-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, USJ25EGBR7AGz8ZqYLbqaCRxCWUCjq/3gBfQZVglrmRR5w9Evagcd1Tqr5Vf7s0H EUfrMdirB/plGK4PRQmm9A== 0000891618-98-001815.txt : 19980421 0000891618-98-001815.hdr.sgml : 19980421 ACCESSION NUMBER: 0000891618-98-001815 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980420 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GYMBOREE CORP CENTRAL INDEX KEY: 0000786110 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 942615258 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-21250 FILM NUMBER: 98597533 BUSINESS ADDRESS: STREET 1: 700 AIRPORT BLVD STE 200 CITY: BURLINGAME STATE: CA ZIP: 94010 BUSINESS PHONE: 4155790600 MAIL ADDRESS: STREET 2: 700 AIRPORT BLVD #200 CITY: BURLINGAME STATE: CA ZIP: 94010 10-K405 1 FORM 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM _________ TO _________ COMMISSION FILE NUMBER 000-21250 THE GYMBOREE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-2615258 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 AIRPORT BOULEVARD, SUITE 200, BURLINGAME, CALIFORNIA 94010-1912 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (650)-579-0600 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Each Class Name of each exchange on which registered COMMON STOCK, $0.001 PAR VALUE NASDAQ NATIONAL MARKET SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 31, 1998, was approximately $624,492,064, based upon the last price reported for such date on the NASDAQ National Market. As of March 31, 1998, 24,134,959 shares of the registrant's common stock were outstanding. 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended January 31, 1998 (hereinafter referred to as the "1997 Annual Report to Stockholders") are incorporated into Parts II and IV. Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 20, 1998 (hereinafter referred to as the "1997 Proxy Statement") are incorporated into Part III. The exhibit index is located on page 20. 2 3 THE GYMBOREE CORPORATION TABLE OF CONTENTS
PAGE NUMBER ------ PART I ITEM 1. BUSINESS................................................................................ 4 ITEM 2. PROPERTIES.............................................................................. 13 ITEM 3. LEGAL PROCEEDINGS....................................................................... 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................... 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................... 14 ITEM 6. SELECTED FINANCIAL DATA................................................................. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS... 14 ITEM 7A QUANTITATIVE AND QUALITATIVE EXPOSURES ON MARKET RISK................................... 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................. 15 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES... 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 15 ITEM 11. EXECUTIVE COMPENSATION.................................................................. 15 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................... 15 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................... 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.................................. 15
3 4 PART 1 ITEM 1. BUSINESS The Gymboree Corporation and its wholly-owned subsidiaries ("Gymboree" or the "Company") is a leading specialty retailer of high quality apparel and accessories for children ages newborn to seven years old. The Company operates a chain of stores, primarily in regional shopping malls and in selected suburban and urban locations. As of February 28, 1998, the Company operated 443 stores in the United States, Canada and Europe. Under the GYMBOREE(R) brand name, the Company designs and contract manufactures children's active-wear for sale exclusively by Gymboree. The Company's apparel is characterized by bright colors, bold fun prints with complex embroidery, comfort, functionality and durability. The Company also offers directed parent-child developmental play programs for children ages newborn to five years old at approximately 390 franchised locations and 12 Company-operated locations. This annual report on Form 10-K contains certain forward-looking statements reflecting the Company's current expectations. Such forward looking statements include statements regarding the Company's plans to open additional stores in the U.S., Canada and Europe, the Company's plans to relocate some higher volume stores and the Company's plans to continue offering franchises for sales in new market areas in the future. There can be no assurance that the Company's actual future performance will meet such expectations. Factors that could cause future performance to vary from current expectations include, but are not limited to, the factors discussed in the "Business" section, and in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the 1997 Annual Report to Stockholders incorporated by reference in this annual report on Form 10-K. BUSINESS STRATEGY The Company's business strategy consists of the following principal elements: - HIGH QUALITY APPAREL. Gymboree strives to offer its customers high quality apparel with an excellent price/value relationship. The Company designs its merchandise to be comfortable, functional, safe and durable by placing particular emphasis on high quality fabrics and detailed garment construction. - BRAND NAME RECOGNITION. Gymboree has developed a clearly recognizable brand image through its distinctive design, merchandising and retailing. Customers associate Gymboree with high quality, brightly colored children's clothing sold in an attractive and friendly environment. - INTEGRATED OPERATIONS: DESIGN, CONTRACT PRODUCTION AND RETAILING. The Company believes that the vertical integration of its operations enables it to identify and respond to market trends, maintain rigorous product quality standards and closely monitor the distribution of its products. - EXCLUSIVE DISTRIBUTION CHANNEL. Gymboree products are sold exclusively through its retail stores and, to a very limited extent, through its play programs. During fiscal 1997, the Company began the Gymboree Gift Center at www.gymboree.com. This web site allows customers to purchase selected items primarily intended for gifts. - MERCHANDISE FOCUS. Gymboree apparel is designed, contract manufactured and merchandised by line. Merchandise is displayed on the walls of each Gymboree store in a manner designed to enhance visual appeal and maximize customer convenience by enabling customers to select among an assortment of coordinated items and accessories. The Company offers a broad range of styles, themes and colors, as opposed to relying primarily on certain key items. To maintain the freshness of its merchandise, the Company typically introduces between 30 and 40 new lines of boy's, girl's and infant's apparel each year. - RESPONSIVE CUSTOMER SERVICE. Customer service and satisfaction are defining features of the Gymboree corporate culture. Assisting customers in merchandise selection and outfit coordination is the top priority of Gymboree team members. The Company believes that this customer service in combination with its merchandise encourages multiple item purchases per customer. 4 5 STORE EXPANSION STRATEGY Gymboree seeks to significantly increase its current store base by opening new stores in major metropolitan malls, certain secondary regional malls and in select downtown street locations that satisfy its demographic and financial return criteria. In fiscal 1997, the Company opened 82 new stores and relocated / expanded 16 existing stores. Over the past year, the average size of new stores has increased to approximately 1,800 square feet. The Company plans to open 80 to 100 new stores in the U.S. during fiscal 1998, 8 of which were opened as of February 28, 1998. As indicated in the table below, the Company has achieved increasing geographic diversification within the United States in recent years. The Company continued its international expansion by opening six additional retail stores in Canada and its first six stores in Europe during fiscal 1997. During fiscal 1998, the Company is planning to open approximately 10 to 15 new stores in Europe and 8 to 12 additional stores in Canada. The Company's ability to continue to expand successfully in the future will depend on a number of factors, including the availability of suitable store locations, the negotiation of acceptable lease terms, the Company's financial resources and the ability to control the operational aspects of this growth. Gymboree expanded from two stores in California in 1986 to 426 stores in 48 states and the District of Columbia, 11 stores in Canada and 6 stores in Europe, as of February 28, 1998. The following table sets forth, by geographic region, the net number of stores opened and closed during each of the periods indicated:
FISCAL YEAR ------------------------------------------------------------------- PRIOR TO 1992 1992 1993 1994 1995 1996 1997 1998(1) TOTAL -------- ---- ---- ---- ---- ---- ---- ------- ----- East 35 8 9 14 14 17 23 4 124 Midwest 7 10 9 12 19 25 10 2 94 South 6 9 10 23 26 12 29 1 116 West 32 5 12 8 11 16 7 1 92 Europe 0 0 0 0 0 0 6 0 6 Canada 0 0 0 0 0 5 6 0 11 -- -- -- -- -- -- -- -- --- Total 80 32 40 57 70 75 81 8 443 == == == == == == == == ===
(1) Includes stores opened through February 28, 1998. SITE SELECTION. In selecting new store sites, the Company typically looks for high traffic locations ranging from 1,500 to 3,000 square feet in regional malls, specialty centers and suburban main street locations. The Company's real estate department conducts extensive analysis of potential store sites and bases its selection on the performance of other specialty retail tenants, size of the market and demographics of the surrounding area. In evaluating a store location, placement of the store relative to retail traffic patterns and the number of young children in the trade area are important considerations. Although the Company's current stores are located primarily in regional malls, the Company has opened stores in alternative locations. In addition, the Company plans to relocate some higher volume stores within the same malls where it anticipates receiving a competitive advantage. There can be no assurance that the Company will continue to be successful in either obtaining favorable sites for its new stores or negotiating favorable lease terms for such sites. NEW STORE ECONOMICS. The Company's average cost for leasehold improvements, furniture and fixtures for stores opened in fiscal 1997 was approximately $226,000 per store, before landlord construction allowances. In addition, working capital requirements on these same stores, consisting almost entirely of inventory purchases, averaged approximately $67,000 per store. Average preopening costs per store, which are expensed as incurred, were $15,000 during fiscal 1997. Gymboree stores have typically achieved profitability at the store operating level within their first full quarter of operation, although there can be no assurance that new stores will continue to achieve the same levels of profitability. PRODUCTS AND MERCHANDISING Gymboree's merchandise has evolved significantly over time. Prior to 1988, the Company offered unisex apparel for children ages six months to five years and a selection of non-apparel products, including toys. Since 1989, the Company has broadened its apparel merchandise assortment by developing separate boy's and girl's lines for children ages eighteen months to seven years, distinguishing assortments for appropriate ages: CradleGym(R) - newborn to 12 months; GymBaby(R) - newborn to three years and GymKids(R) - for children ages three to seven years. Gymboree currently offers customers an assortment of high quality, comfortable, fully coordinated 5 6 lines of GYMBOREE(R) brand apparel and accessories, consisting primarily of pants, tops, overalls, dresses, socks, hats, crib shoes, swimwear, sweaters, outerwear, underwear and, to a limited extent, shoes. The Company's merchandising strategy focuses upon the quality and design of its apparel products and planned introduction of new product lines. The Company strives to create a distinctive look for its merchandise to enhance brand recognition and stimulate repeat purchases. Gymboree apparel is designed, contract manufactured, purchased and merchandised by line on a seasonal basis. Each of the Company's stores features 11 major merchandising lines per year and a seasonal line of swimwear. Each merchandise line generally consists of approximately 60 clothing items, encompassing matching tops and bottoms, with similar color pallets, patterns and designs. Additionally, each line features a wide selection of related accessories that complement the apparel, such as coordinated socks, hats, crib shoes and hair accessories. In order to maintain the freshness of its merchandise, the Company regularly updates its assortments by rotating each line on an eleven to thirteen week selling cycle. Although Gymboree generally is unable to reorder items after a line has been purchased, the Company carefully monitors its rotation schedule and has the ability to move up the set-up of new lines based on selling demand. Merchandise in each line generally flows through a structured markdown process. Gymboree's customized wall systems display each merchandise line as a separate coordinated group. This presentation maximizes customer convenience in selection, creates a visually attractive selling environment and assists team members in the process of wardrobing, which, the Company believes, stimulates multiple purchases of matching items. Boy's and girl's lines are generally displayed on opposite walls and accessories are located adjacent to the coordinated line. A typical store offers approximately 200 to 250 styles of apparel and approximately 100 to 120 accessories and other non-apparel items. FASHION TRENDS AND CHANGING CONSUMER PREFERENCES The Company's sales and profitability depend upon the continued demand by its customers for its apparel and accessories. The Company believes that its success depends in large part upon its ability to anticipate, gauge and respond in a timely manner to changing consumer demands and fashion trends and upon the appeal of the Company's products. There can be no assurance that the demand for the Company's apparel or accessories will not decline or that the Company will be able to anticipate, gauge and respond to changes in fashion trends. If demand for the Company's apparel and accessories were to decline or if the Company were to misjudge fashion trends, the Company's business, financial condition and results of operations could be materially adversely affected. DESIGN, SOURCING AND CONTRACT MANUFACTURING Gymboree apparel is characterized by colorful and distinctive designs, quality fabrications and construction and an excellent price/value relationship. The Company sources soft, comfortable and durable fabrics. The Company's merchandising and design team creates unique color combinations and original patterns for these fabrics and emphasizes functional features such as grow cuffs which allow for extended use of tops, pants and overalls as children grow. The Company manages the production of Gymboree apparel from the initial product concept, through color and pattern design, fabric development, sample approval, testing and garment manufacturing. The Company believes that the vertical integration of its operations and the coordinated efforts of its merchandising and design, production, and financial planning teams enable Gymboree to create its distinctive offerings. The merchandising and design team determines the styles for merchandise based on an evaluation of current style trends as well as a review of the popularity of the prior year's products. This team works closely with the Company's financial planning team to select garment styles for each season. In conjunction with foreign buying agents, the production team arranges fabric sourcing and garment production while the quality team ensures that the final products satisfy Gymboree's detailed specifications and strict quality and safety standards. The process from initial product concept/design to finished product requires approximately ten months. Fabric and production commitments are made approximately six months before receipt of the finished garments at the Company's distribution center. Throughout the design process, Gymboree's financial planning team prepares financial plans for each line of clothing on an item-by-item basis. Certain proposed items in a line may be revised or replaced as a result of this team's financial analysis. This team also monitors inventories on a daily basis, prepares seasonal plans and develops unit production forecasts. The majority of Gymboree apparel is manufactured to its specifications by approximately 60 independent manufacturers. Key countries in the Far East include China, Indonesia, Philippines, Thailand, Sri Lanka and Saipan. Other manufacturing regions include Honduras, Israel and the United States. The Company sources its fabric raw material from approximately 15 vendors. In fiscal 1997, 6 7 the Company's product assortment was approximately 70% knit and 30% woven. In fiscal 1997, one vendor accounted for approximately 70% of the Company's cotton knit fabric purchases. Although the Company believes that other sources could be identified to satisfy its requirements for its cotton knit fabrics, the loss of this vendor, or a delay in obtaining fabric from this vendor, could have a material adverse effect on the Company's business and operating results. The Company does business with all of its vendors in United States currency and has not historically experienced any material difficulties as a result of any foreign political, economic or social instabilities, although there can be no assurance that it will not experience such difficulties in the future. The Company has no long-term contracts with suppliers and typically transacts business on an order-by-order basis. Gymboree's quality control team arranges with independent testing laboratories to test fabrics prior to cutting against established performance standards for quality and safety. During the prototype sampling stage and following manufacturing, the technical teams subject the merchandise to tests which ensure that construction, workmanship and fit, as well as the style and appearance of the garments, satisfy Gymboree's stringent specifications. Subsequently, the production and quality control teams review the garment test and bulk production inspection results to verify that the quality is consistent with Gymboree's high standards. Gymboree generally does not purchase its finished apparel products until manufacturing has been completed and the products have been approved by independent testing labs and Gymboree's quality control and production teams. DEPENDENCE ON NEW PRODUCTS. The Company's continued growth and success will depend in large part on its ability to successfully develop and introduce new products that are perceived to represent an improvement in style, functionality or value compared to products available in the marketplace. Failure to regularly develop and introduce new products successfully could materially and adversely impact the Company's future growth and profitability. In addition, the Company intends to introduce certain new products and concepts, such as a new "Kid Cool" retail concept that will offer apparel, footwear and accessories to boys and girl ages six through 12, that may represent a significant shift in concept, design and target market demographics from its traditional products. These new products may have short life cycles, thereby requiring more frequent product introductions than the Company's traditional product lines. Furthermore, these products and the introduction of more products could dilute the Company's image as a leading supplier of childrens' apparel in the 0-7 age range and lead to a reduced demand for its existing products. RELIANCE ON FOREIGN AND UNAFFILIATED MANUFACTURERS. The Company currently relies on unaffiliated manufacturers to produce substantially all of its products. The Company has no long-term contracts with its manufacturing sources, and it competes with other companies for production facilities and import quota capacity. Gymboree's products are currently manufactured to its specifications by independent factories located primarily in the Far East, principally in China, Indonesia, Philippines, Thailand, Sri Lanka and Saipan. In the event any of the Company's key manufacturers were unable or unwilling to continue to manufacture the Company's products, the Company would have to rely on other current manufacturing sources or identify and qualify new unaffiliated manufacturers. In such event, there can be no assurance that the Company would be able to qualify such manufacturers for existing or new products in a timely manner or that such manufacturers would allocate sufficient capacity to the Company in order to meet its requirements. Any significant delay in the Company's ability to obtain adequate supplies of its products from its current or alternative sources, would materially and adversely affect the Company's business and results of operations. Although the Company believes that it has good relationships with its unaffiliated principal mills and manufacturing sources and maintains good control with respect to product specifications and quality, the Company's future success will depend in large measure upon its ability to maintain such relationships both directly and through its independent agents, and there can be no assurance that these manufacturers will continue to produce products that are consistent with the Company's standards. In this regard, the Company has occasionally received, and may in the future continue to receive, shipments of product from unaffiliated manufacturers that fail to conform to the Company's quality control standards. In such event, unless the Company is able to obtain replacement products in a timely manner, the Company risks the loss of revenue resulting from the sale of such products and related increased administrative and shipping costs. The failure of any key unaffiliated manufacturer to supply products that conform to the Company's standards could materially and adversely affect the Company's results of operations and its reputation in the marketplace. Although the Company believes that it has good relationships with its principal manufacturing sources, the Company's future success is substantially dependent upon its ability to maintain such relationships. If the Company experiences significant increased demand, which cannot be assured, or if an existing unaffiliated manufacturer needs to be replaced, the Company will need to significantly expand its manufacturing capacity, both from current and new manufacturing sources. There can be no assurance that 7 8 such additional manufacturing capacity will be available when required on terms that are acceptable to the Company. In addition, approximately 70% of the Company's cotton knit fabric, representing a substantial majority of total fabric purchased, is currently sourced from a single vendor. The loss of this vendor, or a delay in obtaining fabrics from this vendor, could have a material adverse effect on the Company's operating results. The Company's business is subject to the risks generally associated with doing business abroad, such as foreign governmental regulations, political unrest, disruptions or delays in shipments and changes in economic conditions in countries in which the Company's mills and contract manufacturing sources are located. Gymboree cannot predict the effect that such factors will have on its business arrangements with foreign mills and contract manufacturing sources. If any such factors were to render the conduct of business in a particular country undesirable or impractical, or if the Company's current foreign contract manufacturing sources or mills were to cease doing business with the Company for any reason, the Company's business and operating results could be adversely affected. The Company's business is also subject to the risks associated with the imposition of additional United States legislation and regulations relating to imported apparel products, including quotas, duties, taxes and other charges or restrictions on imported apparel. The Company cannot predict whether additional United States quotas, duties, taxes or other charges or restrictions will be imposed upon the importation of its products in the future, or what effect any such actions would have on its business, financial condition and results of operations. STORE OPERATIONS The primary objective of store management is to maximize sales by providing superior customer service. Store management is principally responsible for sales training and implementing performance evaluation systems. In a continuing effort to minimize team members' time away from customers, operational procedures are reviewed and streamlined by the store operations group prior to implementation at the store level. This group is also responsible for field and store staffing, daily sales motivation and central office to store communications. The Company's merchandising group also interacts with store personnel and is responsible for developing merchandise presentation plans that can be effectively implemented at the store level. Store operations are managed through 46 operating districts, divided into six geographic regions for the U.S. and Canada, while Europe is comprised of one district and one region. Each District Team Leader is responsible for approximately eight stores. Stores are typically staffed with a team leader, two assistant team leaders and several team members which varies with store volume. During the holiday selling season, team member levels are substantially increased to accommodate peak traffic levels. A number of Gymboree programs offer incentives to both team members and team leaders. Team members receive compensation primarily in the form of hourly wages. Incentive structures are designed to maximize team members' average sales transactions. Scheduling procedures allocate payroll hours to team members based upon sales performance rather than simple availability. Other programs provide bonuses or cash awards to high achieving team members during contest periods, or to all team members of a store based on store sales achievements. District Team Leaders and Regional Team Directors receive compensation in the form of salaries, performance-based bonuses and stock options. CUSTOMER SERVICE Customer service is a defining feature of the Gymboree corporate culture. The Company believes that knowledgeable and enthusiastic team members have a direct impact on profitability. Gymboree places great emphasis on the selling function through consistent and on-going training and evaluation systems which are initiated by the central office and administered by field management at all levels. The Company's store and District Team Leaders and Regional Team Director spend the majority of their work week on Gymboree selling floors, providing leadership by coaching the sales staff and evaluating their team's abilities to sell products using the Company supported MATCHmatics(R) sales approach. Customer service is a high priority for Gymboree store team members. Gymboree's customer focus is emphasized in recruiting and, as measured by sales, is the primary component in the on-going evaluation of team members. The Company minimizes team members' time spent on administrative functions by centrally determining merchandise display and replenishment, markdowns and basic labor scheduling. By emphasizing friendliness, product knowledge and personal attention, the Company believes that Gymboree has established a reputation for excellent customer service. 8 9 STORE ENVIRONMENT Gymboree stores are designed to create an energetic and enjoyable shopping environment. The brightly lit stores and glass store fronts allow the colorful in-store environments to attract customers from the outside. Stores are constructed in an open manner which enables customers to see virtually all product offerings from the store's entrance. Customers enter the stores under natural wood arches supported by giant children's building blocks. The dramatic archways and Gymboree's logo attract the customer's attention, even from a distance. The Company believes that the playful image created by its store fronts is carried into the stores and maintained through product presentation and enthusiastic store personnel. Inside the store, merchandise is displayed on store walls by coordinated apparel lines, which allows easy accessibility and provides ample floor space for customers to maneuver strollers within the store. While parents shop, children are encouraged to play with small toys throughout the store and to enjoy Gymboree videos which run continuously throughout the day. MARKETING AND PROMOTION Whereas Gymboree previously relied on "grass roots"--type word of mouth advertising, Gymboree significantly changed in the strategic marketing of the Gymboree brand during 1997. An increased focus on synergy between the Stores and Play Programs helped fuel more successful direct marketing, advertising and promotional efforts. Cross promotional activities with other large strategically appropriate brands like Procter and Gamble's Cheer Laundry Detergent were also successfully launched. A renewed emphasis on Gymboree's core equities--Color and Quality spurred our new tag line: "Quality Clothes. Colorful Kids." NEW BUSINESS OPPORTUNITIES The Company launched its web site at www.gymboree.com during fiscal 1997. This web site, also known as the Gymboree Gift Center, is designed to assist customers as a one-stop shopping connection for Gymboree gift sets for children between the ages of 0 and 7 years old. MERCHANDISE DISTRIBUTION The Company's merchandise is shipped primarily via conference ocean carriers from the foreign ports to the Port of Oakland, California for the U.S. merchandise, Toronto, Ontario, Canada and Shannon, Ireland for its Canadian and European merchandise, respectively. Contract manufacturers or vendors are required to complete manufacturing and deliver merchandise to the Company's foreign consolidator within a designated ship window. This ship window ensures timely delivery of the purchase orders to the Company's U.S., Canadian and Irish distribution centers using cost-effective ocean transportation. A multi-country consolidation program was established in 1997 which enables the Company to bring full ocean containers into those countries, thereby minimizing shipping cost per unit. The Company's transportation department coordinates the transportation of all purchase orders and monitors the timeliness of these shipments. Customs clearance takes place at the Port of Oakland for its U.S. goods, Toronto for its Canadian goods, and Shannon, Ireland for its European goods. Samples of all items are reviewed by U.S. or local Customs prior to the actual shipment of merchandise from the Far East. This process reduces the customs clearance time and speeds the delivery of the merchandise to the Company. The Company's U.S. merchandise is received, checked, processed and distributed through its U.S. distribution center in Dixon, California. This distribution center is a Company-owned 300,000 square foot facility which opened in January, 1998. New lines are received at the distribution center "just in time." The merchandise is processed, packed by store and delivered on a targeted in-store date approximately once per month. Merchandise is then replenished on a weekly basis based on store sell-through. Merchandise for distribution to Europe is shipped directly from the factory to a 26,000 square foot leased facility in Shannon, Ireland where it is processed for delivery to the European stores. Merchandise destined for Canadian stores is shipped directly from a factory or from the U.S. distribution center to a third-party distribution center in Toronto, Canada. 9 10 Outbound transportation is coordinated through the Company's transportation department. Store orders are consolidated by region and shipped via truckload carriers into the downstream terminals of regional less-than-truckload carriers. This allows the Company to build full trailers, thereby reducing the delivery cost per unit. MANAGEMENT INFORMATION SYSTEMS Gymboree's information systems provide integration of store, merchandising, distribution and financial systems. These systems operate on Unix and NT platforms. Sales are updated daily in the merchandise reporting systems by polling sales information from each store's in-store system. In 1997, the Company successfully rolled out a new in-store system consisting of PC registers that provide price look-up, scanning of bar-coded tickets, credit authorization and check verification. Through automated two-way electronic communication with each store, sales information, payroll hours and store initiated transfers are uploaded to the host system, and price changes are downloaded to the in-store system. The communication with the stores also enables the Company to receive physical inventory details. Information obtained from daily polling results in automatic merchandise replenishment in response to the specific unit inventory requirements of each store. The Company evaluates information obtained through daily reporting to implement merchandising decisions regarding markdowns and allocation of merchandise. The Company has developed a comprehensive plan designed to ensure that all mission critical systems are year 2000 compliant. This plan includes testing of all business functions with vendors and suppliers. Many existing computer systems and applications, and other control devices, only use two digits to identify a year in the date field, without considering the impact of the upcoming change in the millennium. As a result, such systems and applications could fail or create erroneous results unless corrected so that they can process data related to the year 2000. The Company relies on its systems, applications and devices in operating and monitoring all major aspects of its business, including financial systems (such as general ledger, accounts payable and payroll modules), customer services, infrastructure, embedded computer chips, networks and telecommunications equipment. The Company also relies, directly and indirectly, on external systems of business enterprises such as suppliers, creditors, financial organizations and of governmental entities, both domestic and international, for accurate exchange of data. The Company's current estimate is that the costs associated with the year 2000 issue, and the consequences of incomplete or untimely resolution of the year 2000 issue, will not have a material effect on the Company's financial statements for any given year. However, despite the Company's efforts to address the year 2000 impact on its internal systems, the Company has not fully identified such impact or whether it can resolve it without disruption of its business and without incurring significant expense. In addition, even if the internal systems of the Company are not materially affected by the year 2000 issue, the Company could be affected through disruption in the operation of the enterprises with which the Company interacts. The Company believes that its information systems are essential in achieving its growth plans and maintaining a competitive industry position. The Company is committed to utilizing technology as a competitive advantage. PLAY PROGRAMS As of January 31, 1998, the Company's Play Programs included 12 Company-operated play centers in California and approximately 390 franchisee-operated play centers, of which approximately 80% of the play centers are located in the United States, and the remaining 20% are located in foreign countries, including Australia, Canada, Colombia, France, Indonesia, Korea, Mexico, Singapore and Taiwan. The Company believes that its Play Programs provide attractive cross-marketing opportunities for Gymboree stores and further strengthen the GYMBOREE(R) brand name recognition with retail customers. See "--Marketing and Promotion." The Gymboree Play Programs are designed to enhance early childhood development through fun-filled sensory and motor activities, which engage children through sight, touch, sound and movement. Motor skill development is stimulated through physical play and exercise in an exciting, safe environment which includes colorful, developmentally appropriate play equipment. The Gymboree Play Program generally involves weekly 45-minute classes offered throughout the year. Classes are designed to interest and challenge children through activities that are tailored to enhance mental and physical development as well as to provide opportunities for socializing. In addition to sliding, climbing, jumping and running, classes include music, structured play activities, games and a finale featuring a colorful parachute, songs, bubbles and GYMBO(R) the clown. Parents are generally present at play classes and participate in the activities with their children. 10 11 Gymboree classes are offered to children ages newborn to six years old. CradleGym (newborn through 3 months) focuses on parent support and discussion topics, as well as parent-child interaction through music, gentle movement and at-home play ideas. In BabyGym classes (3-12 months) babies and parents enjoy exploring the play equipment, socializing and music as well as an opportunity to exchange parenting information. The Gymboree I, II and III programs (1-2 1/2 years) focus on developing balance, refining motor skills and building toddler confidence and self-esteem through activities and play. In GymGrad classes (2 1/2-4 years), children are introduced to pre-sport skills and non-competitive games which are designed to promote physical development and social skills such as cooperation. GymKids (4-5 years) is a parent-optional program which emphasizes drama, creative movement and pre-sport skills. The Company's standard franchise agreement provides for an initial term of ten years. Upon signing the franchise agreement, each domestic and Canadian franchisee currently pays an initial fee ranging from $35,000 for the franchisee's first play center location to $20,000 for the fourth (and each subsequent) location, and each international (excluding Canadian) franchisee pays an initial fee ranging from $75,000 to $500,000. The franchises are renewable for one additional ten year term, and Gymboree receives no fee upon the renewal of the franchise from domestic franchisees. The Company receives a royalty of 6% of each domestic franchisee's gross receipts from operations, and a fee of approximately $10,500 upon the transfer of a franchise from one domestic franchisee to another. Currently, Gymboree supplies the franchisees with program aids, equipment and consumer products and conducts initial and ongoing training programs. Gymboree will continue offering franchises for sale in new market areas in fiscal 1998. TRADEMARKS AND SERVICE MARKS The Company is the owner in the United States of the trademark and service mark "GYMBOREE", and the trademarks "GYMBO" and "GYMBABY", among others. These marks and certain other of the Company's marks are registered in the United States Patent and Trademark Office, and the mark "GYMBOREE" is also registered, or is the subject of pending applications, in approximately 45 foreign countries. Each federal registration is renewable indefinitely if the mark is still in use at the time of renewal. The Company's rights in the "GYMBOREE" mark and other marks are a significant part of the Company's business. Accordingly, the Company intends to maintain its mark and the related registrations. The Company is not aware of any material claims of infringement or other challenges to the Company's right to use its mark in the United States. The Company believes that its registered and common law trademarks have significant value and that some of its trademarks are instrumental to its ability to create and sustain demand for and market its products. The Company believes that there are no currently pending challenges to the use or registration of any of the Company's registered trademarks. There can be no assurance, however, that the Company's trademarks do not or will not violate the proprietary rights of others, that they would be upheld if challenged or that the Company would, in such an event, not be prevented from using its trademarks, any of which could have a material adverse effect on the Company and its business. In addition, the Company could incur substantial costs to defend legal actions taken against it relating to the Company's use of trademarks, which could have a material adverse effect on the Company's results of operations and financial condition. From time to time, the Company discovers products in the marketplace that are counterfeit reproductions of the Company's products or that otherwise infringe upon trademark rights held by the Company. If the Company is unsuccessful in challenging a third party's products on the basis of trademark infringement, continued sales of such product by that or any other third party could adversely impact the Gymboree brand, result in the shift of consumer preferences away from the Company and generally have a material adverse effect on the Company's results of operations and financial condition. COMPETITION The children's apparel segment of the specialty retail business is highly competitive. The Company competes on a national level with GapKids (a part of The Gap, Inc.) and certain leading department stores as well as certain discount retail chains such as Kids 'R' Us (a division of Toys 'R' Us, Inc.). Gymboree also competes with a wide variety of local and regional specialty stores and with certain other retail chains. Many of these competitors are larger and have substantially greater financial, marketing and other resources than the Company, and there can be no assurance that the Company will be able to compete successfully with them in the future. The principal competitive factors in the Company's market include selection, price, style, quality and variety of merchandise, price, brand-name recognition, customer service, convenience and the location and attractiveness of the stores. Increased competition 11 12 may reduce sales and gross margins, increase operating expenses and decrease profit margins. There can be no assurance that the Company will be able to compete successfully in the future. ECONOMIC CONDITIONS; DEPENDENCE ON CONSUMER SPENDING The Company's financial performance is sensitive to changes in overall economic conditions, which have an impact on consumer spending trends. The success of the Company's operations depends upon a number of factors relating to consumer spending, including future economic conditions affecting disposable consumer income such as employment, business conditions, interest rates and tax rates. There can be no assurance that consumer spending will not decline in response to economic conditions, thereby adversely affecting the Company's growth, net sales and profitability. The Company's stores are located primarily in enclosed regional malls. Consequently, the ability of the Company to sustain its level of sales is dependent in part on a high volume of mall traffic. Mall traffic may be adversely affected by, among other things, economic downturns, the closing of anchor department stores or changes in consumer preferences, all of which are beyond the Company's control. Shifts in consumer discretionary spending to other products or a general reduction in the level of such spending could also adversely affect the Company. There can be no assurance that the foregoing factors will not adversely affect the Company's business, financial condition and results of operations in the future. DEPENDENCE ON KEY PERSONNEL; NEW MANAGEMENT. In the past year, the Company has made significant changes in its executive officers and management team. These new senior personnel, among others, have extensive national retail and wholesale experience and have effected certain product development, merchandising, marketing and operational strategy changes. There can be no assurance that the Company will successfully assimilate these new executives and make strategic modifications to certain of its past operating policies in a timely and efficient manner. Furthermore, the continued success of the Company is largely dependent on the personal efforts and abilities of its senior management and certain other key personnel and on the Company's ability to retain current management and to attract and retain qualified personnel in the future. The loss of certain key employees or the Company's inability to retain other qualified employees could have a material adverse effect on the Company's results of operations and financial condition. NEED FOR ADDITIONAL CAPITAL. Various elements of the Company's business and growth strategies, including its plans to broaden existing product lines, introduce new products and a 2nd retail concept, may require the Company to maintain higher inventory levels which could require additional capital. There can be no assurance that funds will be available to the Company on terms satisfactory to the Company when needed. To the extent that the Company raises additional equity capital, it could have a dilutive effect on existing stockholders. TEAM MEMBERS As of January 31, 1998, the Company had over 6,500 team members. In addition, a significant number of seasonal team members are hired during each holiday selling season. None of the Company's team members is represented by a labor union, and the Company believes that its relationship with its team members is good. EXECUTIVE OFFICERS The following table sets forth information regarding the officers of the Company. Stuart G. Moldaw 71 Chairman of the Board of Directors Gary White 46 President, Chief Executive Officer and Director Edward Loseman 48 Senior Vice President, Sourcing and Logistics Mindy C. Meads 46 Senior Vice President, General Merchandise Manager Kenneth F. Meyers 36 Senior Vice President, Human Resources Mary P. Shepard 43 Senior Vice President, Chief Financial Officer R. Mark Systrad 44 Senior Vice President, Operations
12 13 Stuart G. Moldaw has been the Chairman of the Board of Directors of the Company since January 1994, and has been a director of the Company since May 1982. Mr. Moldaw previously served as Chairman of the Board of Directors of the Company from January 1990 through January 1993. From 1980 through February 1990, Mr. Moldaw served as a general partner of U.S. Venture Partners and he is currently a special venture partner of U.S. Venture Partners. From February 1987 through January 1988, Mr. Moldaw served as Chief Executive Officer of Ross Stores, Inc., an off-price retailer, and is currently a director and Chairman Emeritus of Ross Stores, Inc. Gary White has been the Company's President and Chief Executive Officer, and a director since February 1997, and served as a Senior Vice President and the Chief Operating Officer of the Company from January 1996 until February 1997. Prior to joining the Company, Mr. White served as Executive Vice President of Mervyn's, a division of Dayton Hudson Corporation. Mr. White was employed by Dayton Hudson Corporation since 1976 having served in various positions as an officer with Dayton Hudson Corporation from January 1988 to January 1996. Mr. Edward A Loseman joined the Company as Senior Vice President of Sourcing and Logistics in January 1998. Prior to joining the Company, Mr. Loseman was Vice President of Sourcing for GUESS? Inc. since 1996, and Vice President of Manufacturing Services for Polo/Ralph Lauren from 1992 to 1996. Ms. Mindy C. Meads joined the Company as Senior Vice President and General Merchandise Manager in March 1996. Previously, Ms. Meads was with Lands' End, Inc. as Senior Vice President of Merchandising & Design since 1994 and Vice President, General Merchandise Manager from 1991 until 1994. Mr. Kenneth F. Meyers joined the Company as Senior Vice President, Human Resources in March, 1997. Previously, Mr. Meyers was Vice President, Human Resources at Walt Disney Imagineering from 1995 to 1997. Prior to Disney, Mr. Meyers held executive positions in human resources at United Technologies Corporation. Ms. Mary P. Shepard has been the Senior Vice President and Chief Financial Officer since February, 1998. Previously, Ms. Shepard was with Safeway Inc., as Vice President and Chief Financial Officer, Supply Operations since 1993 and Controller, Supply Operations from 1991 until 1993. Mr. R. Mark Syrstad joined Gymboree as Senior Vice President, Operations in March, 1997. Prior to joining Gymboree, Mr. Syrstad was the Principal of Matryx Management Group, a retailing and consumer products industry consultancy firm. From 1989 to 1993, Mr. Syrstad was President and Chief Executive Officer of Motherhood Maternity. From 1987 to 1989, Mr. Syrstad was President of the Stride-Rite Children's Group, a division of the Stride-Rite Corporation. ITEM 2. PROPERTIES As of January 1998, the Company's corporate campus was located in two office buildings in Burlingame, California, which the Company occupies under leases expiring between 1999 and 2003. During 1997, the Company completed construction on a new 300,000 square foot distribution center on 15 acres located in Dixon, California. The Company has an option agreement on contiguous land for an additional six acres. The Company is phasing out of the Hayward distribution center during the first quarter of 1998. The Company leases a distribution center in Shannon, Ireland for its European operations, and utilizes a third party-owned and operated distribution center in Toronto, Ontario, Canada for its Canadian operations. At January 31, 1998, the Company's 435 stores included an aggregate of approximately 684,000 square feet of space. The Company's stores are all leased, typically for a ten-year term. In most cases, the Company pays a minimum rent plus a percentage rent based on the store's net sales in excess of a certain threshold. Substantially all of the leases require the Company to pay insurance, utilities, real estate taxes and repair and maintenance expenses. See Note 3 of Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders, filed as Exhibit 13.1 to this Annual Report on Form 10-K. ITEM 3. LEGAL PROCEEDINGS None. 13 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the NASDAQ National Market under the symbol "GYMB". The following table sets forth the quarterly high and low sale prices per share, as reported on the NASDAQ National Market.
