 styles. The information requested in the
foregoing subsections (iii) and (iv) shall be provided separately for petites,
missy and large sizes, if applicable. The Operating Report shall be in the form
set forth in Schedule 10.02 attached hereto and made a part hereof, signed and
certified as accurate by a duly authorized officer of Licensee. Upon Licensor's
reasonable request, Licensee shall deliver to Licensor, together with the
Operating Report, copies (such as tear sheets) of all advertisements relating to
the Licensed Marks and Licensed Articles placed by Licensee or on its behalf
during the Accounting Periods covered by the report.
(b) Not later than October 15th of each Contract Year, Licensee
shall furnish Licensor its quarterly sales projections for the Licensed Articles
(by Product Category) for the next Contract Year. Not later than June 15th of
each Contract Year, Licensee shall furnish Licensor with any revision of its
sales projections by quarter, for the current Contract Year. Sales projections
shall be accompanied by the assumptions on which such projection is based.
(c) Operating Reports and projections shall be sent to Licensor
to the attention of the President of Licensor's Licensing. Division, with a copy
to Licensor's Chief Financial Officer.
10.03. Receipt or acceptance by Licensor of any of the statements
furnished, or of any sums paid, pursuant to this Agreement shall not preclude
Licensor from questioning their correctness at any time.
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10.04. (a) Licensee shall maintain appropriate books of account in
which accurate entries shall be made concerning all transactions within the
scope of this Agreement. Licensee acknowledges that it is Licensor's policy to
conduct audits of its licensees periodically, whether or not Licensor has any
concern that an audit is necessary. Therefore, during the Term, and for a period
of twelve (12) calendar months thereafter, Licensor shall have the right,
through any of its employees or other authorized representative of its choice,
upon reasonable advance notice to Licensee, to examine and copy all or part of
these books of account and al I other records, documents and material in the
possession or under the control of Licensee with respect to the subject matter
of this Agreement. Without limiting the generality of the foregoing, Licensee
shall maintain supporting customer invoices and such other documents as may be
reasonably required to substantiate royalty statements rendered and operating
reports hereunder and to enable Licensor to confirm that all Licensed Articles
are accounted for, including without limitation for each style of Licensed
Article, the quantity of each such style manufactured and sales information
indicating by month, by customer and in the aggregate the style number, quantity
and invoice price of all Licensed Articles shipped.
(b) Licensee shall make all payments required to be made to
eliminate any discrepancy revealed by an audit within fifteen (15) days after
Licensor's demand therefor, plus interest at the prime rate prevailing from time
to time in New York, New York at Citibank, N.A., plus two percent (2%), on such
unpaid royalties from the date(s) said royalties were originally due and
payable. In addition, if Licensee's payment or aggregate of payments for any
period covered by an audit of Licensee's books and records (the "AUDIT PERIOD")
was less than the amount which should have been paid by a sum equal to or
greater than two percent (2%) of the aggregate royalty reported to Licensor
during the Audit Period or $10,000 per 12-month period encompassed by the Audit
Period (whichever is less), Licensee shall reimburse Licensor for the cost of
such audit.
(c) All books of account and records shall be kept available by
Licensee for at least four (4) full calendar years after the end of each
calendar year of the Term.
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11. INTELLECTUAL PROPERTY.
11.01. (a) (i) Licensee shall not question or otherwise challenge,
either directly or indirectly, during the Term or after the termination or
expiration of the Term, Licensor's ownership of the entire right, title and
interest (including any and all accompanying goodwill) in and to the Licensed
Marks or Company's Tradename, the validity of this Agreement or the validity of
any registration or application for registration by Licensor of the Licensed
Marks. Licensee acknowledges and agrees that, to the extent that any goodwill
and other rights attach to or arise in connection with the use of the Licensed
Marks by Licensee, Licensee hereby assigns any and all such goodwill and rights,
at such time as they may be deemed to accrue, to Licensor.
(ii) Licensee agrees that it will not make application in
its own name for registration of the Licensed Marks but Licensee shall promptly
supply Licensor with all material it may request for such purposes and give
Licensor its full cooperation in connection therewith. Licensee shall at any
time, whether during or after the Term, execute any documents requested by
Licensor to confirm Licensor's ownership of the Licensed Marks or to record
Licensee as a licensee or registered user of the Licensed Marks; provided,
however, that in the event of any ambiguity or conflict between any provision of
any such document and any provision of this Agreement, this Agreement shall
prevail. Without limiting the generality of the foregoing, Licensee shall
provide Licensor with a duplicate original of each of the first three (3)
invoices for shipments for bona fide commercial sale of the Licensed Articles in
interstate commerce in the United States.
(b) Licensee shall use Company's Tradename and the Licensed
Marks strictly in compliance with all applicable legal requirements. Licensee
shall not, at any time, do or suffer to be done any act or thing which may be
offensive to good taste or would in any way adversely affect any rights in and
to Company's Tradename and the Licensed Marks or any applications and/or
registrations therefor or which, directly or indirectly, may reduce the value of
Company's Tradename and the Licensed Marks or injure their reputation. Licensee
shall not, and shall cause its customers to not, sell, advertise, promote or
exploit Licensed Articles in a manner inconsistent in any way with Licensor's
rights with respect to or that may reduce the value of Company's Tradename and
Company's Marks, including the Licensed Marks.
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(c) In the event Licensor and Licensee decide to use one or more
newly-created names to designate particular styles or attributes unique to
Licensed Articles or some of them (hereinafter referred to as "CREATED MARKS"),
Licensor shall be the owner of all rights in said Created Marks, trademark
registration (if any) shall be in Licensor's name and references in this
Agreement to Licensed Marks, including in this Section 11, shall be deemed to
include all or any Created Marks, except as expressly stated herein.
(i) The decision to adopt a Created Mark and the form of
each such Created Mark shall be determined by mutual agreement of Licensor and
Licensee, but if the parties are unable to agree, Licensor's decision shall
prevail.
(ii) During the Term, before a trademark previously
registered to Licensee but not otherwise identified with a Licensee product
which is not a Licensed Article is adopted and used as a Created Mark on or with
Licensed Articles, Licensor and Licensee shall enter into an appropriate
agreement confirming that Licensor may continue to use and grant others
(including a successor licensee) the right to use said proposed Created Mark as
a trademark on (or designation for) Licensed Articles following the termination
or other expiration of the Term. Such agreement shall contain such terms and
conditions as are usual and customary in other similar agreements and
appropriate to the circumstances as they then appear.
11.02. Licensee expressly acknowledges and agrees that nothing in this
Agreement will be deemed in any way to constitute an assignment by Licensor of
Company's Tradename and the Licensed Marks or of any rights with respect
thereto, or to give Licensee any right, title or interest in or to Company's
Tradename and the Licensed Marks (except the right to make use thereof as herein
provided).
11.03. Licensee shall promptly notify Licensor, in writing, of any
actual, suspected or apparent infringement or counterfeit of any of the Licensed
Marks or any unfair competition, "passing off" or other violation (collectively
"INFRINGEMENT") of the Licensed Marks that comes to the attention of Licensee.
Licensee will cooperate with Licensor, and, if requested by Licensor, shall join
with Licensor, in such action as Licensor in its discretion may deem advisable,
it being
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understood and agreed that Licensor may elect, in its sole discretion, to
refrain from taking any action. The proceeds of any settlement of or recovery
from any such action shall be shared by Licensor and Licensee pro-rata in
proportion to their respective contribution to the costs and expenses incurred
in connection with such action. Any non-monetary rights obtained as a result of
any such action shall belong entirely to Licensor. Licensee shall have no right
to take any action with respect to any Licensed Mark without Licensor's prior
written approval. Licensor shall not be liable to Licensee or any other person
or entity for any damages or otherwise by reason of any Infringement.
11.04. Any copyright, patent, industrial design right, or design
patent which may be created in any Licensed Article, Licensor fabrication,
sketch, design, advertising, Packaging Materials or the like designed or
approved by Licensor in connection with Licensed Articles (hereinafter,
collectively, "PROTECTIBLE MATERIALS") and all Unique Styles shall be the
property of Licensor. To the extent that any Material is or contains any content
that is eligible for copyright protection pursuant to the Copyright Act of 1976,
such Material or content thereof shall be considered a "work made for hire" (as
such term is defined in the Copyright Act of 1976), and all rights with respect
thereto shall be automatically assigned to Licensor. Licensee shall not, at any
time, do or suffer to be done any act or thing which may adversely affect any
rights of Licensor in the Protectible Materials, including, without limitation,
filing any application in its name to record any claims to copyrights, patents
or design patents in Licensed Articles, and upon Licensor's request, shall do
all things reasonably required by Licensor to preserve and protect said rights,
including, without limitation, placing an appropriate copyright or industrial
design right notice on all Licensed Articles and the Protectible Materials
therefor. Licensee shall at any time, whether during or after the Term, execute
any documents requested by Licensor to confirm Licensor's ownership of the
Protectible Materials; provided, however, that in the event of any ambiguity or
conflict between any provision of any such document and any provision of this
Agreement, this Agreement shall prevail.
12. INDEMNIFICATION; INSURANCE
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12.01. Licensee shall release, defend, hold harmless and indemnify
Licensor and its agents from and against any claims, demands, causes of action,
judgments, settlements, fines or other costs (including reasonable attorneys'
fees) which Licensor may incur or be obligated to pay or for which it may become
liable or be compelled to pay in any action, claim or proceeding against it
arising out of or in connection with Licensee's performance of this Agreement,
including without limitation on account of any alleged defect in any Licensed
Article produced by or for Licensee under this Agreement or the manufacture,
labeling, sale, distribution or advertisement of any Licensed Article by
Licensee in violation of any Law. Licensor shall give Licensee prompt notice of
any such claim or suit. Notwithstanding the foregoing, Licensor may elect to
take sole control of such proceedings and settlements thereof, at Licensee's
expense, if (a) the same would be reasonably likely to adversely affect the
Licensed Marks and (b) an adverse result would be reasonably likely to
irreparably damage Licensor's goodwill. The provisions of this paragraph and
Licensee's obligations hereunder shall survive the expiration or termination of
this Agreement.
12.02. Licensor shall release, defend, hold harmless and indemnify
Licensee from any claims, demands, causes of action, judgments, settlements,
fines or other costs (including reasonable attorneys' fees) arising solely out
of a third-party claim concerning the use by Licensee of the Licensed Marks as
authorized in this Agreement in any jurisdiction included within the purview of
trademark registration in the United States; provided, however that Licensor's
liability to Licensee shall be limited to the amount of royalties paid by
Licensee to Licensor during the pendency of said claim or suit. Licensee shall
give Licensor prompt notice of any such claim or suit. Licensor shall have the
right to undertake and conduct the defense of any suit so brought through
counsel of Licensor's choice.
12.03. At all times during which Licensed Articles are being sold,
Licensee shall, at its own expense, procure and maintain in full force and
effect with a responsible insurance carrier reasonably acceptable to Licensor a
public liability insurance policy including products liability coverage with
respect to Licensed Articles, as well as contractual liability coverage with
respect to this Agreement, with a limit of liability of not less than
$10,000,000. Said insurance policy
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shall include Licensor as an additional insured and shall provide for at least
sixty (60) days prior written notice to Licensor of the cancellation or
substantial modification thereof. Such insurance may be obtained by Licensee in
conjunction with a policy of liability insurance which covers products other
than Licensed Articles, including any such policies currently owned by Licensee.
Without limiting the generality of the foregoing, Licensee's policies of
casualty insurance shall provide that the insurance carrier may take no action
with respect to Licensed Articles or the Licensed Marks if such action would
constitute a breach by Licensee of any of the provisions of this Agreement.
Licensee shall deliver a certificate of such insurance to Licensor promptly
following complete execution of this Agreement and annually thereafter shall
furnish to Licensor evidence of the maintenance of said insurance policy.
Nothing contained in this paragraph 12.03 shall be deemed to limit, circumscribe
or affect in any way the indemnification provisions of paragraph 12.01 above.
13. EFFECT OF EXPIRATION OR TERMINATION.
13.01. The termination of this Agreement, for any reason, shall be
without prejudice to any other right or remedy Licensor may have -- including
without limitation, all rights and remedies which it has, or which are granted
to it by operation of law, to enjoin the unlawful or unauthorized use of
Company's Tradename and the Licensed Marks, to collect monies payable by
Licensee hereunder and to be compensated for damages for breach of this
Agreement -- and such rights and remedies are hereby expressly reserved.
Licensee acknowledges that Licensor has no adequate remedy hereunder or at law
for Licensee's use of the Licensed Marks and Company's Tradename in violation of
this Agreement and Licensor shall be entitled to injunctive relief or other
equitable remedies therefor. Without limiting the generality of the foregoing,
any amounts expended by Licensor or Licensee in connection with this Agreement
are expended with the knowledge that this Agreement may be terminated in
accordance with its terms.
13.02. (a) If either party serves upon the other pursuant to an
express provision of this Agreement a notice (the "TERMINATION NOTICE") that it
desires to terminate this Agreement or that it desires that the Term shall not
be extended, Licensor's obligation to submit designs
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pursuant to paragraph 4.02 shall immediately terminate and, within twenty (20)
days after the date of the Termination Notice, Licensee shall deliver to
Licensor the following: (i) a complete list of Licensee's then-current accounts
for Licensed Articles and, for each account, Net Sales for the last-completed
Contract Year, indicating regular price and off-price sales; (ii) a list of each
style, indicating total Net Sales dollars and units for the last-completed
Contract Year, as well as Licensee's published list price and suggested retail
price, if any; (iii) a list of the "top 20" selling styles for the
last-completed Contract Year, and two (2) samples of each. All information shall
be stated separately with respect to each of the Licensed Marks and each Product
Category.