FISCAL 1997 FISCAL 1996 FISCAL 1995 ---------------------- ---------------------- ---------------------- HIGH LOW HIGH LOW HIGH LOW ------- ------- ------- ------- ------- ------- First Quarter $27.250 $21.750 $29.000 $17.750 $28.250 $21.500 Second Quarter 27.625 22.625 35.750 20.125 32.375 20.875 Third Quarter 27.750 23.875 33.675 23.375 37.250 18.750 Fourth Quarter 28.875 23.875 34.750 21.250 25.125 14.375
As of March 31, 1998, the number of holders of record of the Company's Common Stock was approximately 750. The Company has never declared or paid cash dividends on its Common Stock and anticipates that all future earnings will be retained for development of its business. The payment of any future dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, capital requirements, the financial condition of the Company and general business conditions. During fiscal 1997, the Board of Directors authorized common stock repurchase programs whereby the Company could buy back up to $60 million of its Common Stock. As of January 31, 1998, 1,922,000 shares were repurchased by the Company for an aggregate amount of $49,646,000. In March 1997, the Company adopted a Stockholder Rights Plan (the "Plan"). The Plan entails a dividend of one right for each outstanding share of the Company's Common Stock. The rights are represented by and traded with the Company's Common Stock. There are no separate certificates or market for the rights. The rights do not become exercisable or trade separately from the Common Stock unless 17.5% or more of the Common Stock of the Company has been acquired, or after a tender or exchange offer is made for 17.5% or greater ownership of the Company's Common Stock. Should the rights become exercisable, each right will entitle the holder thereof to buy 1/1,000th of a share of the Company's Series A Preferred Stock at an exercise price of $125. Each 1/1,000th of a share of the new Series A Preferred Stock will essentially be the economic equivalent of one share of Common Stock. Under certain circumstances, the rights "flip-in" and become rights to buy the Company's Common Stock at a 50% discount. Under certain other circumstances, the rights "flip-over" and become rights to buy an acquirer's Common Stock at a 50% discount. The rights may be redeemed by the Company for $0.01 per right at any time on or prior to the fifth day (or a later date as determined by the Board of Directors) following the first public announcement by the Company of the acquisition of beneficial ownership of 17.5% of the Company's Common Stock. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated herein by reference to page 10 of the 1997 Annual Report to Stockholders filed as Exhibit 13.1 to this Annual Report on Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated herein by reference to pages 11 through 13 of the 1997 Annual Report to Stockholders filed as Exhibit 13.1 to this Annual Report on Form 10-K and Annual Report to Stockholders filed as Exhibit 13.1 to this Annual Report on Form 10-K. 14 15 ITEM 7A. QUANTITATIVE AND QUALITATIVE EXPOSURES ON MARKET RISK Not yet applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated herein by reference to pages 14 through 23 of the 1997 Annual Report to Stockholders filed as Exhibit 13.1 to this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated herein by reference to the sections entitled "Election of Directors - Nominees" and "Additional Information-Compliance with Section 16(a) of the Securities Exchange Act" in the 1997 Proxy Statement. See also Item 1. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the sections entitled "Election of Directors - Compensation of Directors" and "Additional Information - Executive Compensation" in the 1997 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the section entitled "Additional Information - Security Ownership" in the 1997 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the sections entitled "Additional Information - Employment Contracts and Termination of Employment and Change-in-Control Arrangements"," Additional Information - Compensation Committee Interlocks and Insider Participation" and "Transactions with Related Parties" in the 1997 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K (A)(1) FINANCIAL STATEMENTS The following documents are incorporated by reference to pages 14 through 23 of the 1997 Annual Report to Stockholders filed as Exhibit 13.1 to this Annual Report on Form 10-K. Consolidated Balance Sheets as of January 31, 1998 and February 2, 1997 Consolidated Statements of Income for each of the three fiscal years ended January 31, 1998 Consolidated Statements of Cash Flows for the three fiscal years ended January 31, 1998 Consolidated Statements of Stockholders' Equity for the three fiscal years ended January 31, 1998 Notes to Consolidated Financial Statements Independent Auditors' Report 15 16 (A)(2) FINANCIAL STATEMENT SCHEDULES Financial statement schedules have been omitted because they are not required or are not applicable. (A)(3) EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Restated Certificate of Incorporation of Registrant.(1) 3.2 Bylaws of Registrant.(1) 4.1 Article III of Restated Certificate of Incorporation of Registrant (See Exhibits 3.1).(1) 4.2 Form of certificate for Common Stock.(1) 10.1 1983 Incentive Stock Option Plan, with form of stock Option Agreement.(1) 10.2 1993 Stock Option Plan, with form of Stock Option Agreement.(2) 10.3 1993 Employee Stock Purchase Plan.(1) 10.4 Amended Line of Credit Agreement with Bank of America dated October 27, 1995.(3) 10.5 Line of Credit Agreement with CoreStates Bank dated August 2, 1994.(3) 10.6 Amended Lease Agreement for 700 Airport Blvd., Suite 200, Burlingame, California.(3) 10.7 Amended Lease Agreement for distribution center.(4) 10.8 California Uniform Franchise Offering Circular, including form of Franchise Agreement.(1) 10.11 Restricted Stock Purchase Agreement with Nancy J. Pedot.(3) 10.12 Lease Agreement for 770 Airport Blvd., Burlingame, CA.(5) 10.13 Deferred Compensation Agreement.(5) 10.14 Lease Agreement for Bays 140-141, Shannon Free Zone, Shannon, Ireland, dated May 6, 1997. 10.15 Lease Agreement for 111 Anza Blvd., Burlingame, California dated January 8, 1998. 10.16 Amendment No. 1 to the Amended and Restated Line of Credit Agreement with Bank of America, dated July 17,1997. 10.17 Amendment No. 2 to the Amended and Restated Line of Credit Agreement with Bank of America, dated August 11, 1997. 10.18 Amendment No. 3 to the Amended and Restated Line of Credit Agreement and Waiver with Bank of America, dated January 9, 1998.
16 17
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.19 Amendment No. 4 to the Amended and Restated Line of Credit Agreement with Bank of America, dated January 30, 1998. 10.20 Amendment No. 5 to the Amended and Restated Line of Credit Agreement with Bank of America, dated March 9, 1998. 10.21 Amendment No. 6 to Amended and Restated Line of Credit Agreement with Bank of America, dated March 9, 1998. 10.22 Acquisition and Development Agreement for Dixon, California Distribution Facility with Carl D. Panattoni and and Wickland Properties, dated November, 1996. 10.23 Standard Form of Contractor Agreement with DPR Construction, Inc. for construction of Dixon, California Distribution Facility dated May 5, 1997. 11.1 Statement re Computation of Net Income Per Share. 13.1 1997 Annual Report to Stockholders 21.1 Subsidiaries of the Registrant 23.1 Independent Auditors' Consent 24.1 Power of Attorney (included in Part IV of this Form 10-K under the caption "Signatures"). 27.1 Financial Data Schedules 27.2 Financial Data Schedules 27.3 Financial Data Schedules 27.4 Financial Data Schedules 27.5 Financial Data Schedules
(B) REPORTS ON FORM 8-K A report filed on Form 8-K was filed on December 15, 1997, announcing the resignation of James P. Curley from his position as Senior Vice President, Chief Financial Officer, Chief Administrative Officer and a member of the Company's Board of Directors, effective as of January 31, 1998. - ------------ (1) Incorporated by reference to the Registrant's Registration Statement on Form S-1 filed with the Commission on February 18,1993 ( File No. 33-58322), as amended. (2) Incorporated by reference to the Registrant's Registration Statement on Form S-1 filed with the Commission on February 18, 1993 (File No. 33-58322), as amended by numbers 33-60310, 33-90452, 33-94594 and 333-10811. (3) Incorporated by reference to the Registrant's 1994 Annual Report on Form 10-K filed with the Commission on April 24, 1995. (4) Incorporated by reference to the Registrant's 1995 Annual Report on Form 10-K filed with the Commission on May 2, 1996. (5) Incorporated by reference to the Registrant's 1996 Annual Report on Form 10-K filed with the Commission on May 5, 1997. 17 18 THE GYMBOREE CORPORATION SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 GYMBOREE CORPORATION April 20. 1998 By: /s/ Gary White - ------------------ ------------------------------------------ (Date) Gary White President and Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned officers and directors of Gymboree Corporation, a Delaware corporation, do hereby constitute and appoint Gary White the lawful attorney and agent, with power and authority to do any and all acts and things and to execute any and all instruments which said attorney and agent determine may be necessary or advisable or required to enable said corporation to comply with the Securities Act, and any rules or regulations or requirements of the Securities and Exchange Commission in connection with this Form 10-K. Without limiting the generality of the foregoing power and authority, the powers granted include the power and authority to sign the names of the undersigned officers and directors in the capacities indicated below to this Form 10-K, to any and all amendments, and supplements to this Form 10-K, and to any and all instruments or documents filed as part of or in conjunction with this Form 10-K or amendments or supplements thereof, and each of the undersigned hereby ratifies and confirms all that said attorney and agent shall do or cause to be done by virtue hereof. This Power of Attorney may be signed in several counterparts. IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated. 18 19 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ Stuart G. Moldaw Chairman of the Board of Directors April 20, 1998 - -------------------------------------------- Stuart G. Moldaw /s/ Gary White President and Chief Executive Officer and April 20, 1998 - -------------------------------------------- Director Gary White /s/ Arthur S. Berliner Director April 20, 1998 - -------------------------------------------- Arthur S. Berliner /s/ Jerome A. Chazen Director April 20, 1998 - -------------------------------------------- Jerome A. Chazen /s/ Mary P. Shepard Senior Vice President and Chief Financial April 20, 1998 - -------------------------------------------- Officer (Principal financial and Mary P. Shepard accounting officer of the registrant) /s/ Walter F. Loeb Director April 20, 1998 - -------------------------------------------- Walter F. Loeb /s/ Barbara L. Rambo Director April 20, 1998 - -------------------------------------------- Barbara L. Rambo /s/ Peter L. Thigpen Director April 20, 1998 - -------------------------------------------- Peter L. Thigpen /s/ William U. Westerfield Director April 20, 1998 - -------------------------------------------- William U. Westerfield
19 20 THE GYMBOREE CORPORATION EXHIBIT INDEX
EXHIBIT NUMBER ------- 10.14 Lease Agreement for Bays 140-141, Shannon Free Zone, Shannon, Ireland, dated May 6, 1997. 10.15 Lease Agreement for 111 Anza Blvd., Burlingame, California dated January 8, 1998. 10.16 Amendment No. 1 to the Amended and Restated Line of Credit Agreement with Bank of America, dated July 17, 1997. 10.17 Amendment No. 2 to the Amended and Restated Line of Credit Agreement with Bank of America, dated August 11, 1997. 10.18 Amendment No. 3 to the Amended and Restated Line of Credit and Waiver with Bank of America, dated January 9, 1998. 10.19 Amendment No. 4 to the Amended and Restated Line of Credit Agreement with Bank of America, dated January 30, 1998. 10.20 Amendment No. 5 to Amended and Restated Line of Credit Agreement with Bank of America, dated March 9, 1998. 10.21 Amendment No. 6 to the Amended and Restated Line of Credit Agreement with Bank of America, dated March 9, 1998. 10.22 Acquisition and Development Agreement for Dixon, California Distribution Facility with Carl D. Panattoni and and Wickland Properties, dated November __, 1996. 10.23 Standard Form of Contractor Agreement with DPR Construction, Inc. for construction of Dixon, California Distribution Facility dated May 5, 1997. 11.1 Statement re: Computation of Net Income per Share 13.1 1997 Annual Report to Stockholders 21.1 Subsidiaries of the Registrant 23.1 Independent Auditors' Consent 24.1 Power of Attorney (included in Part IV of this Form 10-K under the caption "Signatures"). 27.1 Financial Data Schedules 27.2 Financial Data Schedules 27.3 Financial Data Schedules 27.4 Financial Data Schedules 27.5 Financial Data Schedules
20
EX-10.14 2 LEASE AGREEMENT FOR BAYS 140-141 1 EXHIBIT 10.14 DATED THIS DAY OF 1997 - -------------------------------------------------------------------------------- LAND REGISTRY COUNTY CLARE FOLIOS 183SL & 25634 SHANNON FREE AIRPORT DEVELOPMENT COMPANY LIMITED FIRST PART - -AND- GYMBOREE INDUSTRIES LIMITED SECOND PART - -AND- THE GYMBOREE CORPORATION AND GYMBOREE INDUSTRIES HOLDINGS LIMITED THIRD PART L E A S E BAYS 140-141, SHANNON FREE ZONE, COUNTY CLARE CONNOLLY, SELLORS, GERAGHTY, FITT SOLICITORS 6/7 GLENTWORTH STREET, LIMERICK 2 -2- THIS INDENTURE made the day of 1997 BETWEEN SHANNON FREE AIRPORT DEVELOPMENT COMPANY LIMITED having its Registered Office at Shannon Airport in the County of Clare (hereinafter called "SHANNON DEVELOPMENT" which expression shall include the person or persons for the time being entitled to the reversion immediately expectant on the term hereby granted) of the First Part, GYMBOREE INDUSTRIES LIMITED having its Registered Office at 1 EARLSFORT CENTRE, HATCH STREET IN THE CITY OF DUBLIN (hereinafter called "THE LESSEE" which expression shall include its successors and permitted assigns) of the Second Part and THE GYMBOREE CORPORATION having its Principal Office at 700 AIRPORT BOULEVARD, SUITE 200, BURLINGAME, CA D4010-1912 and GYMBOREE INDUSTRIES HOLDINGS LIMITED having its Registered Office at 1 EARLSFORT CENTRE, HATCH STREET IN THE CITY OF DUBLIN (hereinafter collectively called "THE PROMOTER") of the Third Part. WITNESSETH: 1. TERM: In consideration of the rent hereinafter reserved, the covenants on the part of the Lessee to be performed and observed and the terms and conditions hereinafter contained Shannon Development hereby demises unto the Lessee ALL THAT AND THOSE the premises described in the First Schedule hereto (hereinafter called "THE PREMISES") to hold the same for the term of 10 years from the 6th day of May 1997 subject to the rent set out in the First Schedule hereto and to the terms and conditions contained in the Second Schedule hereto. 3 -3- 2. LESSEE'S COVENANT: The Lessee hereby covenants with Shannon Development to observe all the terms and conditions on the part of the Lessee contained in the Second and Third Schedules hereto as if each term and condition applicable to the Lessee was incorporated as a separate covenant with Shannon Development. 3. SHANNON DEVELOPMENT'S COVENANT: Shannon Development hereby covenants with the Lessee to observe all the terms and conditions on the part of Shannon Development contained in the Second Schedule hereto as if each term and condition applicable to Shannon Development was incorporated as a separate covenant with the Lessee. 4. LAND ACT 1966 CERTIFICATE: IT IS HEREBY CERTIFIED by the Lessee that it is a qualified person within the meaning of Section 45 of the Land Act; 1965 by virtue of the fact that it is a company incorporated under the laws of a Member State of the European Union. 5. FINANCE CERTIFICATE: IT IS HEREBY CERTIFIED by the parties hereto that the amount or value or the aggregate amount or value of the consideration (other than rent) does not exceed IRL.5,000. 4 -4- 6. FINANCE CERTIFICATE: IT IS HEREBY CERTIFIED that Section 112 of the Finance Act, 1990 does not apply to the within demise as it is in respect of a factory premises only and there are no houses or apartments included in the demise. 7. FINANCE CERTIFICATE: IT IS HEREBY CERTIFIED that no part of the consideration for this Lease is attributable (or deemed to be attributable) to residential accommodation 8. COMPANIES ACT, 1990 CERTIFICATE: IT IS HEREBY CERTIFIED that Shannon Development and the Lessee are not parties connected to each other which would require this transaction to be ratified by resolution of either of them. 5 -5- DEMISED PREMISES PREMISES: ALL THAT AND THOSE the factory premises at [ ] called "THE ESTATE") in the County of Clare as is [ ] hereto annexed and thereon outlined in Red together with the factory premises erected thereon and known or to be known as Bays 140-141 together with the right of the Lessee to pass and repass with or without vehicles at all times and for all purposes along the roads coloured yellow on the said map and along all roads on the Estate leading from the Premises to the Public Roadway and the free passage of water, gas, oil, effluent and other utilities through the conduits in or under or over the Estate and serving the Premises. MINING RIGHTS: All mines, minerals, quarries and royalties whatsoever in or under the Premises during the term of the demise are excepted and reserved unto Shannon Development out of the demise. Shannon Development or any other person for the time being entitled to the benefit of such mines, minerals, quarries and royalties shall have a right of ingress, egress and regress in respect of the Premises with or without vehicles, horses, carriages or machinery in order to obtain the benefit of such exceptions and reservations subject to compensation to the Lessee for disturbance and loss arising from the working of any such mines, minerals or quarries. 6 -6- WAYLEAVE RIGHT: The right is hereby reserved to Shannon Development to enter upon the Premises or any part thereof for the purpose of laying, installing and maintaining thereon and therein all water and sewage mains or pipes as Shannon Development may from time to time consider desirable or necessary for the benefit of its other tenants on the Estate or otherwise. RENT AND GALE DAYS: Subject to the provisions of Clause 1 of the Second Schedule hereof, the Rent shall be IRE.63,100.00 per annum for the first year of the term hereby created, IRE.88,340.00 per annum for the second year of the term hereby created and IRE.100,960 per annum for the third, fourth and fifth years of the term hereby created and shall be payable in advance by four equal quarterly instalments on the first day of January, the first day of April, the first day of July and the first day October in each calendar year the first and last payments being apportioned as appropriate from the date of possession of the Premises and to the date of vacating same. For the purpose of this Lease the term "Rent" shall mean the Rent reserved by Clause 1 of the Second Schedule hereof as increased in accordance with the provisions of Clause 2 of the Second Schedule hereof. 7 -7- TERMS AND CONDITIONS OF DEMISE 1. RENT: The yearly Rent payable under the Lease shall be payable by four equal quarterly instalments payable in advance on the first day of January, the first day of April, the first day of July and the first day of October in each calendar year the Rent to be paid clear of all deductions PROVIDED ALWAYS that in the first year of the term the rent shall be apportioned as between the first day of January, 199 and the actual date on which the Lessee enters into possession and provided always that on termination of the Lease the Lessee shall pay the rent due up to the date of its vacating the Premises. 2. RENT REVIEW The Rent at the election of Shannon Development shall be reviewed at or upon the completion of the first five years of the term hereby created (the term being computed from the date of commencement of the said term and being hereinafter referred to as "THE RENT REVIEW DATE") and from and after the Rent Review Date the yearly Rent payable in respect of the Premises for the five year period next following such Rent Review Date shall be such yearly Rent (hereinafter called "THE REVISED RENT") as shall be specified in a Notice (hereinafter referred to as "THE RENT REVIEW NOTICE") served by Shannon Development on the Lessee and as shall in the opinion of Shannon Development represent the open market Rent on 8 -8- the Premises as between a willing Lessor and a willing Lessee with vacant possession but without any regard being had to goodwill, the fact that the Lessee has been in occupation of the Premises, and any effect on rent of any improvement (within the meaning of the Landlord and Tenant Acts 1931 to 1980 or any Acts amending or extending same) and in all other respects on the terms and conditions of this demise including the proviso for five yearly rent reviews and taking into account the Rents then appertaining in respect of similar premises in the vicinity of the Premises or on Industrial Estates generally and to rents and any formula for calculation of rents (if any) which shall then be currently chargeable and in use by Shannon Development in respect of the letting or leasing of Industrial Premises on any Industrial Estates in the vicinity of the Premises owned or developed by Shannon Development or otherwise let or leased by Shannon Development PROVIDED ALWAYS that if Shannon Development shall not serve such notice as aforesaid for the review of rent prior to or within twelve months after the Review Date it shall nevertheless be entitled to do so at any time prior to the expiry of the term hereby created upon the same terms and conditions as are hereinbefore provided save that the Revised Rent shall be deemed in such circumstances to be payable by the Lessee from the next gale day immediately following service of the Rent Review Notice and the Rent payable immediately prior to that Notice shall continue to be the Rent payable until the Rent Review shall be held under the terms of this Lease AND FURTHER PROVIDED that should the Lessee object to any such Rent and if after negotiation Shannon Development and the Lessee shall (within 3 months of the service of a Rent Review Notice) be unable to agree to the amount of any Rent reviewed as aforesaid the same shall on application by either Shannon Development or the Lessee to submitted to the arbitration of a practising Valuer to be agreed by Shannon Development and the Lessee or in default of 9 -9- agreement to be nominated by the President or other Chief Officer for the time being of the Royal Institute of Chartered Surveyors in Ireland PROVIDED ALWAYS that in considering such matter such Valuer shall take into account the Rents then currently reserved by Shannon Development (whether as a result of Rent Reviews or otherwise) in respect of Industrial Premises leased by Shannon Development on Industrial Estates owned or operated by Shannon Development and such other matters as are set out above for the purpose of determining the Revised Rent and in so deciding such Valuer shall be deemed to be acting as an Arbitrator and accordingly the provisions of the Arbitration Act, 1954 (as amended by subsequent legislation) shall apply and this Lease for the purpose of the said Act shall be deemed to be an Arbitration Agreement AND PROVIDED that in no circumstances shall the rent payable hereunder following a rent review be less that the rent payable by the Lessee immediately prior to the Rent Review Date. Notwithstanding the foregoing the Lessee shall be entitled to call for a review of the Rent at any time by notice in writing to Shannon Development ("THE LESSEE'S NOTICE") if at the date which is three months prior to the Rent Review Date Shannon Development has not served a Rent Review Notice. If the Lessee and Shannon Development have not within three months of the service of the Lessee's Notice been able to agree the amount of the Rent the same shall be subject to the same procedure as applies to a Lessee's objection to the Rent in a Rent Review Notice. 3. If the monies payable by the Lessee to Shannon Development under this Lease or any covenant or provision thereof shall be due but unpaid for twenty-eight days the Lessee shall be liable to pay Interest to Shannon Development at the rate of 2% per annum above the pending rate on commercial overdrafts charged by the Bank 10 -10- of Ireland, such interest to be calculated daily from the date on which the rent or other sum became due until the actual date of payment or if there shall be no such rate the aforesaid rent or sum shall bear interest at the rate of 2% over the cost of six months funds in the Dublin Interbank Market PROVIDED ALWAYS that the provisions of this Clause shall not prejudice any other right or remedy of Shannon Development in respect of any breach of any of the covenants on the part of the Lessee herein contained. 4. OUTGOINGS: In addition to the Rent the Lessee shall pay and discharge all taxes, rates, duties, charges, assessments and impositions whatsoever whether parliamentary, municipal, county, union, district or any other description which may now or at any time hereafter be assessed, charged or imposed on the Premises or any part thereof or the Rent payable thereout and whether payable by the owner or occupier (Shannon Development's proportion of Capital and Income Tax excepted) Shannon Development having responsibility for any period prior to occupation by the Lessee. The Lessee shall also, at the discretion of Shannon Development, bear with the owners or occupiers of the other units on the Estate, the reasonable cost and expense of all necessary Estate security and any other service reasonably deemed necessary by Shannon Development (acting reasonably) in the interest of good Estate management. 5. LOCAL OR PUBLIC AUTHORITIES: 11 -11- The Lessee shall execute all works which any county or district council or other local or public body may require to be carried out in respect of the Premises by the Lessee (save in respect of breaches of statutory or local authority requirements predating this Lease). 6. PLANNING NOTICES: Without prejudice to the generality of Clause 5 of the Second Schedule hereof but subject to the terms thereof, the Lessee shall: 6.1 On receipt of any notice, order or request pursuant to the Local Government (Planning and Development) Act, 1963 or any regulations made thereunder forthwith notify Shannon Development of such receipt and furnish to Shannon Development a copy of any such notice, order or request. 6.2 Forthwith comply with all the requirements and conditions of such notice, order or request in strict accord with the provisions thereof and procure and furnish to Shannon Development a certificate or other evidence of such compliance. 6.3 Indemnify Shannon Development from and against all actions, claims, suits, demands, penalties or fines for or in respect of any failure to satisfactorily and completely comply with the requirements of any such notice, order or request. 12 -12- 7. FACTORIES ACT REQUIREMENTS: The Lessee shall comply with all the requirements of the Factories Act, 1955 or any Act or Acts amending the same or any Rules or Regulations made or to be made thereunder and in particular but without prejudice to the generality of this Clause shall ensure that the Heating System referred to in Clause 14 of the Second Schedule hereof shall from time to time and as often as may be necessary be inspected by a competent Surveyor and certified as complying with the requirements of the Factories Act, 1955 or any Act or Acts amending or extending the same and produce on demand by Shannon Development satisfactory evidence of such compliance with the requirements of such Act or Acts. 8. ADDITIONAL STRUCTURES: No structure, building, boarding, fence or other erection of any kind whatsoever shall be placed on the Premises save in accordance with the written approval of Shannon Development first being had and obtained such approval not to be unreasonably withheld or delayed. In its approval Shannon Development may (acting reasonably) regulate the position for the work the plans and elevations for the work, design, colours and materials to be used and the apparatus and equipment to be employed in the course of such work and for the purpose of seeking Shannon Development's approval under this Clause the Lessee shall submit such detailed plans and specifications as Shannon Development may reasonably require showing inter alia the precise location and elevations of any structures or buildings proposed and the nature and dimensions of apparatus and equipment intended to be used in or on the construction of the work. 13 -13- 9. ALTERATIONS: The Lessee shall not make any alterations in the plans external construction, height of roof or walls of any structure or building which may be already erected on the Premises or which may hereafter be erected or in the height of the boundary walls or fences of the Premises. 10. REPAIRS AND MAINTENANCE/REPAIRS: The Lessee will at all times hereafter well and sufficiently repair, maintain, cleanse and keep the Premises externally and internally in good and substantial repair, condition and state of decoration provided that nothing herein contained shall require the Lessee to put the Premises into any better state of repair than exists at the date of this Lease. The Lessee's obligation under this Clause shall include all fences, drains, sewers, all services (whether plumbing, water, electrical or mechanical) and other conveniences and appurtenances within the boundary of and exclusively serving the Premises. On the termination of this Lease, the Lessee shall surrender up the Premises in a good and complete state of repair, condition and decoration as reflects due performance of this covenant. 11. REPAINTING FREQUENCY: In addition to the obligations contained in Clause 10 of this Schedule, the Lessee shall once every fifth year and in the last year of the term of this Lease (whether determined by effluxion of time or otherwise) paint the internal walls, woodwork and 14 -14- ironwork and all other parts of the Premises painted by Shannon Development at the commencement of the lease, with two coats at least of good quality oil paint or such other paint as may be first approved of in writing by Shannon Development (such approval not to be unreasonably withheld). In addition, the Lessee shall in the same year tar creosote, distemper, whitewash or otherwise treat as appropriate such other parts of the Premises that are not painted. All such work shall be done in good and workmanlike manner to the satisfaction of Shannon Development (acting reasonably) and in conformity with the colour scheme first approved of in writing by Shannon Development, such approval not to be unreasonably withheld. 12. NOTICE TO REPAIR: The Lessee shall permit Shannon Development or the Minister for Transport, Energy & Communications or their respective agents and all other persons authorised by either of them at all reasonable times during the term to enter upon the Premises with or without workmen or others to view the state of repair and condition thereof. If Shannon Development gives Notice to the Lessee of any defects or want of repair found at the Premises (which Notice may be delivered to the Lessee by leaving it for him on the Premises) the Lessee shall within three calendar months after the date of such Notice or sooner if requisite, repair and make good any such defect or want according to the Notice. 13. MAINTENANCE OF ROADS: During the term of this Lease or until such time as they are handed over to the Local Authority (whichever is the lesser period) Shannon Development shall keep 15 -15- the roads on the Estate leading from the Premises to the public roadways and the conduits serving the Premises in good and passable order, repair and condition excepting damage for which the Lessee is liable under the Lease. 14. MAINTENANCE OF HEATING SYSTEM: The Lessee shall keep and maintain any boiler or furnace or other heating unit or system installed in the Premises (hereinafter referred to generally as "the Heating System") in good working order, repair and condition and shall forthwith notify Shannon Development of any lack of repair or defect occurring or arising in such Heating System and shall from time to time when necessary replace, renew and reinstate to the entire satisfaction of Shannon Development any parts thereof which may become broken, lost, worn out or unfit for use. In the event of the Heating System becoming totally unfit or unsuitable for the purpose for which it was originally intended the Lessee shall at its own cost replace the same with the Heating System of a similar type and fully suited for the purpose for which the original Heating System was intended. 15. ALTERATION OF HEATING SYSTEM: The Lessee shall not alter, take down or remove the Heating System or any part thereof without the previous consent in writing of Shannon Development (such consent not to be unreasonable withheld) and shall not make any replacement, renewal or reinstatement as provided in Clause 14 of the Second Schedule hereof without the like consent or before such part or new Heating System has first been approved of by Shannon Development in writing. 16 -16- 16. CONNECTIONS TO MAIN SERVICE/WATER SUPPLY: Should Shannon Development make a supply of water available to the Premises such supply shall be in accordance with such conditions of supply with all reasonable amendments alterations and extensions thereto as Shannon Development may publish from time to time. For this purpose publication shall be deemed to be duly effected if a copy of the conditions and any amendments or alterations or extensions thereto is available in the office of the Secretary of Shannon Development during normal office hours PROVIDED THAT Shannon Development shall have notified the Lessee by ordinary prepaid post addressed to the Lessee of the fact of the making of any amendment, alteration or extension to the said conditions but however without obligation upon Shannon Development to indicate the terms or extent of any such amendment, alteration or extension. The Lessee shall be deemed to have knowledge of such conditions and any amendments, alterations or extensions made thereto from time to time whether or not availing of the opportunity for inspection. By entering into this Lease the Lessee shall be deemed to have bound itself to the acceptance of such conditions. 17. WASTAGE: The Lessee shall use reasonable endeavours to ensure that there shall be no wastage of water on the Premises. 17 - 17 - 18. INTERRUPTION OF SUPPLIES: The Lessee shall make no claim against Shannon Development in respect of the temporary cutting off or interruption of any supply of water made available to the Premises in accordance with the provisions of Clause 16 of the Second Schedule hereof which may be necessary from time to time for maintenance or other purposes provided that Shannon Development shall use its best endeavours to return the supply of water as soon as possible. 19. DISPOSAL OF EFFLUENT: The Lessee shall ensure that the discharge or disposal of any industrial or trade waste or effluent into any drains or sewer systems serving the Premises or the adjoining premises shall be in strict accord and compliance with the requirements of all Statutes and Statutory Orders and Regulations in force from time to time and that any such discharge or disposal shall not block or otherwise interfere with the full operation of the drains or sewer systems serving the Premises or adjoining premises. Without prejudice to the generality of this clause the Lessee shall not discharge any industrial or trade waste or effluent into any drains or sewer systems serving the Premises or adjoining Premises save in accord with such reasonable standard conditions as Shannon Development may publish from time to time. The Lessee shall also comply with all EU and Statutory and Shannon Development's published Regulations in respect of environmental control. For this purpose publication shall be deemed to be duly effected if a copy of the conditions and any amendments or alterations or extensions thereto is available in the office of the Secretary of Shannon Development during normal office hours PROVIDED THAT 18 - 18 - Shannon Development shall have notified the Lessee by ordinary prepaid post addressed to the Lessee of the fact of the making of any amendment, alteration or extension to the said conditions but however without obligation upon Shannon Development to indicate the terms or extent of any such amendment, alteration or extension. The Lessee shall be deemed to have knowledge of such conditions and any amendments, alterations or extensions made thereto from time to time whether or not availing of the opportunity for inspection. By entering into this Lease the Lessee shall be deemed to have bound itself to the acceptance of such conditions and FURTHER PROVIDED that in the event of any conflict between such standard conditions and the provisions of, any Statute or Statutory Regulations or order in force at any time latter provision shall have and be given absolute precedence. The Lessee will not make any connections to the Shannon Development's services without the prior approval of Shannon Development (such approval not to be unreasonably withheld). The Lessee may be required to pay reasonable maintenance charges to Shannon Development in respect of the conveying of effluent on its behalf subject to due notice. The Lessee shall indemnify Shannon Development against all actions claims costs or demands arising directly from discharges from Shannon Development's sewerage system which can be attributed in whole or in part to the Lessee provided that an equitable allowance shall be made in the Lessee's favour in the event that such discharges can be partly attributed to a third party. The Lessee shall indemnify Shannon Development from all actions claims costs or demands arising as a result of non compliance by the Lessee with the requirements of any statutory license and/or any environmental conditions as may be deemed necessary by Shannon Development and/or its agents. Any costs incurred by Shannon Development in monitoring effluent or as a result of effluent discharge by the Lessee which does not comply with an issued 19 -19- statutory regulation and Shannon Development's standard conditions shall be recoverable in full by Shannon Development from the Lessee. 20. DISPOSAL OF REFUSE The Lessee shall not place or allow or permit to be placed waste material refuse machinery or equipment to accumulate upon the Premises or the curtilage thereof and shall ensure that no such waste material refuse machinery or equipment from the Premises shall be dumped placed or left on any adjoining property or premises or on any property or Premises on the Estate and the Lessee shall further have all such waste material and refuse promptly and effectively disposed of in such manner that such disposal shall not cause or be likely to cause damage, annoyance or inconvenience to Shannon Development or to the tenants of Shannon Development or occupiers of any other property or premises on the Estate. 21. INSURANCE: 21.1 The Lessee shall keep the Premises insured against loss or damage by fire, explosion, storm, tempest, flood, aircraft accident, riot and civil commotion and such risks as arise from the Lessee's user of the Premises and against malicious injury and damage in the joint names of Shannon Development and the Lessee. The Insurance shall be for a sum of money sufficient to cover the full cost of reinstating the Premises. The Lessee shall further effect and keep in full force an insurance indemnifying Shannon Development against loss of Rent during any 20 -20- period in which the Premises shall be wholly or partially unfit for occupation by reason of any of the risks above set forth. 21.2 The Lessee shall not do or permit to be done upon the Premises anything nor keep or allow or permit to be kept on the Premises any hazardous or dangerous substance or material which may render Shannon Development or the owner of adjoining premises liable to pay any increased or penal premium in respect of any insurance policies effected by Shannon Development or the owners of adjoining Premises or which might render such insurance policies void or voidable or in any way prejudice the rights of or increase responsibilities of Shannon Development or the owners of adjoining Premises under such insurance policies. 21.3 If the Premises or any part thereof shall at any time during the term be destroyed or damaged the Lessee shall apply all monies received in respect of such Insurance with all reasonable speed in building repairing and otherwise reinstating the Premises according to its original plan or elevation thereof or in such other manner as shall be previously approved of in writing by Shannon Development. If the monies in respect of such insurance shall be insufficient for that purpose the Lessee will make good the deficiency out of the Lessee's own money. 21.4 The Lessee will insure against public liability and against risks peculiar to the undertaking of the Lessee as well as against employer liability and workmens compensation and shall indemnify Shannon Development 21 -21- against all loss or damage in respect of all such risks. The Lessee shall have regard to the reasonable requirements of Shannon Development in relation to any such insurance and shall, upon request, provide reasonable details to Shannon Development of all such Insurance and shall keep it at all times in full force and operation. 21.5 The Insurance referred to in this Clause 21 hereof shall be placed with an Insurance Company licensed for the Republic of Ireland AND the Lessee will, whenever required, produce to Shannon Development the Policy and Policies of Insurance and the receipts showing payment of the premiums thereon. 22. ILLUMINATED SIGNS OR FLOODLIGHTS: The Lessee shall not without the consent in writing of Shannon Development (which consent shall not be unreasonably withheld) erect place or affix in on or to the Premises or any structure or building erected thereon any external light floodlight illuminated sign or suchlike. For the purpose of obtaining any such consent the Lessee shall submit to Shannon Development full particulars of any light, floodlight, illuminated sign or the like proposed to be erected, placed or affixed in or on the Premises with details of the characteristics intensities and colours thereof and will also supply such other particulars and information in relation thereto as Shannon Development may require. 23. SIGNS AND ADVERTISEMENTS 22 -22- The Lessee shall not exhibit or permit to be exhibited on any part of the Premises any bill, placard, notice or advertisement whatsoever without the previous consent in writing of Shannon Development PROVIDED ALWAYS however that nothing in this clause shall prohibit the Lessee from displaying such notice as may be required to be displayed by the Factories Act, 1955 or any other Act amending or extending the same. 24. FIRE FIGHTING EQUIPMENT: The Lessee shall keep and maintain on the Premises adequate fire prevention and fire control apparatus and shall ensure that such apparatus is at all times in good and reliable working order. 25. TOXIC OR HAZARDOUS MATERIALS: 25.1 The Lessee shall not bring on to or keep any toxic or hazardous substances or materials on the Premises save in accordance with such Statutory Regulations or reasonable special regulations of Shannon Development as may be applicable from time to time. 25.2 The Lessee shall be responsible for all damage caused to the Premises and other adjoining property of Shannon Development or its other lessees in any way caused by or arising from any toxic, hazardous or other substances brought by the Lessee on to the Premises or from the Lessee's user of the Premises (whether permitted by the provisions of this Lease or otherwise) and the Lessee shall indemnify Shannon 23 -23- Development against all claims actions costs demands or otherwise for death, injury or damage to any person caused by or arising from such substances or materials as aforesaid or from the Lessee's use of the Premises or from fire originating in or spreading therefrom. 26. EMISSION OF SMOKE: The Lessee shall not cause or permit the emission from the Premises or any part thereof or from any structure buildings or other erections thereon of smoke fumes or discharge of any nature which may infringe any other Clause in this Lease or cause damage to any adjoining property or cause annoyance or nuisance to the owners or occupiers of adjoining property. 27. ALIENATION The Lessee shall not sub-lease, assign, alienate or part with possession of the Premises or any part thereof without the written consent of Shannon Development, which consent shall not be unreasonably withheld or delayed. 28. PROTECTION OF AIRPORT FACILITIES: 28.1 The Lessee shall be responsible for the cost of making good any damage (not being normal wear and tear) caused by the Lessee or the Lessee's servants, agents and invitees to airport roads, services and other property of Shannon Development or the Minister at or in the vicinity of the airport. 24 -24- 28.2 The Lessee shall not at any time during the term hereby created install or place in or on or to the Premises or any buildings or structures thereon any apparatus or equipment of a nature which may cause interference with radio aids to navigation or radio communication and will submit to the Minister full particulars of any such apparatus and/or equipment proposed for installation or placement as aforesaid. 28.3 The Lessee shall not do or permit to be done on the Premises or in or on any building or structure thereon any act matter or thing which may be reasonably foreseen to constitute a danger to aircraft, airport services, installations or to oil or petrol storage depots and shall cause to use or to allow any such apparatus and/or equipment to be proposed for installation or placement as aforesaid. 28.4 No structure, building or erection on the Premises shall constitute or be an obstruction to aircraft or to the navigation of aircraft to or from or in the vicinity of the airport. If the Minister by Notice in writing to the Lessee requires any such erection structure or building to be removed or altered to the requirements of the Minister on the ground that it constitutes an obstruction as aforesaid the Lessee shall effect the necessary removal or alteration within such time as the Minister shall stipulate. 28.5 The Lessee's obligations under this Clause shall operate notwithstanding that the Minister may have previously approved the erection, structure or building in question or notwithstanding that it may have been placed on the Premises without any objection by the Minister or by Shannon 25 -25- Development it being the true intent and meaning of this provision that the Minister may at any time require the removal or alteration of any such erection, structure or building as he shall think proper in accordance with the development of and variation in the technique of the navigation of aircraft but the Minister shall compensate and indemnify the Lessee in respect of any removal or alteration of any erection, structure or building previously approved by him (the Minister). 28.6 The Lessee shall not cause or permit the emission from the Premises or any part thereof or from any structure buildings or other erections thereon of smoke or fumes or discharge of any nature which may be reasonably anticipated to cause risk or hazard to the navigation of aircraft to or from or in the vicinity of the airport or which may infringe any other clause in this Lease or cause damage to any adjoining property or cause annoyance or nuisance to the owners or occupiers of adjoining property. 28.7 The Lessee shall, at the expense of the Minister, erect, place and attach in or on the Premises such obstruction or warning lights as the Minister may direct for the purpose of indicating any position of any obstruction or for the purpose of signalling or supplying information to persons navigating aircraft to from or in the vicinity or the airport. 28.8 The Lessee shall not install or maintain on the Premises or permit to be installed or maintained any apparatus installations or machinery of a character which interferes with the effective working of any systems for the time being operated at or in the vicinity of the airport for the purpose 26 -26- of giving information to assisting signalling or directing the navigation of aircraft at or in the vicinity of the airport or which may cause confusion in such systems (whether existing at the present time or at any time in the future) or with communications or signals to or from aircraft using the communications and navigational services of the airport. If the Minister considers any such apparatus installation or machinery causes interference as aforesaid and gives Notice thereof to the Lessee the Lessee shall immediately discontinue the use of the apparatus installations or machinery or modify the use and operation thereof or remove them from the Premises as the Minister may require. If the Minister requires that use of any apparatus installations or machinery previously approved by him to be discontinued or modified or removed the Lessee shall be entitled to compensation by the Minister as provided in the Lease dated the 13th day of July, 1967 between the Minister for Transport and Power and Shannon Development and the Lease dated the 12th day of November, 1979 between the Minister for Tourism and Transport and Shannon Development ("THE HEAD LEASES"). 28.9 The Lessee shall preserve all airport services or installations now or hereafter placed on the Premises or crossing at or near the Premises from all damages incurred by the Lessee or the Lessee's 27 -27- This Lease is granted subject to all Statutes and Statutory Regulations which now or at any time hereafter may affect the airport or the Premises. The Lessee shall observe all the requirements of all such Statutes and Statutory Regulations and ensure that the use of the Premises is consistent with the same. 30. MINISTER'S WAYLEAVE The Lessee shall permit the Minister to enter upon the Premises and there place overhead and underground pipes and lines to draw supplies of water and of electricity from any system of supply installed by the Lessee (subject to paying therefor at rates equivalent to those binding on the Lessee) and to avail of drains or sewer and sanitary installations made by the Lessee but not limited to reserve capacity available in these services and so as not to restrict the full supply for the requirements of the Lessee AND PROVIDED ALWAYS that should such pipes and lines or other works be erected so as to interfere with the full enjoyment and use of the Premises by the Lessee the Lessee shall be entitled to the benefit of an indemnity by the Minister against interference loss or damage occasioned thereby as provided in the Head Leases. 31. SPECIAL RISKS: The Lessee enters upon these presents in the full knowledge of the user to which the airport is put and of the special risks of danger to persons and property arising therefrom and the Lessee accepts such risks inherent in such user and shall indemnify and keep effectually indemnified Shannon Development and the Minister from and against all claims, actions, suits or demands in respect of any matter 28 -28- arising from or attributable to such special danger. Shannon Development for its part shall indemnify and keep effectually indemnified the Lessee from and against all claims, accidents, suits or demands in respect of any matter arising from or attributable to such special danger insofar as the same relates to the property or business of Shannon Development at the Airport. 32. SAVING OF MINISTER'S RIGHTS: Nothing in these presents contained shall be deemed to be a waiver by the Minister of the provisions of the Customs Free Airport Act, 1947 or of any amendments or extensions thereof or statutory enactment nor or hereafter affecting the airport or made thereunder and the Lessee shall observe and confirm with all the requirements of the Acts and the Customs FreeAirport Act, 1947 or any such amendment or extension thereof or statutory enactment now or hereafter affecting the airport or the demised premises. 33. USE OF PREMISES: The Lessee shall use the Premises only for such industrial or commercial purposes as the Minister for Enterprise & Employment may authorise by Licence issued by him under the provisions of Section 2(1) of the Customs Free Airport (Amendment) Act, 1958 or any Act or Acts amending or extending the same. 33.1 The Lessee shall not use or permit the use of the Premises or permit the said Premises or any part thereof to be used for the purpose of any public body or society or religious or charitable institution. Neither shall the 29 -29- Lessee at any time hold or permit to be held on the Premises any exhibition or public meeting or public entertainment without the consent in writing of Shannon Development. 33.2 The Lessee shall not do or permit to be done on the Premises any act or thing which might be or grow to be a nuisance or to the annoyance, damage or inconvenience of the neighbourhood or the property adjoining or near the Premises or of the owners or occupiers of any such property. 34. COMPENSATION BY MINISTER: If any circumstances or event should arise or occur in which compensation shall become payable to the Lessee by the Minister under the provisions of the Head Leases Shannon Development shall not be obliged to make any payment to the Lessee in respect thereof but Shannon Development shall, if so required, assign to the Lessee the benefit of the relevant covenant or conditions in the Head Leases. 35. SURRENDER AND RESTORATION OF PREMISES: The Lessee shall upon the termination of this Lease (whether determined by effluxion of time or otherwise) peaceably deliver up the Premises and all additions thereto to Shannon Development in such good order repair and condition as reflects due performance of the Lessee's repair obligations herein contained, and in the event of the Premises having been altered, whether with permission granted under this Lease or otherwise shall restore the Premises to its original condition making good any damage caused by the original alteration or by the restoration 30 - 30 - work unless Shannon Development shall in writing have directed that such restoration work shall not be carried out or otherwise effected. 36. TERMINATION: If the Rent herein reserved or any part thereof shall at any time be in arrears and unpaid for the space of 28 days after it shall have become due (whether the same shall have been lawfully demanded or not) or if the Licence referred to in the Third Schedule hereto is withdrawn or if the Lessee shall be guilty of any breach of the covenants terms and conditions of this Lease and fail to make good such breach within a reasonable time or if the Lessee shall enter into liquidation whether voluntary or otherwise or enter into agreement or make any arrangements with its creditors for liquidation of its debts by composition or otherwise or if a Receiver shall be-appointed over any of the property of the Lessee then and in any of the said cases it shall be lawful for Shannon Development:- 36.1 To terminate this Lease by serving 90 days Notice of Termination on the Lessee expiring on any date such Notice to be served by ordinary prepaid post upon the Lessee addressed to the Premises. On expiration of such Notice this Lease shall absolutely cease and determine but without prejudice to any claim by Shannon Development against the Lessee arising out of any antecedent breach of any of the conditions, covenants or terms of this Lease. 36.2 To re-enter upon the Premises or any part thereof in the name of the whole and thereupon this demise shall cease and determine but without 31 - 31 - prejudice to any rights of action by Shannon Development in respect of any breach by the Lessee of the Lessee's covenants terms and conditions herein contained. 36.3 If at such time as the Lessee has vacated the Premises after the determination of the term hereby granted whether by effluxion of time or otherwise any property of the Lessee remains in or on the Premises and the Lessee shall fail to remove same within twenty one days of being requested to do so by Shannon Development, then and in any such case, Shannon Development may (without being obliged to do so and in any event without prejudice to such other rights as Shannon Development may have in that behalf) as agent of the Lessee (and Shannon Development is hereby appointed by the Lessee to act as such agent and in such capacity to act as Shannon Development shall in its absolute discretion deem fit) sell or otherwise dispose of such property and shall then hold to the order of the Lessee the proceeds of sale (if any) after deducting the costs and expenses of removal, storage (including loss of or reduction in rent received by Shannon Development on account of such property remaining on the Premises in storage pending the sale or disposal of the property) and such other costs properly incurred or suffered by Shannon Development PROVIDED THAT the Lessee shall indemnify Shannon Development against any liability incurred by it to any third party whose property is sold or disposed of by Shannon Development in the mistaken but bona fide belief that (which shall be presumed unless the contrary is proved) such property belongs to the 32 - 32 - Lessee and was liable to be dealt with as such pursuant to this sub-clause. 37. BREAK OPTION: Subject to payment up to date of all Rent and other outgoings payable hereunder and to satisfactory performance and observance in all material respects of the covenants of the Lessee's part herein contained, the Lessee shall have the option of terminating the Lease on 37.1 The fifth anniversary of the commencement of the term hereby created on giving not less than two years prior written notice to Shannon Development or on the payment by the Lessee of a sum equivalent to two years Rent to Shannon Development in lieu of such notice; or 37.2 At any time during the term hereby created on giving not less than one year's prior written notice to Shannon Development or on the payment by the Lessee of a sum equivalent to one year's Rent in lieu of such notice PROVIDED that the Lessee requires to terminate this demise for the purpose of re-locating to a larger or its own premises on the Estate. 38. QUIET ENJOYMENT: On the Lessee paying the Rent hereby reserved and performing and observing the conditions and agreements of this Lease the Lessee shall and may peaceably hold 33 -33- and enjoy the Premises during the term of this Lease without any interruption by Shannon Development or any person lawfully claiming under or in trust for it. 34 -34- The Lessee shall only use the Premises for such purposes as are authorised by the Licence issued to the Lessee under Section 2(1) of the Customs Free Airport Act, 1958 or any Act amending or extending same and shall only use the Premises while such Licence is in existence. 35 -35- GUARANTEE BY THE PROMOTER WHEREAS Gymboree Industries Limited ("GYMBOREE") the Lessee in the foregoing Lease was promoted and introduced to Shannon Development by the Promoters and the Lease was granted by Shannon Development on the recommendation of the Promoters. In consideration of the grant of the foregoing Lease by Shannon Development to Gymboree at the request and upon the proposal of the Promoters the Promoters HEREBY GUARANTEE as a joint and several liability the due performance by Gymboree of all the terms and conditions in the said Lease binding upon Gymboree AND UNDERTAKE as a joint and several liability to indemnify and save harmless and keep effectually indemnified Shannon Development from and against all loss or damage arising by from or through default or neglect of Gymboree in respect of the covenants binding upon Gymboree in the foregoing Lease contained and in particular in respect of the payment by Gymboree to Shannon Development of any monies due or to become due or payable by Gymboree to Shannon Development by reason of any of the terms, covenants or conditions of the foregoing Lease and shall upon demand pay to Shannon Development any monies due or payable at any time by Gymboree to Shannon Development under the terms or provisions of the said Lease. For the avoidance of doubt the indemnity herein contained shall lapse upon the lawful and agreed assignment of the said Lease by Gymboree. DATED THIS DAY OF 19 36 IN WITNESS WHEREOF the Common Seals of the parties hereto have been hereunto affixed the day and year first herein written. PRESENT when the Seal of THE GYMBOREE CORPORATION was affixed hereto: By /s/ JAMES PATRICK CURLEY ------------------------------- James Patrick Curley Senior Vice President, CFO and CAO PRESENT when the Common Seal of GYMBOREE INDUSTRIES HOLDINGS LIMITED was affixed hereto: By /s/ JAMES PATRICK CURLEY Director ------------------------------- James Patrick Curley By /s/ WALTER J. BLUM Director ------------------------------- Walter J. Blum PRESENT when the Common Seal of SHANNON FREE AIRPORT DEVELOPMENT COMPANY LIMITED was affixed hereto: 37 -37- PRESENT when the Common Seal of GYMBOREE INDUSTRIES LIMITED was affixed hereto: By /s/ JAMES PATRICK CURLEY Director ------------------------------- James Patrick Curley By /s/ WALTER J. BLUM Director ------------------------------- Walter J. Blum EX-10.15 3 LEASE AGREEMENT FOR 111 ANZA BLVD. 1 EXHIBIT 10.15 [RAISER PROPERTY MANAGEMENT LETTERHEAD] OFFICE LEASE STANDARD AGREEMENT THIS LEASE, dated January 8, 1998, between SeaBreeze I Venture ("Lessor") and The Gymboree Corporation, ("Lessee"). 1. PREMISES: Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, for the term and subject to the agreements, conditions and provisions hereinafter set forth, to each and all of which Lessor and Lessee hereby mutually agree, the following described premises (the "Premises") Suites 120 & 130 consisting of approximately 6,990 rentable square feet located at 111 Anza Boulevard, Burlingame, CA. As used in this Lease the term "Building" means the land and other real property described in Exhibit A attached hereto, the building constructed or being constructed thereon, and all other improvements on or appurtenances located thereon. 2. TERMS, COMPLETION OF IMPROVEMENTS: The term of this lease shall commence on March 1, 1998, and, unless sooner terminated as hereinafter provided, shall end on March 31, 2003. If Lessor, for any reason whatsoever, cannot deliver possession of the Premises to Lessee at the commencement of said term, in accordance with the terms hereof, this Lease shall not be void or voidable, nor shall Lessor be liable to Lessee for any loss or damage resulting therefrom, but in that event, rental shall be waived for the period between the commencement for said term and the time when Lessor can deliver possession. No delay in delivery of possession shall operate to extend the term hereof. 3. RENTAL: (a) Lessee shall pay to Lessor throughout the term of this Lease as rental for the Premises ($___) (the "Base Rent") (subject to adjustment as provided in paragraphs 3(b), 3(c) and 4 below) which rental shall be payable monthly in installments of --See Addendum to Lease-- Dollars ($___) each on or before the first day of the first full calendar month of the term hereof and on or before the final day of each and every successive calendar month thereafter during the term hereof. In the event the term of this Lease commences on a day other than the first day of a calendar month, then the monthly rental for the first and last fractional months of the term hereof shall be appropriately prorated. Rental shall be paid to Lessor, without deduction or offset, in lawful money of the United States of America at 800 S. Claremont St., Suite 201, San Mateo, CA 94402, or to such other person or at such other place as Lessor may from time to time designate in writing. (b) In the event the sum of Operating Expenses for the Base Year (as that term is defined in paragraph 4(a) and real property taxes and assessments for the Base Tax Year (as that term is defined in paragraph 4(b)) exceeds _____ per square foot of rentable area in the Building, the Base Rent set forth in paragraph 3(a) above shall be increased by Lessee's Percentage Share (as that term is defined in paragraph 4(a) of such excess (the "Adjusted Base Rent"). Lessor shall notify Lessee in writing within sixty (60) days following the end of the Base Year for Operating Expenses or the Base Tax Year, whichever is later, of any such adjustment, including the amount of the Adjusted Base Rent payable thereafter and the amount of additional rent payable from the commencement of the Lease term through the last day of the month in which notice is given, which additional rent shall be due and payable thirty (30) days after receipt of notice thereof. (c) The Adjusted Base Rent shall be subject to increase every n/a at the commencement of the lease year (the "Adjustment Dates") as follows: (i) the basis for computing the adjustment shall be the final Consumer Price Index for all Urban Consumers for the San Francisco Oakland Metropolitan Area published by the United States Department of Labor, Bureau of Labor Statistics (the "Index"), which is published for the month most recently preceding the commencement of the term hereof (the "Beginning Index"). If the index published most recently preceding an Adjustment Date (the "Adjustment Index") has increased with respect to the Beginning Index, the rental for the period until the next Adjustment Date shall be increased by the amount obtained by multiplying the Adjusted Base Rent by a fraction, the numerator of which is the difference between the Adjustment Index and the Beginning Index, and the denominator of which is the Beginning Index. In no event shall the rental payable under this paragraph 3(c) be less than the Adjusted Base Rent set forth in paragraph 3(b) above. (ii) If the Index is changed so that the base year differs from that used as of the month immediately preceding the month in which the commencement of the term hereof occurs, the lender shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. 4. LESSEE'S SHARE OF INCREASED COSTS: (a) The rental payable during each calendar year or part thereof during the term of this Lease subsequent to the calendar year 1998 (the calendar year 1998 being hereinafter referred to as the "Base Year") shall be increased by Lessee's Percentage Share of the total dollar increase, if any, in Operating Expenses paid or incurred by Lessor in such year over Operating Expenses paid or incurred by Lessor in the Base Year. In no event shall the rental payable under this paragraph 4(a) be less than the Base Rent, as the same may from time to time be adjusted, referred to in paragraph 3 above. As used herein, "Lessee's Percentage Share" shall be 6.85%. See Addendum paragraph 5 for additional terms. As used herein, "Operating Expenses" shall mean (i) all costs of management, operation and maintenance of the Building, including, without limitation, wages, salaries and payroll burden of employees, janitorial, maintenance, guard, and other services, Building office rent or rental value, power, water, waste disposal and other utilities, materials and supplies, maintenance and repairs, insurance, and depreciation on personal property, and (ii) the cost or portion thereof property allocable to the Building (amortized over such reasonable period as Lessor shall determine together with interest at the rate of 2% over prime per annum on the (unamortized balance) of any capital improvements made to the Building by Lessor after the Base Year that reduce other Operating Expenses or made to the Building by Lessor after the date of this Lease that are repaired under any governmental law or regulation that was not applicable to the Building at the time it was constructed; provided, however, that Operating Expenses shall not include taxes covered under paragraph 4(b) below, depreciation on the Building (other than depreciation on exterior window draperies provided by Lessor and carpeting in public corridors and common areas), costs of tenants' improvements, real estate brokers' commissions, interest and capital items other than those referred to in clause (ii) above, Page 1 2 (b) The rental payable during each tax year (July 1 through June 30) In the term hereof subsequent to the tax year ending June 30, 1998 or, if the assessed valuation of the Building for such tax year does not reflect a valuation as a substantially completed building, then subsequent to the first tax year for which the assessed valuation of the Building seller is a valuation as a substantially completed building (the "Base Tax Year") shall be increased by Lessee's Percentage Share of the total dollar increase, if any, in real property taxes and assessments (and any tax levied wholly or partly in lieu thereof) levied against the Building for such tax year, over such losses for the Base Tax Year, provided that in no event shall the rental payable hereunder be less than the Base Rent, as the same may from time to time be adjusted, referred to in paragraph 3 above. (c) During December of each calendar year or as soon thereafter as practicable, Lessor shall give Lessee written notice of its estimate of amounts payable under paragraphs 4(a) and 4(b) above for the ensuing calendar year. On or before the first day of each month during the ensuing calendar year, Lessee shall pay to Lessor one-twelfth (1/12) of such estimated amounts; provided that, if such notice is not given in December, Lessee shall continue to pay of the basis of the prior year's estimate until the month after such notice is given. If at any time or times it appears to Lessor that the amounts payable under other paragraph 4(a) or 4(b) above for the current calendar year will vary from its estimate by more that 5% Lessor shall, by written notice in Lessee, revise its estimate for such year, and subsequent payments by Lessee for such year shall be based upon such revised estimate. (d) Within ninety (90) days after the close of each calendar year or as soon after such 90-day period as practicable, Lessor shall deliver to Lessee a statement of amounts payable under paragraphs 4(a) and 4(b) above for such calendar year certified by certified accountants designated by Lessor and such certified statements shall be conclusively binding upon Lessor and Lessee. If such statement shows an amount owing by Lessee that is less than the estimated payments for such calendar year previously made by Lessee, it shall be accompanied by a refund of the excess by lessor to Lessee. If such statement shows an amount owing by Lessee that is more than the estimated payments for such calendar year previously made by Lessee, Lessee shall pay the deficiency to lessor within thirty (30) days after delivery of the statement. (e) If, for any reason other than the default of Lessee, this Lease shall terminate on a day other than the last day of a calendar year, the amount of increase (if any) in rental payable by Lessee applicable to the calendar year in which such termination shall occur shall be prorated on the basis which the number of days from the commencement of such calendar year to and including such termination date bears to three hundred and sixty-five (365). 5. USE: The Premises shall be used for general office purposes and no other. Lessee shall not do or permit to be done in or about the Premises, nor bring or keep or permit to be brought or kept therein, anything which is prohibited by or will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated, or which is prohibited by the standard form of the insurance policy, or will in any way increase the existing rate of or affect any fire or other insurance upon the Building or any of its contents or cause a cancellation of any insurance policy covering the Building or any part thereof or any of its contents. Lessee shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants of the Building, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Lessee cause, maintain or permit any nuisance in, on or about the Premises or commit or suffer to be committed any waste in, on or about the Premises. 6. SERVICES: (a) Lessor shall maintain the public and common areas of the Building, including lobbies, stairs, elevators, corridors and restrooms, the windows in the Building, the mechanical, plumbing and electrical equipment serving the Building, and the structure itself in reasonably good order and condition except for damage occasioned by the act of Lessee, which damage shall be repaired by Lessor at Lessee's expense. (b) Lessor shall furnish the Premises with (i) electricity for lighting and the operation of office machines, (ii) heat and air conditioning from 8:00 a.m. to 6:00 p.m. Monday through Friday, excluding holidays, reasonably required for the comfortable occupation of the Premises, (iii) elevator service, (iv) lighting replacement (for building standard lights,) (v) restroom supplies, and (vi) window washing with reasonable frequency, all during the times and in the manner that such services are customarily furnished in comparable office buildings in the area. Lessor shall be responsible for furnishing daily janitorial service on the Premises. Lessor shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the rental herein reserved be abated by reason of (x) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, (y) failure to furnish or delay in furnishing any such services when such failure or delay is caused by accident or any condition beyond the reasonable control of Lessor or by the making of necessary repairs or improvements to the Premises or to the Building, or (z) the limitation, curtailment, rationing or restriction on use of water or electricity, gas or any other form of energy serving the Premises or the Building. Lessor shall use reasonable efforts diligently to remedy any interruption in the furnishing of such services. (c) Whenever heat generating machines or equipment or lighting other than building standard lights are used on the Premises by Lessee which affect the temperature otherwise maintained by the air conditioning system. Lessor shall have the right to install supplementary air conditioning units in the Premises, and the costs thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Lessee to Lessor upon billing by Lessor. If Lessee installs lighting requiring power in excess of that required for normal desk-top office equipment or normal copying equipment. Lessee shall pay Lessor upon billing for the cost of such excess power as additional rent, together with the cost of installing any additional risers or other facilities and accent lighting. Except for typical standard office equipment such as telephones, PC's, and copy equipment that may be necessary to furnish such excess power to the Premises. (d) Notwithstanding any other provision hereof, in the event that any law, ordinance or other governmental regulation now or hereafter in effect shall impose a limit on the allocation in the Building of any utility or other service, whether or not the same is to be supplied to the Premises by landlord under this paragraph 7, then Lessee shall not use or cause to be consumed on the Premises, nor shall Lessor be required to provide to the Premises hereunder, such utility or other service in an amount or in a manner which would result in the violation by Lessor or Lessee of such law, ordinance or regulation. 7. TAXES PAYABLE BY LESSEE: In addition to the monthly rental and other charges to be paid by Lessee hereunder, Lessee shall reimburse Lessor upon demand for any and all taxes payable by Lessor (other than net income taxes) whether or not now customary or within the contemplation of the parties hereto: (a) upon, measured by or reasonably attributable to the cost or value of Lessee's equipment, furniture, fixtures and other personal property located in the Premises or by the cost or value of any leasehold improvements made in or to the Premises by or for Lessee, other than building standard tenant improvements made by Lessor, regardless of whether title to such improvements shall be in Lessee or Lessor; (b) upon or measured by the monthly rental payable hereunder, including without limitation, any gross income tax or excise tax levied by the City of Burlingame, the County of San Mateo, the State of California, the Federal Government or any other governmental body with respect to the receipt of such rental; (c) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Lessee of the Premises or any portion thereof; (d) upon this transaction or any document to which Lessee is a party creating or transferring an interest or an estate in the Premises. In the event that it shall not be lawful for Lessee so to reimburse Lessor, the monthly rental payable to Lessor under this Lease shall be revised to not Lessor the same net rental after imposition of any such tax upon Lessor as would have been payable to Lessor prior to the imposition of any such tax. 8. ALTERATIONS: Lessee will not make or suffer to be made any alterations, additions or improvements to or of the Premises or any part thereof, or attach any fixtures or equipment thereto, without first obtaining Lessor's written consent, which consent shall not be unreasonably withheld, unless otherwise agreed upon by the parties. All alterations, additions, fixtures and improvements, whether temporary or permanent in character, made in or upon the Premises either by Lessee or Lessor, shall immediately become Lessor's property and at the end of the term hereof, shall remain on the Premises without compensation to Lessee. (See Addendum. Paragraph 6 for additional terms) 9. LIENS: Lessee shall keep the Premises and the Building free from any liens arising out of any work performed, materials furnished or obligations incurred by Lessee. Lessor shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Lessor may deem to be proper for the protection of the Lessor, the Premises and the Building from such liens. Page 2 3 10. REPAIRS: By entry hereunder Lessee accepts the Premises as being in the condition in which Lessor is obligated to deliver the Premises, Lessee shall, at all times during the term hereof and at Lessee's sole cost and expense, keep the Premises and every part thereof in good condition and repair, ordinary wear and tear, damage thereto by fire, earthquake, act of God or the elements excepted, Lessee hereby waiving all rights to make repairs at the expense of Lessor or in lieu thereof to vacate the Premises as provided by California Civil Code Section 1942 or any other law, statute or ordinance now or hereafter in effect. Lessee shall at the end of the form hereof surrender to Lessor the Premises and all alterations, additions and improvements thereto in the same condition as when received, ordinary wear and tear and damage by fire, earthquake, act of God or elements excepted. Lessor has no obligation and has made no promise to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof, except as specifically herein set forth. No representations respecting the condition of the Premises or the Building have been made by Lessor to Lessee, except as specifically herein set forth. 11. DESTRUCTION OR DAMAGE: If the Premises or the Building are damaged by fire, earthquake, act of God or the elements, Lessor shall forthwith repair the same, subject to the provisions of this section hereinafter set forth, and provided such repairs can, in Lessor's opinion, be made within sixty (60) days, and this Lease shall remain in full force and effect except that, if there shall be damage to the Premises and such damage is not the result of negligence of willful misconduct of Lessee or Lessee's employees or invitees, an abatement of rental shall be allowed Lessee for such part of the Premises as shall be rendered unusable by Lessee in the conduct of its business during the time such part is so unusable. If such repairs cannot, in Lessor's opinion, be made within sixty (60) days, Lessor may, at its option, upon written notice to Lessee within thirty (30) days after the date of such fire or other casualty, repair or restore such damage, this Lease continuing in full force and effect, but the rent to be partially abated as hereinabove provided. If Lessor does not so elect to make such repairs which cannot be made within sixty (60) days, then Lessor may and (provided the damage affects the Premises or common areas necessary to Lessee's occupancy) Lessee may, by written notice to the other given not less than thirty-one (31) nor more than sixty (60) days after the date of such fire or other casualty, terminate this Lease as of the date of such fire or other casualty. Lessor shall not be required to repair any injury or damage by fire, earthquake, act of God or the elements, or to make any repairs or replacements, of any improvements installed in the Premises by or for Lessee, other than building standard tenant improvements made by Lessor, and Lessee shall, at Lessee's sole cost and expenses, repair and restore its portion of such improvements. A total destruction of the building shall automatically terminate this Lease. Lessee waives California Civil Code Sections 1932(2) and 1933(4) providing for termination of hiring upon destruction of the thing hired. 12. INSURANCE AND WAIVER OF SUBROGATION: Lessee shall obtain and, at all times during the term hereof, keep in force, at its own cost, fire and casualty insurance in the amount of One Hundred (100) percent of the actual replacement cost of improvements to the Premises constructed by or for Lessee and general liability insurance with limits of not less than One Million Dollars ($1,000,000.00) for injury or death of any number of persons in one occurrence, and not less than Two hundred fifty thousand Dollars ($250,000.00) for damage to property. The insurance prescribed by this paragraph shall be issued by companies rated at least AAA by Dest's Insurance Reports (Property Liability) or otherwise acceptable to Lessor, shall name Lessor as an additional insured, and shall provide that such policies cannot be cancelled without thirty (30) days prior notice to Lessor. Lessor and Lessee shall each obtain from their respective insurers under all policies of fire, theft, public liability, workmen's compensation and other insurance maintained by either of them at any time during the term hereof insuring or covering the Building or any portio thereof or operations therein, and such notices shall contain, a waiver of all rights of subrogation which the Insurer of one party might have against the other party, and Lessor and Lessee shall each indemnify the other against any loss or expense, including reasonable attorney's fees, resulting from the failure to obtain such waives. 13. INSURANCE AND INDEMNIFICATION: Lessee hereby waives all claims against Lessor for damage to any property or injury to or death of any person in, upon or about the Premises of the Building arising at any time and from any cause other than solely by reason of the gross negligence or willful act of Lessor, its employees or contractors, and Lessee shall hold Lessor harmless from any damage to any property or injury to or death of any person arising from the use of the Premises or the Building by Lessee, except such as is caused solely by gross negligence or willful act of Lessor, its contractors or employees. The foregoing indemnity obligation of Lessee shall include reasonable attorney's fees, investigation costs and all other reasonable costs and expenses incurred by Lessor from the first notice that any claim or demand is to be made or may be made. The provisions of this paragraph 13 shall survive the termination of this Lease with respect to any damage, injury or death occurring prior to such termination. 14. COMPLIANCE WITH LEGAL REQUIREMENTS: Lessee shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements of any board of fire underwriter or other similar body now or hereafter constituted, with any direction or occupancy certificate issued pursuant to any law by any public officer or officers, as well as the provisions of all recorded documents affecting the Premises, insofar as any thereof relate to or affect the condition, use or occupancy of the Premises, excluding requirements of structural changes not related to or affected by improvements made by or for Lessee or Lessee's acts. 15. ASSIGNMENT AND SUBLETTING; EARLY TERMINATION: In the event Lessee should desire to assign this Lease or sublet the Leased Premises or any part thereof, Lessee shall give Lessor written notice of such desire at least ninety (90) days in advance of the date on which Lessee desires to make such assignment or sublease. Lessor shall then have a period of seven (7) business days following receipt of such notice within which to notify Lessee in writing that Lessor elects either (i) to terminate this Lease as to the space so affected as of the date so specified by Lessee in which event Lessee will be relieved of all further obligations hereunder as to such space, or (ii) to permit Lessee to assign or sublet such space, subject, however, to prior written approval of the proposed assignee or sublessee by Lessor, such consent not to be unreasonably withheld. If Lessor should fail to notify Lessee in writing by such election within said 30-day period, Lessor shall be deemed to have elected option (ii) above, but written approval by Lessor of the proposed assignee or sublessee shall be required. Any rent or other consideration realized by Lessee under any such sublease and assignment in excess of the rental payable hereunder, after amortization of the reasonable cost of work in excess of Building Standard for which Tenant has paid and reasonable subletting and assignment costs, shall be paid in its entirety to Lessor. Lessee's obligation to pay over Lessor's portion of the consideration shall constitute an obligation for rental hereunder unless otherwise agreed by the parties. No assignment or subletting by Lessee shall relieve Lessee of any obligation under this Lease. Any assignment or subletting which conflicts with the provisions hereof shall be void. 16. RULES: Lessee shall faithfully observe and comply with the rules and regulations as follows and, after notice thereof, all reasonable modifications thereof and additions thereto from time to time promulgated in writing by Lessor. Lessor shall not be responsible to Lessee for the nonperformance by any other tenant or occupant of the Building of any of said rules and regulations. 17. ENTRY BY LESSOR: Lessor may enter the Premises at reasonable hours to (a) inspect the same, (b) exhibit the same to prospective purchasers, lenders or tenants, (c) determine whether Lessee is complying with all its obligations hereunder, (d) supply janitor service and any other service to be provided by Lessor to Lessee hereunder, (e) post notices of nonresponsibility, and (f) make repairs required of Lessor under the terms hereof or repairs to any adjoining space or utility services or make repairs, alterations or improvements to any other portion of the Building; provided, however, that all such work shall be done as promptly as reasonably possible and so as to cause as little interference to Lessee as reasonably possible. Lessee hereby waives any claim for damages for any injury or inconvenience to or inconvenience with Lessee's business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned by such entry, except such as is caused by the gross negligence or willful act of Lessor, contractors, or employees. Lessor shall at all times have and retain a key with which to unlock all of the doors in, on or about the Premises (excluding Lessee's vaults, safes and similar areas designated in writing by Lessee and Lessor in advance); and Lessor shall have the right to use any and all means which Lessor may deem proper to open said doors in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by Lessor by any of said means, or otherwise, shall not under any circumstances be constructed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Lessee for the Premises, or any portion thereof. 18. EVENTS OF DEFAULT: The occurrence of any one or more of the following events ("Events of Default") shall constitute a breach of this Lease by Lessee: (a) if Lessee shall fail to pay any rental when and as the same becomes due and payable; or (b) if Lessee shall fail to pay any other sum when and as the same becomes due and payable and such failure shall continue for more than then (10) days; or (c) if Lessee shall fail to perform or observe any either term hereof or the rules and regulations described in paragraph 17 to be performed or observed by Lessee, such failure shall continue for more than thirty (30) days after notice thereof from Lessor, and Lessee shall not within such period commence, with due diligence and dispatch the curing of such default; or (d) if Lessee shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due or shall file a petition in bankruptcy, or shall be adjudicated as bankrupt or insolvent, or shall file a petition in any proceeding seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under RAISER PROPERTY MANAGEMENT COMPANY OFFICE LEASE --------------- PAGE 3 4 any present or future stature, law or regulation, or shall file an answer admitting or fail timely to contest the material allegations of a position filed against it in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Lessee or any material part of its properties; or (c) if within ninety (90) days after the commencement of any proceeding against Lessee seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed, or if, within ninety (90) days after the appointment without the consent or acquiescence of Lessee, of any trustee, receiver or liquidator of Lessee or of any material part of its properties, such appointment shall not have been vacated; or (1) if this Lease or any estate of Lessee hereunder shall be levied upon under any attachment or execution and such attachment or execution is not vacated within ten (10) days. 19. TERMINATION UPON DEFAULT: If an Event of Default shall occur, Lessor at any time thereafter may give a written termination notice to Lessee, and on the date specified in such notice (which shall be not less than three days after the giving of such notice) Lessee's right to possession shall terminate and this Lease shall terminate, unless on or before such date all arrears or rental and all other sums payable by Lessee under this Lease (together with the late charges and interest provided for in paragraph 33 hereof) and all costs and expenses incurred by or on behalf of Lessor hereunder shall have been paid by Lessee and all other breaches of this Lease by Lessee at the time existing shall have been fully remedied to the satisfaction of Lessor. Upon such termination, Lessor may recover from Lessee; (a) the worth at the time of award of the unpaid rental which has been earned as of the time of termination; (b) the worth at the time of award of the amount by which the unpaid rental which would have been earned after termination until the time of award exceeds the amount of such rental loss that Lessee proves could have been reasonably avoided; (c) the worth at the time of award of the amount by which the unpaid rental for the balance of the term of this Lease after the time of award exceeds the amount of such rental loss that Lessee proves could be reasonably avoided; and (d) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee's failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in clauses (a) and (b) above shall be computed by allowing interest at the rate of ten percent (10%) per annum. The worth at the time of award of the amount referred to in clause (c) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). For the purpose of determining unpaid rental under clauses (a), (b) and (c) above, the monthly rent reserved in this Lease shall be deemed to be the sum of the rental due under paragraph 3 above and the amounts last payable by Lessee pursuant to paragraph 4 above and any other monetary obligations of Lessee hereunder. 20. CONTINUATION AFTER DEFAULT: Even though Lessee has breached this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Lessor does not terminate Lessee's right to possession, and Lessor may enforce all its rights and remedies under this Lease, including the right to recover the rental as it becomes due under this Lease. Acts of maintenance or preservation of efforts to relet the Premises or the appointment of a receiver upon the initiative of Lessor to protect Lessor interest under this Lease shall not constitute a termination of Lessee's right to possession. 21. OTHER RELIEF: The remedies provided for in this Lease are in addition to any other remedies available to Lessor at law or in equity by statute or otherwise. 22. LESSOR'S RIGHT TO CURE DEFAULTS: All agreements and provisions to be performed by Lessee under any of the terms of this Lease shall be at its sole cost and expense and without any abatement of rental except as expressly provided herein. If Lessee shall fail to pay any sum of money, other than rental, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder and such failure shall continue for ten (10) days, with regard to any monetary default, and for thirty (30) days, with respect to any other default hereunder, after notice thereof by Lessor, Lessor may, but shall not be obligated so to do, and without waiving or releasing Lessee from any obligations of Lessee, make any such payment or perform any such other act on Lessee's part to be made or performed as in this Lease provided. All sums so paid by Lessor and all necessary incidental costs shall be deemed additional rent hereunder and shall be payable to lessor on demand, and Lessor shall have (in addition to any other right or remedy of Lessor) the same rights and remedies in event of the nonpayment thereof by Lessee as in the case of default by Lessee in the payment of rental. 23. ATTORNEY'S FEES: In the event of any action or proceeding brought by either party against the other under this Lease, the prevailing party shall be entitled to recover for the fees of its attorney's in such action or proceeding such amount as the court may adjudge reasonable. 24. EMINENT DOMAIN: If all or any part of the Premises shall be taken as a result of the exercise of the power of eminent domain, this Lease shall terminate as to the part so taken as of the date of taking, and, in the case of a partial taking, either Lessor or Lessee shall have the right to terminate this Lease as to the balance of the premises by written notice to the other within thirty (30) days after such date; provided, however, that a condition to the exercise by Lessee of such right to terminate shall be that the portion of the Premises taken shall be of such extent and nature as substantially to handicap, impede or impair Lessee's use of the balance of the Premises. In the event of any taking, Lessor shall be entitled to any and all compensation, damages, income, rent, awards, or any interest therein whatsoever which may be paid or made in connection therewith, and Lessee shall have no claim against Lessor for the value of any unexpired terms of this Lease or otherwise. In the event of partial taking of the Premises which does not result in a termination of this Lease, the monthly rental thereafter to be paid shall be equitably reduced. 25. SUBORDINATION: This Lease shall be subject and subordinated of all times to (a) all ground or underlying leases which may hereafter be executed affecting the Building, and (b) the lien of all mortgages and deeds of trust in any amount or amounts whatsoever now or hereafter placed on or against the Building or on or against Lessor's interest or estate therein or on or against all such ground or underlying leases, all at the option of the holder(s) thereof and without the without the necessity of having further Instruments executed on the part of Lessee to effectuate such authorization. Notwithstanding the foregoing, (x) in the event of termination for any reason whatsoever of any such ground or underlying lease, this Lease shall not be barred, terminated, cut off or foreclosed nor shall the rights and possession of Lessee hereunder be distributed if Lessee shall not then be in default in the payment of rental or other sums or be otherwise in default under the terms of this Lease, and Lessee shall attorn to the Lessor of any such ground or underlying lease, or, if requested, enter into a new lease for the balance of the original or extended term hereof then remaining upon the same terms and provisions as are in this Lease contained; (y) in the event of a foreclosure of any such mortgage or deed of trust or any other action or proceeding for the enforcement thereof, or of any sale thereunder, this Lease will not be barred, terminated, cut off or foreclosed nor will the rights and possession of Lessee thereunder be disturbed if Lessee shall not then be in default in the payment of rental or other sums or be otherwise in default under the terms of this Lease, and Lessee shall attorn to the purchaser at such foreclosure, sale or other action or proceeding; and (z) Lessee agrees to execute and deliver upon demand such further instruments evidencing such subordination of this Lease to such ground or underlying leases, and to the lien of any such mortgages or deeds of trust as may reasonably be required by Lessor. 26. NO MERGER: The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Lessor terminate all or any existing subleases or subtenancies, or may, at the option of Lessor, operate as an assignment to it of any or all such subleases or subtenancies. 27. SALE: In the event the original Lessor hereunder, or any successor owner of the Building, shall see or convey the Building, all liabilities and obligations on the part of the original Lessor, or such successor owner, under this Lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations accruing after the date of sale or conveyance shall be binding upon the new owner. Lessee agrees to attorn to such new owner, provided Lessee's rights and possession of Lessee's premises shall not be disturbed. 28. ESTOPPEL CERTIFICATE: At any time and from time to time but on not less than ten (10) days prior written request by Lessor, Lessee shall execute, acknowledge and deliver to Lessor, promptly upon request, an estoppel certificate in the form of Exhibit C hereto. Any such certificate may be relied upon by any prospective purchaser, mortgagee or beneficiary under any deed of trust of the Building or any part thereof. 29. NO LIGHT, AIR OR VIEW EASEMENT: Any diminution or shutting off of light, air or view by any structure which may be erected on lands adjacent to the Building shall in no way affect this Lease or impose any liability on Lessor. 30. HOLDING OVER: If, without objection by Lessor, Lessee holds possession of the Premises after expiration of the term of this Lease, Lessee shall become a tenant from month to month upon the terms herein specified but at a monthly rental equivalent to the then prevailing monthly rental paid by Lessee at the expiration of the term of this Lease pursuant to all the provisions of paragraphs 3 and 4 above payable in advance on or before the first day of each month. Each party shall give the other written notice at least one month prior to the date of termination of such monthly tenancy of its intention to terminate such tenancy. Notwithstanding the foregoing, if Lessee holds possession of the Premises after expiration or sooner termination of the term of this Lease notwithstanding Lessor's objection, Lessee shall pay monthly rental 175% the amounts otherwise then payable under the terms hereof. 31. ABANDONMENT: If Lessee shall abandon or surrender the Premises, Premises shall be deemed to be abandoned, at the option of the Lessor except such property as may be [ILLEGIBLE] to Lessor RAISER PROPERTY MANAGEMENT COMPANY OFFICE LEASE --------------- PAGE 4 5 32. SECURITY DEPOSIT: Lessee has deposited with Lessor the sum of Twenty one thousand eight hundred fifty Dollars ($21,850.00)(the "Deposit"), The Deposit shall be held by Lessor as security for the faithful performance by Lessee of all of the provisions of this Lease to be performed or observed by Lessee. In the event Lessee fails to perform or observe any of the provisions of this Lease to be performed or observed by it, then, at the option of Lessor, Lessor may (but shall not be obligated to) apply the Deposits or so much thereof as may be necessary to remedy any default in the payment of rent or to repair damages to the Premises caused by Lessee, and Lessee shall forthwith upon demand restore the Deposit to the sum so specified. Any remaining portion of the Deposit shall be returned to Lessee upon expiration of this lease. 33. LATE CHARGE AND INTEREST: (a) Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder 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 on Lessor by the terms of any mortgage or trust deed covering the Building. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor when due, Lessee shall pay to Lessor a late charge lump sum equal to 6% of 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 late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. (b) Any amount due to Lessor, if not paid when due, shall bear interest from the date due until paid at the rate of 10% per annum or, if a higher rate is legally permissible, at the highest rate legally permitted, provided that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee to the extent such interest would cause the total interest to be in excess of that legally permitted. Payment of interest shall not excuse or cure any default hereunder by Lessee. 34. WAIVER: The waiver by Lessor of any agreement, condition or provision herein obtained shall not be deemed to be a waiver of any subsequent breach of the same or any other agreement, condition or provisions herein contained, nor shall any custom or practice which may evolve between the parties in the administration of the terms hereof be construed to waive or to lessen the right of Lessor to insist upon the performance by Lessee in strict accordance with said terms. The subsequent acceptance of rental hereunder by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any agreement, condition or provision of this Lease, other than the failure of Lessee to pay the particular rental so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rental. 35. NOTICES: All notices and demands which may or are required to be given by either party to the other hereunder shall be in writing and shall be deemed to have been fully given when deposited in the United States mail, certified or registered, postage prepaid, and addressed as follows: to Lessee at 700 Airport Boulevard, Burlingame, CA 94010, or to such either place as Lessee may from time to time designate in a notice to Lessor; to Lessor at 1000 S. Claremont Street, Suite 201, San Mateo, CA 94402, or to such other place as Lessor may from time to time designate in a notice to Lessee; or, in the case of Lessee, delivered to Lessee at the Premises. Lessee hereby appoints as its agent to receive the service of all dispossessory or distraint proceedings and notices thereunder the person in charge of or occupying the Premises at the time, and, if no person shall be in charge of or occupying the same, then such service may be made by attaching the same on the main entrance of the Premises. 36. BROKERAGE COMMISSION: Lessor and Lessee warrant that they have no contract or dealings regarding this Lease through any licensed real estate broker other than Cushman & Wakefield whose commission shall be paid by Lessor, or any other person who can claim a right to commission or finder's fee as a procuring cause of this Lease. In the event that any other broker or finder perfects a claim for commission or finder's fee in connection with this Lease, the party through whom the broker or finder makes its claim shall indemnify, hold harmless and defend the other party from said claim and all costs and expenses, including reasonable attorneys' fees, incurred by the other party in defending against the same. 37. COMPLETE AGREEMENT: There are no oral agreements between Lessor and Lessee affecting this Lease, and this Lease supercedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between Lessor and Lessee or displayed by Lessor to Lessee with respect to the subject matter of this Lease or the Building. There are no representations between Lessor and Lessee other than those contained in this Lease. 38. CORPORATE AUTHORITY: If Lessee signs as a corporation, each of the persons executing this Lease on behalf of Lessee does hereby covenant and warrant that Lessee is a duly authorized and existing corporation, that Lessee has and is qualified to do business in California, that the corporation has full sight and authority to enter into this Lease, and that each of the persons signing on behalf of the corporation were authorized to do so. 39. MISCELLANEOUS: The words "Lessor" and "Lessee" as used herein shall include the plural as well as the singular. If there be more than one Lessee, the obligations hereunder imposed upon Lessee shall be joint and several. Time is of the essence of this Lease and each and all of its provisions. Submission of this instrument for examination or signature by Lessee does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Lessor and Lessee. The exhibit(s) and addendum, if any, attached to this Lease are by this reference made a part hereof. The agreements, conditions and provisions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, executors, administrators, successors and assigns of the parties hereto. If any provisions of this Lease shall be determined to be illegal or unenforceable, such determination shall not affect any other provision of this Lease and all such other provisions shall remain in full force and effect. This Lease shall be governed by and construed pursuant to the laws of the State of California. 40. LESSEE SIGNS: Lessee shall erect no signs on the exterior of the Building or in any of the common areas without the prior written consent of Lessor. 41. EXHIBITS: Exhibit Schedule Addendum to Lease Exhibit A Description of the Property = Floorplans Exhibit C Form of Estoppel Certificate 42. OTHER PROVISIONS: None except as provided in the Addendum. 43. RULES AND REGULATIONS: 1. The sidewalks, halls, passages, exits, entrances, elevators, escalators, if any, and stairways of the Building shall not be obstructed by any of the Lessees or used by them for any purpose other than for ingress to and egress from their prospective premises. The halls, passages, exits, entrances, elevators, escalators and stairways are not for the general public, and Lessor shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgement of Lessor would be prejudicial to the safety, character, reputation and interests of the Building and its Lessees, provided that nothing therein contained shall be construed to prevent such access to persons with whom any Lessee normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. No Lessee and no employee or invitee of any Lessee shall go upon the roof of the building. 2. Except as authorized by a Lease, no sign, placard, picture, name, advertisement or notice visible from the exterior of any Lessee's premises shall be inscribed, painted, affixed or otherwise displayed by any Lessee on any part of the Building without the prior written consent of Lessor. Lessor will adopt and make available to Lessee general guidelines relating to signs inside the Building on the office floors. Lessee agrees to conform to such guidelines, but may request approval of Lessor for qualifications, which approval will not be unreasonably withheld. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of the lessee by a person approved by Lessor, which approval will not be unreasonably withheld. Material visible from outside the Building will not be permitted. RAISER PROPERTY MANAGEMENT COMPANY OFFICE LEASE --------------- PAGE 5 6 3. The premises shall not be used for the storage of merchandise held for sale to the general public or for lodging. No cooking shall be done or permitted by any Lessee on the premises, except that use by the Lessee of Underwriter's Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. 4. No Lessee shall employ any person or persons other than the janitor of Lessor for the purpose of cleaning the premises, unless otherwise agreed to by Lessor in writing. Except with the written consent of Lessor, no person or persons other than those approved by Lessor shall be permitted to enter the Building for the purpose of cleaning the same. No Lessee shall cause any unnecessary labor by reason of such Lessee's carelessness or indifference in the preservation of good order and cleanliness, janitor service will not be furnished on nights when rooms are occupied after 9:00 P.M. unless, by agreement in writing, service is extended to a later hour for specifically designated rooms. 5. Lessor will furnish each Lessee free of charge with two keys to the premises. Lessor shall require payment of $10 for each additional key provided to Lessee. No Lessee shall have any keys made. No Lessee shall alter and lock or install a new or additional lock or any bolt on any door of its premises without the prior written consent of Lessor. Lessee shall in each case furnish Lessor with a key for any such lock. Each Lessee, upon the termination of its tenancy, shall deliver to Lessor all keys to doors in the Building which shall have been furnished to Lessee. 6. Lessee shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary to Lessor, stand on wood strips of such thickness as is necessary to properly distribute the weight. Lessor will not be responsible for tear of or damage to any such property from any cause, and all damage done in the Building by moving or maintaining such property shall be repaired at the expense of Lessee. The persons employed to move such property in or out of the building must be acceptable to Lessor. 7. No Lessee shall use or keep in the premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities thereof reasonably necessary for the operation or maintenance of office equipment, or without Lessor's prior written approval, use any method of heating or air conditioning other than that supplied by Lessor. No Lessor shall use or keep or permit to be used or kept any foul or noxious gas or substance in the premises, or permit or suffer the premises to be occupied or used in a manner offensive or objectionable to Lessor or other occupants of the Building by reason of noise, odors or vibrations; or interfere in any way with other Lessors or those having business therein. 8. The directory of the Building will be provided for the display of the name and location of Lessees and a reasonable number of the principal officers and employees of Lessees, and Lessor reserves the right to exclude any other names therefrom. Any additional name which Lessee shall desire to place upon said bulletin board must first be approved by Lessor, and, if so approved, charge will be made therefor. 9. No curtains, draperies, blinds, shutters, shades, screens or other coverings, hangings or decorations shall be attached to, hung or placed in, or used in connection with any window of the Building without the prior written consent of Lessor. In any event, with the prior written consent of Lessor, such items shall be installed on the office side of Lessor's standard window covering and shall in no way be visible from the exterior of the Building. 10. No Lessee shall obtain for use in the premises, ice, drinking water, food, beverage, towel or other similar services, except at such reasonable hours and under such reasonable regulations as may be fixed by Lessor. 11. Each Lessee shall see that the doors of its premises are closed and locked and that all water faucets, water apparatus and utilities are shut off before Lessee or Lessee's employees leave the premises, so as to prevent waste or damage, and for any default or carelessness. In this regard Lessee shall make good all injuries sustained by other tenants or occupants of the Building or Lessor. On multiple-terrace floors, all Lessees shall keep the doors to the Building corridors closed at all times except for ingress and egress. 12. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Lessee who, or whose employees or invitees, shall have caused it. 13. Except with the prior written consent of Lessor, no Lessee shall sell, or permit the sale at retail, of newspapers, magazines, periodicals, theatre tickets or any value number or exchanges to the general public for or on the premises, nor shall any Lessee carry on or permit or allow any employees or other person to carry on, the business of stenography, typewriting, or any similar business in or from the premises for the service or accommodation of occupants of any other portion of the Building, nor shall the premises of any Lessee be used for manufacturing of any kind of any business or activity other than that specifically provided for in such Lessee's lease. 14. No Lessee shall install any radio or television antenna, loudspeaker, or other device on the roof of exterior walls of the Building. 15. There shall not be used in any space, or in the public halls of the Building, either by any Lessee or others, any hand trucks except those equipped with rubber tires and side guards or such other material handling equipment as Lessor may approve. No other vehicles of any kind shall be brought by any Lessee into the Building or kept in or about its premises. 16. Each Lessee shall store all its trash and garbage within its premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the City of Burlingame without being in violation of any law or ordinance governing such disposal. All garbage and refuse disposal shall be made only through instruments provided for such purposes and at such times as Lessor shall allow. 17. Canvassing, peddling, soliciting, and distribution of handbills or any other written materials in the Building are prohibited, and each Lessee shall cooperate to prevent the same. 18. The requirements of the Lessees will be attended to only upon application by telephone or in person at the office of the Building. Employees of Lessor shall not perform any work or do anything outside of their regular duties unless under special instructions from Lessor. 19. Lessor may waive any one or more of these Rules and Regulations for the benefit of any particular Lessee or Lessees, but no such waiver by Lessor shall be considered as a waiver of such Rules and Regulations in favor of any other Lessee or Lessees, nor prevent Lessor from thereafter enforcing any such Rules and Regulations against any or all of the Lessees of the Building. 20. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, convenants, agreements and conditions of any lease of premises in the Building. 21. Lessor reserved the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building, and for the preservation of good order therein. 22. Proper protection of carpeting is required such as plastic carpet protectors under wheeled chairs. IN WITNESS WHEREOF, the parties have executed this Lease dated the day and year first above written.