(b) Contemporaneously with the delivery of the information
requested in paragraph 13.02(a), Licensee shall also deliver a complete and
accurate schedule of Licensee's inventory of Licensed Articles and, to the
extent available, related work in process and materials then on hand, in the
possession of Contractors and in transit including non-cancelable orders
identifiable to Licensed Articles and/or bearing the Licensed Marks (hereinafter
referred to as "INVENTORY"). The Inventory schedule shall be prepared as of the
close of business on the date of such Termination Notice. Except as Licensor may
otherwise agree, all cancelable orders for the production of Licensed Articles
and/or related materials used to produce Licensed Articles shall promptly be
canceled.
(c) (i) If the date of termination stated in the Termination
Notice is not the expiration date contemplated in paragraph 3.01 above,
Licensee's rights to manufacture Licensed Articles hereunder shall terminate as
of the date of the Termination Notice and, except as Licensor may otherwise
expressly agree in writing, all cancelable orders for the production of Licensed
Articles and/or related materials used to produce Licensed Articles shall
promptly be canceled and no new production shall be started.
(ii) If the date of termination stated in the Termination
Notice is the expiration date contemplated in paragraph 3.01 above, Licensee's
rights to manufacture Licensed Articles hereunder shall terminate as of the
expiration date. To facilitate the orderly disposition of Licensee's Inventory
of Licensed Articles, during the final three (3) months of the Term, Licensee's
Inventory of Licensed Articles shall not exceed its Inventory on-hand during the
immediately-preceding three (3) months and Licensee shall manufacture and take
delivery of only
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such additional quantity of Licensed Articles as are reasonably necessary to
enable Licensee to fill orders from its customers on-hand at the commencement of
said three-month period or reasonably expected, based upon Licensee's prior
experience.
(d) Neither Licensor nor Licensee shall make any announcement
concerning the expiration or termination of this Agreement except as the parties
shall mutually agree and except as otherwise required by law.
13.03. Notwithstanding the expiration or other termination of the
Term, Licensee shall not be released from any obligation that accrued prior to
the date of expiration or termination and Licensee shall remain bound by the
provisions of this Agreement which by their terms impose upon Licensee
obligations extending beyond the date of expiration or other termination.
13.04. (a) Except as otherwise specifically provided in this section
13, on the expiration or termination of the Term, all of the rights of Licensee
under this Agreement to use the Licensed Marks and Company's Tradename as
provided herein shall immediately terminate and shall revert automatically to
Licensor; all Sales Royalties on sales theretofore made shall become immediately
due and payable; and Licensee shall discontinue forthwith all use of Company's
Tradename and the Licensed Marks, shall no longer have the right to use
Company's Tradename and the Licensed Marks or any variation or simulation
thereof and shall, promptly upon Licensor's written request, free of charge,
execute any and all documents Licensor may deem necessary or desirable to the
effect that Licensee no longer has the right to manufacture, advertise, promote
and sell Licensed Articles hereunder or to use the Licensed Marks (and if
Licensee fails to do so promptly, Licensor shall have the right to sign such
documents as it deems reasonably necessary on Licensee's behalf). In addition,
Licensee shall thereupon destroy, or, if requested by Licensor, shall deliver to
Licensor all samples in its possession and all Packaging Materials,
advertisements, advertising materials of all kinds and other material in its
possession with Company's Tradename and the Licensed Marks thereon. In addition,
an updated Inventory schedule, including the direct cost of each item as shown
on Licensee's books, shall be prepared as of the close of business on the date
of such expiration or termination.
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(b) If Licensee does not have the right to continue to sell its
Inventory pursuant to paragraph 13.05 below or if Licensee advises Licensor that
it does not intend to attempt to sell off its Inventory, Licensor thereupon
shall have the option, exercisable by notice in writing delivered to Licensee
within thirty (30) days after its receipt of the complete updated Inventory
schedule in written form, to purchase any or all of the Inventory for an amount
equal to the cost of the Inventory being purchased or its fair market value,
whichever is lower. In the event such purchase option is exercised by Licensor,
Licensee shall deliver to Licensor or its designee all of the Inventory referred
to therein within fifteen (15) days after Licensor's said notice of exercise of
its option. Licensor shall pay Licensee for such Inventory as is in marketable,
first quality condition within thirty (30) days after its receipt thereof.
Licensee's rights with respect to disposal of the Inventory shall not be altered
in the event Licensor does not exercise its purchase option hereunder.
13.05. (a) If the Term expires or is terminated by Licensor other than
for any breach arising from material misuse of Company's Tradename and the
Licensed Marks or any failure to make any payment when due hereunder (whether or
not subsequently paid) or pursuant to paragraph 3.04(a) and 3.04(b) above,
Licensee (but no other person, including for this purpose any person having a
security interest in the Inventory) shall be entitled, for an additional period
of four (4) months only on a non-exclusive basis to sell and dispose of its
remaining Inventory of Licensed Articles on hand at the expiration or other
termination of the Term from, but only from, the final seasonal collection sold
hereunder. All sales pursuant to this paragraph shall be made subject to all of
the provisions of this Agreement and to an accounting for and the payment of
Sales Royalty thereon. Such accounting and payment shall be due in accordance
with sections 9 and 10 above, except that accounting and payment shall be made
monthly within thirty (30) days after the last business day of each calendar
month in the sell-off period, and a final accounting and payment shall be due
within thirty (30) days after the close of the said four (4) month period.
(b) If, during the sell-off period, Licensee wishes to sell any
of its Inventory other than in Normal Retail Channels, or if Licensee wishes to
sell all or substantially all of the Inventory to a single purchaser or group of
related purchasers, Licensor shall, in such event, have
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a right of first refusal with respect to any such sale at a price equal to the
price to be paid to Licensee by the proposed purchaser, which right shall be
exercisable only by notice in writing delivered to Licensee within ten (10)
business days after Licensor receives written notice from Licensee setting forth
the cost of the Inventory covered by the proposed sale and all of the pertinent
details thereof, including, without limitation, the name of the proposed
purchaser and the proposed purchase price. If Licensor does not exercise its
rights to purchase hereunder, Licensee may proceed with the proposed sale with
the purchaser and at the price offered to Licensor. All sales other than in
Normal Retail Channels shall be deemed sales of Discontinued Goods for all
purposes hereunder. However, if the proposed sale is to a single purchaser or
group of related purchasers, in lieu of any other royalty otherwise payable
hereunder, Licensee shall pay to Licensor, within fifteen (15) business days
after its receipt thereof, an amount equal to fifty percent (50%) of the amount
by which the purchase price for the Inventory exceeds Licensee's cost for such
Inventory as reflected on the Inventory schedule submitted by Licensee pursuant
to paragraph 13.04.
13.06. (a) No receiver, liquidator, assignee, trustee or custodian
appointed to administer the affairs of Licensee, sheriff or any other officer of
the court or official charged with taking custody of Licensee's assets or
business shall have the right to continue the performance of this agreement on
behalf of Licensee or to exploit or use Company's Tradename and/or the Licensed
Marks in any way.
(b) Notwithstanding the provisions of paragraph 13.06(a) above,
if the Bankruptcy Code or any amendment, supplement or successor thereto (the
"CODE") permits a trustee in bankruptcy of Licensee (or Licensee, as
Debtor-in-Possession) to assume this Agreement and either does so and,
thereafter, desires to assign this Agreement to a third person in compliance
with the requirements of the Code, the trustee or Licensee as the case may be,
shall notify Licensor of same in writing. Said notice shall set forth the name
and address of the proposed assignee, the proposed consideration for the
assignment and all other relevant details thereof. The giving of such notice
shall be deemed to constitute the grant to Licensor of an option to have this
Agreement assigned to it or to its designee for such consideration, or its
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equivalent in money, and upon such terms as are specified in the notice. Said
option may be exercised only by written notice given to the trustee or Licensee,
as the case may be, by Licensor within fifteen (15) days after Licensor's
receipt of the aforesaid notice from such party, or within such shorter period
as may be deemed appropriate by the court in the bankruptcy proceeding. If
Licensor fails to exercise its said option within the aforestated exercise
period, the trustee or Licensee, as the case may be, may complete the assignment
referred to in its notice, but only if such assignment is to the entity named in
said notice and for consideration and upon the terms specified therein. Nothing
contained herein shall be deemed to preclude or impair any rights which Licensor
may have as a creditor in any such bankruptcy proceeding.
14. REPRESENTATIONS AND WARRANTIES.
14.01. Licensor represents and warrants that it is a limited liability
company in good standing under the laws of the State of New York and that it has
full right, power and authority to enter into this Agreement and to perform all
of its obligations hereunder. Licensor further represents and warrants that it
has granted no other existing license to use the Licensed Marks on Articles for
sale in the Territory and that it shall grant no such other license during the
Term except in accordance with the provisions hereof.
14.02. Licensee represents and warrants that it is a corporation
incorporated in California and in good standing under the laws of said State,
that it has full right, power and authority to enter into this Agreement and to
perform all of its obligations hereunder and that the party signing on its
behalf is duly authorized to do so.
14.03. Each of Licensee and Licensor represents and warrants that it
did not engage any broker in connection with this Agreement or the transactions
contemplated hereby.
15. FORCE MAJEURE.
15.01. Neither party hereto shall be under any liability hereunder to
the other on account of any loss, damage or delay occasioned or caused by
lockouts, strikes, riots, fires, explosions,
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blockade, civil commotion, epidemic, insurrection, war or warlike condition, the
elements, embargoes, failure or inability to obtain material or transportation
facilities, acts of God or the public enemy, compliance with any law, regulation
or other governmental order or other causes beyond the control of the party
affected, whether or not similar to the foregoing; provided, however, that if
such condition continues for three (3) months and is not industry-wide but
applies only to Licensee, Licensor may terminate the Term on thirty (30) days'
written notice which may be given at any time after said three (3) month period
and provided, further, that nothing herein shall at any time excuse any accrued
obligation for the payment of money.
16. ASSIGNABILITY.
16.01. (a) The rights granted herein are personal to Licensee and
Licensee may not assign or sublicense any or all of its right or delegate any of
its duties under this Agreement. Any deliberately attempted assignment,
sublicense, or delegation or any one of these purportedly occurring by virtue of
the operation of law shall be void and shall constitute grounds for termination
of this Agreement which termination shall be effective on the fifteenth (15th)
day following the date of Licensor's notice.
(b) Without limiting the generality of the foregoing, if
Licensee contemplates the sale or other disposition of any portion of its
business or assets related to the subject matter of this Agreement, including
without limitation through a sale of stock, or if there is a change of control
or management of Licensee, Licensee shall promptly inform Licensor and shall
provide Licensor with sufficient information concerning the proposed transaction
and/or transferee to enable Licensor to make an informed decision whether in its
discretion, the nature of the proposed transaction, the parties participating
therein or the resulting ownership of Licensee would materially adversely impact
upon or affect the Licensed Marks or their use in connection with the Licensed
Articles or Licensee's ability to meet all of its obligations under this
Agreement. Licensor shall notify Licensee of its decision within twenty (20)
business days after it receives all of the information referred to in the
preceding sentence or such other additional information as Licensor may
reasonably request. If Licensor approves the proposed transaction, which
approval must be in writing, Licensor's right to terminate this Agreement
pursuant to this paragraph shall
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not arise. For avoidance of doubt: If Licensor fails to approve the proposed
transaction and Licensee elects to transfer ownership or control of its business
or assets related to the subject matter of this Agreement in the absence of such
approval, Licensor may elect to terminate this Agreement in accordance with
paragraph 16.01(a).
16.02. This Agreement shall inure to the benefit of and shall be
binding upon the parties, Licensor's successors, transferees and assigns and
Licensee's permitted successors, transferees and assigns.
17. NOTICES.
17.01. Any notice or other communication under this Agreement will be
in writing and will be considered given when delivered personally, sent by
confirmed telefax or delivered by an overnight courier service (such as Federal
Express or DHL) which requires the addressee to acknowledge receipt thereof or
by certified mail, return receipt requested, to the parties at the following
addresses, or at such other address as a party may specify by notice to the
other:
TO LICENSOR: Anne Klein Company LLC
11 West 42nd Street
New York, New York 10036
Attention: President,
Anne Klein Licensing Division
with a copy to Licensor's Senior Vice President and General Counsel at the same
address (Fax number: (212) 626-6354).
TO LICENSEE: The Sirena Apparel Group, Inc.
10333 Vacco Street
South El Monte, California 91733-0307
Attention: Maurice Newman, Chairman and CEO
Fax Number: (626) 442-2280
18. INTERNATIONAL. Upon Licensee's written request, which must be accompanied by
a marketing plan stating, inter alia, anticipated sales volume and accounts
(initial and projected) (a "COUNTRY PLAN"), Licensor may elect in its discretion
to grant Licensee permission to distribute Licensed Articles in a particular
country (or countries) of the world outside of the Territory or to
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"duty-free" shops for sale to international travelers and to airlines and cruise
ship lines for on-board sales (hereinafter referred to as the "FOREIGN
TERRITORY"), subject to the terms and conditions set forth in this section 18.