LESSEE: The Gymboree Corporation LESSOR: Seabreeze I Venture RAISER PROPERTY a Delaware Corporation MANAGEMENT COMPANY OFFICE LEASE By /s/ JOSEPH T. PRUSKO By /s/ PHILLIP H. RAISER --------------------------------- ---------------------------- --------------------------------- VP, Treasurer General Partner --------------------------------- ----------------------------
Page 6 7 ADDENDUM TO LEASE THE GYMBOREE CORPORATION 1. PREMISES: Suite 120 - 1,090 Rentable Square Feet Suite 130 - 5,900 Rentable Square Feet TOTAL PREMISES: 6,900 RENTABLE SQUARE FEET 2. BASE RENT SCHEDULE: The Base Rent shall commence on April 16, 1998 and payable each month thereafter on the first of each month according to the following schedule: April 16-30, 1998 $ 9,530.00 Total May, 1998 - February, 1999: $19,060.00 per month March, 1999 - February, 2000: $19,754.00 per month March, 2000 - February, 2001: $20,453.00 per month March, 2001 - February, 2002: $21,152.00 per month March, 2002 - March, 2003: $21,850.00 per month
3. TENANT IMPROVEMENT ALLOWANCE: Lessor shall provide an allowance of $34,950.00 to be used for Tenant Improvements within the Premises. Such payment shall be made to Lessee upon completion of improvements and upon providing Lessor of adequate lien releases for such work. Lessee shall have the right to perform the initial improvements to the Premises subject to a mutually agreed upon floorplan, plans and specifications approved by Lessor. Lessor reserves the right to approve the contractor to be used, approve all finishes and shall have the right to supervise such work. Approval of contractor, finishes and approval of work shall not be unreasonably withheld. Lessee shall be responsible for all City approvals and permits and any related fees. Contractor shall have acceptable insurance coverage and supply Lessor with Certificates of Insurance and shall hold Lessor harmless. 4. FIRST RIGHT FOR ADDITIONAL SPACE: Lessor shall not lease the adjacent Suite 100 (4,520 rentable square feet) to a tenant other than the current Lessee (Kumon) until the premises has first been offered to Lessee. Once Lessor knows that the premises will be available, Lessor will notify Lessee in writing of the terms on which Lessor is willing to lease Suite 100. Lessee shall have five 8 ADDENDUM TO LEASE - PAGE TWO (5) business days to either accept the full terms offered by Lessor or give up their rights under this paragraph. The Base Rent for such expansion shall be at the rates being offered in the building for comparable space. This option shall not apply should Lessee be in default of the Lease or if the premises has been assigned or subleased. 5. LESSEE'S SHARE OF INCREASED COSTS: Lessee's share of increases in all operating expenses, including real estate taxes and capital improvements, shall not exceed 7% per year over the previous year. When calculating increases to Lessee, the building area must be adjusted to reflect at least 95% occupancy. 6. ADA/TITLE 24 BUILDING UPGRADES: Any ADA or Title 24 work which is required in the common areas of the building as a result of permits required for Lessee's initial improvements are the responsibility of Lessor. It is agreed that the common area upgrades currently planned by Lessor shall apply towards any work required as a result of Lessee's building permit. 7. OPTION TO EXTEND LEASE TERM: Lessee shall have one (1) option to extend the term of this Lease for a period of five (5) additional years. Lessee must give Lessor at least six (6) months prior written notice of their desire to exercise such option. The Base Rent during the extended term shall be at the then market rents for comparable space in the building. This option shall not apply should Lessee be in default of the Lease or if the premises has been assigned or subleased. 8. OTHER: a) The Lessee reserves the right to install telephone/data cabling between 111 Anza & 700 Airport Blvd. at existing underground conduit. Lessee to pay for cabling. b) The Lessee reserves the right to provide baby changing tables at the toilet rooms on Floor 1. Lessee to pay for tables. c) Lessor to make every reasonable effort to make available an enclosed garage space for (2) golf carts. If this is not possible, space adjacent to stairs (next to trash area) to be reserved for Gymboree golf carts. Lessee to pay for power & chain link fencing for golf carts. d) At Lessee's request, Lessor to work with Lessee for reasonable installation of security system. Lessee to pay for cost of system. System to be similar to 700 Airport Blvd. 9 EXHIBIT A SUITE 130 APPROX. 5,900 RENTABLE SQ. FT. THE GYMBOREE CORPORATION [FLOOR PLAN] 10 EXHIBIT A-1 SUITE 120 APPROXIMATELY 1,090 RENTABLE SQ. FT. THE GYMBOREE CORPORATION [FLOOR PLAN] 11 EXHIBIT C TENANT'S-ESTOPPEL CERTIFICATE Re: Lease Dated Amendments Landlord: Tenant: Premises: Gentlemen: We understand that you have committed to make a loan to on the security of the property known as Plaza of which the Premises are a part, and that as a condition to the making of such loan you have required this certificate by the undersigned (the "Tenant"). The Tenant hereby confirms the following: 1. That (i) the Tenant is the tenant under the Lease; (ii) the Lease constitutes the entire agreement between the parties with respect to the leasing of the Promises, and there are no understandings, contracts, agreements, or commitments of any kind between the Landlord and the Tenant in respect of the Lease or the Promises except as expressly provided in the Lease; (iii) the Lease is in full force and effect and has not been modified, changed, altered, supplemented or amended in any respect, except under the instruments described above; and (iv) the Lease is the only lease between the parties affecting the Premises. 2. That (i) the Tenant has accepted possession and is in occupancy of the Premises demised pursuant to the Lease; and (ii) the original or base term commenced on the _________ day of _____________, 198_, and will expire on the ________ day of _____________________, 19__. 3. That except as expressly provided in the Lease, the Tenant (i) does not have any right to renew or extend the term of the Lease; (ii) does not have any option or preferential right to purchase all 12 Page Two or any part of the Premises or all or any part of the land and building of which the Premises are a part; and (iii) does not have any right, title or interest with respect to the Premises other than as tenant under the Lease: 4. That the improvements and space required to be furnished according to the Lease have been completed in all respects to the satisfaction of the Tenant and have been accepted by the Tenant. 5. That the Landlord has fulfilled all of its duties of an inducement nature and that all conditions under the Lease to be performed by the Landlord have been satisfied* 6. That (i) there is no known existing default on the part of the Landlord under the Lease; (ii) to the best of the Tenant's knowledge there are at present no facts or conditions which with notice or lapse of time or both would become such a default; and (iii) As of the date hereof, the Tenant has no defense, offset, lien, credit or claim of offset, credit or deduction, against the enforcement of the Lease by the Landlord or the rents or other charges accrued or accruing thereunder, nor has the rent thereunder been prepaid for a period in excess of one month. 7. That the Tenant has no notice of a prior sale, transfer, assignment, hypothecation or pledge by the Landlord of the Lease or of the rentals accruing thereunder. 8. That (i) the annual fixed rent under the Lease is $___________ payable in advance in equal monthly installments of $_________________; (ii) that the last date to which such rent and other sums due from the Tenant under said Lease have bean paid is ________________, (iii) the fixed rent commenced to accrue on the _______ day of _______________, 198__, and was payable from that date; (iv) the full rent is now accruing under the Lease; and (v) the final payment of fixed rent during the original or base term of the Lease will be due on the ______ day of ______________, 19__ . 9. That exceptions to the statements made herein (if any) are attached as Exhibit A to this Certificate. Executed this ________ day of _________________, 198 . ---------------------------- Tenant By ---------------------------- Title --------------------------
EX-10.16 4 AMENDMENT NO.1 TO THE CREDIT AGREEMENT 1 Exhibit 10.16 AMENDMENT NO. 1 TO AMENDED AND RESTATED LINE OF CREDIT AGREEMENT This Amendment No. 1 (the "Amendment") dated as of July 17, 1997, is among Bank of America National Trust and Savings Association (the "Bank"), The Gymboree Corporation ("TGC"), Gymboree Manufacturing, Inc. ("GMI"), Gymboree, Inc. ("GI"), and Gymboree Industries Limited. ("GIL") (TGC, GMI, GI, and GIL are hereinafter referred to collectively as the "Borrowers" and individually as a "Borrower"). RECITALS A. The Bank, TGC, and GMI entered into a certain Amended and Restated Line of Credit Agreement dated as of October 27, 1995 (the "Agreement"). B. TGC has a wholly-owned Canadian subsidiary, GI. TGC also has a wholly-owned Irish subsidiary, Gymboree Industries Holdings Limited, which, in turn, has a wholly-owned Irish subsidiary, GIL. C. TGC and GMI have requested the Bank to add GI and GIL as Borrowers under the Agreement, and the Bank is willing to grant that request subject to certain of the addition terms and conditions set forth in this Amendment. D. The Bank and the Borrowers desire to amend the Agreement in order to memorialize the terms and conditions under which GI and GIL are added as Borrowers under the Agreement. E. The Bank and the Borrowers also desire to amend the Agreement in order to increase the Commitment, extend the availability period, and amend certain covenants. AGREEMENTS 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 In Paragraph 1.1(a), the amount "$100,000,000" is substituted for the amount $75,000,000." 2.2 The following proviso is added to Paragraph 1.1(c), and it reads in its entirety as follows: 2 It is provided, however, that: (i) the outstanding amounts of any letters of credit issued for the account of GI, including amounts drawn on such letters of credit and not yet reimbursed, may not exceed Ten Million Dollars ($10,000,000) (the "GI L/C Limit"); (ii) the outstanding amount of any letters of credit issued for the account of GIL, including amounts drawn on such letters of credit and not yet reimbursed, may not exceed Ten Million Dollars ($10,000,000) (the "GIL L/C Limit"); (iii) the outstanding amount of any standby letters of credit, including amounts drawn on such letters of credit and not yet reimbursed, may not exceed Five Hundred Thousand Dollars ($500,000); and (iv) the outstanding amounts of any letters of credit issued for the accounts of TGC or GMI, including amounts drawn on such letters of credit and not yet reimbursed, may not at any time exceed the Commitment, minus the sum of the GI L/C Limit and the GIL L/C Limit. (In calculating the amounts described above, the Bank will use Equivalent Amounts for letters of credit denominated in Canadian Dollars or Irish Punts. "Equivalent Amount" means the equivalent in U.S. Dollars of another currency calculated at the spot rate for the purchase of such other currency with U.S. Dollars quoted by Bank's Foreign Exchange Trading Center in San Francisco, California, at approximately 8:00 a.m. San Francisco time two (2) banking days (as determined by Bank with respect to such currency) prior to the relevant date.) 2.3 In Paragraph 1.2, the date "May 31, 1999" is substituted for the date "May 31, 1998." 2.4 The first paragraph of Paragraph 1.3 is amended to read in its entirety as follows: 1.3 Letters of Credit. This line of credit may be used for financing: (i) commercial letters of credit with a maximum maturity of 180 days but not to extend more than 180 days beyond the Expiration Date. Each commercial letter of credit will require drafts payable at sight or up to the earlier of 180 days after sight or 180 days after the Expiration Date. 2 3 (ii) standby letters of credit with a maximum maturity not to extend beyond the Expiration Date. The standby letters of credit may include a provision providing that the maturity date will be automatically extended each year for an additional year unless the Bank gives written notice to the contrary. Each commercial letter of credit issued for the account of GI may be denominated in U.S. Dollars or Canadian Dollars. Each commercial letter of credit issued for the account of GIL may be denominated in U.S. Dollars or Irish Punts. All other letters of credit issued pursuant to this Agreement will be denominated in U.S. Dollars. The letters of credit outstanding from the Bank for the account of any one or more of the Borrowers that are not already outstanding under this Agreement shall, as of the date of that certain Amendment No. 1 to Amended and Restated Line of Credit Agreement among the Bank and the Borrowers, be deemed to be outstanding under this Agreement, and shall be subject to all the terms and conditions stated in this Agreement. 2.5 Paragraph 1.3(c) is amended to read in its entirety as follows: (c) to sign the Bank's form Application and Agreement for Commercial Letter of Credit or Application and Agreement in its entirety as follows: 2.6 A new Paragraph 3.9 is added to the Agreement, and it reads in its entirety as follows: 3.9 Taxes. If any payments to the Bank under this Agreement are made from outside the United States, the Borrowers will not deduct any foreign taxes from any payments they make to the Bank. If any such taxes are imposed on any payments made by the Borrowers (including payments under this paragraph), the Borrowers will pay the taxes and will also pay to the Bank, at the time interest is paid, any additional amount which the Bank specifies as necessary to preserve the after-tax yield to Bank would have received if such taxes have not been imposed. The Borrowers will confirm that they have paid the taxes by giving the Bank official tax receipts (or notarized copies) within 30 days after the due date. 2.7 In Paragraphs 5.1 and 5.4, the word "jurisdiction" is substituted for the word "state." 3 4 2.8 The final sentence of the definition of "Subsidiary" in Paragraph 5.1 is amended to read in its entirety as follows: The term "Subsidiary" shall include GMI, GI, or GIL in the event that GMI, GI, or GIL is no longer a "Borrower" under this Agreement. 2.9 Paragraph 6.1 is amended to read in its entirety as follows: 6.1 Use of Line of Credit. To request commercial or standby letters of credit only for use in the usual course of business and to request standby letters of credit only for the account of TGC. 2.10 In the lead-in of Paragraph 6.2, the second parenthetical phrase is amended to read in its entirety as follows: (other than guarantees by TGC of the obligations of Gymboree U.K. Ltd. under store or distributor center leases and guarantees by TGC of the obligations of any one or more of the other Subsidiaries under store or distributor center leases) 2.11 In Paragraph 6.4, the word "or" immediately before clause (c) is deleted, the amount "Sixty-Five Million Dollars ($65,000,000)" is substituted for the amount "Thirty-Five Million Dollars ($35,000,000)" in clause (c), and the word "or" immediately followed by the following clause (d) is added: (d) Fifty Million Dollars ($50,000,000) in the Borrowers' fiscal year ending January 31, 1999, and in each fiscal year thereafter 2.12 In Paragraph 6.5, the second and final sentence is amended to read in its entirety as follows: It is provided, however, that the Borrowers and the Subsidiaries may take any of the actions otherwise prohibited by this paragraph so long as they do not spend in the aggregate more than Thirty Million Dollars ($30,000,000) between February 1, 1997, and the Expiration Date in connection with any such actions. 2.13 The last sentence of Paragraph 7.1 (a) is amended to read in its entirety as follows: The statements shall be prepared on a consolidated basis and shall contain no material adverse difference from TGC's annual TGC-prepared financial statements, which latter statements TGC agrees to prepare on a 4 5 consolidating basis and provide to the Bank also within 120 days of TGC's fiscal year end. TGC further agrees that its annual TGC-prepared financial statements will include, without limitation, a balance sheet and an income statement. 2.14 The following new subparagraph (g) is added to Paragraph 7.1: (g) Within the periods provided in (b) above, a compliance certificate of TGC signed by an authorized financial officer of TGC setting forth (i) the information and computations (in sufficient detail) to establish that TGC is in compliance with all financial covenants at the end of the period covered by the financial statements then being furnished and (ii) whether there existed as of the date of such financial statements and whether there exists as of the date of the certificate, any default under this Agreement and, if any such default exists, specifying the nature thereof and the action the Borrowers are taking and propose to take with respect thereto. 2.15 The first sentence of Paragraph 7.2 is amended to read in its entirety as follows: To maintain on a consolidated basis tangible net worth equal to at least the amounts indicated each period specified below:
Period Amounts ------ ------- From May 1, 1997 $100,000,000 through January 30, 1998 From January 31, 1998 $100,000,000 plus 50% through January 30, 1999 of net income after income taxes (without subtracting losses) earned in the fiscal year ending January 31, 1998 On January 31, 1999 $100,000,000 plus 50% of net income after income taxes (without subtracting losses) earned in the fiscal year January 31, 1998 plus 50% of net income after income taxes (without subtracting losses) earned in the
5 6 fiscal year ending January 31, 1999 2.16 In Paragraph 7.4, the amounts "Fifteen Million Dollars ($15,000,000)" and "Thirty-Five Million Dollars ($35,000,000)" are substituted for the amounts "Twenty Million Dollars ($20,000,000)" and "Forty Million Dollars ($40,000,000)," respectively. 2.17 In Paragraph 9.8, the phrase "the other Borrowers" is substituted for the phrase "the other Borrower" in each case in which the latter phrase appears. 3. GI's and GIL's Acknowledgement. GI and GIL hereby acknowledge that by executing this Amendment and thereby becoming Borrowers under the Agreement, GI and GIL promise and agree to perform or to be subject to, as applicable, each and every covenant, agreement, term, and obligation of the Agreement including, without limitation, those which pertain to the joint and several liability of each Borrower to the Bank for the payment of all obligations under the Agreement and under any instrument or agreement required under the Agreement. 4. Representations and Warranties. When the Borrowers sign this Amendment, the Borrowers represent and warrant to the Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Agreement, (b) the representations and warranties in the Agreement are true as of the date of this Amendment as if made on the date of this Amendment, (c) this Amendment is within each Borrower's powers, has been duly authorized, and does not conflict with any of either Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligation by which either Borrower is bound. 5. Condition Precedent. This Amendment will be effective when the Bank receives, in form and content acceptable to the Bank, evidence that the execution, delivery, and performance by GI and GIL of this Agreement and any instrument or agreement required under this Agreement have been duly authorized. 6. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. Further, nothing in this Amendment shall release TGC or GMI from any of its obligations under the Agreement. 6 7 This Amendment is executed as of the date stated at the beginning of this Amendment. Bank of America National Trust and Savings Association By --------------------------------- Title ------------------------------ By --------------------------------- Title ------------------------------ The Gymboree Corporation By /s/ JAMES P. CURLEY --------------------------------- James P. Curley Title Senior Vice President, Chief Financial Officer, Chief Accounting Officer ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Joseph T. Prusko Title Vice President, Treasurer ------------------------------ Gymboree Manufacturing, Inc. By /s/ JAMES P. CURLEY --------------------------------- James P. Curley Title Senior Vice President, Chief Financial Officer, Chief Accounting Officer ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Joseph T. Prusko Title Vice President, Treasurer ------------------------------ Gymboree, Inc. By /s/ JAMES P. CURLEY --------------------------------- James P. Curley Title Senior Vice President, Chief Financial Officer, Chief Accounting Officer ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Joseph T. Prusko Title Vice President, Treasurer ------------------------------ Gymboree Industries Limited By /s/ JAMES P. CURLEY --------------------------------- James P. Curley Title Senior Vice President, Chief Financial Officer, Chief Accounting Officer ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Joseph T. Prusko Title Vice President, Treasurer ------------------------------ 7
EX-10.17 5 AMENDMENT NO. 2 TO THE CREDIT AGREEMENT 1 Exhibit 10.17 AMENDMENT NO. 2 TO AMENDED AND RESTATED LINE OF CREDIT AGREEMENT This Amendment No. 2 (the "Amendment") dated as of August 11, 1997, is among Bank of America National Trust and Savings Association (the "Bank"), The Gymboree Corporation ("TGC"), Gymboree Manufacturing, Inc. ("GMI"), Gymboree, Inc. ("GI"), Gymboree Industries Limited ("GIL"), and Gymboree U.K., Ltd. ("GUKL"). (TGC, GMI, GI, GIL, and GUKL are hereinafter referred to collectively as the "Borrowers" and individually as a "Borrowers"). RECITALS A. The Bank, TGC, and GMI entered into a certain Amended and Restated Line of Credit Agreement dated as of October 27, 1995, as previously amended (the "Agreement"). GI and GIL were added as Borrowers pursuant to Amendment No. 1 to Amended and Restated Line of Credit Agreement dated as of July 17, 1997. B. TGC has a wholly-owned English subsidiary, GUKL. C. TGC, GMI, GI, and GIL have requested the Bank to add GUKL as a Borrower under the Agreement for the limited purpose of making available to GUKL the new foreign exchange facility added to the Agreement by this Amendment. The Bank is willing to grant that request subject to certain of the additional terms and conditions set forth in this Amendment. D. The Bank and the Borrowers desire to amend the Agreement in order to memorialize the terms and conditions under which GUKL is added as a Borrower under the Agreement. E. The Bank and the Borrowers also desire to amend the Agreement in order to add a foreign exchange facility to the Agreement and to adjust certain within-line limitations applicable to standby letters of credit issued under the Agreement in conjunction with making standby letters of credit available to GIL. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 Clause (iii) of the proviso at the end of Paragraph 1.1(c) is amended to read in its entirety as follows: 1 2 (iii) the outstanding amount of any standby letters of credit, including amounts drawn on such letters credit and not yet reimbursed, may not exceed One Million Dollars ($1,000,000); provided further that the outstanding amount of any such letters of credit, including amounts drawn on such letters of credit and not yet reimbursed, issued for the accounts of TGC or GIL, respectively, may not exceed Five Hundred Thousand Dollars ($500,000). 2.2 A new Paragraph 1.4 is added to the Agreement, and it reads in its entirety as follows: 1.4 Foreign Exchange Facility. (a) During the availability period, the Bank at its discretion may enter into spot and forward foreign exchange contracts with any one more of the Borrowers. The foreign exchange contract limit will be Ten Million U.S. Dollars (U.S. $10,000,000), and the settlement limit will be five Million U.S. Dollars (U.S. $5,000,000). The "foreign exchange contract limit" is the maximum limit on the net difference between the total foreign exchange contracts outstanding less the total foreign exchange contracts for which the borrowers have already compensated the Bank. The "settlement limit" is the maximum limit on the gross total amount of all sale and purchase contracts on which delivery is to be effected and settlement allowed on any one banking day. (b) The Bank shall not be obligated to permit the Borrowers to enter into any foreign exchange contracts which would exceed the settlement limit. However, if the Bank decides, in its discretion, to waive the settlement limit for foreign exchange contracts which will settle on any particular banking day, the Bank shall not be required to make any U.S. Dollar or foreign currency settlement payment to the Borrowers until the Bank receives evidence satisfactory to it that the Borrowers have paid the Bank all of the Borrowers' U.S. Dollar and foreign currency settlement payments. The Bank shall not be liable for interest or other damages caused by any such failure to pay or deliver or any such delay in payment or delivery. (c) The Borrowers will pay the Bank on demand the Bank's then standard foreign exchange contract fees for each contract. (d) Foreign exchange contracts will be in form and substance satisfactory to the Bank. 2 3 (e) No foreign exchange contracts will mature later than 180 days after the Expiration Date, and in addition no foreign exchange contract shall have a tenor longer than 180 days. (f) The Borrowers understand the risks of, and are financially able to bear any losses resulting from, entering into foreign exchange contracts. The Bank shall not be liable for any loss suffered by the Borrowers as a result of the Borrowers' foreign exchange trading. The Borrowers will enter into each foreign exchange contract in reliance only upon the Borrowers' own judgment. The Borrowers acknowledge that in entering into foreign exchange contracts with the Borrowers, the Bank is not acting as a fiduciary. The Borrowers understand that neither the Bank nor any Borrower has any obligation to enter into any particular foreign exchange contract with the other. (g) The Borrowers hereby request the Bank to rely upon and execute the Borrowers' telephonic instructions regarding foreign exchange contracts, and the Borrowers agree that the Bank shall incur no liability for its acts or omissions which result from interruption of communications, misunderstood communications or instructions from unauthorized persons, unless caused by the wilful misconduct of the Bank or its officers or employees. The Borrowers agree to protect the Bank and hold it harmless from any and all loss, damage, claim, expense (including the reasonable fees of outside counsel and the allocated costs of staff counsel) or inconvenience, however arising, which the Bank suffers or incurs or might suffer or incur, based on or arising out of said acts or omissions. (h) The Borrowers agree to promptly review all confirmations sent to the Borrowers by the Bank. The Borrowers understand that these confirmations are not legal contracts but only evidence of the valid and binding oral contract which the Borrowers have already entered into with the Bank. The Borrowers agree to promptly execute and return to the Bank confirmations which accurately reflect the terms of a foreign exchange contract, and immediately contact the Bank if the Borrowers believe a confirmation is not accurate. In the event of a conflict, inconsistency or ambiguity between the provisions of this Agreement and the provisions of confirmation, the provisions of this Agreement will prevail. (i) The Borrowers agree that the Bank may electronically record all telephonic conversations with the Borrowers relating to foreign exchange contracts 3 4 and that such tape recordings may be submitted in evidence to any court or in any other proceedings relating to such contracts. The Borrowers agree that in the event of a conflict, inconsistency or ambiguity between the terms of a foreign exchange contract as reflected in a tape recording and the terms stated on a confirmation, the terms reflected in the tape recording shall control. (j) The Borrowers hereby authorize the Bank to debit the Borrowers' accounts with the Bank for payments due from the Borrowers to the Bank with respect to any foreign exchange contract. (k) In addition to any other rights or remedies which the Bank may have under this Agreement or otherwise, upon the occurrence of an event of default under this Agreement, or if the Borrowers' aggregate realized or unrealized mark-to-market losses on foreign exchange contracts exceed One Million Dollars $1,000,000 (the "Revaluation Limit"), the Bank may: (1) Suspend performance of its obligations to the Borrowers under any foreign exchange contract; (2) Declare all foreign exchange contracts, interest and any other amounts which are payable by the Borrowers to the Bank immediately due and payable; and (3) Without notice to the Borrowers, close out any or all foreign exchange contracts or positions of the Borrowers with the Bank. The Bank shall not be under any obligation to exercise any such rights or remedies or to exercise them at a time or in a manner beneficial to the Borrowers. The Borrowers shall be liable for any amounts owing to the Bank after exercise of any such rights and remedies. (l) The Borrowers agree to enter into a Foreign Exchange Master Agreement with the Bank (as amended, modified or renewed, the "FEMA") by no later than September 23, 1997. All foreign exchange transactions entered into between each Borrower and the Bank shall be subject to the provisions of this Agreement and the FEMA. In the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of the FEMA, the provisions of the FEMA shall control. The occurrence of an Event of Default under the FEMA shall also constitute a default under this Agreement. 4 5 2.3 The final sentence of the definition of "Subsidiary" in Paragraph 5.1 is amended to read in its entirety as follows: The term "Subsidiary" shall include GMI, GI, GIL, or GUKL in the event that GMI, GI, GIL, or GUKL is no longer a "Borrower" under this Agreement. 2.4 Paragraph 6.1 is amended to read in its entirety as follows: 6.1 Use of Line of Credit. To request commercial or standby letters of credit only for use in the usual course of business and to request standby letters of credit only for the accounts of TGC or GIL. 2.5 In the lead-in of Paragraph 6.2, "GUKL" is substituted for "Gymboree U.K. Ltd." in the second parenthetical phrase. 3. GUKL's Acknowledgment. GUKL hereby acknowledges that by executing this Amendment and thereby becoming a Borrower under the Agreement for the limited purpose of entering into spot and forward foreign exchange contracts with the Bank, GUKL promises and agrees to perform or to be subject to, as applicable, each and every covenant, agreement, term, and obligation of the Agreement including, without limitation, those which pertain to the joint and several liability of each Borrower to the Bank for the payment of all obligations under the Agreement and under any instrument or agreement required under the Agreement. 4. Representations and Warranties. When the Borrowers sign this Amendment, the Borrowers represent and warrant to the Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Agreement, (b) the representations and warranties in the Agreement are true as of the date of this Amendment as if made on the date of this Amendment, (c) this Amendment is within each Borrower's powers, has been duly authorized, and does not conflict with any of either Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligation by which either Borrower is bound. 5. Condition Precedent. This Amendment will be effective when the Bank receives, in form and content acceptance to the Bank, evidence that the execution, delivery, and performance by GUKL of this Amendment and any instrument or agreement required under the Agreement, as amended by this Amendment, have been duly authorized. 6. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. Further, nothing in this 5 6 Amendment shall release TGC, GMI, GI, or GIL from any of its obligations under the Agreement. This Amendment is executed as of the date stated at the beginning of this Amendment. Bank of America National Trust and Savings Association By --------------------------------- Title ------------------------------ By --------------------------------- Title ------------------------------ The Gymboree Corporation By /s/ JAMES P. CURLEY --------------------------------- James P. Curley Title Senior Vice President, Chief Financial Officer, Chief Accounting Officer ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Joseph T. Prusko Title Vice President, Treasurer ------------------------------ Gymboree Manufacturing, Inc. By /s/ JAMES P. CURLEY --------------------------------- James P. Curley Title Senior Vice President, Chief Financial Officer, Chief Accounting Officer ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Joseph T. Prusko Title Vice President, Treasurer ------------------------------ Gymboree, Inc. By /s/ JAMES P. CURLEY --------------------------------- James P. Curley Title Senior Vice President, Chief Financial Officer, Chief Accounting Officer ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Joseph T. Prusko Title Vice President, Treasurer ------------------------------ 6 EX-10.18 6 AMENDMENT NO. 3 TO THE CREDIT AND WAIVER 1 EXHIBIT 10.18 AMENDMENT NO. 3 TO AMENDED AND RESTATED LINE OF CREDIT AGREEMENT AND WAIVER This Amendment No. 3 and Waiver (the "Amendment and Waiver") dated as of January 9, 1998, is among Bank of America National Trust and Savings Association (the "Bank"), The Gymboree Corporation ("TGC"), Gymboree Manufacturing, Inc. ("GMI"), Gymboree, Inc. ("GI"), Gymboree Industries Limited ("GIL"), Gymboree U.K., Ltd. ("GUKL"), and Gymboree U.K. Leasing Limited ("GUKLL"). (TGC, GMI, GI, GIL, GUKL, and GUKLL are hereinafter referred to collectively as the "Borrowers" and individually as a "Borrower"). RECITALS A. The Bank, TGC, and GMI entered into a certain Amended and Restated Line of Credit Agreement dated as of October 27, 1995, as previously amended (the "Agreement"). GI and GIL were added as Borrowers pursuant to Amendment No. 1 to Amended and Restated Line of Credit Agreement dated as of July 17, 1997. Pursuant to Amendment No. 2 to Amended and Restated Line of Credit Agreement dated as of August 11, 1997 ("Amendment No. 2"), GUKL was added as a Borrower for the limited purpose of making available to GUKL the new foreign exchange facility added to the Agreement by Amendment No. 2. B. In addition to GUKL, TGC has another wholly-owned English Subsidiary GUKLL. C. TGC, GMI, GI, GIL, and GUKL have requested the Bank (a) to add GUKLL as a Borrower under the Agreement for the limited purpose of making standby letters of credit available to GUKLL and (b) to begin making standby letters available to GUKL. The Bank is willing to grant these requests subject to certain of the additional terms and conditions set forth in this Amendment and Waiver. D. The Bank and the Borrowers desire to amend the Agreement in order to memorialize the terms and conditions under which GUKLL is added as a Borrower under the Agreement. E. The Bank and the Borrowers also desire to amend the Agreement in order to adjust certain within-line limitations applicable to standby letters of credit issued under the Agreement in conjunction with making standby letters of credit available to both GUKL and GUKLL and in order to add certain terms and conditions to the Agreement. F. Finally, certain events of default have occurred under the Agreement, and, in addition, the Bank has waived on a one-time basis a restriction applicable to commercial letters of credit in order to issue certain letters of credit for the account of GMI. The Borrowers have requested the Bank to waive those events of default and to confirm its one-time waiver. The 1 2 Bank is willing to comply with that request, and in conjunction therewith, the Bank and the Borrowers have agreed to further amend the Agreement, subject to the terms and conditions of this Amendment and Waiver. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment and Waiver shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 The proviso at the end of Paragraph 1.1(c) is amended to read in its entirety as follows: It is provided, however, that: (i) the outstanding amounts of any commercial letters of credit issued for the account of GI, including amounts drawn on such letters of credit and not yet reimbursed, may not exceed Ten Million Dollars ($10,000,000) (the "GI L/C Limit"); (ii) the outstanding amount of any commercial letters of credit issued for the account of GIL, including amounts drawn on such letters of credit and not yet reimbursed, may not exceed Ten Million Dollars ($10,000,000) (the "GIL Commercial L/C Limit"); (iii) the outstanding amount of any standby letters of credit, including amounts drawn on such letters of credit and not yet reimbursed, may not exceed Eleven Million Dollars ($11,000,000); provided further that the outstanding amount of any such letters of credit, including amounts drawn on such letters of credit and not yet reimbursed, issued (A) for the accounts of TGC or GIL, respectively, may not exceed Five Hundred Thousand Dollars ($500,000) for either TGC or GIL (with respect to GIL, the "GIL Standby L/C Limit") and (B) for the accounts of GUKL or GUKLL, respectively, may not in the aggregate exceed Ten Million Dollars ($10,000,000) (the "GUKL/GUKLL L/C Limit"). (iv) the outstanding amounts of any letters of credit issued for the accounts of TGC or GMI, including amounts drawn on such letters of credit and not yet reimbursed, may not at any time exceed the Commitment minus the sum of the GI L/C Limit plus the GIL Commercial L/C Limit plus the 2 3 GIL Standby L/C Limit plus the GUKL/GUKLL L/C Limit. (In calculating the amounts described above, the Bank will use Equivalent Amounts for letters of credit denominated in Canadian Dollars, Irish Punts, or English Pounds Sterling. "Equivalent Amount" means the equivalent in U.S. Dollars of another currency calculated at the spot rate for the purchase of such other currency with U.S. Dollars quoted by the Bank's Foreign Exchange Trading Center in San Francisco, California, at approximately 8:00 a.m. San Francisco time two (2) banking days (as determined by Bank with respect to such currency) prior to the relevant date.) 2.2 The first seven sentences of Paragraph 1.3 are amended to read in their entirety as follows: 1.3 Letters of Credit. This line of credit may be used for financing: (i) commercial letters of credit with a maximum maturity of 180 days but not to extend more than 180 days beyond the Expiration Date. Each commercial letter of credit will require drafts payable at sight or up to the earlier of 180 days after sight or 180 days after the Expiration Date. (ii) standby letters of credit with a maximum maturity not to extend more than 5 years beyond the Expiration Date in the case of letters of credit issued for the account of either GUKL or GUKLL and not to extend beyond the Expiration Date in all other cases. Each commercial letter of credit issued for the account of GI may be denominated in U.S. Dollars or Canadian Dollars. Each commercial letter of credit issued for the account of GIL may be denominated in U.S. Dollars or Irish Punts. Each standby letter of credit issued for the account of either GUKL or GUKLL may be denominated in U.S. Dollars or English Pounds Sterling. All other letters of credit issued pursuant to this Agreement will be denominated in U.S. Dollars. 2.3 A new Paragraph 1.5 is added to the Agreement, and it reads in its entirety as follows: 1.5 Termination of Line Credit. if this line of credit terminates as a result of the Borrowers' request to cancel it, the Bank's decision to cancel it because on or more Borrowers are in 3 4 GIL Standby L/C Limit plus the GUKL/GUKLL L/C Limit. (In calculating the amounts described above, the Bank will use Equivalent Amounts for letters of credit denominated in Canadian Dollars, Irish Punts, or English Pounds Sterling. "Equivalent Amount" means the equivalent in U.S. Dollars of another currency calculated at the spot rate for the purchase of such other currency with U.S. Dollars quoted by the Bank's Foreign Exchange Trading Center in San Francisco, California, at approximately 8:00 a.m. San Francisco time two (2) banking days (as determined by Bank with respect to such currency) prior to the relevant date.) 2.2 The first seven sentences of Paragraph 1.3 are amended to read in their entirety as follows: 1.3 Letters of Credit. This line of credit may be used for financing; (i) commercial letters of credit with a maximum maturity of 180 days but not to extend more than 180 days beyond the Expiration Date. Each commercial letter of credit will require drafts payable at sight or up to the earlier of 180 days after sight or 180 days after the Expiration Date. (ii) standby letters of credit with a maximum maturity not to extend more than 5 years beyond the Expiration Date in the case of letters of credit issued for the account of either GUKL or GUKLL and not to extend beyond the Expiration Date in all other cases. Each commercial letter of credit issued for the account of GI may be denominated in U.S. Dollars or Canadian Dollars. Each commercial letter of credit issued for the account of GIL may be denominated in U.S. Dollars or Irish Punts. Each standby letter of credit issued for the account of either GUKL or GUKLL may be denominated in U.S. Dollars or English Pounds Sterling. All other letters of credit issued pursuant to this Agreement will be denominated in U.S. Dollars. 2.3 A new Paragraph 1.5 is added to the Agreement, and it reads in its entirety as follows: 1.5 Termination of Line of Credit. If this line of credit terminates as a result of the Borrowers' request to cancel it, the Bank's decision to cancel it because one or more Borrowers are in 3 5 default, the Bank's decision not to renew it, or the Borrowers' decision not to accept the Bank's offer to renew it upon such terms and conditions as the Bank may offer, or for any other reason, the Borrowers must by no later than 15 days before the effective date of such termination: (a) deposit with the Bank, as cash security for the Borrowers' reimbursement obligations with respect to all outstanding letters of credit issued pursuant to this Agreement, an amount equal to the total outstanding amount of all such letters of credit, including amounts drawn on any such letters of credit and not yet reimbursed, and sign such documents as the Bank requires to obtain and perfect its security interest in such cash security; and (b) with respect to each letter of credit, if any, for which the Borrowers have not provided cash security in accordance with subparagraph (a) above, obtain a standby letter of credit issued in favor of the Bank, as beneficiary, by an issuer acceptable to the Bank and in form, amount, and substance acceptable to the Bank for the purpose of supporting the Borrowers' reimbursement obligations with respect to the corresponding letter of credit outstanding under this Agreement. If any letters of credit are requested by an Borrower and issued by the Bank during the 15 days before the effective date of such termination, the Borrowers must, with respect to any such letter of credit issued during such period, take the actions described in either subparagraph (a) or subparagraph (b) above prior to the issuance of such letter of credit. 2.4 The final sentence of the definition of "Subsidiary" in Paragraph 5.1 is amended to read in its entirety as follows: The term "Subsidiary" shall include GMI, GI, GIL, GUKL, or GUKLL in the event that GMI, GI, GIL, GUKL, or GUKLL is no longer a "Borrower" under this Agreement. 2.5 A new Paragraph 5.15 is added to the Agreement, and it reads in its entirety as follows: 5.15 Year 2000 Compliance. Each Borrower and each Subsidiary has conducted a review and assessment of its computer applications and made inquiry of its key suppliers, vendors, and customers with respect to the "year 2000 problem" (that is, the 4 6 risk that computer applications may not be able to properly perform date-sensitive functions after December 31, 1999) and, based on that review and inquiry, no Borrower and no Subsidiary believes the year 2000 problem will result in a material adverse change in its business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit. 2.6 Paragraph 6.1 is amended to read in its entirety as follows: 6.1 Use of Line of Credit. To request commercial or standby letters of credit only for the use in the usual course of business and to request standby letters of credit only for the accounts of TGC, GIL, GUKL, or GUKLL. 2.7 In the lead-in of Paragraph 6.2, the second parenthetical phrase is amended to read in its entirety as follows: (other than guarantees by TGC of the obligations of GUKL under store or distributor center leases, guarantees by TGC of the obligations of any one or more of the other Subsidiaries under store or distributor center leases, and the guaranty of Gymboree Industries Holdings Limited required under this Agreement) 2.8 Paragraph 6.5 is deleted. 2.9 Paragraph 9.2 is amended to read in its entirety as follows: 9.2 Governing Law, Jurisdiction, and Service of Process. (a) This Agreement is governed by and construed according to the laws of the State of California, United States of America. (b) Any legal action or proceeding with respect to this Agreement may be brought in the state or federal courts located in the State of California, and by execution and delivery of this Agreement, the Borrowers consent, for themselves and in respect of their property, to the jurisdiction of those courts. The Borrowers irrevocably waive any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which they may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any document related 5 7 hereto. The Borrowers waive personal service of any summons, complaint, or other process, which may be made by any other means permitted by California law. (c) Final judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Borrowers in any action or proceeding with respect to this Agreement) shall be conclusive and may be enforced in other jurisdictions by suit on the judgment. Nothing herein shall affect the rights of the Bank to commence any action or proceeding in the courts of Canada (or any province thereof), Great Britain, Ireland or the courts of any other state or country where the Borrowers or any of their property may be found. (d) The Borrowers acknowledge and agree that the locals for any arbitration pursuant to Paragraph 9.4 of this Agreement shall be within the State of California. (e) GI, GIL, GUKL, and GUKLL irrevocably appoint TGC and GMI as their process agents to receive, for them and on their behalf, service of process in any legal action or proceeding with respect to this Agreement. If TGC's or GMI's chief executive office is no longer located in the State of California, GI, GIL, GUKL, and GUKLL also appoint the Secretary of State of the State of California as their process agent to receive, for them and on their behalf, service of process in any legal action or proceeding with respect to this Agreement. If for any reason GI's, GIL's, GUKL's, and GUKLL's process agents are unable to act as such, GI, GIL, GUKL, and GUKLL shall promptly notify the Bank and within thirty (30) days appoint a substitute process agent or agents acceptable to the Bank. Nothing in this Agreement will affect the right of the Bank to serve process in any manner permitted by law. 3. Defaults and Waiver. 3.1 For purposes of this Amendment and Waiver, the "Existing Defaults" shall mean: (a) the default existing under Paragraph 1.4(1) of the Agreement from September 24, 1997, until December 1, 1997, as a result of the Borrowers' failure to enter into the FEMA until December 1, 1997, instead of by September 23, 1997, as required by Paragraph 1.4(1); and 6 8 (b) the default existing under Paragraph 6.5 of the Agreement as of November 21, 1997, and thereafter as a result of the Borrowers' and the Subsidiaries' expenditures for the repurchase of shares exceeding, without the Bank's prior consent, the maximum aggregate amount permitted by Paragraph 6.5 3.2 Subject to and upon the terms and conditions hereof, the Bank hereby waives the Existing Defaults. 3.3 Subject to the terms and conditions hereof, the Bank confirms that on December 1, 1997, it waived Paragraph 1.3(i) of the Agreement for the sole and express purpose of complying with the Borrowers' request to issue 3 commercial letters of credit for the account of GMI, each such letter of credit with a maximum maturity of 209 days instead of the maximum maturity of 180 days required by Paragraph 1.3(i). 3.4 Nothing contained herein shall be deemed a waiver of (or otherwise affect the Bank's ability to enforce) any other event of default or any other term, condition, or covenant of the Agreement, including without limitation (i) any event of default as may now or hereafter exist and arise from or otherwise be related to the Existing Defaults (including without limitation any cross-default arising under the Agreement by virtue of any matters resulting from the Existing Defaults) or to the requirements set forth in Paragraph 1.3(i) of the Agreement, and (ii) any event of default arising at any time after the date of this Amendment and Waiver and which is the same as any of the Existing Defaults or is a breach of any of the requirements set forth in Paragraph 1.3(i) of the Agreement. 4. GUKLL's Acknowledgement. GUKLL hereby acknowledges that by executing this Amendment and Waiver and thereby becoming a Borrower under the Agreement for the limited purpose of the obtaining standby letters of credit issued for its account by the Bank, GUKLL promises and agrees to perform or to be subject to, as applicable, each and every covenant, agreement, term, and obligation of the Agreement including, without limitation, those which pertain to the joint and several liability of each Borrower to the Bank for the payment of all obligations under the Agreement and under any instrument or agreement required under the Agreement. 5. Representations and Warranties. When the Borrowers sign this Amendment and Waiver, the Borrowers represent and warrant to the Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Agreement, except those events, if any, that have been disclosed in writing to the Bank or waived in writing by the Bank, (b) the representations and warranties in the 7 9 Agreement are true as of the date of this Agreement and Waiver as if made on the date of this Amendment and Waiver, (c) this Amendment and Waiver is within each Borrower's powers, has been duly authorized, and does not conflict with any Borrower's organizational papers, (d) this Amendment and Waiver does not conflict with any law, agreement, or obligation by which any Borrower is bound, and (e) the Borrower are entering into this Amendment and Waiver on the basis of their own investigation and for their own reasons, without reliance upon the Bank or any other entity or individual. 6. Conditions Precedent. This Amendment and Waiver will be effective when the Bank receives, in form and content acceptable to the Bank, evidence that the execution, delivery, and performance by GUKL and GUKLL of this Amendment and Waiver and any instrument or agreement required under the Agreement, as amended by this Amendment and Waiver, have been duly authorized. 7. Conditions Subsequent. This Amendment and Waiver will remain effective only if the Bank receives, in form and content acceptable to the Bank, by no later than February 28, 1998: (a) Guaranty signed by Gymboree Industries Holdings Limited ("GIHL") (b) Evidence that the execution, delivery and performance by GIHL of the above-required Guaranty have been duly authorized, together with a written opinion from GIHL's legal counsel covering such matters as the Bank may require. The legal counsel and the forms of the opinion must be acceptable to the Bank. 8. Reservation of Rights. The Borrowers acknowledge and agree that neither the Bank's forbearance in exercising its rights and remedies in connection with the Existing Defaults, nor the execution and delivery by the Bank of this Amendment and Waiver, shall be deemed (a) to create a course of dealing or otherwise obligate the Bank to forbear or execute similar waivers under the same or similar circumstances in the future, or (b) to waive, relinquish or impair any right of the Bank to receive any indemnity or similar payment from any person or entity as a result of any matter arising from or relating to the Existing Defaults. 9. Effect of Amendment and Waiver. Except as provided in this Amendment and Waiver, all of the terms and conditions of the Agreement shall remain in full force and effect. Further, nothing in this Amendment and Waiver shall release TGC, GMI, GI, GIL, or GUKL from any of its obligations under the Agreement. 8 10 This Amendment and Waiver is executed as of the date stated at the beginning of this Amendment. Bank of America National Trust and Savings Association By --------------------------------- Title ------------------------------ By --------------------------------- Title ------------------------------ The Gymboree Corporation By /s/ GARY WHITE --------------------------------- Title President and CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Joseph T. Prusko Title Vice President, Treasurer ------------------------------ Gymboree Manufacturing, Inc. By /s/ GARY WHITE --------------------------------- Title President and CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Joseph T. Prusko Title Vice President, Treasurer ------------------------------ 9 11 Gymboree, Inc. By /s/ GARY WHITE --------------------------------- Title President and CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Title Vice President, Treasurer ------------------------------ Gymboree Industries Limited By /s/ GARY WHITE --------------------------------- Title President and CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Title Vice President, Treasurer ------------------------------ Gymboree U.K., Ltd. By /s/ GARY WHITE --------------------------------- Title President and CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Title Vice President, Treasurer ------------------------------ Gymboree U.K. Leasing Limited By /s/ GARY WHITE --------------------------------- Title President and CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Title Vice President, Treasurer ------------------------------ 10 EX-10.19 7 AMENDMENT NO. 4 TO THE CREDIT AGREEMENT 1 EXHIBIT 10.19 AMENDMENT NO. 4 TO AMENDED AND RESTATED LINE OF CREDIT AGREEMENT This Amendment No. 4 (the "Amendment") dated as of January 30, 1998, is among Bank of America National Trust and Savings Association (the "Bank"), The Gymboree Corporation ("TGC"), Gymboree Manufacturing, Inc. ("GMI"), Gymboree, Inc. ("GI"), Gymboree Industries Limited ("GIL"), Gymboree U.K., Ltd. ("GUKL"), and Gymboree U.K. Leasing Limited ("GUKLL"). (TGC, GMI, GI, GIL, GUKL, and GUKLL are hereinafter referred to collectively as the "Borrowers" and individually as a "Borrower"). RECITALS A. The Bank, TGC, and GMI entered into a certain Amended and Restated Line of Credit Agreement dated as of October 27, 1995, as previously amended (the "Agreement"). GI and GIL were added as Borrowers pursuant to Amendment No. 1 to Amended and Restated Line of Credit Agreement dated as of July 17, 1997. Pursuant to Amendment No. 2 to Amended and Restated Line of Credit Agreement dated as of August 11, 1997 ("Amendment No. 2"), GUKL was added as a Borrower for the limited purpose of making available to GUKL the new foreign exchange facility added to the Agreement by Amendment No. 2. Pursuant to Amendment No. 3 to Amended and Restated Line of Credit Agreement and Waiver dated as of January 9, 1998 ("Amendment No. 3 and Waiver"), GUKLL was added as a Borrower for the limited purpose of making standby letters of credit available to GUKLL. Standby letters of credit were also made available to GUKL pursuant to Amendment No. 3 and Waiver. B. The Bank and the Borrowers now desire to amend the Agreement in order to amend TGC's liquidity covenant for and only for TGC's fiscal year ending as of January 31, 1998. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 The first sentence of Paragraph 7.4 is amended to read in its entirety as follows: To maintain unencumbered liquid assets equal to at least Fifteen Million Dollars ($15,000,000) as of the end of the first, second, and third fiscal quarter of each fiscal year, Twenty Million Dollars ($20,000,000) as of the end of the fiscal year ending January 31, 1 2 1998, and Thirty-Five Million Dollars ($35,000,000) as of the end of each fiscal year thereafter. 3. Representations and Warranties. When the Borrowers sign this Amendment, the Borrowers represent and warrant to the Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Agreement, except those events, if any, that have been disclosed in writing to the Bank or waived in writing by the Bank, (b) the representations and warranties in the Agreement are true as of the date of this Amendment as if made on the date of this Amendment, (c) this Amendment is within each Borrower's powers, has been duly authorized, and does not conflict with any Borrower's organizational papers, (d) this Amendment does not conflict with any law, agreement, or obligation by which any Borrower is bound, and (e) the Borrowers are entering into this Amendment on the basis of their own investigation and for their own reasons, without reliance upon the Bank or any other entity or individual. 4. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. This Amendment is executed as of the date stated at the beginning of this Amendment. Bank of America National Trust and Savings Association By --------------------------------- Title ------------------------------ By --------------------------------- Title ------------------------------ The Gymboree Corporation By /s/ GARY WHITE --------------------------------- Title CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Joseph T. Prusko Title VP, Treasurer ------------------------------ 2 3 Gymboree Manufacturing, Inc. By /s/ GARY WHITE --------------------------------- Title CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Title Vice President, Treasurer ------------------------------ Gymboree, Inc. By /s/ GARY WHITE --------------------------------- Title CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Title Vice President, Treasurer ------------------------------ Gymboree Industries Limited By /s/ GARY WHITE --------------------------------- Title CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Title Vice President, Treasurer ------------------------------ Gymboree U.K., Ltd. By /s/ GARY WHITE --------------------------------- Title CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Title Vice President, Treasurer ------------------------------ Gymboree U.K. Leasing Limited By /s/ GARY WHITE --------------------------------- Title CEO ------------------------------ By /s/ JOSEPH T. PRUSKO --------------------------------- Title Vice President, Treasurer ------------------------------ 3 EX-10.20 8 AMENDEMENT NO. 5 TO THE CREDIT AGREEMENT 1 EXHIBIT 10.20 AMENDMENT NO. 5 TO AMENDED AND RESTATED LINE OF CREDIT AGREEMENT This Amendment No. 5 (the "Amendment") dated as of March 9, 1998, is among Bank of America National Trust and Savings Association (the "Bank"), The Gymboree Corporation ("TGC"), Gymboree Manufacturing, Inc. ("GMI"), Gymboree, Inc. ("GI"), Gymboree Industries Limited ("GIL"), Gymboree, U.K., Limited ("GUKL"), and Gymboree U.K. Leasing Limited ("GUKLL"). (TGC, GMI, GI, GIL, GUKL, and GUKLL are hereinafter referred to collectively as the "Borrowers" and individually as a "Borrower"). RECITALS A. The Bank, TGC, and GMI entered into a certain Amended and Restated Line of Credit Agreement dated as of October 27, 1995, as previously amended (the "Agreement"). GI and GIL were added as Borrowers pursuant to Amendment No. 1 to Amended and Restated Line of Credit Agreement dated as of July 17, 1997. Pursuant to Amendment No. 2 to Amended and Restated Line of Credit Agreement dated as of August 11, 1997 ("Amendment No. 2"), GUKL was added as a Borrower for the limited purpose of making available to GUKL the new foreign exchange facility added to the Agreement by Amendment No. 2. Pursuant to Amendment No. 3 to Amended and Restated Line of Credit Agreement and Waiver dated as of January 9, 1998 ("Amendment No. 3 and Waiver"), GUKLL was added as a Borrower for the limited purpose of making standby letters of credit available to GUKLL. Standby letters of credit were also made available to GUKL pursuant to Amendment No. 3 and Waiver. Pursuant to Amendment No. 4 to Amended and Restated Line of Credit Agreement dated as of January 30, 1998, TGC's liquidity covenant was amended for and only for TGC's fiscal year ending as of January 31, 1998. B. The Bank and the Borrowers now desire to amend the Agreement in order to make cash advances available to TGC, to amend TGC's tangible net worth covenant, to further amend TGC's liquidity covenant, and to require certain additional guaranties. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 Paragraph 1.1(b) is amended to read in its entirety as follows: 1 2 (b) This is a revolving line of credit providing for cash advances and letters of credit. During the availability period, the Borrowers may repay principal amounts of cash advances and reborrow them. The aggregate principal balance of cash advances outstanding at any one time may not exceed Fifteen Million Dollars ($15,000,000) (the "Advance Limit"). 2.2 The first sentence of Paragraph 1.1(c) is amended to read in its entirety as follows: The Borrowers agree not to permit the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed, plus the Advance Limit to exceed the Commitment. 2.3 In clause (iv) of Paragraph 1.1(c), the phrase "plus the Advance Limit" is inserted between the phrase "plus the GUKL/GUKLL L/C Limit" and the period at the end of clause (iv). 2.4. New Paragraphs 1.6, 1.7, 1.8, and 1.9 are added to the Agreement, and they read in their entirety as follows: 1.6 Interest Rate. (a) Unless the Borrowers elect an optional interest rate as described below, the interest rate is the Bank's Reference Rate minus 0.5 percentage point. (b) The Reference Rate is the rate of interest publicly announced from time to time by the Bank in San Francisco, California, as its Reference Rate. The Reference Rate is set by the Bank based on various factors, including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank's Reference Rate. 1.7 Repayment Terms. (a) The Borrowers will pay interest on April 1, 1998, and then monthly thereafter until payment in full of any principal outstanding under this line of credit. (b) The Borrowers will repay in full all principal and any unpaid interest or other charges outstanding under this line of credit no later than 2 3 the Expiration Date. Any interest period for an optional interest rate (as described below) shall expire no later than the Expiration Date. 1.8 Optional Interest Rates. (a) Instead of the interest rate based on the Bank's Reference Rate, the Borrowers may elect the optional interest rate specified below during interest periods agreed to by the Bank and the Borrowers. The optional interest rate shall be subject to the terms and conditions described later in this Agreement. Any principal amount bearing interest at an optional rate under this Agreement is referred to as a "Portion." The optional interest rate that is available is the LIBOR Rate plus 0.5 percentage point. (b) Each optional interest rate is a rate per year. Interest will be paid on the last day of each interest period, and, if the interest period is longer than one month, then on the first day of each month during the interest period. At the end of any interest period, the interest rate will revert to the rate based on the Reference Rate, unless the Borrowers have designated another optional interest rate for the Portion. No Portion will be converted to a different interest rate during the applicable interest period. Upon the occurrence of an event of default under this Agreement, the Bank may terminate the availability of optional interest rates of interest periods commencing after the default occurs. 1.9 LIBOR Rate. The election of LIBOR Rates shall be subject to the following terms and requirements: (a) The interest period during which the LIBOR Rate will be in effect will be one, two, three, four, five, six, seven, eight, nine, ten, eleven, or twelve months. The first day of the interest period must be a day other than a Saturday or a Sunday on which the Bank is open for business in California, New York and London and dealing in offshore dollars (a "LIBOR Banking Day"). The last day of the interest period and the actual number of days during the interest period will be determined by the Bank using the practices of the London inter-bank market. (b) Each LIBOR Rate Portion will be for an amount not less than the following: (i) for interest periods of four months or longer, Five Hundred Thousand Dollars ($500,000). 3 4 (ii) for interest periods of one, two or three months, One Million Dollars ($1,000,000). (c) The "LIBOR Rate" means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by the Bank as of the first day of the interest period. LIBOR Rate = London Inter-Bank Offered Rate ------------------------------ (1.00 - Reserve Percentage) Where, (i) "London Inter-Bank Offered Rate" means the average per annum interest rate at which U.S. dollar deposits would be offered for the applicable interest period by major banks in the London inter-bank market, as shown on the Telerate Page 3750 (or such other page as may replace it) at approximately 11:00 a.m. London time two (2) London Banking Days before the commencement of the interest period. If such rate does not appear on the Telerate Page 3750 (or such other page that may replace it), the rate for that interest period will be determined by such alternate method as reasonably selected by Bank. A "London Banking Day" is a day on which the Bank's London Branch is open for business and dealing in offshore dollars. (ii) "Reserve Percentage" means the total of the maximum reserve percentages for determining the determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. (d) The Borrowers shall irrevocably request a LIBOR Rate Portion no later than 12:00 noon San Francisco time on the LIBOR Banking Day preceding the day on which the London Inter-Bank Offered Rate will be set, as specified above. For example, if there are no intervening holidays or weekend days in any of the relevant locations, the request must be made at least three days before the LIBOR Rate takes effect. (e) The Borrowers may not elect a LIBOR Rate with respect to any principal amount which is 4 5 scheduled to be repaid before the last day of the applicable interest period. (f) Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid and a prepayment fee as described below. A "prepayment" is a payment of an amount on a date earlier than the scheduled payment date for such amount as required by this Agreement. The prepayment fee shall be equal to the amount (if any) by which: (i) the additional interest which would have been payable during the interest period on the amount prepaid had it not been prepaid, exceeds (ii) the interest which would have been recoverable by the Bank by placing the amount prepaid on deposit in the domestic certificate of deposit market, the eurodollar deposit market, or other appropriate money market selected by the Bank, for a period starting on the date on which it was prepaid and ending on the last day of the interest period for such Portion (or the scheduled payment date for the amount prepaid, if earlier). (g) The Bank will have no obligation to accept an election for a LIBOR Rate Portion if any of the following described events has occurred and is continuing: (i) Dollar deposits in the principal amount, and for periods equal to the interest period, of a LIBOR Rate Portion are not available in the London inter-bank market; or (ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate Portion. 2.5 Article 2 is amended to read in its entirety as follows: 2. PERIODIC FEE. The Borrowers agree to pay a fee equal to 1/16% per annum of the Advance Limit, payable in arrears. This fee is due on May 2, 1998, and on the last day of each following fiscal quarter until the expiration of the availability period. 5 6 2.6 In Paragraph 3.3(a), the phrase "telephone or telefax instructions for repayments or for the issuance of letters of credit" is replaced by the phrase "telephone or telefax instructions for advances or repayments or for the designation of optional interest rates and telefax requests for the issuance of letters of credit." 2.7 In Paragraph 3.3(b), the phrase "Repayments will be withdrawn from TGC's account number 14729-01406" is replaced by the phrase "Advances will be deposited in and repayments will be withdrawn from TGC's account number 14729-01406." 2.8 In Paragraph 3.4(a), the phrase "interest and any fees" is replaced by the phrase "interest and principal payments and any fees." 2.9 Paragraph 6.1 is amended to read in its entirety as follows: 6.1 Use of Proceeds. To request (a) cash advances only for use by TGC in order to fund TGC's short-term working capital needs, (b) commercial or standby letters of credit only for use in the usual course of business, (c) commercial letters of credit only for the accounts of TGC, GMI, GI, or GIL, and (d) standby letters of credit only for the accounts of TGC, GIL, GUKL, or GUKLL. 2.10 In the lead-in of Paragraph 6.2, the second parenthetical phrase is amended to read in its entirety as follows: (other than guaranties by TGC of the obligations of GUKL under store or distributor center leases, guaranties by TGC of the obligations of any one or more of the other Subsidiaries under store or distributor center leases, and guaranties required under this Agreement, including guaranties required under any amendments to this Agreement) 2.11 In Paragraph 7.2, the first sentence is amended to read in its entirety as follows: To maintain on a consolidated basis tangible net worth equal to at least One Hundred Twenty-Five Million Dollars ($125,000,000) through the day before the last day of TGC's 1998 fiscal year, and, as of TGC's 1998 fiscal year end and thereafter, to maintain tangible net worth equal to the sum of (a) One Hundred Twenty-Five Million Dollars ($125,000,000) plus (b) the sum of 50% of net income after income taxes (without subtracting losses) earned in each fiscal year commencing with TGC's 1998 fiscal year. 6 7 2.12 In Paragraph 7.2, the definition of tangible net worth is amended by deleting the word "subsidiaries" and the comma immediately following that word. 2.13 In Paragraph 7.4, the lead-in of the definition of liquid assets is amended to read in its entirety as follows: "Liquid assets" means the following assets of TGC calculated on a consolidated basis: 3. Representations and Warranties. When the Borrowers sign this Amendment, the Borrowers represent and warrant to the Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Agreement, except those events, if any, that have been disclosed in writing to the Bank or waived in writing by the Bank, (b) the representations and warranties in the Agreement are true as of the date of this Amendment as if made on the date of this Amendment, (c) this Amendment is within each Borrower's powers, has been duly authorized, and does not conflict with any Borrower's organizational papers, (d) this Amendment does not conflict with any law, agreement, or obligation by which any Borrower is bound, and (e) the Borrowers are entering into this Amendment on the basis of their own investigation and for their own reasons, without reliance upon the Bank or any other entity or individual. 4. Conditions Subsequent. This Amendment will remain effective only if the Bank receives, in form and content acceptable to the Bank, by no later than June 15, 1998: (a) Guaranties signed by Gym-mark, Inc., Gymboree Retail Stores, Inc., The Gymboree Stores, Inc., Gymboree Logistics Partnership, Gymboree Play Program, Inc., Gymboree Operations, Inc., Gymboree Japan K.K., Gymboree of Ireland, Ltd., Gymboree Ireland Leasing Limited, and Gymboree Hong Kong Ltd., respectively. (b) Evidence that the execution, delivery, and performance by the above-named guarantors of the above-required guaranties have been duly authorized and, whenever required by the Bank in its sole discretion, a written opinion from any such guarantor's legal counsel covering such matters as the Bank may require. The legal counsel and the forms of opinion must be acceptable to the Bank. Further, the Bank and the Borrowers acknowledge and agree that failure to satisfy the above conditions subsequent by June 15, 1998, shall constitute an event of default under the Agreement. 5. GIHL's Guaranty. By its execution of this Amendment, the Bank confirms its unilateral decision to extend to March 31, 1998, the deadline for its receipt of the guaranty. 7 8 to be signed by GIHL and the related ancillary documents required under Section 7 of Amendment No. 3 and Waiver. 6. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. This Amendment is executed as of the date stated at the beginning of this Amendment. Bank of America National Trust and Savings Association By /s/ ILLEGIBLE --------------------------------- Title Vice President ------------------------------ By --------------------------------- Title ------------------------------ The Gymboree Corporation By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ Gymboree Manufacturing, Inc. By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ 8 9 Gymboree, Inc. By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ Gymboree Industries Limited By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ Gymboree U.K., Limited By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ Gymboree U.K. Leasing Limited By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ By /s/ ILLEGIBLE --------------------------------- Title President and CEO ------------------------------ 9 EX-10.21 9 AMENDEMENT NO. 6 TO THE CREDIT AGREEMENT 1 EXHIBIT 10.21 AMENDMENT NO. 6 TO AMENDED AND RESTATED LINE OF CREDIT AGREEMENT This Amendment No. 6 (the "Amendment") dated as of March 9, 1998, is among Bank of America National Trust and Savings Association (the "Bank"), The Gymboree Corporation ("TGC"), Gymboree Manufacturing, Inc. ("GMI"), Gymboree, Inc. ("GI"), Gymboree Industries Limited ("GIL"), Gymboree U.K., Limited ("GUKL"), Gymboree U.K. Leasing Limited ("GUKLL"), Gymboree Ireland Leasing Limited ("GILL"), Gymboree of Ireland, Limited ("GOIL"), Gymboree Industries Holdings Limited ("GIHL"), Gymboree Hong Kong Limited ("GHKL"), and Gymboree Japan K.K ("GJKK"). (TGC, GMI, GI, GIL, GUKL, GUKLL, GILL, GOIL, GIHL, GHKL, and GJKK are hereinafter referred to collectively as the "Borrowers" and individually as a "Borrower"). RECITALS A. The Bank, TGC, and GMI entered into a certain Amended and Restated Line of Credit Agreement dated as of October 27, 1995, as previously amended (the "Agreement"). Pursuant to Amendment No. 1 to Amended and Restated Line of Credit Agreement dated as of July 17, 1997, GI and GIL were added as Borrowers. Pursuant to Amendment No. 2 to Amended and Restated Line of Credit Agreement dated as of August 11, 1997 ("Amendment No. 2"), GUKL was added as a Borrower for the limited purpose of making available to GUKL the new foreign exchange facility added to the Agreement by Amendment No. 2. Pursuant to Amendment No. 3 to Amended and Restated Line of Credit Agreement and Waiver dated as of January 9, 1998 ("Amendment No. 3 and Waiver"), GUKLL was added as a Borrower for the limited purpose of making standby letters of credit available to GUKLL. Standby letters of credit were also made available to GUKL pursuant to Amendment No. 3 and Waiver. Pursuant to Amendment No. 4 to Amended and Restated Line of Credit Agreement dated as of January 30, 1993, TGC's liquidity covenant was amended for and only for TGC's fiscal year ending as of January 31, 1998. Pursuant to Amendment No. 5 to Amended and Restated Line of Credit Agreement dated as of March 9, 1998, cash advances for use by TGC were made available under the Agreement, TGC's tangible net worth covenant was amended, TGC's liquidity covenant was further amended, and a requirement for certain additional guaranties was added to the Agreement. B. TGC has three wholly-owned Irish subsidiaries, GILL, GOIL, and GIHL, and a wholly-owned Japanese subsidiary, 1 2 GJKK, GIHL, in turn, has a wholly-owned Chinese subsidiary, GHKL, in addition to GIHL's wholly-owned Irish subsidiary, GIL. C. TGC, GMI, GI, GIL, GUKL, and GUKLL have requested the Bank to add GILL, GOIL, GIHL, GHKL, and GJKK as Borrowers under the Agreement for the limited purpose of making available to GILL, GOIL, GIHL, GHKL, and GJKK the foreign exchange facility added to the Agreement by Amendment No. 2. They have also requested the Bank to make the foreign exchange facility available to the existing Borrower, GUKLL. The Bank is willing to grant these requests subject to the additional terms and conditions set forth in this Amendment. D. The Bank and the Borrowers desire to amend the Agreement in order to memorialize the terms and conditions under which GILL, GOIL, GIHL, GHKL, and GJKK are added as Borrowers under the Agreement. E. The Bank and the Borrowers also desire to amend the Agreement in order to adjust the contract limit, the settlement limit, and the revaluation limit applicable to the foreign exchange facility. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 The second sentence of Paragraph 1.4 (a) is amended to read in its entirety as follows: The foreign exchange contract limit will be Fifty Million U.S. Dollars ($50,000,000), and the settlement limit will be Fifty Million U.S. Dollars ($50,000,000). 2.2 In Paragraph 1.4 (k), the amount "Seven Million Five Hundred Thousand Dollars ($7,500,000)" is substituted for the amount "One Million Dollars ($1,000,000)" as the Revaluation Limit. 2.3 The final sentence of the definition of "Subsidiary" in Paragraph 5.1 is amended to read in its entirety as follows: The term "Subsidiary" shall include GMI, GI, GIL, GUKL, GUKLL, GILL, GOIL, GIHL, GHKL, or GJKK in the event that GMI, GI, GIL, GUKL, GUKLL, GILL, GOIL, GIHL, GHKL, or GJKK is no longer a "Borrower" under this Agreement. 2 3 2.4 Paragraph 9.2(e) is amended to read in its entirety as follows: (e) GI, GIL, GUKL, GUKLL, GILL, GOIL, GIHL, GHKL, and GJKK irrevocably appoint TGC and GMI as their process agents to receive, for them and on their behalf, service of process in any legal action or proceeding with respect to this Agreement. If TGC's or GMI's chief executive office is no longer located in the State of California, GI, GIL, GUKL, GUKLL, GILL, GOIL, GIHL, GHKL, and GJKK also appoint the Secretary of State of the State of California as their process agent to receive, for them and on their behalf, service of process in any legal action or proceeding with respect to this Agreement. If for any reason GI's, GIL's, GUKL's, GUKLL's, GILL's, GOIL's, GIHL's, and GHKL's, and GJKK's process agents are unable to act as such GI, GIL, GUKL, GUKLL, GILL, GOIL, GIHL, GHKL, and GJKK shall promptly notify the Bank and within thirty (30) days appoint a substitute process agent or agents acceptable to the Bank. Nothing in this Agreement will affect the right of the Bank to serve process in any manner permitted by law. 3. GILL's, GOIL's, GIHL's, GHKL's, and GJKK's Acknowledgment. GILL, GOIL, GIHL, GHKL, and GJKK hereby acknowledge that by executing this Amendment and thereby becoming Borrowers under the Agreement for the limited purpose of entering into spot and forward foreign exchange contracts with the Bank, GILL, GOIL, GIHL, and GJKK promise and agree to perform or to be subject to, as applicable, each and every covenant, agreement, term, and obligation of the Agreement including without limitation, those which pertain to the joint and several liability of each Borrower to the Bank for the payment of all obligations under the Agreement and under any instrument or agreement required under the Agreement. 4. Representations and Warranties. When the Borrowers sign this Amendment, the Borrowers represent and Warrant to the Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Agreement, except those events, if any, that have been disclosed in writing to the Bank or waived in writing by the Bank, (b) the representations and warranties in the Agreement are true as of the date of this Amendment as if made on the date of this Amendment, (c) this Amendment is within each Borrowers' powers, has been duly authorized, and does not conflict with any Borrower's organizational papers, (d) this Amendment does not conflict with any law, agreement, or obligation by which any Borrower is bound, and (e) the Borrowers are entering into this Amendment on the basis of their own investigation and for their 3 4 own reasons, without reliance upon the Bank or any other entity or individual. 