Licensee acknowledges that under the applicable trademark laws of many countries
of the world the filing of statutorily-mandated documents is a prerequisite to
use of a trademark by any party other than the registered owner. Accordingly,
Licensee shall not offer for sale or sell Licensed Articles for resale in any
country which requires a document filing until an appropriate document has been
filed. With respect to each particular Foreign Territory, if Licensor approves
Licensee's request to distribute in a said Foreign Territory (an "APPROVED
FOREIGN TERRITORY"), Licensee shall pay to Licensor a fee (the "FOREIGN
TERRITORY FEE") to offset Licensor's costs associated with obtaining or
maintaining trademark protection for the Licensed Marks in said Approved Foreign
Territory or otherwise enabling Licensee to use the Licensed Marks in such
country; the Foreign Territory Fee shall initially be the sum of [ * ]. The
amount of the Foreign Territory Fee paid shall be deemed an advance against
royalties otherwise payable by Licensee only with respect to sales of Licensed
Articles in or to said Approved Foreign Territory.
18.01. Licensee's right to distribute Licensed Articles in any
particular Approved Foreign Territory shall continue only during the Term of
this Agreement; provided, however, that Licensor reserves the right to and may
terminate the distribution permission granted herein with respect to any
particular Approved Foreign Territory on ninety (90) days prior written notice
which may be given at any time and for any reason, including without limitation,
if Licensee shall have failed to continue the sale and/or distribution of
Licensed Articles to said particular Approved Foreign Territory in reasonable
commercial quantities for a period longer than one selling season. Licensor's
election to grant permission to distribute in a Foreign Territory shall not be
construed to convey any rights in the Licensed Marks in said Approved Foreign
Territory, except as expressly set forth in this section 18.
18.02. (a) Licensee shall account for and pay royalties on Net Sales of
Licensed Articles in or to the Approved Foreign Territory in accordance with
this Agreement; provided,
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however, that (i) for purposes of computing the Sales Royalty payable, such Net
Sales shall be deemed to be not less than the "Net Sales" of a corresponding
sale at the prevailing wholesale price as if such sales had been made in Normal
Retail Channels in the Territory; and (ii) on Licensee's statements, Net Sales
made pursuant to a distribution right granted hereunder shall be shown
separately for each Approved Foreign Territory. Notwithstanding the generality
of the foregoing, if Licensee's sales to a Foreign Territory are made on a
"first cost" price basis, then for purposes of royalty reporting said "first
cost" price shall be deemed "Net Sales" with respect to such Foreign Territory
and the Sales Royalty applicable to said sales shall be computed at the rate of
[ * ] in lieu of the rate provided in paragraph 9.01 above.
(b) If Net Sales are stated in a currency other than U.S.
Dollars, they shall also be reported to Licensor, and the Sales Royalty payable
thereon shall be calculated, in the U.S. Dollar equivalent at the selling price
of such other currency as reported by The Wall Street Journal at the last
business day of the Accounting Period for which such Royalty is payable. In
addition, upon Licensor's reasonable request, Licensee shall furnish copies of
its invoices showing sales in or to any particular Approved Foreign Territory.
Without limiting the generality of the foregoing, Licensee shall provide
Licensor with a duplicate original of each of the first three (3) invoices for
bona fide commercial sale of Licensed Articles in or to each Approved Foreign
Territory.
18.03. In any particular season, Licensee shall distribute for sale in
or to the Approved Foreign Territory, only those Licensed Articles approved by
Licensor in each case for sale in such season in accordance with this Agreement.
All marketing plans and programs, including sales promotions and any advertising
use of the Licensed Marks, in connection with Licensed Articles in any Approved
Foreign Territory shall comply with the applicable provisions of this Agreement;
Licensee will use its reasonable efforts to make copies (such as tear sheets) of
any such advertisements available to Licensor. Minimum advertising expenditure
requirements in a particular Approved Foreign Territory shall be not less than
[ * ] of wholesale sales based initially upon the Country Plan for each such
country.
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18.04. Licensor and Licensee acknowledge that the Licensed Articles are
intended to be of the highest quality and marketed in a manner commensurate with
Licensor's standing and reputation in the apparel industry in the United States.
Accordingly, and in order to maintain the reputation, image and prestige of the
Licensed Marks, Licensee's primary distribution patterns shall consist of (a)
those retail outlets in the particular Approved Foreign Territory previously
approved by Licensor for the sale of products bearing the Licensed Marks and (b)
subject to Licensor's reasonable approval, such other retail outlets in the
particular Approved Foreign Territory whose location, merchandising and overall
operations are consistent with the high quality of Licensed Articles and the
reputation, image and prestige of the Licensed Marks. Except as expressly
provided in this section 18, Licensee shall not sell Licensed Articles to anyone
in the Approved Foreign Territory for resale except resale to a consumer for
personal use nor shall Licensee make such sales to any entity which it knows or
has reason to believe intends to export such Licensed Articles outside the
particular Approved Foreign Territory.
18.05. If Licensee plans to effect its right to distribute in a
particular Approved Foreign Territory through the use of a third party
distributor or through an affiliated company (the "DISTRIBUTOR"), Licensor's
permission (if granted) will be subject to agreement by the Distributor (in
writing) to the foregoing and to the following additional terms and conditions:
(a) The Distributor's rights will cease immediately upon the
expiration or other termination of this Agreement (if not sooner).
(b) The Distributor will not manufacture Licensed Articles or
affix any markings on the Licensed Articles (including on the packaging
therefor, unless such markings are required by law in the particular Approved
Foreign Territory and Licensor's prior approval has been sought and given).
(c) The Distributor acknowledges that Distributor will not
acquire any rights in the Licensed Marks as a result of such distribution and
that any and all good will and other rights which attach to or arise in
connection with the use of the Licensed Marks by the Distributor shall inure to
the sole benefit of Licensor and shall remain vested therein.
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(d) The Distributor shall furnish Licensee with sales
information sufficient to enable Licensee to comply on a timely basis with its
reporting obligations hereunder, including without limitation those reporting
obligations described in paragraph 10.01 and 10.02 above.
(e) Licensee shall retain the right to sell directly to an
Approved Foreign Account (as defined below).
(f) Minimum advertising expenditure requirements shall be not
less than [ * ] of wholesale sales based initially upon the Country
Plan for each particular country of the Distributor's Approved Foreign
Territory.
18.06. Without limiting the generality of the foregoing, Licensor
hereby gives permission to Licensee to distribute to those accounts in each
Foreign Territory to which Licensor has approved the sale of products bearing
the Licensed Marks (each, an "APPROVED FOREIGN ACCOUNT") as set forth on
Schedule 18.06 attached hereto, as it may be modified and supplemented from time
to time. Licensee hereby agrees to notify Licensor prior to selling any Licensed
Articles to an Approved Foreign Account or in or to an Approved Foreign
Territory so that proper trademark protection may be timely arranged and to pay
the applicable Foreign Territory Fee(s) in accordance with paragraph 18.01
above.
19. MISCELLANEOUS.
19.01. Nothing herein contained shall be construed to constitute
Licensee a partner, franchisee, joint venturer, or agent of Licensor, and
Licensee shall have no power to obligate or bind Licensor in any manner
whatsoever, it being intended by the parties hereto that Licensee's relationship
to Licensor hereunder shall be as an independent contractor responsible for its
own actions. No supervision given by or assistance from Licensor shall be deemed
to negate the foregoing.
19.02. No waiver by either party, whether express or implied, of any
provision of this Agreement, or of any breach or default thereof, shall
constitute a continuing waiver of such provision or of any other provision of
this Agreement.
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19.03. If any provision or any portion of any provision of this
Agreement shall be held to be void or unenforceable, the remaining provisions of
this Agreement and the remaining portion of any provision held void or
unenforceable in part shall continue in full force and effect; provided,
however, that no such determination shall excuse any accrued obligation for the
payment of money.
19.04. This Agreement shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Agreement to be drafted. If any words or phrases in this Agreement shall have
been stricken out or otherwise eliminated, whether or not any other words or
phrases have been added, this Agreement shall be construed as if those words or
phrases were never included in this Agreement, and no implication or inference
shall be drawn from the fact that the words or phrases were so stricken out or
otherwise eliminated.
19.05. Notwithstanding anything to the contrary contained in this
Agreement, Licensor shall have the right, exercisable at any time, to negotiate
and enter into agreements with third parties either within or outside of the
Territory pursuant to which it may grant a license to use the Licensed Marks in
connection with the manufacture, advertising, promotion, distribution and sale
of Articles outside the Territory at any time or in the Territory, but only if,
pursuant to such third party agreements in the Territory, either the Articles
are manufactured in the Territory solely for export outside the Territory or the
collections of such Articles are not shipped for sale in the Territory prior to
the expiration or termination date of the Term and the first collection of
Articles to be sold thereunder is the collection following the last seasonal
collection sold hereunder. Nothing herein contained shall be construed to
prevent any such third party licensee from showing such Articles and accepting
orders therefor prior to the termination hereof. Licensor shall notify Licensee
in writing of its intention to terminate the Term due to Licensee's default
and/or the execution of any agreement granting a license to use the Licensed
Marks in connection with the sale and manufacture of Articles in the Territory
as described in this paragraph 19.05.
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19.06. (a) This agreement is entered into in the State of New York and
shall be construed in accordance with the internal substantive laws of New York
applicable to contracts to be wholly performed therein and, to the extent
applicable, the federal laws of the United States.
(b) The parties agree that any action, suit or proceeding based
upon any matter, claim or controversy arising hereunder or relating hereto shall
be brought solely in the appropriate state or Federal Court in the State and
County of New York; except that in the event either party is sued by a third
party or joined in any other Court or in any forum by a third party in respect
of any matter which may give rise to a claim hereunder, the parties consent to
the jurisdiction of such court or forum over any claim which may be asserted
therein between the parties hereto.
(i) Each party hereto hereby waives, to the fullest extent
permitted by applicable law, any right it may have to object to the venue of the
above-mentioned courts, including any claim that such action, suit or proceeding
has been brought in an inconvenient forum.
(ii) Each party hereto hereby waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect
of any matter directly or indirectly arising out of, under or in connection with
this Agreement.
(iii) Each party hereto hereby waives, to the fullest extent
permitted by applicable law, any right it may have to seek punitive damages in
respect of any matter directly or indirectly arising out of, under or in
connection with this Agreement.
(c) Any process in any action, suit or proceeding arising out of
or relating to this Agreement may, among other methods permitted by law, be
served upon Licensee by delivering or mailing the same in accordance with
paragraph 17.01 hereof.
19.07. This writing sets forth the entire understanding between the
parties with respect to the subject matter hereof and supersedes all prior
understandings, negotiations, arrangements or agreements. No modification,
amendment, waiver, termination or discharge of this agreement shall be binding
upon the parties unless confirmed by a written instrument signed by the duly
authorized signatory of each.
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19.08. The parties agree to implement this Agreement by executing or
causing to be executed such additional and subsidiary agreements and other
documents as may be necessary or desirable fully to protect the Licensed Marks
and effectively to carry out the terms of this Agreement in accordance with
applicable laws and regulations.
19.09. This document will not be binding on either party or constitute
a note or memorandum of the material terms of an agreement until each party has
received delivery of a copy executed on behalf of both parties.
Kindly indicate your acceptance of this agreement by signing below in the place
provided.
Very truly yours,
ANNE KLEIN COMPANY LLC
By: /s/ [Signature Illegible]
-----------------------------
Date: 12/14/1998
---------------------------
ACCEPTED AND AGREED:
THE SIRENA APPAREL GROUP, INC.
By: /s/ MAURICE B. NEWMAN
---------------------------
Date: 12/10/1998
-------------------------
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S C H E D U L E 1.05(A)
ANNE KLEIN
Current Approved Account List
[ * ]
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[ * ]
Page 54
<PAGE> 55
[ * ]
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<PAGE> 56
S C H E D U L E 1.05(B)
Additional Approved Accounts for Licensed Articles
[ * ]
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S C H E D U L E 2.03
OFF-PRICE STORES
[ * ]
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S C H E D U L E 4.04
Sirena Apparel Group, Inc.
10333 Vacco Street
South El Monte, CA 91733
SirenaMex S.A. de C.V.
Calz Constitucion entre
Yucatan y Michoacan S/N
San Luis, Sonora Mexico
Holly Bra of California
1112 North Seward Street
Hollywood, CA 90038-0369
IKA Textil S.A. de C.V.
Cerrada Benito Juarez No. 22
Col. San Pedro C.P. 72210
Puebla, Pue. Mexico
Little Treasures
4666 San Fernando Road
Glendale, CA
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S C H E D U L E 10.01
Statement - Sales Royalty
[to be provided]
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S C H E D U L E 10.02
Semi-annual Operating Report
[ * ]
Page 1 of 3
<PAGE> 61
S C H E D U L E 18.06
[ * ]
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<PAGE> 62
[ * ]
Page 61
<PAGE> 1
EXHIBIT 10.2
STANDARD LEASE AGREEMENT
(SINGLE-TENANT-NET)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
November 19, 1998, is made by and between On Santa Fe Partners, LLC, a
California limited liability company ("LESSOR") and The Sirena Apparel Group,
Inc., a Delaware corporation ("LESSEE"), (collectively the "PARTIES," or
individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 2825 South Santa Fe Avenue located in the City of Vernon, County of Los
Angeles, State of California, and generally described as an approximately
207,000 square foot single-story concrete tilt-up industrial/manufacturing
building, including approximately 350 existing parking spaces and various
loading and unloading areas, driveways and easements appurtenant thereto
("PREMISES"). (See also Paragraph 2)
1.3 TERM: Seven (7) years and no (-0-) months ("ORIGINAL TERM")
commencing June 1, 1999 ("COMMENCEMENT DATE") and ending May 31, 2006
("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: The date specified for possession of that
portion of the Premises as set forth on Exhibit A ("EARLY POSSESSION DATE").