5. Conditions Precedent. This Amendment will be effective when the Bank receives, in form and content acceptable to the Bank, evidence that the execution, delivery, and performance by GILL, GOIL, GIHL, GHKL, GJKK and GUKLL of this Amendment and any instrument or agreement required under the Agreement, as amended by this Amendment, have been duly authorized. 6. Condition Subsequent and Additional Acknowledgments. This Amendment will remain effective only if the Bank receives, in form and content acceptable to the Bank, by no later than June 15, 1998, a fully signed Foreign Exchange Master Agreement entered into by GILL, GOIL, GIHL, GHKL, GJKK, GUKLL, and the Bank (as amended, modified or renewed, the "1998 FEMA"). Each such Borrower acknowledges and agrees that all foreign exchange transactions entered into between such Borrower and the Bank shall be subject to the provisions of the Agreement and the 1998 FEMA. In the event of any conflict or inconsistency between the provisions of the Agreement and the provisions of the 1998 FEMA, the provisions of the 1998 FEMA shall control. The occurrence of an Event of Default under the FEMA shall also constitute a event of default under the Agreement. Further, the Bank and the Borrowers acknowledge and agree that failure to satisfy the above condition subsequent by June 15, 1998, shall constitute an event of default under the Agreement. 7. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. Further, nothing in this Amendment shall release TGC, GMI, GI, GIL, GJKL, or GUKLL from any of its obligations under the Agreement. This Amendment is executed as of the date stated at the beginning of this Amendment. Bank of America National Trust and Savings Association By /s/ [ILLEGIBLE] --------------------------------- Title ------------------------------ By --------------------------------- Title ------------------------------ 4 5 The Gymboree Corporation By /s/ GARY WHITE --------------------------------- Title President and CEO ------------------------------ By /s/ CHARLENE S. GOLD --------------------------------- Title Assistant Secretary ------------------------------ Gymboree Manufacturing, Inc. By /s/ GARY WHITE --------------------------------- Title President and CEO ------------------------------ By /s/ CHARLENE S. GOLD --------------------------------- Title Assistant Secretary ------------------------------ Gymboree, Inc. By /s/ GARY WHITE --------------------------------- Title President and CEO/Director ------------------------------ By /s/ CHARLENE S. GOLD --------------------------------- Title Assistant Secretary ------------------------------ Gymboree Industries Limited By /s/ GARY WHITE --------------------------------- Title President and CEO/Director ------------------------------ By /s/ CHARLENE S. GOLD --------------------------------- Title Director ------------------------------ 5 6 The Gymboree U.K. Limited By /s/ GARY WHITE ---------------------------------- Title Director/President and CEO ------------------------------- By /s/ CHARLENE S. GOLD ---------------------------------- Title Assistant Secretary ------------------------------- Gymboree U.K. Leasing Limited By /s/ GARY WHITE ---------------------------------- Title Director/President and CEO ------------------------------- By /s/ CHARLENE S. GOLD ---------------------------------- Title Assistant Secretary ------------------------------- Gymboree Ireland Leasing Limited By /s/ GARY WHITE ---------------------------------- Title Director/President and CEO ------------------------------- By /s/ CHARLENE S. GOLD ---------------------------------- Title Director/Assistant Secretary ------------------------------- Gymboree of Ireland, Limited By /s/ GARY WHITE ---------------------------------- Title Director/President and CEO ------------------------------- By /s/ CHARLENE S. GOLD ---------------------------------- Title Director/Assistant Secretary ------------------------------- 6 7 Gymboree Industries Holdings Limited By /s/ GARY WHITE ---------------------------------- Title Director/President and CEO ------------------------------- By /s/ CHARLENE S. GOLD ---------------------------------- Title Director/Asst. Sec. ------------------------------- Gymboree Hong Kong Limited By /s/ GARY WHITE ---------------------------------- Title Director/President and CEO ------------------------------- By /s/ CHARLENE S. GOLD ---------------------------------- Title Director/Asst. Sec. ------------------------------- Gymboree Japan K.K. By /s/ GARY WHITE ---------------------------------- Title Director/President and CEO ------------------------------- By /s/ CHARLENE S. GOLD ---------------------------------- Title Director/Asst. Sec. ------------------------------- 7 EX-10.22 10 ACQUISITION AND DEVELOPMENT AGREEMENT 1 ACQUISITION AND DEVELOPMENT AGREEMENT This Acquisition and Development Agreement (the "Agreement) is entered into on this ___ day of November, 1996 by and between THE GYMBOREE CORPORATION, a Delaware corporation (hereinafter "TGC"), and CARL D. PANATTONI and WICKLAND PROPERTIES) a California corporation (hereinafter individually and collectively, "Developer"). RECITALS WHEREAS: A. Developer is the owner of a certain tract of land in Dixon, California as generally outlined on the attached Exhibit A (the "Tract"); and B. Developer intends to develop the Tract into a business park to be called the Dixon Commerce Center (the "Business Park") for lease or sale for purposes of industrial, warehouse, distribution, research and development, and similar uses; and C. TGC wishes to locate the Project in the Business Park on certain terms and conditions. NOW THEREFORE, in consideration of the mutual promises and covenants as incorporated herein, the parties do agree as follows: 1. DEFINITIONS "Agreement." This Acquisition and Development Agreement. "Closing" or "Close of Escrow." Recordation of the Deed. "Closing Date." That date upon which Closing occurs, in no event to occur earlier than five (5) business days after completion of all of the conditions of this Agreement. "Code." The Internal Revenue Code of 1986 as amended. "Construction Contract." The Agreement between TGC (as the "Owner") and Developer (as the "Design/Builder") in a form to be mutually agreed upon by the parties hereto within thirty (30) days after execution of this Agreement and attached hereto as Exhibit E and made a part hereof by reference. "Contingency Period." The period of time commencing on the date of execution hereof (the "Execution Date") and ending at 5:00 p.m. PDT on the fifteenth (15th) business day after the Execution Date. "Deed." The Grant Deed conveying title to the Property as provided Section 3.5(a). "Deposit." An amount equal to Twenty Thousand and no/100 Dollars ($20,000). -1- 2 "Developer Offsite Improvements." Infrastructure improvements to be constructed by Developer in connection with the development of the Business Park consisting of storm drainage to the property line of the Property in accordance with plans and specifications reasonably approved by TGC, sufficient for the City of Dixon to issue a certificate of occupancy upon completion of the building and exterior areas on the Property, without the necessity for completion of any further Offsite Improvements. In no event shall the Developer Offsite Improvements include either the Preliminary Offsite Improvements or the Secondary Offsite Improvements as defined herein. "Disapproved Exceptions." The exceptions to title described in the Preliminary Report to which TGC objects by written notice to Developer within the Review Period. "East Street. That certain street running from Vaughn Road along the eastern boundary of the Property as shown on Exhibit C attached hereto. This is a definition for identification purposes only in this Agreement and does not imply that the name of the street shall be other than as may be mutually agreeable to Developer and TGC. "Environmental Laws." (See "Hazardous Materials" below.) "Escrow." That certain escrow to be opened with the Escrow Holder in respect of this Agreement and the Closing thereof Escrow Holder. Chicago Title Company, 388 Market Street, 13th Floor, San Francisco, California 94111; telephone (415) 788-0871, fax (415) 956-2175. "Force Majeure." As used in this Agreement, the term "Force Majeure" means delay resulting from causes beyond a party's reasonable control (excluding financial reasons) such as strikes, walkouts or other labor disputes, acts of God, inability to obtain labor, materials or merchandise, governmental restrictions, regulations or controls, judicial orders, war, riot or civil commotion, fire or casualty. The party obligated to perform shall give prompt notice to the other as soon as reasonably possible after the onset of such delay stating the cause and an estimate of the duration thereof. "Hazardous Materials." Any wastes, materials or substances (whether in the form of liquids, solids or gases, and whether or not air-borne), which are or are deemed to be pollutants or contaminants, or which are or are deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or injurious, or which present a risk, to public health or to the environment, or which are or may become regulated by or under the authority of any applicable local, state or federal laws, judgments, ordinances, orders, rules, regulations, codes or other governmental restrictions, guidelines or requirements, any amendments or successor(s) thereto, replacements thereof or publications promulgated pursuant thereto (collectively "Environmental Laws"). "Land Entitlement Permit(s)." Any and all permits or approvals required by any governmental authority precedent to TGC's ability to legally construct the Project upon the Property including, without limitation, zoning, general plan designation, design or architectural review and approval, zoning variance, planned unit development approval, environmental -2- 3 impact report, building permit, subdivision map, sewer permit, water permit, or any permit required by any governmental agency or authority in order to construct the Project as designed by TGC. "Monetary Exceptions." Exceptions to fee simple absolute title to the Property which are removable by the payment of a liquidated sum of money. "Nonmonetary Exceptions." Exceptions to fee simple absolute title to the Property which are not removable by the payment of a liquidated sum of money. "Offsite Improvements." The Developer Offsite Improvements, Preliminary Offsite Improvements and Secondary Offsite Improvements shall be known collectively herein as the "Offsite Improvements". "Preliminary Offsite Improvements." All common infrastructure "improvements constructed or to be constructed in connection with the development of the Business Park including construction, installation, paving and lighting of Vaughn Road (and including the Vaughn Road Project, as defined in Section 5.3(a) hereof), and provision of gas, sewer, electricity, telephone and water to the property line of the Property (including provision of sewer and water on East Street in general conformance with those drawings furnished by Developer attached hereto and incorporated herein as Exhibit J), all in accordance with plans and specifications reasonably approved by TGC within fifteen (15) business days after receipt thereof, all sufficient for the City of Dixon to issue a certificate of occupancy upon completion of the building and exterior areas on the Property, without the necessity for completion of any further Offsite Improvements. In no event shall the Preliminary Offsite Improvements include either the Developer Offsite Improvements or the Secondary Offsite Improvements as defined herein. "Preliminary Report." A report of the status of title issued by Escrow Holder's title insurance divisions describing the state of title to the Property. "Project." TGC's distribution facility to be constructed and located on the Property. "Project Plans." Plans and specifications for construction of the Project on the Property prepared under the direction of TGC in accordance with the guideline specifications attached hereto as Exhibit D, and the Construction Contract. "Property." All that certain real property described in Exhibit B and delineated in Exhibit C attached hereto and made a part hereof by reference, along with all mineral rights, easements, hereditaments and appurtenances pertaining thereto. "Purchase Price." An amount equal to Seven Hundred Ninety-Three Thousand Five Hundred and no/100 Dollars ($793,500). "Restrictions." That certain declaration of restrictions, or covenants, conditions and restrictions which will encumber the Tract and which shall govern the use, design, -3- 4 maintenance, architecture, construction and other related features of the appearance and operation of the Business Park. "Review Period." A period ending on the last to occur of fifteen (15) business days from and after (i) the date TGC receives the Preliminary Report together with copies of all instruments giving rise to the exceptions contained therein, or (ii) the date TGC receives notice from the Developer that the tentative subdivision map for the Business Park has been approved by the City of Dixon. "Secondary Offsite Improvements." Construction, installation, paving, lighting and hydrants in the streets of the Business Park (other than as set forth above under the Preliminary Offsite Improvements) including, without limitation, East Street, all in accordance with plans and specifications reasonably approved by TGC within fifteen (15) business days of receipt thereof. In no event shall the Secondary Offsite Improvements include either the Developer Offsite Improvements or the Preliminary Offsite Improvements as defined herein. "Situs State." The State of California. 2. PROPERTY Subject to all of the terms, conditions and provisions of this Agreement, and for the consideration herein set forth, Developer hereby agrees to convey and TGC hereby agrees to accept conveyance of the Property. 3. ESCROW 3.1. Opening of Escrow. Within two (2) business days after the execution of this Agreement by both parties, 2 signed copy of this Agreement shall be deposited by TGC with the Escrow Holder in order to open the Escrow. References herein to the opening of Escrow shall mean the date that a copy of this Agreement is deposited with Escrow Holder. By such deposit, Escrow Holder is hereby authorized and instructed to act in accordance with the provisions of this Agreement, which Agreement together with Escrow Holder's standard general provisions, shall constitute Escrow Holder's escrow instructions. Developer and TGC shall each deposit such other instruments and funds as are necessary to close the Escrow and complete the conveyance of the Property in accordance with the terms hereof. 3.2, The Closing Date, The Escrow is scheduled to close at the offices of the Escrow Holder after satisfaction of all conditions set forth in this Agreement unless extended by the mutual written agreement of both parties. Time is specifically a matter of essence with respect to the Closing Date, which may not be extended except by mutual consent of the parties. If Escrow shall fail to close because of failure of TGC to comply with the obligations required to be performed by TGC hereunder, the costs incurred through the Escrow to the date the Escrow is terminated, including the cost of the Preliminary Report, shall be paid by TGC. If the Escrow shall fail to close because of failure of Developer to comply with the obligations required to be performed by Developer hereunder, such costs, without limitation of TGC's remedies, shall be paid by Developer. If the Escrow should fail to close for any other reason, the cost of terminating the Escrow shall be divided between the parties. -4- 5 3.3. Execution of Additional Instructions. The obligations of each party which are herein agreed to be undertaken by each party in the Escrow shall be and are hereby made agreements of such party in and under this Agreement independent of the Escrow. If any requirements relating to the duties or obligations of Escrow Holder hereunder are not acceptable to Escrow Holder, or if Escrow Holder requires additional instructions, the parties agree to make such deletions, substitutions and additions to these escrow instructions relating to such duties or obligations of Escrow Holder or clarification of these instructions as counsel for Developer and for TGC shall mutually approve, and which do not substantially change this Agreement or its intent. Developer and TGC agree to perform, observe and fulfill the requirements of this Agreement notwithstanding said deletions, substitutions or additions to said escrow instructions. 3.4. Closing Costs. Subject to the provisions of Section 3.2 above, the expenses of the Escrow shall be paid by Developer including: (i) an amount equal to the premium for a CLTA Standard Coverage Policy (1990), (ii) any documentary transfer tax on the Deed, and (iii) all sales and excise taxes. TGC shall pay (1) recording charges, (2) Escrow fees and (3) the balance of the premium for the Title Policy which is not paid for by Developer pursuant to clause (i) of this Section 3.4. All other costs and charges of the Escrow for the sale shall be prorated between TGC and the Developer in accordance with the customary practices of Solano County, California. 3.5. Documents to be Delivered by Developer. At the Closing Developer shall deposit into Escrow, for delivery to TGC at the Close of Escrow, the following documents: (a) The Deed fully executed, in recordable form, sufficient to convey marketable and insurable fee simple title to the Property as previously approved by TGC, in form reasonably satisfactory to TGC. (b) An assignment to TGC of all land use entitlements, permits and licenses held by Developer relating to the Property or required from governmental authority as a condition to operation or occupation of the Property or any part thereof, together with the originals or true copies thereof. (c) Such funds necessary to comply with Developer's obligations hereunder regarding prorations. (d) The affidavit or the qualifying statement described in Section 8.4(a). (e) The certificate specified in Section 10.1(a)(xii). (f) The title policy specified in Section 7.2. (g) A true copy of the recorded Restrictions. (h) The recorded Option specified in Article 6. All assignments and other documents hereinabove described shall be in form reasonably satisfactory to TGC's counsel. -5- 6 4. PURCHASE PRICE AND DEPOSIT 4.1. Purchase Price. The Purchase Price shall be paid in cash on the Closing Date. 4.2. Assumption of Bonds. At the Closing TGC shall assume any special assessment bonds encumbering the Property in respect of off-site improvements performed for the benefit of the Business Park, which bonds are amortized over not less than fifteen years when assessed and for which the installment payments are includable with the real property tax bill (the "Bonds"). 4.3. Deposit. (a) Upon opening of Escrow, TGC shall deliver the Deposit to the Escrow Holder. The Deposit shall be placed in an interest bearing account at the direction of TGC. All interest earned on such account shall belong to and be remitted to TGC. (b) Seller agrees that on or before December 31, 1996, the Escrow Holder is directed and authorized to take instruction solely from Buyer regarding the release of the Deposit, and Seller does hereby so instruct the Escrow Holder. Upon Close of Escrow, the Escrow Holder shall release the Deposit to Buyer so long as adequate replacement funds are available in Escrow, or apply the Deposit to the Purchase Price, at the option of Buyer. 5. DEVELOPER OBLIGATIONS 5.1. Construction Pricing. (a) In the event that a Construction Contract is entered into between TGC and Developer, Developer shall prepare cost estimates and bids for the construction of the Project in accordance with the Project Plans. Within fifteen (15) days following submittal of the final version thereof to Developer, Developer shall submit the completed Construction Contract for the Project, the cost of which shall not exceed Seven Million Eight Hundred Thirty-Three Thousand Seven Hundred Twenty-Four Dollars ($7,833,724) based upon the Proposal. Such Construction Contract shall specify that the Project shall be completed no later than December 1, 1997; and that TGC shall have access to the Project for installation of equipment, supplies and other improvements no later than September 1, 1997. The contract price maximum referenced above shall be exclusive of governmental fees and costs of the Offsite Improvements, but shall include all development services to be provided by Developer, most particularly including, without limitation, all services required to process approval of the Project through all governmental agencies from whom Land Entitlement Permits may be required, including the City of Dixon, the County of Solano and relevant state agencies. (b) TGC Construction Option. TGC shall have no obligation to enter into the Construction Contract with Developer. 5.2. Closing and Prorations. (a) All expenses of the Property shall be prorated and apportioned as of 12:01 a.m. on the Closing Date, in order that Developer bear all expenses with respect to the -6- 7 Property through and including midnight of the day preceding the Closing Date. Any expense amount which cannot be ascertained with certainty as of the Closing Date shall be prorated on the basis of the parties' reasonable estimates of such amount and shall be the subject of a final proration 30 days after the Closing Date or as soon thereafter as the precise amounts can be ascertained. A statement setting forth such agreed prorations shall be delivered to Escrow Holder. Escrow Holder shall not be required to calculate any prorations. (b) Expenses to be prorated shall include taxes, water rates and sewer rents, if any, gas, electricity and other utility charges, any unfixed meter charges, if any (apportioned on the basis of the last meter reading), and other expenses customarily prorated. If possible, in lieu of prorating, utilities and other expenses shall be contracted for in the name of TGC as of the Closing Date. 5.3. Offsite Improvements. (a) The Developer Offsite Improvements shall be completed by Developer by no later than June 1, 1997. Preliminary Offsite Improvements shall be completed by no later than December 31, 1996; provided, however, that if Force Majeure prevents completion of the widening and resurfacing of Vaughn Road (the "Vaughn Road Project") by December 1, 1996, the time allowed hereunder for completion of the Vaughn Road Project shall be extended for a period equivalent to the period of such delay caused by the Force Majeure events. All Secondary Offsite Improvements which are required by the City of Dixon or other applicable governmental agency to be completed by Developer shall be completed by no later than June 1, 1997. Plans and specifications for the Offsite Improvements shall be provided to TGC by no later than ten days following date of execution hereof and TGC shall have ten (10) business days thereafter in which to either grant its approval or deny approval by providing written specification of the reasons therefor. The parties acknowledge that TGC is materially relying upon Developer to complete its obligations as set forth herein so that the Project can be completed in a manner which will allow TGC to obtain working occupancy of the Project for use as a distribution facility by December 1, 1997. In the event the Offsite Improvements required to be completed by Developer are not completed by the respective dates set forth herein, the parties acknowledge that TGC will suffer damage arising from TGC's need to commence and complete the Project in the manner described in this Section 5.3(a), Developer shall be responsible for such consequential damages, in addition to and cumulative with any other remedies available to TGC or at law, or in equity, or under the provisions of this Agreement. (b) Upon completion of the Offsite Improvements as set forth above, TGC shall pay to Developer the sum of $150,000 cash as its contribution to the costs thereof. For purposes hereof, the term "completion" shall mean that the City of Dixon and the State of California shall have approved all of the Offsite Improvements and shall require no further work of construction or installation be performed with respect thereto. (c) The plans and specifications for the Secondary Offsite Improvements to East Street shall: -7- 8 (i) include either a loop road or road terminating in a legal cul de sac or other satisfactory means for providing adequate access for fire protection purposes; and (ii) to the extent the Secondary Offsite Improvements are not to be completed by the City of Dixon or any subdivision thereof, be completed by June 1, 1997, including storm drain, the storm drainage retention pond to be located in the Business Park and to which the Property shall be connected by Developer, and all other improvements to be completed by Developer as set forth in the plans and specifications. 5.4. Restrictions. Developer has prepared and delivered to TGC a set of Restrictions for recordation as an encumbrance upon all parcels of property in the Business Park. Within fifteen (15) business days following date of execution hereof, TGC shall provide to Developer TGC's comments and suggested revisions thereto. The parties shall thereafter negotiate in good faith to develop a set of Restrictions reasonably agreeable to both parties reflecting the development of a first class Business Park in the Northern California industrial market and further reflecting the high standards required by TGC. The Restrictions shall "include a requirement that Vaughn Road be permanently landscaped for its entire length; and that East Street be permanently landscaped on both sides of the street for its entire length upon which the Property fronts upon development thereof, which landscaping shall be subject to common maintenance. 5.5. Payment of Adjustments to Proration. Either party owing the other party a sum of money based on adjustments made to prorations after the Closing Date shall promptly pay that sum to the other party, together with interest thereon at the rate of the lesser of (i) the maximum interest rate permitted by law in the Situs State and (ii) thirteen and one-half percent (13.5%) per annum, to the date of payment if payment is not made within 10 days after mutual agreement of the amount due. 5.6. Plans and Specifications. In the event a Construction Contract is entered into between TGC and Developer as provided in Section 8.9 hereof, Developer shall undertake the preparation of the Project Plans upon execution thereof, such Project Plans to be developed based upon the schematics provided by TGC as described in that certain proposal dated July 22, 1996 from Developer to TGC, a copy of which is attached hereto and incorporate herein as Exhibit H (the "Proposal"). Developer shall consult and cooperate with TGC in the development of the design and in the preparation of cost estimates for the construction of the Project in accordance with the Project Plans. Each party shall act diligently and with expedition. 5.7. No Construction Contract. In the event that no Construction Contract is entered into between TGC and Developer on or before the date specified in Section 8.9, Developer shall have no obligation to undertake preparation of the Project Plans as set forth in Section 5.6. 6. OPTION LAND On the Closing Date, Developer shall grant to TGC the option to acquire the land abutting the Property as delineated in Exhibit F (the "Option Land"), in the form of the option -8- 9 attached hereto as Exhibit G (the "Option") and made a part hereof by reference. On the Closing Date, the Option shall be recorded in the official records of Solano County. 7. TITLE CONDITION OF THE PROPERTY 7.1. Preliminary Report. As soon as reasonably possible after the opening of Escrow, Escrow Holder shall deliver to TGC a Preliminary Report together with copies of all instruments giving rise to the exceptions contained in the Preliminary Report. TGC shall have the right to object to any exceptions contained in the Preliminary Report within the Review Period. Should TGC fail to make any objections by notice to Developer within the Review Period, the Preliminary Report shall be deemed approved. In the event TGC objects to any exceptions contained in the-Preliminary Report, Developer shall have until the Closing Date to attempt, using its best efforts, to clear all Disapproved Exceptions which efforts shall include, if necessary, the posting of bonds to clear recorded liens. Upon receipt of notice of TGC's Disapproved Exceptions, Developer shall: (i) clear all Monetary Exceptions at Closing, and (ii) have until the Closing Date to attempt, using its best efforts, to clear all Nonmonetary Exceptions or advise TGC that, based upon Developer's good faith judgment with respect to the removability of such Nonmonetary Exceptions, Developer is unwilling or unable to remove such items. Developer shall obtain and deliver to Escrow Holder a demand for payment from any lien holder of record whose lien is to be discharged at the Close of Escrow, and after approval of such demand by Developer, Escrow Holder shall pay such demand at the Close of Escrow. In the event Developer cannot remove from title any Disapproved Exception by the Close of Escrow, TGC shall have the right to elect one of the following alternatives: (a) to waive such Disapproved Exceptions and close the Escrow, or (b) terminate this Agreement. 7.2. Title Insurance. At the Close of Escrow and as a condition thereto, the title insurer shall issue a firm commitment to provide an ALTA Owners Extended Form (B-1970) Policy of Title Insurance to TGC containing such endorsements as TGC's counsel may reasonably require, with liability in the amount of the Purchase Price (the "Title Policy"), to be issued on commencement of Construction of the Project, showing title to the Property vested in TGC, subject only to the exceptions approved by TGC pursuant to Section 8.1 above and to the non-delinquent real property taxes and special assessments referred to in Section 5.2 above. Indemnification of the Title Insurer by Developer or any other party, in order to induce the Title Insurer to insure any otherwise Disapproved Exception, or to obtain any endorsement required by TGC, shall not be allowed except with the prior written consent of TGC after full disclosure to TGC of the nature and substance of the indemnity in the matter to be indemnified against. 8. CONDITIONS TO TGC's OBLIGATION 8.1. Contingency Period. (a) As a condition to TGC's obligation to purchase hereunder, TGC shall be entitled to examine the Property, documents, and other information specified in Section 8.2, -9- 10 along with such other economic, governmental, development and marketing feasibility, and physical studies and analyses as TGC may require, which examination, analyses and studies shall be completed within the Contingency Period. Developer shall cooperate with TGC and will assist in obtaining and providing information requested by TGC. (b) Developer shall provide, to the extent available to Developer, such information, documents, data, and access no later than five (5) days from date of execution hereof and failure to do so shall extend the Contingency Period by one (1) day for each day of delay. The conditions of this Article 8 are for the benefit of TGC, any or all of which may be waived by TGC in writing, at TGC's sole option. 8.2. Access and Information. (a) Developer shall provide to TGC the following with respect to the Property: (i) Access to the Property by TGC, its agents or representatives to inspect the physical condition of every portion thereof, including, without limitation, soils reports, geology, archaeology, hazardous waste, asbestos, endangered species, availability, capacity and costs of utilities. (ii) Any other information pertaining to the Property reasonably requested by TGC to the extent such information is available to Developer. (b) TGC agrees to indemnify and hold Developer harmless against any and all liability, loss, cost, damage or expense (including reasonable attorneys' fees and costs) which Developer may sustain or incur by reason of the negligence or intentional act of TGC, its agents or representatives in conducting inspections of the Property pursuant to Paragraph (a)(i) of this Section 8.2. 8.3. Intentionally Omitted. 8.4. Notice. If TGC approves all of the above, which TGC may do or refuse to do in its sole subjective judgment, it shall so notify Developer prior to the expiration of the Contingency Period. If TGC does not notify Developer that it has approved the above items, this Agreement shall become null and void and the Deposit shall be returned to Buyer forthwith, upon the expiration of the Contingency Period, and there shall be no further obligation on the part of either party. 8.5. Foreign Person. (a) As a condition to the closing of this transaction, Developer shall deliver to TGC on the Closing Date (or such earlier date as may be required pursuant to regulations promulgated by the Secretary of the Treasury under Section 1445 of the Code an affidavit of Developer, or an authorized officer of Developer, sworn under penalty of perjury setting forth Developer's United States tax identification number and stating that Developer is not a foreign person, and is an United States Person as defined in the Code. -10- 11 (b) It is understood and agreed that in lieu of furnishing such nonforeign affidavit Developer may furnish to TGC a qualifying statement issued by the United States Treasury, at such time and in such manner and subject to such terms and conditions as may proscribed by regulations and promulgated under Code Section 1445. Such qualifying statement shall be in form and content satisfactory to TGC's counsel and shall provide adequate assurance that Developer has met its obligations with respect to the taxation of foreign persons and entities under the Code. (c) If by the Closing Date Developer shall not have furnished to TGC either the affidavit specified in paragraph (a) or the qualifying statement described in paragraph (b) hereof with respect to this transaction, or such Statement is false, TGC may at its option either: (i) adjourn the Closing until such time as Developer has complied with the conditions set forth herein, and such adjournment shall not place TGC in default of its obligations hereunder; or, alternatively, (ii) TGC may withhold from the Purchase Price payable to Developer at Close of Escrow and remit to the Internal Revenue Service, a sum equal to ten percent (10%) of the gross selling price of the Property in accordance with the withholding obligations imposed upon TGC pursuant to Code Section 1445. Such withholding shall not place TGC in default under this Agreement, and Developer shall not be entitled to claim that such withholding shall excuse Developer's performance under the Agreement. 8.6. Waiver. In the event of a breach by Developer of any of its covenants, representations, warranties or other agreements set forth in this Agreement, TGC may elect (i) nevertheless to proceed with the purchase of the Property, reserving all of its other rights and remedies available to it under this Agreement or otherwise at law or in equity including, without limitation, the right to collect damages for such breach from Developer and the right to indemnification as provided in Article 12, or (ii) to terminate this Agreement by written notice to Developer delivered prior to Closing, and upon such termination TGC shall be relieved of all further obligations hereunder. 8.7. Approval of Board of Directors. This Agreement is subject to approval of the Board of Directors of TGC on or before the expiration of the Contingency Period. 8.8. Closing Deliveries. Developer shall have timely met all of its requirements for delivery of closing materials as provided in Section 3.5. 8.9. Intentionally Omitted. 8.10. Performance Conditions. (a) The Closing shall not occur earlier than five (5) business days after the last to occur of the following: (i) Receipt by TGC of written notice from the City of Dixon that the City of Dixon Planning Commission has approved the plans and specifications for the Business Park and the Project. -11- 12 (ii) The Preliminary Offsite Improvements have been completed, except that completion of the Vaughn Road Project shall not be required as a condition of Closing under this Section 8.10(a). (iii) Receipt by TGC of written assurance from the City of Dixon (the "Letter of Assurance") substantially in the form attached hereto as Exhibit I stating that: (A) the City of Dixon Building Department will issue building permit for construction of the Project which is not conditioned upon completion of the Offsite Improvements; and (B) a certificate of occupancy (or a temporary certificate of occupancy, as the case may be) will be issued by the City of Dixon upon completion of the Project in accordance with the terms of the building permit, notwithstanding lack of completion of East Street or lack of completion of the storm drainage retention pond to be located in the Business Park and to which the Developer shall connect the Property. (iv) Conveyance to Developer of that certain irrigation parcel marked by crosshatch on Exhibit F attached hereto, which comprises a portion of the Option Land, including, without limitation, removal of that certain easement shown on Exhibit F as 20' Access and Water Line Easement to SID and City of Dixon BK 1990 - Inst. No. 900078258. (v) The Developer has provided the City of Dixon with a bond sufficient to ensure completion of East Street as set forth in the subdivision map approved by the City of Dixon of which the Property is a part. (vi) Modification of that certain easement shown on Exhibit C as 20' PSE per 36 PM 14 to (1) modify the north-south length of such easement so that such easement extends from Vaughn Road south for a distance of two hundred (200) feet (the "200 Foot Length") and (2) widen the east-west width of such easement to forty (40) feet along the entire 200 Foot Length. (vii) At TGC's option, the parties shall have executed a letter of intent for the Construction Contract pursuant to which Developer shall agree to design and build the Project in accordance with the terms thereof; provided, however, that in the event the parties hereto have not executed and/or acknowledged and accepted a letter of intent setting forth the terms of the Construction Contract on or before December 16, 1996, any such letter of intent and/or Construction Contract shall be deemed to be null and void and TGC shall have the right, at its option, to terminate this Agreement by written notice to Developer on or before December 31, 1996. In the event TGC elects to terminate this Agreement as provided in this Section 8.10(a)(vii), this Agreement shall become null and void upon receipt by Seller of notice from TGC of same, the Deposit shall be returned to TGC forthwith, and there shall be no further obligation on the part of either party. (viii) The parties shall have developed and executed the Restrictions as provided in Section 5.4 hereof. (b) Developer shall not be deemed to have breached this Agreement in the event one or more of the conditions of Section 8.10(a) cannot be fulfilled for reasons other than the act or omission of Developer. Notwithstanding the preceding sentence, if the Closing has -12- 13 not occurred by March 1, 1997, TGC, at its option may terminate this Agreement by written notice to Developer. 9. MISCELLANEOUS DATA TO BE PROVIDED BY DEVELOPER 9.1. Survey. Developer shall obtain, at its cost and expense, a survey of the Property, showing the boundaries thereof, the location of all improvements thereon and the location of all recorded easements which affect the Property in form and substance sufficient to enable the title insurer to issue an ALTA policy as described in Section 7.2 hereof. Developer shall provide TGC with a copy of the survey and shall deliver a copy to the title insurer to permit it to issue its required title insurance. 9.2. Assignment of Warranties. At the Closing Developer will assign to TGC all warranties which it may have from vendors, contractors or servicing agents with respect to the physical condition of the Property. 10. WARRANTIES AND REPRESENTATIONS 10.1. Warranties and Representations by Developer. (a) Developer hereby makes the following additional representations, covenants and warranties and acknowledges that the execution of this Agreement by TGC has been made and the acquisition by TGC of the Property will have been made in material reliance by TGC on such covenants, representations and warranties. (i) Litigation. To the best knowledge and belief of Developer, there is presently no claim, litigation, proceeding or governmental investigation pending or threatened against or relating to the Property or the transactions contemplated hereby. Developer shall give TGC immediate notice of any such claim, litigation proceeding or investigation which becomes known to it prior to the Closing Date. (ii) Compliance with Laws. No notice of violation of any applicable zoning regulation or ordinance or other law, order, ordinance, permit, rule, regulation or requirement, or any covenants, conditions or restrictions affecting or relating to the use, operation or occupancy of the Property has been given to Developer by any governmental agency having jurisdiction or by any other person entitled to enforce the same; to the best knowledge and belief of Developer, the Property conforms to all applicable ordinances and other laws, order, ordinances, permits, rules, regulations and requirements, and to all covenants, conditions and restrictions affecting or relating to the use, operation or occupancy of the Property. (iii) Environmental. (A) To the best knowledge and belief of Developer, as of the date of this Agreement and the date of Close of Escrow, Developer and the Property are not and will not be in violation of any federal, state or local law, ordinance or regulation relating to industrial hygiene, soil, water, or environmental conditions on, under or about the Property including, but not limited to, the Environmental Laws. -13- 14 (B) To the best knowledge and belief of Developer, during the period that Developer has owned the Property there has been no use, presence, disposal, storage, generation, release, or threatened release (as those terms are used in the Environmental Laws, and hereinafter collectively referred to as "Use") of Hazardous Materials on, from or under the Property, except as previously disclosed by Developer to TGC in writing. (C) Developer has no knowledge of any Use of Hazardous Materials, on, from or under the Property which may have occurred prior to Developer taking title to the Property, except as previously disclosed by Developer to TGC in writing. (D) During the period that Developer has owned the Property, there has been no enforcement action or litigation brought or threatened against Developer or the Property, nor any settlements reached by or with any party or parties alleging the Use of any Hazardous Materials on, from or under the Property, except as previously disclosed by Developer to TGC in writing. (iv) Foreign Person. Developer is not a foreign person and is a "United States Person" as such term is defined in Section 1445 of the Internal Revenue Code of 1986 as amended. (v) Permits. Developer has obtained all licenses, permits, easements and rights of way required from all governmental authorities having jurisdiction over the Property or from private parties for the use of the Property and to insure vehicular and pedestrian ingress and egress to the Property. (vi) Public Improvements. To the best knowledge and belief of Developer, there are presently no intended public improvements which will result in any charge being levied or assessed against the Property or in the creation of any lien upon the Property. Developer shall promptly notify TGC of any changes affecting this representation, of which it becomes aware prior to the Closing Date. (vii) Condemnation. To the best knowledge and belief of Developer, there is presently no pending or contemplated condemnation of the Property or any part thereof. Developer shall promptly notify TGC of any changes affecting this representation of which it becomes aware prior to the Closing Date. (viii) Utilities. All utilities necessary to service the Property will be available to the Property at the Closing Date, or upon completion of the Offsite Improvements, without the consent of any other person, firm or corporation and without expense (other than normal and usual security deposits or bonds) to TGC. (ix) Access. There are no facts or conditions which will result in the termination of the present access from the Property to any utility services or to existing highways and roads. (x) Default. The closing of the various transactions contemplated by this Agreement will not constitute or result in any default or event that with a notice or lapse of time, or both, would be a default, breach or violation of any lease, mortgage, deed of trust, -14- 15 covenant or other agreement, instrument or arrangement by which Developer or the Property are bound, or any event which would permit any party to accelerate the maturity of any indebtedness or other obligation. No consent or joinder by any Partner of Developer is required for this Agreement or the performance of Developer's obligations hereunder. (xi) Defects. To the best knowledge and belief of Developer, at the Closing Date, there will be no defects or conditions of the Property or the soil which will impair the use of such Property, nor are there presently, nor will there be in the future, any encroachments onto the Property. (xii) Subsequent Changes in Conditions. If Developer becomes aware of any fact or circumstances which would change a representation or warranty, then Developer will immediately give notice of such changed fact or circumstance to TGC, but shall not relieve Developer of its liabilities or obligations with respect thereto (except as described in Subsection (b)). Developer shall issue a certificate at the Closing Date stating that all of the representations and warranties contained in this Section are true and correct as of said date, except as to facts, if any, concerning which TGC was notified. (xiii) Authority of Developer. Wickland Properties is a corporation duly organized and validly existing and in good standing under the laws of the State of California. Developer has the authority to own and convey the Property, this Agreement and all documents executed by Developer which are to be delivered to TGC at the Closing are or at the time of Closing will be duly authorized, executed and delivered by Developer and do not and at the time of Closing will not violate any provisions of any agreement or judicial order to which Developer is a party or to which Developer or the Property is subject. (xiv) Property Tax Assessment. Notwithstanding any other provision of this Agreement to the contrary, if TGC shall become liable after the Closing for payment of any property taxes assessed against the Property for any period of time prior to the Closing Date, Developer shall immediately pay to TGC on demand an amount equal to such tax assessment in accordance with Section 5.6. (b) Status At and After Closing. All representations and warranties contained in Subsection (a) of this Section or made in writing by Developer in connection with the transaction herein provided for shall be true and correct on the date hereof, and on the Closing Date except to the extent TGC has been notified to the contrary after the date hereof and prior to Closing Date, and liability for misrepresentation or breach of warranty or covenant shall survive the execution and delivery of this Agreement and the Closing; provided, however, that Developer shall not be deemed to have breached this Agreement in the event such representation or warranty is subsequently not true or correct due solely to the act or omission of an entity or person other than Developer and Developer has so notified TGC. It is agreed that TGC's damages resulting from misrepresentation or breach of warranty or covenant by Developer shall include all loss, damage, liability or expense, including court costs and reasonable attorney's fees, reasonably incurred or sustained by TGC in connection therewith. (c) TGC's Rights. Upon notification of any fact which would change any of the representations or warranties contained herein or would otherwise constitute a breach -15- 16 thereof, TGC shall have the option of (i) waiving the breach of warranty or change, reserving all of its rights and remedies in respect thereof available at law, or in equity, or under the terms hereof, (ii) agreeing with Developer to adjust the terms hereof to compensate TGC for such change, or (iii) to terminate this Agreement. If such fact is different because of a misrepresentation of Developer, then the options of the preceding sentence shall be in addition to any other remedy available to TGC at law or in equity. As used in this Agreement, the words "To the best knowledge and belief of Developer" includes the knowledge of any general partner of Developer and of any agent of any general partner of Developer after due inquiry. 10.2. TGC Warranties. (a) This Agreement and all documents executed by TGC which are to be delivered to TGC at the Closing are or at the time of Closing will be duly authorized, executed and delivered by TGC and do not and at the time of Closing will not violate any provisions of any agreement or judicial order to which TGC is a party or to which TGC is subject. (b) The representations and warranties contained in Section 10.2 or made in writing by TGC in connection with the transaction which is the subject of this Agreement shall be true and correct on the date hereof, and on the Closing Date except to the extent Developer has been notified to the contrary after the date hereof and prior to Closing Date, and liability for misrepresentation or breach of warranty or covenant shall survive the execution and delivery of this Agreement and the Closing; provided, however, that TGC shall not be deemed to have breached this Agreement in the event such representation or warranty is subsequently not true or correct due solely to the act or omission of an entity or person other than TGC. It is agreed that Developer's damages resulting from misrepresentation or breach of Warranty or covenant by TGC shall include all loss, damage, liability or expense, including court costs and reasonable attorney's fees, reasonably incurred or sustained by Developer in connection therewith. 10.3. Representations of Authority. Each signatory party hereby represents to the other that this Agreement has been duly executed by duly authorized officers or general partners of such party and constitutes a valid, binding and enforceable obligation of such party. 11. CONDEMNATION 11.1. Condemnation. In the event that, prior to the Close of Escrow, a governmental entity shall commence any action of eminent domain to take any portion of the Property, TGC shall have the option either to (i) elect not to acquire the Property, in which case this Agreement shall be terminated, or (ii) complete the acquisition of the Property, in which case TGC shall be entitled to the proceeds of such taking. 12. INDEMNITY 12.1. Developer. Developer hereby agrees to indemnify and hold TGC harmless from and against any and all loss, claims, damages, penalties, liabilities, costs, or allegations of any of the foregoing, including all out of pocket litigation costs and the actual fees and expenses of counsel, investigation and appeal which may arise in connection with any misrepresentation -16- 17 made by or on behalf of Developer in connection with any certificate or other instrument furnished or to be furnished by Developer or at its request hereunder, any breach of Developer's warranties and representations, the failure of Developer to fulfill any of its covenants or agreement under this Agreement, or for any cause arising with respect to the Property prior to the Closing Date, including but not limited to all foreseeable consequential damages. The term "TGC" as contained herein shall include TGC, its directors, officers, employees, partners, joint venturers and agents, and any successors to TGC's interest in the chain of title to the Property, its directors, officers, employees, partners, joint venturers and agents. 12.2. TGC. TGC hereby agrees to indemnify and hold Developer harmless from and against any and all loss, claims, damages, penalties, liabilities, costs, or allegations of any of the foregoing, including all out-of pocket litigation costs and the actual fees and expenses of counsel, investigation and appeal which may arise on or after the Closing Date in connection with any cause arising with respect to the Property other than the causes discussed in Section 12.1 above, including but not limited to all foreseeable consequential damages. 13. MISCELLANEOUS 13.1. Attorneys' Fees. In the event of any action between TGC and Developer seeking enforcement of any of the terms and conditions of this Agreement, or in connection with the Property, the prevailing parry in such action shall be awarded, in addition to damage, injunctive or other relief, its reasonable costs and expenses, including but not limited to taxable costs and reasonable attorneys' fees. 13.2. Notices. All notices under this Agreement shall be deemed delivered upon personal delivery to TGC or Developer, as the case may be, or five (5) business days after deposit in the United States mail, registered or certified, postage fully prepaid and addressed to the respective parties, effective, in the case of mailing, as at the date deposited in the mail, or on receipt if by reputable courier service which provides written evidence of delivery, to the addresses stated in the first paragraph of this Agreement, or such other address as the parties may from time to time designate in writing. A copy of notices to Developer shall be sent to: Panattoni Johnson & Loorz 9812 Old Winery Place, Suite 4 Sacramento, CA. 95827 Facsimile no. (916) 362-0161 Attention: Mr. Rod Johnson Notices to TGC shall be sent to: The Gymboree Corporation 700 Airport Blvd. Suite 200 Burlingame, CA. 94010-1912 Attention: Alan Katz, Director of Corporate Real Estate and Facilities Facsimile no. (415) 696-7550 -17- 18 A copy of any notice to TGC shall be sent to: Martin I. Zankel, Esq. Bartko, Zankel, Tarrant & Miller 900 Front Street, Suite 300 San Francisco, CA 94111 Facsimile No. (415) 956-1152 As a matter of convenience, however, communications between TGC and Developer shall, to the extent feasible, be conducted orally, by telephone or in person, between counsel or other authorized agents of the parties, with such communications to be confirmed and made effective in writing as set forth above. 13.3. Entire Agreement. This Agreement and the items incorporated herein contain all of the agreements of the parties hereto with respect to the matters contained herein and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Agreement may be amended or modified in any manner whatsoever except by an agreement in writing signed by duly authorized officers or general partners of each of the parties hereto, except that any modifications which relate to the adjustment of tine limitations (except the Closing Date) or the form of documents may be made by legal counsel to the parties. 13.4. Successors. The terms, covenants and conditions of this Agreement shall be binding upon and shall inure to the benefit of the heirs, executors, administrators and assigns of the respective parties hereto. 13.5. Assignment. Developer may not assign its rights hereunder without the prior written consent of TGC. TGC may assign its rights hereunder so long as it covenants to remain responsible for the full performance hereof through Close of Escrow. 13.6. Choice of Laws. This Agreement shall be governed by the laws of the State of California and any question arising hereunder shall be construed or determined according to such law. 13.7. Headings. Headings at the beginning of each numbered section of this Agreement are solely for the convenience of the parties and are not a part of this Agreement. 13.8. Survival, Developer's obligations pursuant to the Agreement, and with particular reference, but not limited in any way to the indemnity set forth in Section 14 shall survive the Close of Escrow. Developer expressly agrees that the representations and warranties and the indemnity stated herein are not personal to TGC and, so long as Developer is given written notice thereof by TGC or a subsequent party in interest, the benefits hereunder may be assigned to subsequent parties in interest to the chain of title to the Property, which subsequent parties in interest may proceed directly against Developer to recover pursuant to this Section. 13.9. Counterparts. This Agreement may be signed by the parties in different counterparts and the signature pages combined to create a document binding on all parties. -18- 19 13.10. Brokers and Finders. In the event of a claim for broker's fee, finder's fee, commission or other similar compensation in connection herewith other than as set forth above, TGC, if such claim is based upon any agreement alleged to have been made by TGC, hereby agrees to indemnify and hold Developer harmless against any and all liability, loss, cost, damage or expense (including reasonable attorneys' fees and costs) which Developer may sustain or incur by reason of such claim, and Developer, if such claim is based upon any agreement alleged to have been made by Developer, hereby agrees to indemnify and hold TGC harmless against any and all liability, loss, cost, damage or expense (including reasonable attorneys' fees and costs) which TGC may sustain or incur by reason of such claim. The provisions of this Section shall survive the Closing. 13.11. No Offer. The submittal or execution of this Agreement, or a draft thereof, by either party shall not constitute an offer, nor shall either party be bound to any of the terms hereof until both parties have executed this document and an original signature copy of such executed document has been received by each party. 14. EXHIBITS The following Exhibits are attached hereto and made a part hereof by reference: Exhibit A - Legal Description of Tract Exhibit B - Legal Description of Property Exhibit C - Plat of Property Exhibit D - Guideline Specifications for the Project Exhibit E - The Construction Contract Exhibit F - Option Land Exhibit G - Option Exhibit H - The Proposal Exhibit I - Letter of Assurance Exhibit J - East Street Drawings IN WITNESS WHEREOF, TGC and Developer have executed this Agreement as of the date first above written. TGC: DEVELOPER: THE GYMBOREE CORPORATION /s/ Carl D. Panattoni ---------------------------------- By: [SIG] Carl D. Panattoni ---------------------------------- By: ---------------------------------- WICKLAND PROPERTIES By: [SIG] ------------------------------- By: ------------------------------- -19- 20 EXHIBIT A Legal Description of Tract (To be attached upon receipt by Buyer of the Preliminary Report.) 21 EXHIBIT B Legal Description of Property (To be attached upon receipt by Buyer of the Preliminary Report.) 22 [PARCEL MAP] EX-10.23 11 STANDARD FORM OF CONTRACTOR AGREEMENT 1 STANDARD FORM OF AGREEMENT BETWEEN OWNER AND CONTRACTOR WHERE THE BASIS OF PAYMENT IS A STIPULATED SUM AIA DOCUMENT A101 - ELECTRONIC FORMAT ________________________________________________________________________________ THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES: CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHENTICATION OF THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401. The 1987 Edition of AIA Document A201, General Conditions of the Contract for Construction, is adopted in this document by reference. Do not use with other general conditions unless this document is modified. This document has been approved and endorsed by The Associated General Contractors of America. Copyright 1915, 1918, 1925, 1937, 1951, 1958, 1961, 1962, 1967, 1974, 1977, copyright 1987 The American Institute of Architects, 1735 New York Avenue, N.W., Washington, D.C., 20006-5292. Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecution. ________________________________________________________________________________ AGREEMENT made as of the 5th day of May in the year of Nineteen Hundred and Ninety-Seven BETWEEN the Owner: (Name and address) The Gymboree Corp. 700 Airport Boulevard, Suite 200 Burlingame, CA 94010-1912 and the Contractor: (Name and address) DPR Construction, Inc. 1451 River Park Drive, Suite 210 Sacramento, CA 95815 The Project is: (Name and location) The Gymboree Corp./Dixon Distribution Center 2299 Kids Way Dixon, CA 95620 DPR Job No.: 02-97005-00 The Architect is: (Name and address) DES Architects & Engineers 399 Bradford Street Redwood City, CA 94063 The Owner and Contractor agree as set forth below. ________________________________________________________________________________ Page #1 2 ARTICLE 1 THE CONTRACT DOCUMENTS The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions). Drawings, Specifications, addenda issued prior to execution of this Agreement, other documents listed in this Agreement and Modifications issued after execution of this Agreement; these form the Contract, and are as fully a part of the Contract as if attached to this Agreement or repeated herein. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. An enumeration of the Contract Documents, other than Modifications, appears in Article 9. ARTICLE 2 THE WORK OF THIS CONTRACT The Contractor shall execute the entire Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others, as follows: 2.1 The Owner acknowledges that the services to be provided by the Contractor under this agreement shall not constitute the Contractor an Architect or Engineer nor impose on the Contractor any obligation to assume or perform on behalf of the Owner the professional responsibilities, duties, services and activities for which the Owner has contracted with the Architect; nor shall the Owner impose on the Contractor any liability with respect thereto. 2.2 The Contractor shall not be responsible or liable in connection with the design of the Work nor for the failure of the Architect to provide the required designs. The Contractor, in performing his duties, does not relieve the Architect from any responsibilities for services contained in the Agreement between the Owner and Architect; nor shall the Contractor incur any liability for non performance of such services by the Architect. 2.3 The Contractor shall notify the Owner and Architect promptly, in writing, if he becomes aware that necessary designs are lacking and shall not proceed with such part of the work until so directed by Owner. ARTICLE 3 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 3.1 The Work to be performed under this Contract shall be commenced upon receipt of confirmation of Owner's financing, a valid building permit and within five (5) days of a written notice to proceed and shall be substantially completed within two hundred eight (208) calendar days from commencement. Such contract time shall be extended pursuant to the provisions of A1A-A201 General Conditions Article 8.3. (May 5, 1997 through November 28, 1997.) (Insert the date of commencement, if it differs from the date of this Agreement, or, if applicable, state that the date will be fixed in a notice to proceed.) 3.2 If the Substantial Completion Date of the Work is delayed for any cause beyond Contractor's control, including, but not limited to, any act, neglect, delay or default of the Owner, Owner's Lender, Architect or by any employee or representative of either of them, or by any separate contractor employed by the Owner, or the Building Department or other governmental authority, or by changes or additions to the Work, or by injunction, or by government control or regulations, or by any delay caused by common carrier on land or water, or by shortages or labor or materials, or both, or by damage or delay which may arise through or by fire, explosion, lightning, earthquake, cyclone, inclement weather (including, without limitation) rain, flood, insurrection or war, or by the (Insert the calendar date or number of calendar days after the date of commencement. Also insert any requirement for earlier Substantial Completion of certain portions of the Work, if not stated elsewhere in the Contract Documents.) (Insert provisions, if any, for liquidated damages relating to failure to complete on time) Page #2 3 abandonment of the Work by strikes, boycotts or by lockouts engaged thereon through no fault of the Contractor, or any other causes beyond Contractor's control then the Contractor shall not be held responsible or accountable for such delay and the Owner shall issue a Change Order to this Contract extending the Substantial Completion Date by such amount of time as Contractor reasonably estimates in writing to the Owner the Substantial Completion Date has been delayed. In the event the delay is due to a change or addition to the Work originated by the State of California, the State agrees to be held liable of the resultant increase in cost, which Owner shall pass on the Contract. 3.3 In the event the Contractor does not achieve Substantial Completion within the Contract Time including approved extensions, the Contractor shall pay the Owner, as liquidated, damages and not as penalty, the sum of seven hundred fifty dollars ($750.00) per day for the first thirty (30) calendar days and two thousand dollars ($2,000.00) for each day thereafter for which the actual time performance exceeds the authorized Contract Time. 3.4 Included in the Construction Time and Contract Sum are three (3) work days which are anticipated to be lost due to inclement weather. The Contractor will advise the Owner monthly as to the status of the delays claimed to be lost due to inclement weather. At such time as the accumulated number of the lost days exceeds the allotment of days, that difference shall constitute a time extension and the Owner shall issue a Change Order to this Contract extending the Contract Time the required number of days and adjusting the Contract Sum (including the Contractor's Fee) by an amount the Contractor reasonably estimates the delay has cost. ARTICLE 4 CONTRACT SUM 4.1 The Owner shall pay the Contractor in current funds for the Contractor's performance of the Contract the Contract Sum of Seven Million Two Hundred Sixty-Six Thousand Seven Hundred Eighty=Eight Dollars ($7,266,788.00), subject to additions and deductions as provided in the Contract Documents. 4.2 The Contract Sum is based upon the following alternates, if any, which are described in the Contract Documents and are hereby accepted by the Owner: (State the numbers or other identification of accepted alternates. If decisions on other alternates are to be made by the Owner subsequent to the execution of this Agreement, attach a schedule of such other alternates showing the amount for each and the date until which that amount is valid.) A. Original bid of April 11, 1997 including all clarifications and exclusions $7,244,099 B. Add to reach .040 shrinkage for the slab and tilt-up concrete material 37,457 C. Add to increase to R-30 batt insulation at the office area ceiling 3,500 D. Add to increase Built-Up Roofing System to a 20 year bond 11,000 E. Add to use Viracon VT5-20 in lieu of Eclipse Reflective glass 6,000 F. Deduct to use oriented strand board in lieu of plywood 40,000 G. Add to use Kelley specified dock levelors 4,732 ---------- Total Authorization $7,266,788 ==========
4.3 For additive changes, the fee will be increased by the costs of the change, pursuant to the provisions of Section 7 of the General Conditions and the following: a) Any Value Engineering has no fee associated with it, 100% credit to Gymboree. b) The first $250,000 of Change Orders at 2.5% our base fee. c) the next $100,000 at 10% of DPR work and 5% on subcontractors. d) All remaining Change Orders at 10% and 10% as stated in the Contract. 4.4 For deductive changes, there is no change in fee. ARTICLE 5 PROGRESS PAYMENTS 5.1 Based upon Applications for Payment submitted to the Architect by the Contractor and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. Insert B: 5.1 The Architect shall promptly review the pre-approved Application for Payment and will, within four (4) days of receipt thereof, sign the Application for Payment and forward it to the Owner or Lender. Consideration may also be given by the Page #3 4 Owner or Architect for withholding previously approved amounts as provided in Article 9.5 of the General Conditions. The amount approved in the Application for Payment shall be payable by Owner on or before the 20th day of the month following the month covered by the Application for Payment. Insert C: 5.1.1 Payment shall be wired to: Insert D: Wells Fargo Bank Insert E: 400 Hamilton Insert F: Palo Alto, CA 94301 Insert G: Contact: Larry Hyde (650) 855-7696 Insert H: For the account of: Insert I: DPR Construction, Inc. Insert J: Account No. 4191-048735 Insert K: Routing No. 121000248 Insert L.: Have the bank notify Michele Leiva at (650) 592-4800 Insert M: Job Name: The Gymboree Corp./Dixon Distribution Center Insert N: Job No. 02-97005-00 5.2 NOT APPLICABLE 5.2 The Contractor shall, during the last week of each month, meet with the Architect and Owner (and/or other parties designated in writing by the Owner) to review and approve an itemized draft indicating the total estimated value of the work completed through the end of the current calendar month including the value of all material and equipment suitably stored at the jobsite or other approved location. Such draft will set forth the individual percentages of completion of each part of the work including a pro-rata share of the Contractor's Fee and applicable retention. The approved draft will then be formalized into an Application for Payment, and will be submitted to the Owner for processing. 5.3 Provided an Application for Payment is received by the Architect not later than the last day of a month, the Owner shall make payment to the Contractor not later than the tenth (10) day of the following month. If an Application for Payment is received by the Architect after the application date fixed above, payment shall be made by the Owner not later than ten (10) calendar days after the Architect receives the Application for Payment. 5.4 NOT APPLICABLE 5.5 Applications for Payment shall indicate the percentage of completion of each portion of the Work as of the end of the period covered by the Application for Payment. 5.6 Subject to the provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 5.6.1 Take that portion of the Contract Sum properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Work by the share of the total Contract Sum allocated to that portion of the Work in the Schedule of Values, less retainage of ten percent (10%). Pending final determination of the cost to the Owner of changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions even though the Contract Sum has not yet been adjusted by Change Order; 5.6.2 Add that portion of the Contract Sum properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the completed construction (or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing), less retainage of ten percent (10%); Page #4 5 5.6.3 Subtract the aggregate of previous payments made by the Owner; and 5.6.4 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of the General Conditions. 5.7 The progress payment amount determined in accordance with Paragraph 5.6 shall be further modified under the following circumstances: 5.7.1 Add, upon Substantial Completion of the Work, a sum sufficient to increase the total payments to One Hundred percent (100%) of the Contract Sum, less such amounts as the Architect shall determine for incomplete Work and unsettled claims; and thirty-five (35) days after Substantial Completion, any unpaid balance plus the remaining retention will be paid to the Contractor. Should minor items remain to be completed, the Contractor and the Owner or Architect shall list such items and the Contractor's written acceptance of such list shall constitute his unconditional promise to complete said items within a reasonable time thereafter. The Owner may retain a sum equal to one hundred fifty percent (150%) of the estimated cost of completing any unfinished items, provided that such items are listed separately and the estimated cost of completing any unfinished item is likewise listed separately. Thereafter, Owner shall pay to the Contractor monthly, the amount retained for incomplete items as each of said items is completed. 5.7.2 Add, if final completion of the Work is thereafter materially delayed through no fault of the Contractor, any additional amounts payable in accordance with Subparagraph 9.10.3 of the General Conditions. 5.8 Reduction or limitation of retainage, if any, shall be as follows: (If it is intended, prior to Substantial Completion of the entire Work, to reduce or limit the retainage resulting from the percentages inserted in Subparagraphs 5.6.1 and 5.6.2 above, and this is not explained elsewhere in the Contract Documents, insert here provisions for such reduction or limitation.) None. ARTICLE 6 FINAL PAYMENT Final payment, constituting the entire unpaid balance of the Contract Sum, shall be made by the Owner to the Contractor when (1) the Contract has been fully performed by the Contractor except for the Contractor's responsibility to correct nonconforming Work as provided in Subparagraph 12.2.2 of the General Conditions and to satisfy other requirements, if any, which necessarily survive final payment; and (2) a final Certificate for Payment has been issued by the Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: ARTICLE 7 MISCELLANEOUS PROVISIONS 7.1 Where reference is made in this Agreement to a provision of the General Conditions or another Contract Document, the reference refers to that provision as amended or supplemented by other provisions of the Contract Documents. 7.2 Payments due and unpaid under the Contract shall bear interest from the date payment is due at the rate stated below, or in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. (insert rate of interest agreed upon, if any.) 7.2.1 In the event that any payments are not made by the Owner to the Contractor when due in accordance with this Contract, said payments shall bear interest from the date the payment was due until paid at the rate of five percent (5%) per annum over the prime rate of the Wells Fargo Bank of San Francisco prevailing the 25th day of the month preceding the date that payment was due. The fact that the Contractor is charging interest in accordance with this provision, shall not constitute waiver by Contractor of any other rights or remedies provided for herein by reason of Owner's default in making such payments, including specifically, but not limited to, Contractor's rights to terminate this Contract for nonpayment. (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Contractor's principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers.) Page #5 6 7.3 Other provisions: 7.3.1 Attorney's Fees. If either party becomes involved in litigation or arbitration arising out of this Contract or the performance thereof, the court or arbitration panel in such litigation or arbitration or in a separate suit shall award attorney's fees to the prevailing party. Unless judgment goes by default, the attorney's fees award shall not be computed in accordance with any court schedule, but shall be such as to fully reimburse all attorney's fees actually incurred in good faith, regardless of the size of the judgment, it being the intention of the parties to fully compensate for all attorney's fees incurred in good faith. 7.3.2 Destruction of the Work by Fire, Elements, Etc. (a) In the event of the Work herein be wholly or partially damaged or destroyed by war, fire, storm, lightning, flood, earthquake, settlement or defective soils, expansion or contraction, cracking or deflection, tidal wave, surface or subsurface water, mob violence, vandalism or other casualty before the final completion of said Work, the Contractor, upon written instruction from the owner, shall proceed to replace and/or repair said Work in accordance with the plans. In this event, the provisions of this Contract shall remain in full force and effect, except that the Contract Sum stated in Article 4 shall be increased by total cost of removing and/or replacing all damaged and/or destroyed work, the time for completion shall be extended and the Contractor's Fee shall be increased. (b) In the event of substantial damage or destruction to the Work by any cause, the Owner may, upon giving written notice to the Contractor, elect to terminate this Contract. In such case, the Owner shall pay the Contractor for all costs of the Work and all obligations incurred by Contractor in connection with the Work, and the Contractor's Fee earned upon such costs and obligations. (c) Owner will obtain, prior to the commencement of the Work, Flood, Earthquake, Fire and Extended Coverage Insurance, including "All Risk" insurance and such other additional insurance as so desired, to insure those casualties enumerated in Paragraph (a) upon the Work and upon all materials intended to become a part of the Work, whether on-site, temporarily and suitably stored elsewhere, or in transit. The Owner shall be responsible for any and all costs not covered by said insurance. A copy of each policy shall be submitted to the Contractor. The Contractor and all subcontractors shall be named as "Additional Insureds" and each policy shall include a Waiver of Subrogation and Permission to Occupy Endorsement, and the policy shall be satisfactory to the Contractor. 7.3.3 Damage and Indemnity. Notwithstanding any of the provisions in the Contract to the contrary, Contractor shall in no event have any responsibility, nor be liable to Owner, for damages or delays resulting from the prior presence of pollutants, gaseous emissions, asbestos, hazardous or toxic substances, whether subsurface or otherwise, and/or from soil subsidence, unless solely caused by the gross negligence or willful misconduct of Contractor, and Owner will fully hold harmless and indemnify Contractor from and against any and all claims or actions resulting from the prior presence of any such pollutants, gaseous emissions, asbestos, hazardous and/or toxic substances, whether subsurface or otherwise, and/or from soil subsidence. Except as set forth elsewhere in this Contract, Contractor makes no warranty, express or implied, including any implied warranties of merchantability or fitness for a particular purpose. 7.3.4 License. Contractors are required by law to be licensed and regulated by the Contractor's State License Board. Any questions concerning the Contractor may be referred to the Registrar of the Board whose address is: P.O. Box 26000, Sacramento, CA 95826. 7.3.5 Service of Notices. All notices or other communications required or permitted hereunder shall be in writing, and shall be sent certified mail, postage prepaid, return receipt requested, or telegraphed, delivered or sent by telex, telecopy or cable and shall be deemed received upon the earlier of (i) if personally delivered, the date of delivery to the address of the person to receive such notice, (ii) if mailed, four (4) business days after the date of posting by the United States Post Office, (iii) if given by telegraph or cable, when delivered to the telegraph company with charges prepaid; or (iv) if given by telex or telecopy, when sent. Any notice, request, demand, direction or other communication sent by cable, telex or telecopy must be confirmed within forty-eight (48) hours by letter mailed or delivered in accordance with the foregoing. 7.3.6 Any written notice hereunder directed to Contractor may be served on its project manager by the means stated in 7.3.5. 7.3.7 Any written notices hereunder directed to Owner or Architect may be served on the Architect's or Owner's representatives by the means stated in 7.3.5 at: Contractor: DPR Construction, Inc. Page #6 7 Attn: Eric R. Lamb 555 Twin Dolphin Drive, 2nd Floor Redwood City, CA 94065 Owner: The Gymboree Corporation Attn: Art Chinn 700 Airport Boulevard, Suite 200 Burlingame, CA 94010-1912 Architect: DES Architects & Engineers Attn: Kevin Norman 399 Bradford Street Redwood City, CA 94063 7.3.8 Assignment. It is agreed that neither this Contract nor the obligations or benefits hereunder shall be assigned by Contractor without the written consent of Owner, nor by Owner with the written consent of Contractor. ARTICLE 8 TERMINATION OR SUSPENSION 8.1 The Contract may be terminated by the Owner or the Contractor as provided in Article 14 of the General Conditions. 8.2 The Work may be suspended by the Owner as provided in Article 14 of the General Conditions. ARTICLE 9 ENUMERATION OF CONTRACT DOCUMENTS 9.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: 9.1.1 The Agreement is this executed Standard Form of Agreement Between Owner and Contractor, AIA Document A101, 1987 Edition. 9.1.2 The General Conditions are the General Conditions of the Contract for Construction, AIA Document A201, 1987 Edition. 9.