(See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: A fixed amount per month ("BASE RENT"), payable in
advance on the first (1st) day of each month commencing December 1, 1998, in the
following amounts:
<TABLE>
<CAPTION>
Schedule Date Base Rent per Month Months
- ------------- ------------------- ------
<S> <C> <C>
12/1/98-12/31/98 $13,887.50 N/A
1/1/99-5/31/99 $34,725.00 N/A
6/1/1999-2/28/2001 $62,500.00 1-21
3/1/2001-8/31/2003 $68,310.00 22-51
9/1/2003-5/31/2006 $76,600.00 52-84
</TABLE>
(See also Paragraph 4)
1.6 BASE RENT PAID UPON EXECUTION: $62,500.00 as Base Rent for the
month of June, 1998.
1.7 SECURITY DEPOSIT: $76,600.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5)
1.8 AGREED USE: Manufacturing, warehousing and distribution of
apparel, and related uses. (See also Paragraph 6)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein.
(See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):
[X] Investment Development Services, Inc. represents Lessor ("LESSOR'S BROKER");
[X] David Kleiman of Equis of California represents Lessee exclusively
(LESSEE'S BROKER"); or
[ ] represents both Lessorand Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay Lessor's Broker and Lessee's Broker the
fee agreed to in their separate written agreements.
1.11 EXHIBITS. Attached hereto is an Exhibit A, all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions
<PAGE> 2
set forth in this Lease. Unless otherwise provided herein, any statement of size
set forth in this Lease, or that may have been used in calculating rental, is an
approximation which the Parties agree is reasonable and the rental based thereon
is not subject to revision whether or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver each portion of the Premises (as
described in Section 3.2 below) to Lessee broom clean and free of debris on the
Early Possession Date ("START DATE"), and warrants that the plumbing,
electrical, roof, mechanical and existing HVAC systems as applicable to that
portion of the Premises so delivered shall be in good operating condition on the
Start Date. If a non-compliance with said warranty exists as of the Start Date,
Lessor shall, as Lessor's sole obligation with respect to such matter, except as
otherwise provided in this Lease, promptly after receipt of written notice from
Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. As a condition to the
effectiveness of the foregoing warranty, Lessee agrees to participate during
normal business hours after reasonable prior notification from Lessor in a
walk-through of each portion of the Premises as the same is made available by
the vacation of the Existing Lessee pursuant to Exhibit A. When the Existing
Lessee gives notice to Lessor of the vacation of a portion of the Premises,
representatives of Existing Lessee, Lessor and Lessee shall schedule a
walk-through (no later than 3 business days thereafter) and if any part thereof
is found to be not in accordance with the terms of the warranty, Lessor and
Lessee shall prepare a comprehensive "punch-list" of items to be completed or
corrected by Lessor. If, after the Start Date, Lessee does not give Lessor
written notice of any further non-compliance with this warranty within: (i) six
(6) months as to the existing HVAC systems, or (ii) thirty (30) days as to the
remaining systems, correction of any non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE. As of the date hereof, Lessor has provided to Lessee
and Lessee acknowledges receipt of the following reports (the "Inspection
Reports"): (i) Phase I and Phase II Environmental Site Assessment Reports dated
as of January 27, 1998 and January 23, 1998, respectively, (ii) Independent
Roofing Consultants (IRC) roof inspection report dated as of August 31, 1998,
(iii) AJIT structural report dated as of November 24, 1997, and (iv) City of
Vernon walk-through inspection report dated as of November 19, 1997. Lessee
shall have independently reviewed the Inspection Reports and investigated to its
satisfaction the fitness or suitability of the Premises for Lessee's intended
use of the Premises, including but not limited to, the Premises' compliance with
all applicable laws, covenants or restrictions of record, building codes,
regulations and ordinances ("APPLICABLE REQUIREMENTS"). In addition, Lessee is
responsible for determining whether or not the zoning is appropriate for
Lessee's intended use. Lessee shall, at Lessee's expense, comply with all
present and future laws and requirements that impose any obligation, order or
duty on Lessor or Lessee in respect of the Premises or any fixtures, equipment
or other property contained therein, provided, however, if the application of
such legal requirements is not the result of the specific and unique use of the
Premises by Lessee (such as, governmentally mandated seismic modifications),
then Lessor and Lessee shall allocate the obligation to pay for such costs
pursuant to the provisions of Paragraph 7.1(c). Lessee shall promptly forward to
Lessor any notice it receives of the violation of any law involving the Premises
or its use and occupancy by Lessee or any other parties.
2.4 ACKNOWLEDGMENTS. Lessee acknowledges that (except as provided
elsewhere in this Lease): (a) it has been advised by Lessor to satisfy itself
with respect to the condition of the Premises (including but not limited to the
electrical, HVAC and fire sprinkler systems, security, environmental aspects,
City and County requirements and compliance with Applicable Requirements), and
their suitability for Lessee's intended use, (b) Lessee has made such
investigation as it deems necessary with reference to such matters and assumes
all responsibility therefor as the same relate to its occupancy of the Premises,
and (c) neither Lessor nor Lessor's agents has made any oral or written
representations or warranties with respect to said matters other than as set
forth in this Lease.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. Lessee's right to obtain early possession of the
Premises is subject to the rights of Larry Hansel, as lessee (together with any
sublessees thereof, the
2
<PAGE> 3
"EXISTING LESSEE") pursuant to that certain Standard Industrial/Commercial
Single-Tenant Lease-Net dated as of February 12, 1998, as modified by that
certain Termination of Lease Agreement (the "TERMINATION AGREEMENT") of even
date herewith. If Lessee totally or partially occupies the Premises prior to the
Commencement Date, the obligation to pay Base Rent shall commence on a pro rata
basis as provided in Section 1.5, and all other terms of this Lease (including
but not limited to the obligations to pay Real Property Taxes and insurance
premiums and to maintain the Premises) shall, however, be in effect during such
period, except that Lessee's obligation to pay certain expenses of the Premises
such as Real Property Taxes and insurance premiums shall be prorated in
proportion to the square footage of the Premises then occupied by Lessee as more
specifically described in Exhibit A. Early possession shall not advance or
otherwise affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee as set forth
in Exhibit A attached hereto and incorporated herein by this reference. With
respect to any matters that are not within Lessor's exclusive control, Lessor's
obligation shall be limited to enforcing its rights under the Termination
Agreement to cause the Existing Lessee to comply therewith. If, despite said
efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be
subject to any liability therefor, nor shall such failure affect the validity of
this Lease. Lessee shall not, however, be obligated to pay Rent or perform its
other obligations until it receives possession of the applicable portion of the
Premises. If possession of the entire Premises is not delivered within sixty
(60) days after the Commencement Date, Lessee may, at its option, regardless of
whether Lessee has taken early possession of a portion of the Premises, by
notice in writing within (10) ten days after the end of such sixty (60) day
period, cancel this Lease, in which event the Parties shall be discharged from
all obligations hereunder. If such written notice is not received by Lessor
within said ten (10) day period, Lessee's right to cancel shall terminate.
Notwithstanding Lessee's failure to deliver such written notice of cancellation
to Lessor, if possession of the Premises is not delivered within four (4) months
after the Commencement Date, this Lease shall terminate unless other agreements
are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5).
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent as the same may be
adjusted from time to time to be received by Lessor in lawful money of the
United States, without offset or deduction (except as specifically permitted in
this Lease), on or before the day on which it is due. Rent for any period during
the term hereof which is for less than one (1) full calendar month shall be
prorated based upon the actual number of days of said month. Payment of Rent
shall be made to Lessor at its address stated herein or to such other persons or
place as Lessor may from time to time designate in writing. Acceptance of a
payment which is less than the amount then due shall not be a waiver of Lessor's
rights to the balance of such Rent, regardless of Lessor's endorsement of any
check so stating.
4.3 ADDITIONAL RENT. Lessee shall pay to Lessor on the tenth business
day of each calendar month of the Term, as additional Rent, (a) an amount equal
to one-twelfth (1/12) of the annual cost of insurance premiums for the insurance
coverage that is required to be obtained by Lessor pursuant to Paragraph 8.1
hereof, (b) an amount equal to one-twelfth (1/12) of the annual cost of Real
Property Taxes pursuant to Paragraph 10.2 hereof, and (c) Lessor's management
fee applicable to the Premises provided such management fee shall not exceed one
percent (1%) of the gross collections applicable to the Property, including,
without limitation, Base Rent, Additional Rent and other payments made by Lessee
pursuant to this Lease and all payments made by the Existing Lessee. The amount
to be paid by Lessee shall be set forth in a statement prepared by Lessor and
delivered to Lessee no later than the first business day of the month.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or
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retain all or any portion of said Security Deposit for the payment of any amount
due Lessor or to reimburse or compensate Lessor for any liability, expense, loss
or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or
applies all or any portion of said Security Deposit, Lessee shall within thirty
(30) days after written request therefore deposit monies with Lessor sufficient
to restore said Security Deposit to the full amount required by this Lease. If
the Base Rent increases during the term of this Lease, Lessee shall, upon
written request from Lessor, deposit additional moneys with Lessor so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the increased Base Rent as the initial Security Deposit bore to the initial
Base Rent. Should the Agreed Use be amended to accommodate a material change in
the business of Lessee or to accommodate a sublessee or assignee, Lessor shall
have the right to increase the Security Deposit to the extent necessary, in
Lessor's reasonable judgment, to account for any increased wear and tear that
the Premises may suffer as a result thereof. If a change in control of Lessee
occurs during this Lease and following such change the financial condition of
Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall
deposit such additional monies with Lessor as shall be sufficient to cause the
Security Deposit to be at a commercially reasonable level based on said change
in financial condition. Lessor shall not be required to keep the Security
Deposit separate from its general accounts. Within fourteen (14) days after the
expiration or termination of this Lease, if Lessor elects to apply the Security
Deposit only to unpaid Rent, and otherwise within fourteen (14) days after the
Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall
return that portion of the Security Deposit not used or applied by Lessor. No
part of the Security Deposit shall be considered to be held in trust, to bear
interest or to be prepayment for any monies to be paid by Lessee under this
Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed
Use, or any other legal use which is reasonably comparable thereto, and for no
other purpose. Lessee shall be permitted to place signs and monuments on or
about the Premises, provided such signage is in compliance with all Applicable
Requirements. Lessee shall be permitted to conduct its operations during all
reasonable times, provided Lessee shall not use or permit the use of the
Premises in a manner that is unlawful, creates damage, waste or a nuisance, or
that disturbs owners and/or occupants of, or causes damage to neighboring
properties.
6.2 HAZARDOUS SUBSTANCES.
(A) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability,
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including, but not limited to, the installation (and removal on or before Lease
expiration or termination) of protective modifications (such as concrete
encasements) and/or increasing the Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
brought (or allowed to be brought) onto the Premises during the term of this
Lease, by or for Lessee, excluding any Hazardous Substances brought onto the
Premises by or at the direction of, Lessor.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought (or allowed to be
brought) onto the Premises by or for Lessee (provided, however, that Lessee
shall have no liability under this Lease with respect to underground migration
of any Hazardous Substance under the Premises from adjacent properties).
Lessee's obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY
LESSOR AND LESSEE SHALL RELEASE LESSEE OR LESSOR FROM ITS OBLIGATIONS UNDER THIS
LEASE WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY THE
OTHER PARTY IN WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and
assigns shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising out of
or involving any Hazardous Substances, including the cost of remediation, which
existed as a result of Hazardous Substances on the Premises prior to the Start
Date or which are caused by Lessor, its agents or employees. Lessor's
obligations, as and when required by the Applicable Requirements, shall include,
but not be limited to, the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"ALTERATIONS", as defined in paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate fully
in any such activities at the request of Lessor, including allowing Lessor and
Lessor's agents to have reasonable access to the Premises at reasonable times in
order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR'S TERMINATION OPTION. If a Hazardous Substance
Condition occurs during the term of this Lease, unless Lessee is responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, except
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that the Rent payable by Lessee for the period required for such remediation by
Lessor shall be abated in proportion to the degree to which Lessee's use of the
Premises is impaired, or (ii) if the estimated cost to remediate such condition
exceeds $100,000, give written notice to Lessee, within thirty (30) days after
receipt by Lessor of knowledge of the occurrence of such Hazardous Substance
Condition, of Lessor's desire to terminate this Lease as of the date sixty (60)
days following the date of such notice. In the event Lessor elects to give a
termination notice, Lessee may, within ten (10) days thereafter, give written
notice to Lessor of Lessee's commitment to pay the amount by which the cost of
the remediation of such Hazardous Substance Condition exceeds$100,000. Lessee
shall provide Lessor with said funds or satisfactory assurance thereof within
thirty (30) days following such commitment. In such event, this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
(h) LESSEE'S TERMINATION OPTION. If Lessor shall be obligated
to remediate a Hazardous Substance Condition, which remediation can only be
accomplished in such a manner that materially interferes with Lessee's use of
the Premises, Lessee may, if such remediation has not been accomplished within
six (6) months after the discovery of the need for such remediation, give
written notice to Lessor and to any Lenders of which Lessee has actual notice,
of Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice and such
remediation is not completed within thirty (30) days thereafter, this Lease
shall terminate as of the date specified in said notice.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease and subject to Lessor's rights to approve any
Alterations to the Premises pursuant to Section 7.3, Lessee shall, at Lessee's
sole expense, fully, diligently and in a timely manner, materially comply with
all Applicable Requirements relating to Lessee's use and occupancy of the
Premises and the requirements of any applicable fire insurance underwriter or
rating bureau which relate in any manner to the Premises, without regard to
whether said requirements are now in effect or become effective after the Start
Date. Lessee shall, within ten (10) days after receipt of Lessor's written
request, provide Lessor with copies of all permits and other documents, and
other information evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving the failure of Lessee or the Premises to comply with any Applicable
Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "LENDER" (as defined
in Paragraph 30 below) and consultants shall have the right to enter into
Premises at any time, in the case of an emergency, and otherwise at reasonable
times upon advance written or oral notice to Lessee and only when accompanied by
a representative of Lessee during Lessee's normal business hours, for the
purpose of inspecting the condition of the Premises and for verifying compliance
by Lessee with this Lease. The cost of any such inspections shall be paid by
Lessor, unless a violation of Applicable Requirements by Lessee, or a
contamination caused or allowed by Lessee or Lessee's agents and any related
parties is found to exist or be imminent, or the inspection is requested or
ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the reasonable cost of such inspections, so long as such
inspection is reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment or facilities,
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such as plumbing, heating, ventilating, air-conditioning, electrical, lighting
facilities, boilers, pressure vessels, fire protection system, fixtures,
interior walls, ceilings, roofs (routine maintenance only), floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, or adjacent to
the Premises, Lessee, in keeping the Premises in good order, condition and
repair, shall exercise and perform good maintenance practices, specifically
including the procurement and maintenance of the service contracts required by
Paragraph 7.1(b) below. Except as provided in Section 7.1(c) below, Lessee's
obligations shall include restorations, replacements or renewals when necessary
to keep the Premises and all improvements thereon or a part thereof in good
order, condition and state of repair. Lessee shall, during the term of this
Lease, keep the exterior appearance of the Building in a first-class condition
consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the exterior
repainting of the Building, including routine graffiti removal, provided,
however, that (i) Lessee shall first obtain the approval of Lessor of the color
selected for any exterior repainting, and (ii) Lessor shall retain the right to
repaint the Building at any time, at Lessor's sole cost and expense, in a color
satisfactory to Lessee.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) driveways and parking lots, and (vii) clarifiers.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor
as set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from (i) Lessee's failure to exercise and perform good maintenance
practices or (ii) Lessee's installation of additional air conditioning units on
the roof or (iii) damage caused by or permitted to occur by Lessee, its agents,
employees or invitees, if the roof or the exterior walls, foundations, columns
or beams of the Building ("other structural elements of the building") require
repair or replacement as a result of latent defects, then the roof and other
structural elements of the Building shall be repaired or replaced by Lessor, at
Lessor's expense.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 7.1(c) (Replacements), 9 (Damage or Destruction)
and 14 (Condemnation), and without relieving Lessee of liability resulting from
(i) Lessee's installation of additional air conditioning units on the roof or
(ii) damage caused by or permitted to occur by Lessee, its agents, employees or
invitees, Lessor, at Lessor's expense, shall (a) maintain in good order,
condition and repair, the other structural elements of the Building, and (b)
comply with the recommendations of IRC (or other reputable roofing inspector
selected by Lessor) after inspection of the roof (as may be customary for
prudent landlords of similar buildings but not more frequently than twice per
calendar year) to make repairs to the roof. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises, and they expressly waive the benefit
of any statute now or hereafter in effect to the extent it is inconsistent with
the terms of this Lease. If Lessor shall be obligated to make structural or roof
repairs, which repairs can only be accomplished in such a manner that materially
interferes with Lessee's use of the Premises, Lessee may, if such repairs have
not been accomplished within six (6) months after the discovery of the need for
such repairs, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not completed within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's furniture,
machinery and equipment that can be removed without doing material damage to the
Premises. The term "ALTERATIONS" shall mean any modification of the
improvements, other
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than Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Alterations or Utility Installations to
the interior of the Premises (excluding the roof) without such consent but upon
notice to Lessor, as long as they do not involve puncturing, relocating or
removing the roof or any existing bearing walls, and the cumulative cost thereof
during this Lease as extended does not exceed $100,000 in the first full year of
occupancy or $25,000 in any subsequent year.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Additionally, any consent for installation of equipment on
the roof shall be deemed conditioned upon the supervision and approval of IRC
(or other reputable roofing inspector selected by Lessor) prior to such
installation and during all phases of work. Any Alterations or Utility
Installations shall be performed in a workmanlike manner with good and
sufficient materials. Lessee shall promptly upon completion furnish Lessor with
as-built plans and specifications. For work which costs an amount equal to the
greater of one month's Base Rent, or $10,000, Lessor may condition its consent
upon Lessee providing a lien and completion bond in an amount equal to the
estimated cost of such Alteration or Utility Installation.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility. If Lessee shall contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to one and one-half times the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the
same. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Trade Fixtures, Alterations and
Utility Installations made by or placed on the Premises by Lessee shall be the
property of Lessee, but considered a part of the Premises. Lessor may, at the
time of giving its consent to any Alterations and Utility Installations, elect
in writing to be the owner of all or any specified part of the Alternations and
Utility Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof,
all Lessee Owned Alterations and Utility Installations shall, at the expiration
or termination of this Lease, become the property of Lessor and be surrendered
by Lessee with the Premises.
(b) REMOVAL. If Lessee shall desire to make any Alterations or
Utility Installations, and such Alterations or Utility Installations require the
consent of the Lessor, Lessor may, as a condition to giving its consent, require
that the Alterations or Utility Installations be removed by the expiration or
termination of this Lease. Lessor may require the removal at any time of all or
any part of any Lessee Owned Alterations or Utility Installations made without
the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises
by the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration
that would have been prevented by good maintenance practice. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of
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Trade Fixtures, Lessee Owned Alterations and/or Utility Installations,
furnishings and equipment, as well as the removal of any storage tank installed
by or for Lessee, and the removal, replacement, or remediation of any soil,
material or groundwater contaminated by Lessee. Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee. The failure by Lessee to
timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express
written consent of Lessor shall constitute a holdover under the provisions of
Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required
under Paragraph 8. Premiums for policy periods commencing prior to or extending
beyond the Lease term shall be prorated to correspond to the Lease term. Payment
shall be made by Lessee to Lessor within thirty (30) days following receipt of
an invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000 per
occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability
insurance in the same amounts and for the same coverage as described in
Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to
be maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any ground lessor, and to any Lender(s) insuring loss or damage to
the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by any Lenders, but in no event more than the commercially
reasonable and available insurable value thereof. If Lessor is the Insuring
Party, however, Lessee Owned Alterations and Utility Installations, Trade
Fixtures, and Lessee's personal property shall be insured by Lessee under
Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood unless elected by
Lessor and/or required by a Lender), including coverage for earthquake, debris
removal and the enforcement of any Applicable Requirements requiring the
upgrading, demolition, reconstruction or replacement of any portion of the
Premises as the result of a covered loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor and
any Lender, insuring the loss of the full Rent for one (1) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. Said insurance
shall
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contain an agreed valuation provision in lieu of any coinsurance clause, and the
amount of coverage shall be adjusted annually to reflect the projected Rent
otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall
be liable for any deductible amount in the event of such loss.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain
insurance coverage on all of Lessee's personal property, Trade Fixtures, and
Lessee Owned Alterations and Utility Installations. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property, Trade Fixtures and Lessee Owned Alterations
and Utility Installations. Lessee shall provide Lessor with written evidence
that such insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain
loss of income and extra expense insurance in amounts as will reimburse Lessee
for direct or indirect loss of earnings attributable to all perils commonly
insured against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide", or such other rating as may be reasonably required
by Lessor and/or Lender. Lessee shall not do or permit to be done anything which
invalidates the required insurance policies. Lessee shall, prior to the Start
Date, deliver to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of the required insurance, and
including the "Named Insured" endorsement to the policies, evidencing the
addition of Lessor as an additional named insured thereunder. No such policy
shall be cancelable or subject to modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Lessee shall indemnify, protect, defend and hold
harmless the Premises, Lessor and its agents, members, partners and Lenders,
from and against any and all claims, loss of rents and/or damages, liens,
judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee, except for (a) Lessor's gross negligence or
willful misconduct, and (b) the negligence or other misconduct of Lessor, but
only to the extent such claims is covered by Lessor's liability insurance
required under Section 8.2(b) (except than Lessor's negligence or other
misconduct shall not be limited if Lessor's fails to obtain liability insurance
as required by Section 8.2(b)). If any action or proceeding is brought against
Lessor by reason of any of the foregoing matters, Lessee shall upon notice
defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor
and Lessor shall cooperate with Lessee in such defense. Lessor need not have
first paid any such claim in order to be defended or indemnified.
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8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. During such time as the Existing Lessee
remains in possession of a portion of the Premises, Lessor shall not be liable
for any damage arising from any act or neglect of such Existing Lessee, except
as expressly set forth in this Lease (including, without limitation, the
provisions of Paragraphs 2.2 (Condition) and 7.2 (Lessor's Obligations)).
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS. The following definitions shall have the meanings
given for the purposes of this Lease only and are not intended to modify or
supplement any insurance policy.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in six (6) months or
less from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a).
(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence
or discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
(except as to the deductible which is Lessee's responsibility) as and when
required to complete said repairs. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If such funds or assurance are not
received, Lessor may nevertheless elect by written notice to Lessee within ten
(10) days thereafter to: (i) make such restoration and repair as is commercially
reasonable with Lessor paying any shortage in proceeds, in which case this Lease
shall remain in full force and effect, or have this Lease terminate thirty (30)
days thereafter. Lessee shall not be entitled to reimbursement of any funds
contributed by Lessee to repair any such damage or destruction. Premises Partial
Damage due to flood shall be subject to Paragraph 9.3, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
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9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee or a Default or breach by Lessee hereunder (in which event Lessee shall
make the repairs at Lessee's expense), Lessor may either: (i) repair such damage
as soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) terminate this Lease by giving
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage. Such termination shall be effective
sixty (60) days following the date of such notice. In the event Lessor elects to
terminate this Lease, Lessee shall have the right within ten (10) days after
receipt of the termination notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage without reimbursement from
Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance
thereof within thirty (30) days after making such commitment. In such event this
Lease shall continue in full force and effect, and Lessor shall proceed to make
such repairs as soon as reasonably possible after the required funds are
available. If Lessee does not make the required commitment, this Lease shall
terminate as of the date specified in the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was by the gross
negligence or willful misconduct of Lessee or a Default or breach by lessee
hereunder, Lessor shall have the right to recover Lessor's damages from Lessee,
except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds needed to make the
repairs on or before the earlier of (i) the date which is ten days after
Lessee's receipt of Lessor's written notice purporting to terminate this Lease,
or (ii) the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds to cover
any shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option, and provide such funds during such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received by Lessor from the Rental
Value insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and meaningful way,
such repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (30) days,
this Lease shall continue in full force and effect. "COMMENCE" shall mean either
the unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
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9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Notwithstanding any present or future statute to
the contrary (including, without limitation, Cal. Civ. Code Section 1932,
1941 and 1942), Lessor and Lessee agree that the terms of this Lease shall
govern the effect of any damage to or destruction of the Premises with respect
to Lessor's obligations to make repairs or to terminate this Lease.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to (i) the Premises in which Lessee is in possession, and
(ii) the period that this Lease is in effect, and Lessor shall reimburse Lessee
for any overpayment. If Lessee shall fail to pay any required Real Property
Taxes, Lessor shall have the right to pay the same, and Lessee shall reimburse
Lessor therefor, including any payment attributable to penalties or interest for
late payment, upon demand.
(b) ADVANCE PAYMENT. During all times that Lessor's Lender
shall require impounds of Real Property Taxes and insurance premiums, Lessee
shall pay such amounts in advance to Lessor with the payment of the Base Rent.
The monthly payment shall be an amount equal to the amount of the estimated
installment of taxes and insurance divided by the number of months remaining
before the month in which the applicable installment becomes delinquent. When
the actual amount of the applicable tax or insurance bill is known, the amount
of such equal monthly advance payments shall be adjusted as required to provide
the funds needed to pay the applicable taxes or insurance premiums. If the
amount collected by Lessor is insufficient to pay such Real Property Taxes or
insurance premiums when due, Lessee shall pay Lessor, upon demand, such
additional sums as are necessary to pay such obligations. Notwithstanding the
foregoing, Lessee shall not be responsible for increased insurance premiums
resulting from a breach of this Lease by Lessor. All monies paid to Lessor under
this Paragraph may be intermingled with other monies of Lessor and shall not
bear interest. In the event of a Breach by Lessee in the performance of its
obligations under this Lease, then any balance of funds paid to Lessor under the
provisions of this Paragraph may at the option of Lessor, be treated as an
additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade
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Fixtures, furnishings, equipment and all personal property of Lessee. When
possible, Lessee shall cause such property to be assessed and billed separately
from the real property of Lessor. If any of Lessee's said personal property
shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee's property within thirty (30) days after receipt of a
written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT")
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent, which consent shall not be unreasonably withheld
or delayed. Lessee may assign this Lease without Lessor's consent to any entity
that (i) is controlled by Lessee or its Affiliates, or (ii) is under common
control with or by Lessee.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of fifty
percent (50%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee by an amount
greater than twenty-five percent (25%) of such Net Worth as it was represented
at the time of the execution of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, whichever was or
is greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may exercise all rights and remedies which Lessor may have by
reason of such Breach.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not: (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease; (ii)
release Lessee of any obligations hereunder; or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall not constitute a waiver or
estoppel of Lessor's right to exercise its remedies for Lessee's Default or
Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting, however, Lessor
may consent to subsequent sublettings and assignments of the sublease or any
amendments or modifications thereto without notifying Lessee or any other person
or entity liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such person or entity from liability under
this Lease or sublease.
(d) In the event of any Default or Breach by Lessee, Lessor
may proceed directly against Lessee or anyone else responsible for the
performance of Lessee's obligations under this Lease, including any assignee or
sublessee, without first exhausting Lessor's
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remedies against any other person or entity responsible therefor to Lessor, or
any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee, or sublessee, including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a fee as consideration for Lessor's considering and
processing said request not to exceed $1,000. Lessee agrees to provide Lessor
with such other or additional information and/or documentation as may be
reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed to
have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee
during the term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of an assignment or sublease to
which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor may collect
such Rent and apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations, Lessee may collect said Rent. If Lessee's subletting of the
Premises provides for the receipt by, on behalf of or on account of Lessee of
any consideration of any kind whatsoever in excess of the pro rata rental and
other charges due Lessor under this Lease, Lessee shall pay fifty percent (50%)
of said excess to Lessor. Lessor shall not, by reason of the foregoing or any
assignment of such sublease, nor by reason of the collection of Rent, be deemed
liable to the sublessee for any failure of Lessee to perform and comply with any
of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes
and directs any such sublessee, upon receipt of a written notice from Lessor
stating that a Breach exists in the performance of Lessee's obligations under
this Lease, to pay to Lessor all Rent due and to become due under the sublease.
Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to
Lessor without any obligation or right to inquire as to whether such Breach
exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or Breaches
of such sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee
to comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "BREACH" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or where
the coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
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(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 40 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) business days following written notice to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, other than those described in subparagraphs
13.1(a), (b) or (c), above, where such Default continues for a period of thirty
(30) days after written notice; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably required
for its cure, then it shall not be deemed to be a Breach if Lessee commences
such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph 13.1(e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee given
to Lessor was materially false.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties
or obligations, within ten (10) business days after written notice (or in case
of an emergency, without notice), Lessor may, at its option, perform such duty
or obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation
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and alteration of the Premises, reasonable attorneys' fees, and that portion of
any leasing commission paid by Lessor in connection with this Lease applicable
to the unexpired term of this Lease. The worth at the time of award of the
amount referred to in provision (iii) of the immediately preceding sentence
shall be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of the District within which the Premises are located at the time
of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by
Lessee's Breach of this Lease shall not waive Lessor's right to recover damages
under Paragraph 12. If termination of this Lease is obtained through the
provisional remedy of unlawful detainer, Lessor shall have the right to recover
in such proceeding any unpaid Rent and damages as are recoverable therein, or
Lessor may reserve the right to recover all or any part thereof in a separate
suit. If a notice and grace period required under Paragraph 13.1 was not
previously given, a notice to pay rent or quit, or to perform or quit given to
Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under
the laws or judicial decisions of the state wherein the Premises are located.
The expiration or termination of this Lease and/or the termination of Lessee's
right to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within ten (10) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to five percent (5%) of each such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.4 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("INTEREST") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus four percent (4%), but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.5 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's
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obligation is such that more than thirty (30) days are reasonably required for
its performance, then Lessor shall not be in breach if performance is commenced
within such thirty (30) day period and thereafter diligently pursued to
completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event
that neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION"), this Lease shall terminate as to the part
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building portion
of the Premises, or more than twenty-five percent (25%) of the land area portion
of the Premises not occupied by any building, is taken by Condemnation, Lessee
may, at Lessee's option, to be exercised in writing within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the Base Rent shall be reduced in
proportion to the reduction in utility of the Premises caused by such
Condemnation. Condemnation awards and/or payments shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value
of the leasehold, the value of the part taken, or for severance damages;
provided, however, that Lessee shall be entitled to any compensation for
Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures,
without regard to whether or not this Lease is terminated pursuant to the
provisions of this Paragraph. All Alterations and Utility Installations made to
the Premises by Lessee, for purposes of Condemnation only, shall be considered
the property of the Lessee and Lessee shall be entitled to any and all
compensation which is payable therefor. In the event that this Lease is not
terminated by reason of the Condemnation, Lessor shall repair any damage to the
Premises caused by such Condemnation.
15. BROKERS.
15.1 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no dealings
with any person, firm, broker or finder (other than the Brokers and Bart Pucci
of Grubb & Ellis, whose fees shall be paid by Lessor pursuant to a separate
agreement) in connection with this Lease, and that no one other than said named
brokers is entitled to any commission or finder's fee in connection herewith.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, and/or attorneys' fees reasonably incurred with respect
thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10)
business days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in form similar to the then most current "ESTOPPEL CERTIFICATE" form published
by the American Industrial Real Estate Association or similar form, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
(b) If the Responding Party shall fail to execute or deliver
the Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's Rent has
been paid in advance. Prospective purchasers and encumbrancers may rely
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upon the Requesting Party's Estoppel Certificate, and the Responding Party shall
be estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee shall deliver to any potential lender or
purchaser designated by Lessor such financial statements as may be reasonably
required by such lender or purchaser, including but not limited to Lessee's
financial statements for the past three (3) years. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor. Upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. DAYS.Unless otherwise specifically indicated to the contrary, the word
"DAYS" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of the individual members of Lessor or its or their individual
partners, directors, officers or shareholders, and Lessee shall look to the
Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS. This Lease contains all agreements
between the Parties with respect to any matter mentioned herein, and no other
prior or contemporaneous agreement or understanding shall be effective.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by courier)
or may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notices. Either Party may by written
notice to the other specify a different address for notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail the notice shall be deemed given forty eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall
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not be deemed to render unnecessary the obtaining of Lessor's consent to, or
approval of, any subsequent or similar act by Lessee, or be construed as the
basis of an estoppel to enforce the provision or provisions of this Lease
requiring such consent. The acceptance of Rent by Lessor shall not be a waiver
of any Default or Breach by Lessee. Any payment by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. NO RECORDING. Lessee shall not, without the prior written consent of
Lessor, record this lease or any memorandum thereof.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over with Lessor's consent, then the Base Rent
shall be increased to one hundred twenty-five percent (125%) of the Base Rent
applicable during the month immediately preceding the expiration or termination.
Nothing contained herein shall be construed as consent by Lessor to any holding
over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State of California. Any litigation between the Parties
hereto concerning this Lease shall be initiated in the County of Los Angeles.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "LESSOR'S LENDER") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor; (iii) be bound by prepayment
of more than one (1) month's rent, or (iv) be bound by any modification of this
Lease unless such modification shall have been approved in writing by Lessor's
Lender.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor before the execution of this Lease, Lessor shall obtain a non-disturbance
agreement in form as set forth on Exhibit B from the Lender prior to the Start
Date. With respect to Security Devices entered into by Lessor after the
execution of this Lease, Lessee's subordination of this Lease shall be subject
to receiving a commercially reasonable non-disturbance agreement (a
"NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance Agreement
provides that Lessee's possession of the Premises, and this Lease, including any
options to
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extend the term hereof, will not be disturbed so long as Lessee is not in Breach
hereof and attorneys to the record owner of the Premises.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be
entitled to attorneys' fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or
about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs and signs permitted
under Paragraph 6.1, Lessee shall not place any sign upon the Premises without
Lessor's prior written consent. All signs must comply with all Applicable
Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
Lessor interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent
including, but not limited to, consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such further or
other conditions as are then reasonable with reference to the particular matter
for which consent is being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within ten (10) business days following such
request.
37. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed
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under this Lease, Lessee shall have quiet possession and quiet enjoyment of the
Premises during the term hereof.
38. OPTIONS.
38.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the
Original Term of this Lease pursuant to Paragraph 38.5 below; (b) the right of
cancellation of this Lease pursuant to Paragraph 38.6 below; (c) the right to
make first offer to purchase the Premises pursuant to Paragraph 38.7 below.
38.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.
38.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options have been validly exercised.
38.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i)
during the period commencing with the giving of any notice of Default and
continuing until said Default is cured, (ii) during the period of time any Rent
is unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessee has been given three (3) or more valid notices of separate Default,
whether or not the Defaults are cured, during the twelve (12) month period
immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 38.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
38.5 OPTION TO EXTEND ORIGINAL TERM.
(a) Subject to the provision of this Paragraph 38, Lessee
shall have the option (an "OPTION TO EXTEND") to extend the Original Term of
this Lease for a period of five (5) years (an "EXTENSION TERM"), upon all the
terms and conditions of this Lease, except that the Base Rent shall be adjusted
in the first year of such Option Term to ninety-five percent (95%) of the "FAIR
MARKET RENTAL RATE" (as defined below). The Option to Extend may be exercised,
if at all, only in the following manner: (i) Lessee shall deliver written notice
to Lessor ("LESSEE'S INTEREST NOTICE") not more than nine (9) months nor less
than twelve (12) months prior to the expiration of the Original Term stating
that Lessee may be interested in exercising its Option to Extend; (ii) Lessor,
after receipt of Lessee's Interest Notice, shall deliver notice (the "OPTION
RENT NOTICE") to Lessee no less than eight (8) months prior to the expiration of
the Original Term setting forth Lessor's determination of the Fair Market Rental
Rate, which shall be applicable to the Premises during the Extension Term; and
(iii) if Lessee wishes to exercise such Option to Extend, Lessee shall, on or
before the date occurring six (6) months prior to the end of the Original Term
exercise the Option to Extend by delivering written notice thereof (the "OPTION
TO EXTEND NOTICE") to Lessor. Concurrently with Lessee's delivery of the Option
to Extend Notice, Lessee may, at its option, object to Lessor's determination of
the Fair Market Rental Rate contained in Lessor's Option Rent Notice, in which
case, the parties shall follow the procedure, and the Fair Market Rental Rate
shall be determined, as set forth in Paragraph 38.5(b) below. The Base Rent for
the Extension Term shall be 95% of the Fair Market Rental Rate determined below,
but in no event less than the rental rate in effect in the last month of the
Original Term. The term "FAIR MARKET RENTAL RATE" for the purposes of this Lease
shall mean the current monthly rental rate being accepted by owners of
comparable buildings in the City of Vernon on a net basis, for a comparable
period of time, from non-equity tenants.
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(b) If Lessee timely exercises the Option to Extend, the
Original Term of this Lease shall be extended by the applicable Extension Term,
and all the terms, covenants and conditions of this Lease shall remain
unmodified and in full force and effect during the applicable Extension Term,
except that the Base Rent payable during the Extension Term shall be as
determined pursuant to this Paragraph 38.5. In the event Lessee objects in
writing to the Fair Market Rental Rate initially determined by Lessor, Lessor
and Lessee shall attempt to agree upon such Fair Market Rental Rate using their
best good faith efforts. If Lessor and Lessee fail to reach agreement within
fifteen (15) days following Lessee's delivery of its written objection (the
"OUTSIDE AGREEMENT DATE"), then each Party shall place in a separate sealed
envelope their final proposal as to Fair Market Rental Rate and such
determination shall be submitted to appraisal as follows:
(i) Lessor and Lessee shall meet with each other within
five (5) business days of the Outside Agreement Date and exchange the sealed
envelopes and then open such envelopes in each other's presence. If Lessor and
Lessee do not mutually agree upon the Fair Market Rental Rate within one (1)
business day of the exchange and opening of envelopes, then, within ten (10)
business days of the exchange and opening of envelopes, Lessor and Lessee shall
engage an appraiser from CB Richard Ellis Appraisal Services (located in
downtown Los Angeles) who is knowledgeable in the leasing of similar properties
in the City of Vernon. Neither Lessor nor Lessee shall consult with such
appraiser as to his or her opinion as to Fair Market Rental Rate prior to the
appointment. The determination of the appraiser shall be limited solely to the
issue of whether Lessor's or Lessee's submitted Fair Market Rental Rate for the
Premises is the closest to the actual Fair Market Rental Rate for the Premises
as determined by the appraiser, taking into account requirements of this
provision regarding same. Such appraiser may hold such hearings and require such
briefs as the appraiser, in his or her sole discretion, determines are
necessary.
(ii) The appraiser shall, within thirty (30) days of his
or her appointment, reach a decision as to whether the parties shall use
Lessor's or Lessee's submitted Fair Market Rental Rate, and shall notify Lessor
and Lessee thereof.
(iii) The decision of the appraiser shall be binding upon
Lessor and Lessee, except as provided below.
(iv) The cost of the appraiser shall be paid by lessor
and Lessee equally.
38.6 OPTION TO CANCEL LEASE. Notwithstanding anything to the contrary
contained herein, Lessee shall have a one-time option to cancel this Lease
("CANCELLATION OPTION") in accordance with the following terms and conditions:
(a) If Lessee desires to exercise the Cancellation Option,
Lessee shall give Lessor irrevocable written notice (the "CANCELLATION NOTICE")
of Lessee's exercise of this Cancellation Option, which shall be delivered by
Lessee to Lessor no later than the date that is twelve (12) months prior to the
Cancellation Date (defined below).
(b) If Lessee gives the Cancellation Notice and complies with
all of the provisions in this Paragraph, the Lease shall terminate at 11:59 p.m.
on November 30, 2004 (the "CANCELLATION DATE").
(c) In order for such Cancellation Notice to be effective, it
must be accompanied by the cancellation fee in the amount of all unamortized
lease commissions and eleven percent (11%) interest thereon computed from the
Cancellation Date through May 31, 2006, which shall be payable only in cash or
certified funds.
(d) Lessee's obligations to pay Rent and any other costs or
charges under this Lease, and to perform all other Lease obligations for the
period up to and including the Cancellation Date, shall survive the termination
of this Lease.
(e) In the event Lessee exercises the Cancellation Option,
Lessee covenants and agrees to surrender full and complete possession of the
Premises to Lessor on or before the Cancellation Date vacant, broom-clean, in
good order and condition, and in accordance with the provisions of this Lease,
and thereafter the Premises shall be free and clear of all leases, tenancies,
and rights of occupancy of any entity claiming by or through Lessee.
38.7 FIRST RIGHT TO MAKE OFFER TO PURCHASE. Lessor shall provide Lessee
with written notice (a "SALE NOTICE") from time to time at any time during the
first thirty-six (36) months of the Original Term when (a) Lessor determines
that the Premises will be listed for sale to third parties, or (b) Lessor
receives an unsolicited offer to purchase the Premises, provided such offer
contains sufficient information as to permit the offer to be evaluated by
Lessor.
23
<PAGE> 24
Lessor shall provide the Sale Notice at least three (3) business days prior to
listing the Premises for sale as provided in (a) above, and not more than three
(3) business days after any definitive unsolicited offer is received as provided
in (b) above. The Sale Notice shall generally inform Lessee of the terms of such
proposed sale. Lessor shall not be required to give a Sale Notice for any
transfer of the premises to an entity controlled by, controlling or under the
common control of, Lessor. Lessee shall have three (3) business days from the
delivery of the Sale Notice to submit an offer to Lessor on the same terms and
conditions contained in the Sale Notice. If Lessee fails to submit an offer
within the specified time, it shall be conclusively presumed that Lessee has no
interest in purchasing the Premises. Except for the Sale Notice required
pursuant to this Paragraph 38.7, Lessor shall be under no obligation to offer,
advise, negotiate or consult with Lessee in any manner whatsoever with respect
to a sale of the Premises. Lessor and Lessee agree that the requirement for
notice pursuant to this Paragraph 38.7 shall never be deemed or construed to
constitute an option to purchase or first right of refusal, or in any manner
relate back to the date hereof, and shall not be applicable, in any event, to a
foreclosure of any Security Device or a deed-in-lieu of foreclosure.
39. FINANCIAL STATEMENTS. (a) Lessee shall deliver to Lessor, as soon as
available, but not later than ninety (90) days following the end of its fiscal
year, the following financial statements each audited by an independent
certified public accounting firm acceptable to Lessor and certified by a senior
financial officer of Lessee as true, correct and complete in all material
respects as of the end of and for such period and as having been prepared in
accordance with generally accepted accounting principles consistently applied,
in each case in such detail as Lessor may reasonably request and setting forth
in comparative form the corresponding figures for the immediately preceding
fiscal year of Lessee:
(i) a balance sheet of Lessee as of the end of such fiscal year;
(ii) a statement of income and expenses of Lessee for such fiscal
year;
(iii) a statement of cash flows of Lessee for such fiscal year; and
(iv) a statement of changes in owner's equity of Lessee for such
fiscal year.
(b) Lessee shall deliver to Lessor, as soon as available, but not later than
forty-five (45) days following the end of each of its first three fiscal
quarters of each fiscal year, an unaudited copy of each of the foregoing
financial statements as of the end of such quarter and certified by a senior
financial officer of Lessee as true, correct and complete in all material
respects as of the end of and for such period and as having been prepared in
accordance with generally accepted accounting principles consistently applied,
in each case in such detail as Lessor may reasonably request.
(c) Lessee shall deliver to Lessor, concurrently with the filing thereof, the
federal and state tax returns for Lessee.
(d) At any time and from time to time Lessee shall deliver to Lessor or its
agents such other financial data as Lessor or its agents shall reasonably
request with respect to Lessee and the maintenance, use and operation of the
Premises.
(e) Any information obtained from Lessee's financial statements shall be
confidential and shall not be disclosed other than to carry out the purposes of
this Lease; provided, however, Lessor shall incur no liability for the
inadvertent disclosure of any such information. Lessor may divulge the contents
of any financial statements in connection with any financing arrangement or sale
of Lessor's interest in the Premises or in connection with any administrative or
judicial proceedings.
40. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties. 41.
RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights and dedications
that Lessor deems necessary, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
24
<PAGE> 25
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.
43. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each Party
shall, within thirty (30) days after request, deliver to the other Party
satisfactory evidence of such authority.
44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
45. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
46. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
47. MEMORANDUM OF LEASE. Lessor and Lessee shall execute a Memorandum of
this Lease in the form attached hereto as Exhibit C, and either Lessor or Lessee
may record an original copy of such Memorandum of Lease in the Los Angeles
County Recorder's Office.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
IN WITNESS WHEREOF, the Parties hereto have executed this Lease at the place and
on the dates specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: Los Angeles Executed at: So. El Monte
------------------------------------ ------------------------------------
on: 11/23/98 on: 11/20/98
--------------------------------------------- ---------------------------------------------
By LESSOR: By LESSEE:
ON SANTA FE PARTNERS, LLC, a THE SIRENA APPAREL GROUP, INC., a
California limited liability company Delaware corporation
By: ARCHIBALD DISTRIBUTION CENTER, By: /S/ MAURICE "CORKY" NEWMAN
L.P., a California limited partnership, ---------------------------------------------
its manager Name Printed: Maurice ("Corky") Newman
Title: Chairman and Chief Operating Officer
By:MEDENAH HOLDINGS, INC., By: /S/ RICHARD GERHART
a California corporation ---------------------------------------------
Name Printed: Richard Gerhart
By: /S/ MURAD M. SIAM -----------------------------------
--------------------------- Title: Chief Financial Officer
Name: Murad M. Siam ------------------------------------------
Its: Vice President Address: 10333 Vacco Street
South El Monte, California 91733
Address: c/o Investment Development Attn: Maurice ("Corky") Newman
Facsimile: (626)442-2280
Services, Inc.
888 West Sixth Street, 9th Fl. Federal ID No. 95-4475766
Los Angeles, California 90017 -----------------------------------
Attn: M. M. Siam
Facsimile: (213)627-9937
Federal ID No. 95-4670425
</TABLE>
25
<PAGE> 26
EXHIBIT A
<TABLE>
<CAPTION>
Rent
Approx. Sq. Pro Rata Date to be Commence.
Bay Number Use Ft. Share Available Date
- ---------- --- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
One Office 69,000 33.34% 12/98 1/1/99
Two Cutting 46,000 22.22% 5/99 6/1/99
Three Raw Mat. 46,000 22.22% 5/99 6/1/99
Four Dist./Rack 46,000 22.22% ASAP 12/1/98
</TABLE>
<PAGE> 27
EXHIBIT B
FORM OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
- --------------------------------------------------------------------------------
When recorded, return to:
MORGAN, LEWIS & BOCKIUS, LLP
300 S. GRAND AVE., 22ND FLOOR
LOS ANGELES, CA 90071
Attn: William D. Ellis, Esq.
AGREEMENT OF SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT
THIS AGREEMENT OF SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT is made as of the ___ day of November, 1998, by and among ON SANTA FE
PARTNERS, LLC, a California limited liability company ("Lessor"), THE SIRENA
APPAREL GROUP, INC., a Delaware corporation ("Lessee"), and CARBON CAPITAL
MORTGAGE PARTNERS I, L.P., a Delaware limited partnership, and its successors
and assigns (collectively "Lender").
W I T N E S S E T H
WHEREAS, Lessor is the owner of a certain tract of land with
improvements thereon ("Property"), and said tract is more fully described in
Exhibit "A", which is attached hereto and incorporated herein by reference as if
fully set forth at this point; and
WHEREAS, Lender has made a loan and is the owner of an
indebtedness and holder of a certain Note, secured by a Deed of Trust and
Security Agreement of even date therewith ("Mortgage"), recorded in the records
of Los Angeles County, California, constituting a first lien upon the Property,
and secured by an assignment of Lessor's interest in the Lease hereinafter
described as more particularly set forth in a certain Assignment of Leases and
Rents; and
WHEREAS, under a certain Standard Lease Agreement ("Lease")
dated of even date herewith, between Lessor and Lessee, as evidenced by a
Memorandum of Lease recorded concurrently herewith, Lessor did lease, let and
demise a portion of the Property ("Premises") as described in the Lease to
Lessee for the period of time and upon the covenants, terms and conditions
therein stated; and
WHEREAS, Lender desires that the Lease be subordinated to the
Mortgage, and that Lessee agree to attorn to the purchaser at foreclosure of the
Mortgage in the event of such foreclosure or to Lender in the event of
collection of the rent by Lender; and
WHEREAS, Lessee is willing to agree to attorn if Lender will
recognize Lessee's rights under the Lease.
NOW, THEREFORE, in consideration of the covenants, terms,
conditions and agreements herein contained, and in consideration of other good
and valuable consideration, each to the other, the sufficiency and receipt of
which are hereby acknowledged, the parties hereto agree, covenant and warrant as
follows:
1. That the terms, covenants, provisions and conditions of
the Lease and the rights of the Lessee thereunder are and will continue to be
subordinate to the Mortgage, and the lien thereof, and to any renewal,
substitution, extension or replacement thereof.
2. So long as (i) Lessee is not in default (beyond any period
given Lessee to cure such default) in the payment of rent or additional rent or
in the performance or observance of any of the other terms, covenants,
provisions or conditions of the Lease on Lessee's part to be performed or
observed, (ii) Lessee is not in default under this Agreement and (iii) the Lease
is in full force and effect: (a) Lessee's possession of the Premises and
Lessee's rights and privileges under the Lease, or any extensions or
<PAGE> 28
renewals thereof which may be affected in accordance with any option therefor
which is contained in the Lease, shall not be diminished or interfered with by
Lender, and Lessee's occupancy of the Premises shall not be disturbed by Lender
for any reason whatsoever during the term of the Lease or any such extensions or
renewals thereof and (b) Lender will not join Lessee as a party defendant in any
action or proceeding to foreclose the Mortgage or to enforce any rights or
remedies of Lender under the Mortgage which would cutoff, destroy, terminate or
extinguish the Lease or Lessee's interest and estate under the Lease (except to
the extent that Lessee's right to receive or set-off any monies or obligations
owed or to be performed by any of Lender's predecessors-in-interest shall not be
enforceable thereafter against Lender or any of Lender's
successors-in-interest).
3. 3.1 After notice is given by Lender that the Mortgage is
in default and that the rentals under the Lease should be paid to Lender, Lessee
will attorn to Lender and pay to Lender, or pay in accordance with the
directions of Lender, all rentals and other monies due and to become due to
Lessor under the Lease or otherwise in respect of the Premises; and such
payments shall be made regardless of any right of set-off, counterclaim or other
defense which Lessee may have against Lessor, whether as the tenant under the
Lease or otherwise.
3.2 In addition, if Lender (or its nominee or designee)
shall succeed to the rights of Lessor under the Lease through possession or
foreclosure action, delivery of a deed or otherwise, or another person purchases
the Premises upon or following foreclosure of the Mortgage, then at the request
of Lender (or its nominee or designee) or such purchaser (Lender, its nominees
and designees, and such purchaser, each being a "SUCCESSOR-LESSOR"), Lessee
shall attorn to and recognize Successor-Lessor as Lessee's landlord under the
Lease and shall promptly execute and deliver any instrument that
Successor-Lessor may reasonably request to evidence such attornment. Upon such
attornment, the Lease shall continue in full force and effect as, or as if it
were, a direct lease between Successor-Lessor and Lessee upon all terms,
conditions and covenants as are set forth in the Lease, except that
Successor-Lessor shall not:
(a) be liable for any previous act or omission of Lessor under
the Lease;
(b) be subject to any offset, defense or counterclaim which
shall have theretofore accrued to Lessee against Lessor;
(c) be bound by any modification of the Lease or by any
previous prepayment of rent or additional rent for more than one (1) month which
Lessee might have paid to Lessor, unless such modification or prepayment shall
have been expressly approved in writing by Lender; and
(d) be liable for any security deposited under the Lease
unless such security has been physically delivered to Lender except if Lessor
has not delivered the Security Deposit to Lender Lessee shall nevertheless be
entitled to have the Security Deposit applied toward the last month's rent
accruing prior to the termination of the Lease.;
4. Lessee shall promptly notify Lender of any default by Lessor
under the Lease and of any act or omission of Lessor which would give Lessee the
right to cancel or terminate the Lease or to claim a partial or total eviction.
In the event of a default by Lessor under the Lease which would give Lessee the
right, immediately or after the lapse of a period of time, to cancel or
terminate the Lease or to claim a partial or total eviction, or in the event of
any other act or omission of Lessor which would give Lessee the right to cancel
or terminate the Lease, Lessee shall not exercise such right (i) until Lessee
has given written notice of such default, act or omission to Lender and (ii)
unless Lender has failed, within sixty (60) days after Lender receives such
notice, to cure or remedy the default, act or omission or, if such default, act
or omission shall be one which is not reasonably capable of being remedied by
Lender within such sixty (60) day period, until a reasonable period for
remedying such default, act or omission shall have elapsed following the giving
of such notice and following the time when Lender shall have become entitled
under the Mortgage to remedy the same (which reasonable period shall in no event
be less than the period to which Lessor would be entitled under the Lease or
otherwise, after similar notice, to effect such remedy), provided that Lender
shall with due diligence give Lessee written notice of its intention to and
shall commence and continue to, remedy such default, act or omission. If Lender
cannot reasonably remedy a default, act or omission of Lessor until after Lender
obtains possession of the Premises, Lessee may not terminate or cancel the Lease
or claim a partial or total eviction by reason of such default, act or omission
until the expiration of a reasonable period necessary for the remedy after
Lender secures possession of the Premises.
B-2
<PAGE> 29
5. Except as specifically provided in this Agreement, Lender
shall not, by virtue of this Agreement, the Mortgage or any other instrument to
which Lender may be a party, be or become subject to any liability or obligation
to Lessee under the Lease or otherwise.
6. All notices, demands, requests and other communications made
hereunder shall be in writing and shall be properly given and deemed delivered
on the date of delivery if sent by personal delivery or nationally recognized
overnight courier and on the third business day following mailing if sent by
certified or registered mail, postage prepaid, return receipt requested, as
follows:
If to Lender: CARBON CAPITAL MORTGAGE PARTNERS I, L.P.
c/o WMF Carbon Mesa Advisors Inc.
11601 Wilshire Boulevard, Suite 2440
Los Angeles, CA 90025
Attn: Ms. Rikki Waechter
with a copy to: Mayer, Brown & Platt LLP
350 S. Grand Avenue, 25th Floor
Los Angeles, CA 90071
Attn: Alec G. Nedelman, Esq.
If to Lessee: THE SIRENA APPAREL GROUP, INC.
2825 S. Santa Fe Avenue
Vernon, California 90058
Attn: Maurice ("Corky") Newman
With copy to: Manatt, Phelps & Phillips
11355 W. Olympic Blvd.
Los Angeles, California 90064
Attn: Robert M. Eller, Esq.
and (until June 1, 1999 only):
THE SIRENA APPAREL GROUP, INC.
10333 Vacco Street
South El Monte, California 91733
Attn: Maurice ("Corky") Newman
7. The agreements herein contained shall bind and inure to the
benefit of the successors and assigns in interest of the parties hereto and,
without limiting such, the agreement of the Lender shall specifically be binding
upon any purchaser of the Property at a sale foreclosing the Mortgage.
8. This Agreement may be executed in any number of counterparts,
each of which shall be effective only upon delivery and thereafter shall be
deemed an original, and all of which shall be taken to be one and the same
instrument, for the same effect as if all parties hereto had signed the same
signature page. Any signature page of this Agreement may be detached from any
counterpart of this Agreement without impairing the legal effect of any
signatures thereon and may be attached to another counterpart of this Agreement
identical in form hereto but having attached to it one or more additional
signature pages.
B-3
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed and delivered in their respective names and on their
behalf; and if a corporation, by its officers duly authorized, on the day and
year first above written.
LESSEE:
THE SIRENA APPAREL GROUP, INC., a Delaware
corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
LESSOR:
ON SANTA FE PARTNERS, LLC, a California limited
liability company
By: ARCHIBALD DISTRIBUTION CENTER, L.P., a
California limited partnership, its manager
By: MEDENAH HOLDINGS, INC., a
California corporation
By:
------------------------------
Name: Murad M. Siam
Title: Vice President
LENDER:
CARBON CAPITAL MORTGAGE PARTNERS I, L.P., a
Delaware limited partnership
By: CARBON CAPITAL MANAGEMENT, LLC, a
California limited liability company
By:
---------------------------------------
Name: Glenn A. Sonnenberg
Title: Managing Member
By:
---------------------------------------
Name: Mitchell D. Clarfield
Title: Managing Member
B-4
<PAGE> 31
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On November ___, 1998, before me, the undersigned, a notary
public in and for said State, personally appeared _______________________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature [SEAL]
----------------------------
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On November ___, 1998, before me, the undersigned, a notary
public in and for said State, personally appeared _______________________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature [SEAL]
----------------------------
B-5
<PAGE> 32
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On November ___, 1998, before me, the undersigned, a notary
public in and for said State, personally appeared _______________________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature [SEAL]
----------------------------
B-6
<PAGE> 33
EXHIBIT "A"
DESCRIPTION OF PROPERTY
PARCEL 1:
LOT 3 OF THE A.L. ROSS TRACT, IN THE CITY OF VERNON, COUNTY OF LOS ANGELES,
STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 36 PAGE 72 OF MISCELLANEOUS
RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPTING THE EAST 40 FEET THEREOF, INCLUDED IN SANTA FE AVENUE ACCORDING TO
THE DECREE IN SUPERIOR COURT CASE NO. 66729.
PARCEL 2:
THAT PORTION OF LOT 1 OF TRACT NO. 11349, IN THE CITY OF VERNON, COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 203 PAGES 33 AND 34
OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, LYING NORTHERLY
OF THE WESTERLY PROLONGATION OF THAT CERTAIN COURSE IN THE NORTHERLY BOUNDARY
OF SAID LOT 1; AS SHOWN ON SAID TRACT NO. 11349 AS HAVING A BEARING AND LENGTH
OF NORTH 89- 30' 30" EAST 615 FEET.
PARCEL 3:
THAT PORTION OF LOT 2 OF A. L. ROSS TRACT, IN THE CITY OF VERNON, COUNTY OF
LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 36 PAGE 72 OF
MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY,
DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST WESTERLY NORTHWEST CORNER OF TRACT 11349, AS PER MAP
RECORDED IN BOOK 203 PAGES 33 AND 34 OF MAPS, THENCE SOUTH 89- 33' WEST 198.90
FEET TO THE NORTHEAST CORNER OF LAND DESCRIBED IN PARCEL 1 OF DEED RECORDED IN
BOOK 9784 PAGE 381, OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY; THENCE ALONG THE EAST LINE OF SAID PARCEL SOUTH 0- 29' EAST
147.59 FEET TO THE SOUTHEAST CORNER OF SAID PARCEL; THENCE EASTERLY 46.69 FEET
ALONG A CURVE TO THE SOUTH, HAVING A RADIUS OF 383.06 FEET, A RADIAL LINE OF
SAID CURVE THROUGH SAID SOUTHEAST CORNER BEARING NORTH 7- 23' 30" WEST; THENCE
TANGENT TO SAID CURVE NORTH 89- 35' 30" EAST 152.51 FEET TO THE WEST LINE OF
SAID TRACT 11349; THENCE ALONG SAID WEST LINE NORTH 0- 33' WEST 144.89 FEET TO
THE POINT OF BEGINNING.
SAID LAND IS SHOWN AS PARCEL 1 ON A RECORD OF SURVEY FILED IN BOOK 51 PAGE 33,
RECORDS OF SURVEY, IN THE OFFICE OF SAID RECORDER.
PARCEL 4:
A RIGHT OF WAY FOR DRIVEWAY PURPOSES OVER A STRIP OF LAND 40 FEET WIDE
EXTENDING FROM THE NORTH LINE OF PREMISES HEREIN DESCRIBED TO NORTH LINE OF
EAST 37TH STREET, THE EAST LINE OF SAID STRIP OF LAND BEING PARALLEL WITH AND
DISTANT WEST 239.22 FEET MEASURED AT RIGHT ANGLES FROM THE EAST LINE OF LOT 2
OF A. L. ROSS TRACT AND THE SOUTH PROLONGATION THEREOF.
EXCEPT THEREFROM ANY PORTION THEREOF INCLUDED IN SAID PARCEL 3.
<PAGE> 34
EXHIBIT C
FORM OF MEMORANDUM OF LEASE
- --------------------------------------------------------------------------------
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
MORGAN, LEWIS & BOCKIUS, LLP
300 South Grand Avenue, 22nd Floor
Los Angeles, California 90071
Attn: William D. Ellis, Esq.
- --------------------------------------------------------------------------------
space above line for recorder's use only
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE is made effective as of November ___,
1998, by and among On Santa Fe Partners, LLC, a California limited liability
company ("Landlord"), and The Sirena Apparel Group, Inc., a Delaware
corporation ("Tenant"), who agree as follows:
(a) Premises. Landlord hereby leases to Tenant and Tenant
hereby hires from Landlord upon and subject to the terms of that certain
unrecorded Lease, dated as of November __, 1998 (the "Lease") all of
Landlord's right, title and interest in and to that certain real property
situated in the County of Los Angeles, State of California, more particularly
described in Exhibit A attached hereto and incorporated herein by reference,
commonly known as 2825 South Santa Fe Avenue, Vernon, California . The terms
and provisions of the Lease are incorporated into this Memorandum of Lease by
this reference as though fully set forth herein.
(b) Initial Term. The initial term of the Lease will
expire on May 31, 2006.
(c) Option Terms. Landlord has granted to Tenant one option to
extend the initial term of the Lease for five (5) years.
(d) No Modification. This Memorandum of Lease has been
executed for purposes of recordation only and shall not modify the terms and
provisions of the Lease in any manner.
[SIGNATURES FOLLOW ON NEXT PAGE]
C-1
<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Memorandum
of Lease as of the day and year first above written.
"LANDLORD" "TENANT"
ON SANTA FE PARTNERS, LLC, THE SIRENA APPAREL GROUP, INC.,
a California limited liability company a Delaware corporation
By: ARCHIBALD DISTRIBUTION By:
CENTER, L.P., a California ---------------------------
limited partnership
Print Name:
-------------------
Its:
--------------------------
By: MEDENAH HOLDINGS,
INC., a California
corporation
By:
-----------------------
Print Name: Murad M. Siam
Its: Vice President
C-2
<PAGE> 36
EXHIBIT A
DESCRIPTION OF PROPERTY
PARCEL 1:
LOT 3 OF THE A.L. ROSS TRACT, IN THE CITY OF VERNON, COUNTY OF LOS ANGELES,
STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 36 PAGE 72 OF MISCELLANEOUS
RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPTING THE EAST 40 FEET THEREOF, INCLUDED IN SANTA FE AVENUE
ACCORDING TO THE DECREE IN SUPERIOR COURT CASE NO. 66729.
PARCEL 2:
THAT PORTION OF LOT 1 OF TRACT NO. 11349, IN THE CITY OF VERNON, COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 203 PAGES 33 AND 34
OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, LYING NORTHERLY
OF THE WESTERLY PROLONGATION OF THAT CERTAIN COURSE IN THE NORTHERLY BOUNDARY
OF SAID LOT 1; AS SHOWN ON SAID TRACT NO. 11349 AS HAVING A BEARING AND LENGTH
OF NORTH 89- 30' 30" EAST 615 FEET.
PARCEL 3:
THAT PORTION OF LOT 2 OF A. L. ROSS TRACT, IN THE CITY OF VERNON, COUNTY OF
LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 36 PAGE 72 OF
MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY,
DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST WESTERLY NORTHWEST CORNER OF TRACT 11349, AS PER MAP
RECORDED IN BOOK 203 PAGES 33 AND 34 OF MAPS, THENCE SOUTH 89- 33' WEST 198.90
FEET TO THE NORTHEAST CORNER OF LAND DESCRIBED IN PARCEL 1 OF DEED RECORDED IN
BOOK 9784 PAGE 381, OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY; THENCE ALONG THE EAST LINE OF SAID PARCEL SOUTH 0- 29' EAST
147.59 FEET TO THE SOUTHEAST CORNER OF SAID PARCEL; THENCE EASTERLY 46.69 FEET
ALONG A CURVE TO THE SOUTH, HAVING A RADIUS OF 383.06 FEET, A RADIAL LINE OF
SAID CURVE THROUGH SAID SOUTHEAST CORNER BEARING NORTH 7- 23' 30" WEST; THENCE
TANGENT TO SAID CURVE NORTH 89- 35' 30" EAST 152.51 FEET TO THE WEST LINE OF
SAID TRACT 11349; THENCE ALONG SAID WEST LINE NORTH 0- 33' WEST 144.89 FEET TO
THE POINT OF BEGINNING.
SAID LAND IS SHOWN AS PARCEL 1 ON A RECORD OF SURVEY FILED IN BOOK 51 PAGE 33,
RECORDS OF SURVEY, IN THE OFFICE OF SAID RECORDER.
PARCEL 4:
A RIGHT OF WAY FOR DRIVEWAY PURPOSES OVER A STRIP OF LAND 40 FEET WIDE
EXTENDING FROM THE NORTH LINE OF PREMISES HEREIN DESCRIBED TO NORTH LINE OF
EAST 37TH STREET, THE EAST LINE OF SAID STRIP OF LAND BEING PARALLEL WITH AND
DISTANT WEST 239.22 FEET MEASURED AT RIGHT ANGLES FROM THE EAST LINE OF LOT 2
OF A. L. ROSS TRACT AND THE SOUTH PROLONGATION THEREOF.
EXCEPT THEREFROM ANY PORTION THEREOF INCLUDED IN SAID PARCEL 3.
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