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated, and are as follows: DOCUMENTS TITLE PAGES Exhibit C - List of Contract Documents - -------------------------------------- 9.1.4 The Specifications are those contained in the Project Manual dated as in Subparagraph 9.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement.) DOCUMENT TITLE PAGES Exhibit C - List of Contract Documents - -------------------------------------- 9.1.5 The Drawings are as follows, and are dated unless a different date is shown below: (Either list the Drawings here or refer to an exhibit attached to this Agreement) NUMBER DATE PAGES Exhibit C - List of Contract Documents - -------------------------------------- 9.1.6 The addenda, if any, are as follows: NUMBER DATE PAGES Exhibit C - List of Contract Documents - -------------------------------------- Page #7 8 Portions of addenda relating to bidding requirements are not part of the Contract Documents unless the bidding requirements are also enumerated in this Article 9. 9.1.7 Other documents, if any, forming part of the Contract Documents are as follows: (List here any additional documents which are intended to form part of the Contract Documents. The General Conditions provide that bidding requirements such as advertisement or invitation to bid. Instructions to Builders, sample forms and the Contractor's bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only if intended to be part of the Contract Documents.) Exhibit A - Insurance Requirements Exhibit B - List of Standard Wage Rates Exhibit C - List of Contract Documents Exhibit D - Project Schedule Exhibit E - Contract Price Breakdown AIA A201 - General Conditions of the Contract for Construction Addendum to AIA Document A201 General Conditions This Agreement is entered into as of the day and year first written above and is executed in at least three original copies of which one is to be delivered to the Contractor, one to the Architect for use in the administration of the Contract, and the remainder to the owner. OWNER CONTRACTOR /s/ ALAN KATZ /s/ ERIC R. LAMB - ------------------------------ ------------------------------ Alan Katz, Director of Corporate Eric R. Lamb, Executive Vice President Real Estate and Facilities (Printed name and title) (Printed name and title) Page #8 9 EXHIBIT "A" INSURANCE REQUIREMENTS STANDARD FORM OF AGREEMENT BETWEEN OWNER AND CONTRACTOR (1987 EDITION OF AIA DOCUMENT A101) THE GYMBOREE CORPORATION and DPR CONSTRUCTION, INC. 1. Contractor shall maintain in effect at all times during the performance of the work under the contract not less than the following coverage and limits of insurance which shall be maintained under forms of policies satisfactory to the Owner. 1.1 Worker's Compensation and Employer's Liability Insurance. Workers Compensation insurance shall be provided as required by any applicable law or regulation. Employer's Liability insurance shall be provided in amounts not less than: $ 1,000,000 each accident for bodily injury by accident $ 1,000,000 policy limit for bodily injury by disease $ 1,000,000 each employee for bodily injury by disease If there is an exposure of injury to Contractor's employees under the U.S. Longshoreman and Harbor Workers' Compensation Act, the Jones Act or under laws, regulations or statutes applicable to maritime employees, coverage shall be included for such injuries or claims. 1.2 General Liability Insurance. Contractor shall carry Commercial General Liability insurance covering operations by or on behalf of Contractor, providing insurance for bodily injury liability and property damage liability for the limits of liability indicated below and including coverage for: (1) premises and operations: (2) products and completed operations; (3) contractual liability insuring the obligations assumed by Contractor in this Agreement; (4) broad form property damage (including completed operations); (5) explosion, collapse and underground hazards; and (6) personal injury liability. Except with respect to bodily injury and property damage included within the products and completed operation hazards, the aggregate limit, where applicable, shall apply separately to Contractor's work under this Agreement. 1.2.2 The Contractor shall provide an Occurrence form Commercial General Liability policy, the limits of liability shall be not less than: $2,000,000 general aggregate $2,000,000 aggregate for products-completed operations $2,000,000 for personal injury liability $2,000,000 each occurrence (combined single limit for bodily injury and property damage) Page 1 10 1.3 Automobile Liability Insurance. Contractor shall carry automobile liability insurance, including coverage for all owned, hired and non-owned automobiles. The limits of liability shall be not less than $1,000,000 combined single limit each accident for bodily injury and property damage. 2.0 Certificates of insurance, as evidence of the insurance required by this Agreement, shall be furnished by the Contractor before any work is commenced. The certificates of insurance shall provide that there will be no cancellation or reduction of coverage without thirty (30) days prior written notice to the Contractor. 3.0 The Bodily Injury and Property Damage Liability Policies shall include a provision or endorsement naming the Owner as an additional insured as respects liabilities arising out of Contractor's performance of the work under this Contract, and providing that such insurance is primary insurance as respects the interests of the Owner and that any other insurance maintained by the Owner is excess and not contributing insurance. 4.0 Aircraft Insurance. If the Contractor or his Subcontractors use any owned, leased, chartered or hired aircraft of any type (including helicopters) in the performance of this contract, they shall maintain aircraft liability Insurance in an amount of not less than $10,000,000 per occurrence including Passenger Liability. Evidence of Coverage in the form of a Certificate of Insurance shall be provided prior to the start of work. 5.0 Insurance Requirements for Contractor. The Contractor shall insure that all tiers of their Subcontractors shall procure and maintain insurance in like form including the Additional Insured requirements set forth in Paragraph 2.0. 6.0 Professional Liability Exposures. The Owner acknowledges that the Contractor will not provide Professional Errors and Omissions Insurance as the Contractor in his role of Contractor is not acting as an Architect. Professional Liability Insurance in forms and amounts acceptable to the Owner shall be carried if the Contractor is to provide design services to the project. Evidence of coverage in the form of a Certificate of Insurance shall be provided to the Owner prior to the start of work. 7.0 If the Owner has not provided acceptable evidence of property insurance coverage required herein at the start of work, then the Contractor may obtain such coverage and the cost therefore shall become a cost reimbursable item. If adequate coverage is later obtained by the Owner, the Contractor shall terminate any property insurance coverage so obtained. Page 2 11 EXHIBIT "B" LIST OF STANDARD WAGE RATES STANDARD FORM OF AGREEMENT BETWEEN OWNER AND CONTRACTOR (1987 EDITION OF AIA DOCUMENT A-101) THE GYMBOREE CORPORATION and DPR CONSTRUCTION, INC. THE GYMBOREE CORP./DIXON DISTRIBUTION CENTER 2299 KIDS WAY DIXON, CA 95620 DPR JOB NO. 02-97005-00
Overtime Double Time Classification Rates Rates Rates - -------------- ----- ----- ----- Principal 120.00 Project Executive 95.00 Senior Estimator 70.00 Estimator 65.00 MEP Estimator/Coordinator 65.00 Project Manager 70.00 Project Engineer 40.00 Field Office Coordinator 32.00 Project Accountant 35.00 Superintendent 65.00 Carpenter Foreman 51.20 69.45 87.70 Carpenter 46.00 62.85 79.70 Labor Foreman 42.38 56.62 70.86 Laborer 38.05 51.35 64.65
Said rates establish the hourly amount the Contractor will bill and the Owner will pay for the work to be performed by the Contractor's own forces for this project. 12 GYMBOREE DISTRIBUTION CENTER EXHIBIT "C" LIST OF CONTRACT DOCUMENTS DPR JOB NO. 02-97005-00 DATED MAY 22,1997 Drawings prepared by DES Architects and Morton & Pitalo, Inc. listed as follows:
Drawing No. Dated Drawing No. Dated Drawing No. Dated - ----------- ------- ----------- ------- ----------- ------- A0.1.1 3/12/97 S1.5 4/1/97 E2.4 3/12/97 A0.1.2 3/12/97 S1.6 4/1/97 E2.5 3/12/97 A1.1.1 3/12/97 S1.7 4/1/97 E3.1 3/12/97 A2.1.1 3/12/97 S1.8 4/1/97 E3.2 3/12/97 A2.1.2 3/12/97 S2.1 4/1/97 E3.3 3/12/97 A2.1.3 3/12/97 S3.1 4/1/97 E3.4 3/12/97 A2.1.4 3/12/97 S3.2 4/1/97 E3.5 3/12/97 A2.2.1 3/12/97 S4.1 4/1/97 E4.1 3/12/97 A2.2.2 3/12/97 S4.2 4/1/97 E4.2 3/12/97 A2.3.1 3/12/97 S4.3 4/1/97 L1.1 3/12/97 A2.3.2 3/12/97 S5.1 4/1/97 L1.2 3/12/97 A3.1.1 3/12/97 S6.1 4/1/97 L2.1 3/12/97 A3.1.2 3/12/97 S6.2 4/1/97 L3.1 3/12/97 A3.2.1 3/12/97 S6.3 4/1/97 L4.1 3/12/97 A5.1.1 3/12/97 S6.4 4/1/97 L4.2 3/12/97 A5.1.2 3/12/97 S6.5 4/1/97 L8.1 3/12/97 A6.1.1 3/12/97 M1.1 3/12/97 L8.2 3/12/97 A6.1.2 3/12/97 M2.1 3/12/97 A8.1.1 3/12/97 M2.2 3/12/97 A8.1.2 3/12/97 M3.1 3/12/97 Addendum #1 dated April 1, 1997 A8.1.3 3/12/97 M3.2 3/12/97 Addendum #2 dated April 4, 1997 A9.1.1 3/12/97 M4.1 3/12/97 Addendum #3 dated April 8, 1997 A9.1.2 3/12/97 M5.1 3/12/97 Addendum #4 dated April 10, 1997 A9.1.3 3/12/97 M6.1 3/12/97 A10.1.1 3/12/97 MT24.1 3/12/97 Specifications dated 3/12/97 A10.1.2 3/12/97 MT24.2 3/12/97 C1 2/97 P1.1 3/12/97 C3.1 3/12/97 P2.1 3/12/97 C4.1 3/12/97 P2.2 3/12/97 C5.1 3/12/97 P3.1 3/12/97 C8.1 3/12/97 E0.1 3/12/97 C8.2 3/12/97 E0.2 3/12/97 S0.1 4/1/97 E0.3 3/12/97 S1.1 4/1/97 E1.1 3/12/97 S1.2 4/1/97 E2.1 3/12/97 S1.3 4/1/97 E2.2 3/12/97 S1.4 4/1/97 E2.3 3/12/97
13 EXHIBIT D -- BID SCHEDULE GYMBOREE DISTRIBUTION CENTER Proposed Construction Schedule - --------------------------------------------------------------------------------
ID Name Duration Start/End Dates Level - ----- --------------------------------- -------- -------------------- ------------------ 1 Bid Project 0w 4/1/97 Milestone 2 Preconstruction 15w 97 to 7-14-97 Summary 3 Award Contract 2w /97 to 4/14/97 Critical 4 Submittals/Steel and Long Lea 13w 4/15/97 to 7/14/97 Critical 5 DPR Mobilize 1w 4/15/97 to 4/21/97 Critical 6 Site Construction 26w 4/22/97 to 10/20/97 Summary 7 Import and Rough Grading 2w 4/22/97 to 5/5/97 Critical 8 Underground Utilities/Finish Gr 3w 5/6/97 to 5/26/97 Noncritical 9 Curb and Gutter 2w 5/27/97 to 6/9/97 Noncritical 10 Baserock 1w 6/10/97 to 6/16/97 Noncritical 11 Paving 1w 6/17/97 to 6/23/97 Noncritical 12 Landscaping and Site Concrete 3w 9/23/97 to 10/31/97 Noncritical 13 Site Clean 1w 10/14/97 to 10/20/97 Noncritical 14 Building Construction 28w 4/29/97 Summary 15 Fine Grade Pad 1w 4/29/97 to 5/5/97 Critical 16 Foundations 3w 5/6/97 to 5/26/97 Critical 17 Underslab Plumbing 2w 5/13/97 to 5/26/97 Critical 18 Slab on Grade 4w 5/20/97 to 6/16/97 Critical 19 Tilt Up Panels 8w 6/3/97 to 7/28/97 Critical 20 Structural Steel 2w 7/15/97 to 7/28/97 Critical 21 Roof/Roof Structure 4w 7/29/97 to 8/25/97 Critical 22 Exterior Finishes 8w 7/29/97 to 9/22/97 Critical 23 Fire Sprinklers/Lighting 4w 8/12/97 to 9/8/97 Critical
- -------------------------------------------------------------------------------- Date: 6/6/97 DPR CONSTRUCTION, INC. 14 EXHIBIT D -- BID SCHEDULE GYMBOREE DISTRIBUTION CENTER Proposed Construction Schedule - --------------------------------------------------------------------------------
ID Name Duration Start/End Dates Level - ----- --------------------------------- -------- -------------------- ------------------ 24 Tenant Imprivements 10w 8/19/97 to 10/27/97 Critical 25 Set Roof Top Mechanical Units 1w 8/26/97 to 9/1/97 Noncritical 26 Roof Screen 2w 8/26/97 to 9/8/97 Noncritical 27 Dock Levelers 1w 8/26/97 to 9/1/97 Critical 28 Rolling Doors 2w 8/26/97 to 9/8/97 Critical 29 Owner Fixturization/Systems S 10w 9/2/97 to 1 Critical 30 Substantial Completion 0w Milestone
- -------------------------------------------------------------------------------- Date: 6/6/97 DPR CONSTRUCTION, INC. 15 May 5, 1997 EXHIBIT "E" CONTRACT PRICE BREAKDOWN FOR THE GYMBOREE CORP. THE GYMBOREE CORP. 700 Airport Boulevard, Suite 200 Burlingame, CA 94010-1912 DPR Job No. 02-97005-00 - -------------------------------------------------------------------------------- A. Original bid of April 11, 1997 including all clarifications and exclusions $7,244,099 B. Add to reach .040 shrinkage for the slab and tilt-up concrete material 37,457 C. Add to increase to R-30 batt insulation at the office area ceiling 3,500 D. Add to increase Built-Up Roofing System to a 20 year bond 11,000 E. Add to use Viracon VT5-20 in lieu of Eclipse Reflective glass 6,000 P. Deduct to use oriented strand board in lieu of plywood (40,000) G. Add to use Kelley specified dock levelors 4,732 ---------- Total Authorization $7,266,788
END OF EXHIBIT "E" 1 16 GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION AIA DOCUMENT A201 - ELECTRONIC FORMAT - -------------------------------------------------------------------------------- THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHENTICATION OF THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401. This document has been approved and endorsed by the Associated General Contractors of America. Copyright 1911, 1915, 1918, 1925, 1927, 1951, 1958, 1961, 1963, 1967, 1970, 1976, 1987 by The American Institute of Architects, 1735 New York Avenue N.W., Washington D.C. 20006-5292. Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecutions. - -------------------------------------------------------------------------------- TABLE OF ARTICLES 1. GENERAL PROVISIONS 8. TIME 2. OWNER 9. PAYMENTS AND COMPLETION 3. CONTRACTOR 10. PROTECTION OF PERSONS AND PROPERTY 4. ADMINISTRATION OF THE CONTRACT 5. SUBCONTRACTORS 11. INSURANCE AND BONDS 6. CONSTRUCTION BY OWNER OR BY 12. UNCOVERING AND CORRECTION OF SEPARATE CONTRACTORS WORK 7. CHANGES IN THE WORK 13. MISCELLANEOUS PROVISIONS 14. TERMINATION OR SUSPENSION OF THE CONTRACT Page #1 17 INDEX ACCEPTANCE OF NONCONFORMING WORK 9.6.6, 9.9.3 12.3 Acceptance of Work 9.6.6, 9.8.2, 9.9.3, 9.10.1, 9.10.3 ACCESS TO WORK 3.16, 6.2.1, 12.1 Accident Prevention 4.2.3, 10 Acts and Omissions 3.2.1, 3.2.2, 3.3.2, 3.12.8, 3.18, 4.2.3, 4.3.2, 4.3.9, 8.3.1, 10.1.4, 10.2.5, 13.4.2, 13.7, 14.1 Addenda 1.1.1, 3.11 Additional Costs, Claims for 4.3.6, 4.3.7, 4.3.9, 6.1.1, 10.3 Additional Inspections and Testing 4.2.6, 9.8.2, 12.2.1, 13.5 Additional Time, Claims for 4.3.6, 4.3.8, 4.3.9, 8.3.2 ADMINISTRATION OF THE CONTRACT 3.3.3, 4, 9.4, 9.5 Advertisement or Invitation to Bid 1.1.1 Aesthetic Effect 4.2.13, 4.5.1 ALLOWANCES 3.8 All-risk Insurance 11.3.1.1 APPLICATIONS FOR PAYMENT 4.2.5, 7.3.7, 9.2, 9.3, 9.4, 9.5.1 9.6.3, 9.8.3, 9.10.1, 9.10.3, 9.10.4, 11.1.3, 14.2.4 Approvals 2.4, 3.3.3., 3.5., 3.10.2, 3.12.4 through 3.12.8, 3.18.3, 4.2.7, 9.3.2, 11.3.1.4, 13.4.2, 13.5 ARBITRATION 4.1.4, 4.3.2, 4.3.4, 4.4.4, 4.5, 8.3.1, 10.1.2, 11.3.9, 11.3.10 ARCHITECT 4.1 Architect, Definition of 4.1.1 Architect, Extent of Authority 2.4, 3.12.6, 4.2, 4.3.2, 4.3.6, 4.4, 5.2, 6.3, 7.1.2, 7.2.1, 7.3.6, 7.4, 9.2, 9.3.1, 9.4, 9.5, 9.6.3, 9.8.2, 9.8.3, 9.10.1, 9.10.3, 12.1, 12.2.1, 13.5.1, 13.5.2, 14.2.2, 14.2.4 Architect, Limitations of Authority and Responsibility 3.3.3, 3.12.8, 3.12.11, 4.1.2, 4.2.1, 4.2.2, 4.2.3, 4.2.6, 4.2.7, 4.2.10, 4.2.12, 4.2.13, 4.3.2, 5.2.1, 7.4, 9.4.2, 9.6.4, 9.6.6 Architect's Additional Services and Expenses 2.4, 9.8.2, 11.3.1.1, 12.2.1, 12.2.4, 13.5.2, 13.5.3, 14.2.4 ARCHITECT'S ADMINISTRATION OF THE CONTRACT 4.2, 4.3.6, 4.3.7, 4.4, 9.4, 9.5 Architect's Approvals 2.4, 3.5.1, 3.10.2, 3.12.6, 3.12.8, 3.18.3, 4.2.7 Architect's Authority to Reject Work 3.5.1, 4.2.6, 12.1.2, 12.2.1 Architect's Copyright 1.3 Architect's Decisions 4.2.6, 4.2.7, 4.2.11, 4.2.12, 4.2.13, 4.3.2, 4.3.6, 4.4.1, 4.4.4, 4.5, 6.3, 7.3.6, 7.3.8, 8.1.3, 8.3.1, 9.2, 9.4, 9.5.1, 9.8.2, 9.9.1, 10.1.2, 13.5.2, 14.2.2, 14.2.4 Architect's Inspections 4.2.2, 4.2.9, 4.3.6, 9.4.2, 9.8.2, 9.9.2, 9.10.1, 13.5 Architect's Instructions 4.2.6, 4.2.7, 4.2.8, 4.3.7, 7.4.1, 12.1, 13.5.2 Architect's Interpretations 4.2.11, 4.2.12, 4.3.7 Architect's On-Site Observations 4.2.2, 4.2.5, 4.3.6, 9.4.2, 9.5.1, 9.10.1, 13.5 Architect's Project Representative 4.2.10 Architect's Relationship with Contractor 1.1.2, 3.2.1, 3.2.2, 3.3.3, 3.5.1, 3.7.3, 3.11, 3.12.8, 3.12.11, 3.16, 3.18, 4.2.3, 4.2.4, 4.2.6, 4.2.12, 5.2, 6.2.2, 7.3.4, 9.8.2, 11.3.7, 12.1, 13.5 Architect's Relationship with Subcontractors 1.1.2, 4.2.3, 4.2.4, 4.2.6, 9.6.3, 9.6.4, 11.3.7 Architect's Representations 9.4.2, 9.5.1, 9.10.1 Architect's Site Visits 4.2.2, 4.2.5, 4.2.9, 4.3.6, 9.4.2, 9.5.1, 9.8.2, 9.9.2, 9.10.1, 13.5 Asbestos 10.1 Attorneys' Fees 3.18.1, 9.10.2, 10.1.4 Award of Separate Contracts 6.1.1 AWARD OF SUBCONTRACTS AND OTHER CONTRACTS FOR PORTIONS OF THE WORK 5.2 BASIC DEFINITIONS 1.1 Bidding Requirements 1.1.1, 1.1.7, 5.2.1, 11.4.1 BOILER AND MACHINERY INSURANCE 11.3.2 Bonds, Lien 9.10.2 Bonds, Performance and Payment 7.3.6.4, 9.10.3, 11.3.9, 11.4 Building Permit 3.7.1 CAPITALIZATION 1.4 Certificate of Substantial Completion 9.8.2 Certificate for Payment 4.2.5, 4.2.9, 9.3.3, 9.4, 9.5, 9.6.1 9.6.6, 9.7.1, 9.8.3, 9.10.1, 9.10.3, 13.7, 14.1.1.3, 14.2.4 Certificates of Inspection, Testing or Approval 3.12.11, 13.5.4 Certificates of Insurance 9.3.2, 9.10.2, 11.1.3 CHANGE ORDERS 1.1.1, 2.4.1, 3.8.2.4, 3.11, 4.2.8, 4.3.3, 5.2.3, 7.1, 7.2, 7.3.2, 8.3.1, 9.3.1.1, 9.10.3, 11.3.1.2, 11.3.4, 11.3.9, 12.1.2 Change Orders, Definition of 7.2.1 CHANGES 7.1 CHANGES IN THE WORK 3.11, 4.2.8, 7, 8.3.1, 9.3.1.1, 10.1.3 Claim, DEFINITION of 4.3.1 CLAIMS AND DISPUTES 4.3, 4.4, 4.5, 6.2.5, 8.3.2, 9.3.1.2, 9.3.3, 9.10.4, 10.1.4 CLAIMS AND TIMELY ASSERTION OF CLAIMS 4.5.6 CLAIMS FOR ADDITIONAL COST 4.3.6, 4.3.7, 4.3.9, 6.1.1, 10.3 CLAIMS FOR ADDITIONAL TIME 4.3.6, 4.3.8, 4.3.9, 8.3.2 CLAIMS FOR CONCEALED OR UNKNOWN CONDITIONS 4.3.6 Claims for Damages 3.18, 4.3.9, 6.1.1, 6.2.5, 8.3.2, 9.5.1.2, 10.1.4 Claims Subject to Arbitration 4.3.2, 4.4.4, 4.5.1 CLEANING UP 3.15, 6.3 COMMENCEMENT OF STATUTORY LIMITATION PERIOD 13.7 Commencement of the Work, Conditions Relating to 2.1.2, 2.2.1, 3.2.1, 3.2.2, 3.7.1, 3.10.1, 3.12.6, 4.3.7, 5.2.1, 6.2.2, 8.1.2, 8.2.2, 9.2, 11.1.3, 11.3.6, 11.4.1 Commencement of the Work, Definition of 8.1.2 Communications Facilitating Contract Administration 3.9.1, 4.2.4, 5.2.1 Completion, Conditions Relating to 3.11, 3.15, 4.2.2, 4.2.9, 4.3.2, 9.4.2, 9.8, 9.9.1, 9.10, 11.3.5, 12.2.2, 13.7.1 COMPLETION, PAYMENTS AND 9 Completion, Substantial 4.2.9, 4.3.5.2, 8.1.1, 8.1.3, 8.2.3, 9.8, 9.9.1, 12.2.2, 13.7 Compliance with Laws 1.3, 3.6, 3.7, 3.13, 4.1.1, 10.2.2, 11.1, 11.3, 13.1, 13.5.1, 13.5.2, 13.6, 14.1.1, 14.2.1.3 Concealed or Unknown Conditions 4.3.6 Conditions of the Contract 1.1.1, 1.1.7, 6.1.1 Consent, Written 1.3.1, 3.12.8, 3.14.2, 4.1.2, 4.3.4, 4.5.5, 9.3.2, 9.8.2, 9.9.1, 9.10.2, 9.10.3, 10.1.2, 10.1.3, 11.3.1, 11.3.1.4, 11.3.11, 13.2, 13.4.2 CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS 1.1.4, 6 Construction Change Directive, Definition of 7.3.1
Page 2 18 Construction Change Directives 1.1.1, 4.2.8, 7.1, 7.3, 9.3.1.1 Construction Schedules, Contractor's 3.10,6.1.3 CONTINGENT ASSIGNMENT OF SUBCONTRACTS 5.4 Continuing Contract Performance 4.3.4 Contract, Definitions of 1.1.2 CONTRACT, TERMINATION OR SUSPENSION OF THE 4.3.7, 5.4.1.1, 14 Contract Administration 3.3.3, 4, 9.4, 9.5 Contract Award and Execution, Conditions Relating to 3.7.1, 3.10, 5.2, 9.2, 11.1.3, 11.3.6, 11.4.1 CONTRACT DOCUMENTS, THE 1.1, 1.2, 7 Contract Documents, Copies Furnished and Use of 1.3, 2.2.5, 5.3 Contract Documents, Definition of 1.1.1 Contract Performance During Arbitration 4.3.4, 4.5.3 CONTRACT SUM 3.8, 4.3.6, 4.3.7, 4.4.4, 5.2.3, 6.1.3, 7.2, 7.3, 9.1, 9.7, 11.3.1, 12.2.4, 12.3, 14.2.4 CONTRACT SUM, Definition of 9.1 Contract Time 4.3.6, 4.3.8, 4.4.4, 7.2.1.3, 7.3, 8.2.1, 8.3.1, 9.7, 12.1.1 Contract Time, Definition of 8.1.1 CONTRACTOR 3 Contractor, Definition of 3.1, 6.1.2 Contractor's Bid 1.1.1 CONTRACTOR'S CONSTRUCTION SCHEDULES 3.10, 6.1.3 Contractor's Employees 3.3.2, 3.4.2, 3.8.1, 3.9, 3.18, 4.2.3, 4.2.6, 8.1.2, 10.2, 10.3, 11.1.1, 14.2.1.1 CONTRACTOR'S LIABILITY INSURANCE 11.1 Contractor's Relationship with Separate Contractors and Owner's Forces 2.2.6, 3.12.5, 3.14.2, 4.2.4, 6, 12.2.5 Contractor's Relationship with Subcontractors 1.2.4, 3.3.2, 3.18.1, 3.18.2, 5.2, 5.3, 5.4, 9.6.2, 11.3.7, 11.3.8, 14.2.1.2 Contractor's Relationship with the Architect 1.1.2, 3.2.1, 3.2.2, 3.3.3, 3.5.1, 3.7.3, 3.11, 3.12.8, 3.16, 3.18, 4.2.3, 4.2.4, 4.2.6, 4.2.12, 5.2, 6.2.2, 7.3.4, 9.8.2, 11.3.7, 12.1, 13.5 Contractor's Representations 1.2.2, 3.5.1, 3.12.7, 6.2.2, 8.2.1, 9.3.3 Contractor's Responsibility for Those Performing the Work 3.3.2, 3.18, 4.2.3, 10 Contractor's Review of Contract Documents 1.2.2, 3.2, 3.7.3 Contractor's Right to Stop the Work 9.7 Contractor's Right to Terminate the Contract 14.1 Contractor's Submittals 3.10, 3.11, 3.12, 4.2.7, 5.2.1, 5.2.3, 7.3.6, 9.2, 9.3.1, 9.8.2, 9.9.1, 9.10.2, 9.10.3, 10.1.2, 11.4.2, 11.4.3 Contractor's Superintendent 3.9, 10.2.6 Contractor's Supervision and Construction Procedures 1.2.4, 3.3, 3.4, 4.2.3, 8.2.2, 8.2.3, 10 Contractual Liability Insurance 11.1.1.7, 11.2.1 Coordination and Correlation 1.2.2, 1.2.4, 3.3.1, 3.10, 3.12.7, 6.1.3, 6.2.1 Copies Furnished of Drawings and Specifications 1.3, 2.2.5, 3.11 Correction of Work 2.3, 2.4, 4.2.1, 9.8.2, 9.9.1, 12.1.2, 12.2, 13.7.1.3 Cost, Definition of 7.3.6, 14.3.5 Costs 2.4, 3.2.1, 3.7.4, 3.8.2, 3.15.2, 4.3.6, 4.3.7, 4.3.8.1, 5.2.3, 6.1.1, 6.2.3, 6.3, 7.3.3.3, 7.3.6, 7.3.7, 9.7, 9.8.2, 9.10.2, 11.3.1.2, 11.3.1.3, 11.3.4, 11.3.9, 12.1, 12.2.1, 12.2.4, 12.2.5, 13.5, 14 CUTTING AND PATCHING 3.14, 6.2.6 Damage to Construction of Owner or Separate Contractors 3.14.2, 6.2.4, 9.5.1.5, 10.2.1.2, 10.2.5, 10.3, 11.1, 11.3, 12.2.5 Damage to the Work 3.14.2, 9.9.1, 10.2.1.2, 10.2.5, 10.3, 11.3 Damages, Claims for 3.18, 4.3.9, 6.1.1, 6.2.5, 8.3.2, 9.5.1.2, 10.1.4 Damages for Delay 6.1.1, 8.3.3, 9.5.1.6, 9.7 Date of Commencement of the Work, Definition of 8.1.2 Date of Substantial Completion, Definition of 8.1.3 Day, Definition of 8.1.4 Decisions of the Architect 4.2.6, 4.2.7, 4.2.11, 4.2.12, 4.2.13, 4.3.2, 4.3.6, 4.4.1, 4.4.4, 4.5, 6.3, 7.3.6, 7.3.8, 8.1.3, 8.3.1, 9.2, 9.4, 9.5.1, 9.8.2, 9.9.1, 10.1.2, 13.5.2, 14.2.2, 14.2.4 DECISIONS TO WITHHOLD CERTIFICATION 9.5, 9.7, 14.1.1.3 Defective or Nonconforming Work, Acceptance, Rejection and Correction of 2.3, 2.4, 3.5.1, 4.2.1, 4.2.6, 4.3.5, 9.5.2, 9.8.2, 9.9.1, 10.2.5, 12, 13.7.1.3 Defective Work, Definition of 3.5.1 Definitions 1.1, 2.1.1, 3.1, 3.5.1, 3.12.1, 3.12.2, 3.12.3, 4.1.1, 4.3.1, 5.1, 6.1.2, 7.2.1, 7.3.1, 7.3.6, 8.1, 9.1, 9.8.1 DELAYS AND EXTENSIONS OF TIME 4.3.1, 4.3.8.1, 4.3.8.2, 6.1.1, 6.2.3, 7.2.1, 7.3.1, 7.3.4, 7.3.5, 7.3.8, 7.3.9, 8.1.1, 8.3, 10.3.1, 14.1.1.4 Disputes 4.1.4, 4.3, 4.4, 4.5, 6.2.5, 6.3, 7.3.8, 9.3.1.2 Documents and Samples at the Site 3.11 Drawings, Definition of 1.1.5 Drawings and Specifications, Use and Ownership of 1.1.1, 1.3, 2.2.5, 3.11, 5.3 Duty to Review Contract Documents and Field Conditions 3.2 Effective Date of insurance 8.2.2, 11.1.2 Emergencies 4.3.7, 10.3 Employees, Contractor's 3.3.2, 3.4.2, 3.8.1, 3.9, 3.18.1, 3.18.2, 4.2.3, 4.2.6, 8.1.2, 10.2, 10.3, 11.1.1, 14.2.1.1 Equipment, Labor, Materials and 1.1.3, 1.1.6, 3.4, 3.5.1, 3.8.2, 3.12.3, 3.12.7, 3.12.11, 3.13, 3.15.1, 4.2.7, 6.2.1, 7.3.6, 9.3.2, 9.3.3, 11.3, 12.2.4, 14 Execution and Progress of the Work 1.1.3, 1.2.3, 3.2, 3.4.1, 3.5.1, 4.2.2, 4.2.3, 4.3.4, 4.3.8, 6.2.2, 7.1.3, 7.3.9, 8.2, 8.3, 9.5, 9.9.1, 10.2, 14.2, 14.3 EXECUTION, CORRELATION AND INTENT of the Contract Documents 1.2, 3.7.1 Extensions of Time 4.3.1, 4.3.8, 7.2.1.3, 8.3, 10.3.1 Failure of Payment by Contractor 9.5.1.3, 14.2.1.2 Failure of Payment by Owner 4.3.7, 9.7, 14.1.3 Faulty Work (See Defective or Nonconforming work) FINAL COMPLETION AND FINAL PAYMENT 4.2.1, 4.2.9, 4.3.2, 4.3.5, 9.10, 11.1.2, 11.1.3, 11.3.5, 12.3.1, 13.7 Financial Arrangements, Owner's 2.2.1 Fire and Extended Coverage Insurance 11.3 GENERAL PROVISIONS 1 GOVERNING LAW 1.3.1 Guarantees (See Warranty and Warranties) Hazardous Materials 10.1, 10.2.4 Identification of Contract Documents 1.2.1 Identification of Subcontractors and Suppliers 5.2.1 Indemnification 3.17, 3.18, 9.10.2, 10.1.4, 11.3.1.2, 11.3.7 Information and Services Required of the Owner 2.1.2, 2.2, 4.3.4, 6.1.3, 6.1.4, 6.2.6, 9.3.2, 9.6.1, 9.6.4, 9.8.3, 9.9.2, 9.10.3, 10.1.4, 11.2, 11.3, 13.5.1, 13.5.2 INJURY OR DAMAGES TO PERSON OR PROPERTY 4.3.9 Inspections 3.3.3, 3.3.4, 3.7.1, 4.2.2, Page 3 19 4.2.6, 4.2.9, 4.3.6, 9.4.2, 9.8.2, 9.9.2, 9.10.1, 13.5 Instructions to Bidders 1.1.1 Instructions to the Contractor 3.8.1, 4.2.8, 5.2.1, 7, 12.1, 13.5.2 Insurance 4.3.9, 6.1.1, 7.3.6.4, 9.3.2, 9.8.2, 9.9.1, 9.10.2, 11 INSURANCE, BOILER AND MACHINERY 11.3.2 INSURANCE, CONTRACTOR'S LIABILITY 11.1 Insurance, Effective Date of 8.2.2, 11.1.2 INSURANCE, LOSS OF USE 11.3.3 INSURANCE, OWNER'S LIABILITY 11.2 INSURANCE, PROPERTY 10.2.5, 11.3 Insurance, Stored Materials 9.3.2, 11.3.1.4 INSURANCE AND BONDS 11 Insurance Companies, Consent to Partial Occupancy 9.9.1, 11.3.11 Insurance Companies, Settlement with 11.3.10 Intent of the Contract Documents 1.2.3, 3.12.4, 4.2.6, 4.2.7, 4.2.12, 4.2.13, 7.4 INTEREST 13.6 Interpretation 1.2.5, 1.4, 1.5, 4.1.1, 4.3.1, 5.1, 6.1.2, 8.1.4 Interpretations, Written 4.2.11, 4.2.12, 4.3.7 Joinder and Consolidation of Claims Required 4.5.6 JUDGMENT ON FINAL AWARD 4.5.1, 4.5.4.1, 4.5.7 LABOR AND MATERIALS, equipment 1.1.3, 1.1.6, 3.4, 3.5.1, 3.8.2, 3.12.2, 3.12.3, 3.12.7, 3.12.11, 3.13.3, 3.15.1, 4.2.7, 6.2.1, 7.3.6, 9.3.2, 9.3.3, 12.2.4, 14 Labor Disputes 8.3.1 Laws and Regulations 1.3, 3.6, 3.7, 3.13, 4.1.1, 4.5.5, 4.5.7, 9.9.1, 10.2.2, 11.1, 11.3, 13.1, 13.4, 13.5.1, 13.5.2, 13.6 Liens 2.1.2, 4.3.2, 4.3.5.1, 8.2.2, 9.3.3, 9.10.2 LIMITATIONS ON CONSOLIDATION OR JOINDER 4.5.5 Limitations, Statutes of 4.5.4.2, 12.2.6, 13.7 Limitations of Authority 3.3.1, 4.1.2, 4.2.1, 4.2.3, 4.2.7, 4.2.10, 5.2.2, 5.2.4, 7.4, 11.3.10 Limitations of Liability 2.3, 3.2.1, 3.5.1, 3.7.3, 3.12.8, 3.12.11, 3.17, 3.18, 4.2.6, 4.2.7, 4.2.12, 6.2.2, 9.4.2, 9.6.4, 9.10.4, 10.1.4, 10.2.5, 11.1.2, 11.2.1, 11.3.7, 13.4.2, 13.5.2 Limitations of Time, General 2.2.1, 2.2.4, 3.2.1, 3.7.3, 3.8.2, 3.10, 3.12.5, 3.15.1, 4.2.1, 4.2.7, 4.2.11, 4.3.2, 4.3.3, 4.3.4, 4.3.6, 4.3.9, 4.5.4.2, 5.2.1, 5.2.3, 6.2.4, 7.3.4, 7.4, 8.2, 9.5, 9.6.2, 9.8, 9.9, 9.10, 11.1.3, 11.3.1, 11.3.2, 11.3.5, 11.3.6, 12.2.1, 12.2.2, 13.5, 13.7 Limitations of Time, Specific 2.1.2, 2.2.1, 2.4, 3.10, 3.11, 3.15.1, 4.2.1, 4.2.11, 4.3, 4.4, 4.5, 5.3, 5.4, 7.3.5, 7.3.9, 8.2, 9.2, 9.3.1, 9.3.3, 9.4.1, 9.6.1, 9.7, 9.8.2, 9.10.2, 11.1.3, 11.3.6, 11.3.10, 11.3.11, 12.2.2, 12.2.4, 12.2.6, 13.7, 14 LOSS OF USE INSURANCE 11.3.3 Material Suppliers 1.3.1, 3.12.1, 4.2.4, 4.2.6, 5.2.1, 9.3.1, 9.3.1.2, 9.3.3, 9.4.2, 9.6.5, 9.10.4 Materials, Hazardous 10.1, 10.2.4 Materials, Labor, Equipment and 1.1.3, 1.1.6, 3.4, 3.5.1, 3.8.2, 3.12.2, 3.12.3, 3.12.7, 3.12.11, 3.13, 3.15.1, 4.2.7, 6.2.1, 7.3.6, 9.3.2, 9.3.3, 12.2.4, 14 Means, Methods, Techniques, Sequences and Procedures of Construction 3.3.1, 4.2.3, 4.2.7, 9.4.2 MINOR CHANGES IN THE WORK 1.1.1, 4.2.8, 4.3.7, 7.1, 7.4 MISCELLANEOUS PROVISIONS 13 Modifications, Definition of 1.1.1 Modifications to the Contract 1.1.1, 1.1.2, 3.7.3, 3.11, 4.2.1, 5.2.3, 7, 8.3.1, 9.7 Mutual Responsibility 6.2 NONCONFORMING WORK, ACCEPTANCE OF 12.3 NONCONFORMING WORK, REJECTION AND CORRECTION OF 2.3.1, 4.3.5, 9.5.2, 9.8.2, 12, 13.7.1.3 Notice 2.3, 2.4, 3.2.1, 3.2.2, 3.7.3, 3.7.4, 3.9, 3.12.8, 3.12.9, 3.17, 4.3, 4.4.4, 4.5, 5.2.1, 5.3, 5.4.1.1, 8.2.2, 9.4.1, 9.5.1, 9.6.1, 9.7, 9.10, 10.1.2, 10.2.6, 11.1.3, 11.3, 12.2.2, 12.2.4, 13.3, 13.5.1, 13.5.2, 14 NOTICE, WRITTEN 2.3, 2.4, 3.9, 3.12.8, 3.12.9, 4.3, 4.4.4, 4.5, 5.2.1, 5.3, 5.4.1.1, 8.2.2, 9.4.1, 9.5.1, 9.7, 9.10, 10.1.2, 10.2.6, 11.1.3, 11.3, 12.2.2, 12.2.4, 13.3, 13.5.2, 14 Notice of Testing and Inspections 13.5.1, 13.5.2 Notice to Proceed 8.2.2 NOTICES, PERMITS, FEES AND 2.2.3, 3.7, 3.13, 7.3.6.4, 10.2.2 Observations, Architect's On-Site 4.2.2, 4.2.5 4.3.6, 9.4.2, 9.5.1, 9.10.1, 13.5 Observations, Contractor's 1.2.2, 3.2.2 Occupancy 9.6.6, 9.8.1, 9.9, 11.3.11 On-Site Inspections by the Architect 4.2.2, 4.2.9, 4.3.6, 9.4.2, 9.8.2, 9.9.2, 9.10.1 On-Site Observations by the Architect 4.2.2, 4.2.5, 4.3.6, 9.4.2, 9.5.1, 9.10.1, 13.5 Orders, Written 2.3, 3.9, 4.3.7, 7, 8.2.2, 11.3.9, 12.1, 12.2, 13.5.2, 14.3.1 OWNER 2 Owner, DEFINITION of 2.1 OWNER, INFORMATION AND SERVICES REQUIRED OF THE 2.1.2, 2.2, 4.3.4, 6, 9, 10.1.4, 11.2, 11.3, 13.5.1, 14.1.1.5, 14.1.3 Owner's Authority 3.8.1, 4.1.3, 4.2.9, 5.2.1, 5.2.4, 5.4.1, 7.3.1, 8.2.2, 9.3.1, 9.3.2, 11.4.1, 12.2.4, 13.5.2, 14.2, 14.3.1 Owner's Financial Capability 2.2.1, 14.1.1.5 OWNER'S LIABILITY INSURANCE 11.2 Owner's Loss of Use Insurance 11.3.3 Owner's Relationship with Subcontractors 1.1.2, 5.2.1, 5.4.1, 9.6.4 Owner's Right to Carry Out the Work 2.4, 12.2.4, 14.2.2.2 OWNER'S RIGHT TO CLEAN UP 6.3 OWNER'S RIGHT TO PERFORM CONSTRUCTION AND TO AWARD SEPARATE CONTRACTS 6.1 OWNER'S RIGHT TO STOP THE WORK 2.3, 4.3.7 Owner's Right to Suspend the Work 14.3 Owner's Right to Terminate the Contract 14.2 OWNERSHIP AND USE OF ARCHITECT'S DRAWINGS, SPECIFICATIONS, AND OTHER DOCUMENTS 1.1.1, 1.3, 2.2.5, 5.3 PARTIAL OCCUPANCY OR USE 9.6.6, 9.9, 11.3.11 PATCHING, CUTTING AND 3.14, 6.2.6 PATENTS, ROYALTIES AND 3.17 PAYMENT, APPLICATIONS FOR 4.2.5, 9.2, 9.3, 9.4, 9.5.1, 9.8.3, 9.10.1, 9.10.3, 9.10.4, 14.2.4 PAYMENT, CERTIFICATES FOR 4.2.5, 4.2.9, 9.3.3, 9.4, 9.5, 9.6.1, 9.6.6, 9.7.1, 9.8.3, 9.10.1, 9.10.3, 13.7, 14.1.1.3, 14.2.4 PAYMENT, FAILURE OF 4.3.7, 9.5.1.3, 9.7, 9.10.2, 14.1.1.3, 14.2.1.2 Payment, Final 14.2.1, 4.2.9, 4.3.2, 4.3.5, 9.10, 11.1.2, 11.1.3, 11.3.5, 12.3.1 PAYMENT BOND, PERFORMANCE BOND AND 7.3.6.4, 9.10.3, 11.3.9, 11.4 Payments, Progress 4.3.4, 9.3, 9.6, 9.8.3, 9.10.3, 13.6, 14.2.3 PAYMENTS AND COMPLETION 9, 14 Payments to Subcontractors 5.4.2, 9.5.1.3, 9.6.2, 9.6.3, 9.6.4, 11.3.8, 14.2.1.2 PCB 10.1 Page #4 20 Performance Bond and Payment Bond 7.3.6.4 9.10.3, 11.3.9, 11.4 PERMITS, FEES AND NOTICES 2.2.3, 3.7, 3.13, 7.3.6.4, 10.2.2 PERSONS AND PROPERTY, PROTECTION OF 10 Polychlorinated Bipheny 10.1 Product Data, Definition of 3.12.2 PRODUCT DATA AND SAMPLES, SHOP DRAWINGS 3.11, 3.12, 4.2.7 PROGRESS AND COMPLETION 4.2.2, 4.3.4, 8.2 PROGRESS PAYMENTS 4.3.4, 9.3, 9.6, 9.8.3, 9.10.3, 13.6, 14.2.3 PROJECT, Definition of the 1.1.4 PROJECT MANUAL, Definition of the 1.1.7 Project Manuals 2.2.5 Project Representatives 4.2.10 PROPERTY INSURANCE 10.2.5, 11.3 PROTECTION OF PERSONS AND PROPERTY 10 Regulations and Laws 1.3, 3.6, 3.7, 3.13, 4.1.1, 4.5.5 4.5.7, 10.2.2, 11.1, 11.3, 13.1, 13.4, 13.5.1, 13.5.2, 13.6, 14 Rejection of Work 3.5.1, 4.2.6, 12.2 Releases of Waivers and Liens 9.10.2 Representations 1.2.2, 3.5.1, 3.12.7, 6.2.2, 8.2.1, 9.3.3, 9.4.2, 9.5.1, 9.8.2, 9.10.1 Representatives 2.1.1, 3.1.1, 3.9, 4.1.1, 4.2.1, 4.2.10, 5.1.1, 5.1.2, 13.2.1 RESOLUTION OF CLAIMS AND DISPUTES 4.4, 4.5 Responsibility for Those Performing the Work 3.3.2, 4.2.3, 6.1.3, 6.2, 10 Retainage 9.3.1, 9.6.2, 9.8.3, 9.9.1, 9.10.2, 9.10.3 REVIEW OF CONTROL DOCUMENTS AND FIELD CONDITIONS BY CONTRACTOR 1.2.2, 3.2, 3.7.3, 3.12.7 Review of Contractor's Submittals by Owner and Architect 3.10.1, 3.10.2, 3.11, 3.12, 4.2.7, 4.2.9, 5.2.1, 5.2.1, 5.2.3, 9.2, 9.8.2 Review of Shop Drawings, Product Data and Samples by Contractor 3.12.5 RIGHTS AND REMEDIES 1.1.2, 2.3, 2.4, 3.5.1, 3.15.2, 4.2.6, 4.3.6, 4.5, 5.3, 6.1, 6.3, 7.3.1, 8.3.1, 9.5.1, 9.7, 10.2.5, 10.3, 12.2.2, 12.2.4, 13.4, 14 ROYALTIES AND PATENTS 3.17 RULES AND NOTICES FOR ARBITRATION 4.5.2 SAFETY OF PERSONS AND PROPERTY 10.2 SAFETY PRECAUTIONS AND PROGRAMS 4.2.3, 4.2.7, 10.1 Samples, Definition of 3.12.3 SAMPLES, SHOP DRAWINGS, PRODUCT DATA AND 3.11, 3.12, 4.2.7 SAMPLES AT THE SITE, DOCUMENTS AND 3.11 SCHEDULE OF VALUES 9.2, 9.3.1 Schedules, Construction 3.10 Separate Contracts and Contractors 1.1.4, 3.14.2, 4.2.4, 4.5.5, 6, 11.3.7, 12.1.2, 12.2.5 Shop Drawings, Definition of 3.12.1 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES 3.11, 3.12, 4.2.7 SITE, USE OF 3.13, 6.1.1, 6.2.1 Site Inspections 1.2.2, 3.3.4, 4.2.2, 4.2.9, 4.3.6, 9.8.2, 9.10.1, 13.5 Site Visits, Architect's 4.2.2, 4.2.5, 4.2.9, 4.3.6, 9.4.2, 9.5.1, 9.8.2, 9.9.2, 9.10.1, 13.5 Special Inspections and Testing 4.2.6, 12.2.1, 13.5 SPECIFICATIONS, Definition of the 1.1.6 SPECIFICATIONS, THE 1.1.1, 1.1.6, 1.1.7, 1.2.4, 1.3, 3.11 Statute of Limitations 4.5.4.2, 12.2.6, 13.7 Stopping the Work 2.3, 4.3.7, 9.7, 10.1.2, 10.3, 14.1 Stored Materials 6.2.1, 9.3.2, 10.2.1.2, 11.3.1.4, 12.2.4 Subcontractor, Definition of 5.1.1 SUBCONTRACTORS 5 Subcontractors, Work by 1.2.4, 3.3.2, 3.12.1, 4.2.3, 5.3, 5.4 SUBCONTRACTUAL RELATIONS 5.3, 5.4, 9.3.1.2, 9.6.2 9.6.3, 9.6.4, 10.2.1, 11.3.7, 11.3.8, 14.1.1, 14.2.1.2, 14.3.2 Submittals 1.3, 3.2.3, 3.10, 3.11, 3.12, 4.2.7, 5.2.1, 5.2.3, 7.3.6, 9.2, 9.3.1, 9.8.2, 9.9.1, 9.10.2, 9.10.3, 10.1.2, 11.1.3 SUBROGATION, WAIVERS OF 6.1.1, 11.3.5, 11.3.7 SUBSTANTIAL COMPLETION 4.2.9, 4.3.5.2, 8.1.1, 8.1.3, 8.2.3, 9.8, 9.9.1, 12.2.1, 12.2.2, 13.7 Substantial Completion, Definition of 9.8.1 Substitution of Subcontractors 5.2.3, 5.2.4 Substitution of the Architect 4.1.3 Substitutions of Materials 3.5.1 Sub-subcontractor, Definition of 5.1.2 Subsurface Conditions 4.3.6 SUCCESSORS AND ASSIGNS 13.2 SUPERINTENDENT 3.9, 10.2.6 SUPERVISION AND CONSTRUCTION PROCEDURES 1.2.4, 3.3, 3.4, 4.2.3, 4.3.4, 6.1.3, 6.2.4, 7.1.3, 7.3.4, 8.2, 8.3.1, 10, 12, 14 Surety 4.4.1, 4.4.4, 5.4.1.2, 9.10.2, 9.10.3, 14.2.2 Surety, Consent of 9.9.1, 9.10.2, 9.10.3 Surveys 2.2.2, 3.18.3 SUSPENSION BY THE OWNER FOR CONVENIENCE 14.3 Suspension of the Work 4.3.7, 5.4.2, 14.1.1.4, 14.3 Suspension or Termination of the Contract 4.3.7, 5.4.1.1, 14 TAXES 3.6, 7.3.6.4 TERMINATION BY THE CONTRACTOR 14.1 TERMINATION BY THE OWNER FOR CAUSE 5.4.1.1, 14.2 Termination of the Architect 4.1.3 Termination of the Contractor 14.2.2 TERMINATION OR SUSPENSION OF THE CONTRACT 14 TESTS AND INSPECTIONS 3.3.3, 4.2.6, 4.2.9, 9.4.2, 12.2.1 13.5 TIME 8 TIME, DELAYS AND EXTENSION OF 4.3.8, 7.2.1, 8.3 Time Limits, Specific 2.1.2, 2.2.1, 2.4, 3.10, 3.11, 3.15.1, 4.2.1, 4.2.11, 4.3, 4.4, 4.5, 5.3, 5.4, 7.3.5, 7.3.9, 8.2, 9.2, 9.3.1, 9.3.3, 9.4.1, 9.6.1, 9.7, 9.8.2, 9.10.2, 11.1.3, 11.3.6, 11.3.10, 11.3.11, 12.2.2, 12.2.4, 12.2.6, 13.7, 14 TIME LIMITS ON CLAIMS 4.3.2, 4.3.3., 4.3.6, 4.3.9, 4.4, 4.5 Title to Work 9.3.2, 9.3.3 UNCOVERING AND CORRECTION OF WORK 12 UNCOVERING OF WORK 12.1 Unforseen Conditions 4.3.6, 8.3.1, 10.1 Unit Prices 7.1.4, 7.3.3.2 Use of Documents 1.1.1, 1.3, 2.2.5, 3.12.7, 5.3 USE OF SITE 3.13, 6.1.1, 6.2.1 VALUES, SCHEDULE OF 9.2, 9.3.1 WAIVER OF CLAIMS: FINAL PAYMENT 4.3.5, 4.5.1, 9.10.3 Waiver of Claims by the Architect 13.4.2 Waiver of Claims by the Contractor 9.10.4, 11.3.7, 13.4.2 Waiver of Claims by the Owner 4.3.5, 4.5.1, 9.9.3, 9.10.3, 11.3.3, 11.3.5, 11.3,7, 13.4.2 Waiver of Liens 9.10.2 Waivers of Subrogation 6.1.1, 11.3.5, 11.3.7 WARRANTY and Warranties 3.5, 4.2.9, 4.3.5.3, 9.3.3, 9.8.2, 9.9.1, 12.2.2, 13.7.1.3 Weather Delays 4.3.8.2 Page 5 21 WHEN ARBITRATION MAY BE DEMANDED 4.5.4 Work, Definition of 1.1.3 Written Consent 1.3.1, 3.12.8, 3.14.2, 4.1.2, 4.3.4, 4.5.5, 9.3.2, 9.8.2, 9.9.1, 9.10.2, 9.10.3, 10.1.2, 10.1.3 11.3.1, 11.3.1.4, 11.3.11, 13.2, 13.4.2 Written Interpretations 4.2.11, 4.2.12, 4.3.7 WRITTEN NOTICE 2.3, 2.4, 3.9, 3.12.8, 3.12.9, 4.3, 4.4.4, 4.5, 5.2.1, 5.4.1.1, 8.2.2, 9.4.1, 9.5.1, 9.7, 9.10, 10.1.2, 10.2.6, 11.1.3, 11.3, 12.2.2, 12.2.4, 13.3, 13.5.2, 14 Written Orders 2.3, 3.9, 4.3.7, 7, 8.2.2, 11.3.9, 12.1, 12.2, 13.5.2, 14.3.1 Page 6 22 GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION ARTICLE I GENERAL PROVISIONS 1.1 BASIC DEFINITIONS 1.1.1 THE CONTRACT DOCUMENTS The Contract Documents consist of the Agreement between Owner and Contractor (hereinafter the Agreement), Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, addenda issued prior to execution of the Contract, other documents listed in the Agreement and Modifications issued after execution of the Contract. A Modification is (1) a written amendment to the Contract signed by both parties, (2) a Change Order, (3) a Construction Change Directive or (4) a written order for a minor change in the Work issued by the Architect. Unless specifically enumerated in the Agreement, the Contract Documents do not include other documents such as bidding requirements (advertisement or invitation to bid, Instructions to Bidders, sample forms, the Contractor's bid or portions of addenda relating to bidding requirements). 1.1.2 THE CONTRACT The Contract Documents form the Contract for Construction. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. The Contract may be amended or modified only by a Modification. The Contract Documents shall not be construed to create a contractual relationship of any kind (1) between the Architect and Contractor, (2) between the Owner and a Subcontractor or Sub-subcontractor or (3) between any persons or entities other than the Owner and Contractor. The" Architect shall, however, be entitled to performance and enforcement of obligations under the Contract intended to facilitate performance of the Architect's duties. 1.1.3 THE WORK The term "Work" means the construction and services required by the Contract Documents, and includes all other labor, materials, equipment and services provided or to be provided by the Contractor to fulfill the Contractor's obligations. The Work may constitute the whole or a part of the Project. 1.1.4 THE PROJECT The Project is the total construction of which the Work performed under the Contract Documents may be the whole or a part and which may include construction by the Owner or by separate contractors. 1.1.5 THE DRAWINGS The Drawings are the graphic and pictorial portions of the Contract Documents, wherever located and whenever issued, showing the design, location and dimensions of the Work, generally including plans, elevations, sections, details, schedules and diagrams. 1.1.6 THE SPECIFICATIONS The Specifications are that portion of the Contract Documents consisting of the written requirements for materials, equipment, construction systems, standards and workmanship for the Work, and performance of related services. 1.1.7 THE PROJECT MANUAL The Project Manual is the volume usually assembled for the Work which may include the bidding requirements, sample forms, Conditions of the Contract and Specifications. 1.2 EXECUTION, CORRELATION AND INTENT 1.2.1 The Contract Documents shall be signed by the Owner and Contractor as provided in the Agreement. If either the Owner or Contractor or both do not sign all the Contract Documents, the Architect shall identify such unsigned Documents upon request. 1.2.2 Execution of the Contract by the Contractor is a representation that the Contractor has visited the site, become familiar with local conditions under which the Work is to be performed and correlated personal observations with requirements of the Contract Documents. 1.2.3 The intent of the Contract Documents is to include all items necessary for the proper execution and completion of the Work by the Contractor. The Contract Documents are complementary, and what is required by one shall be as binding as if required by all; performance by the Contractor shall be required only to the extent consistent with the Contract Documents and reasonably inferable from them as being necessary to produce the intended results. 1.2.4 Organization of the Specifications into divisions, sections and articles, and arrangement of Drawings shall not Page # 7 23 control the Contractor in dividing the Work among Subcontractors or in establishing the extent of Work to be performed by any trade. 1.2.5 Unless otherwise stated in the Contract Documents, words which have well-known technical or construction industry meanings are used in the Contract Documents in accordance with such recognized meanings. 1.3 OWNERSHIP AND USE OF ARCHITECT'S DRAWINGS, SPECIFICATIONS AND OTHER DOCUMENTS 1.3.1 The Drawings, Specifications and other documents prepared by the Architect are instruments of the Architect's service through which the Work to be executed by the Contractor is described. The Contractor may retain one contract record set. Neither the Contractor nor any Subcontractor, Sub-subcontractor or material or equipment supplier shall own or claim a copyright in the Drawings, Specifications and other documents prepared by the Architect, and unless otherwise indicated the Architect shall be deemed the author of them and will retain all common law, statutory and other reserved rights, in addition to the copyright. All copies of them, except the Contractor's record set, shall be returned or suitably accounted for to the Architect, on request, upon completion of the Work. The Drawings, Specifications and other documents prepared by the Architect, and copies thereof furnished to the Contractor, are for use solely with respect to this Project. They are not to be used by the Contractor or any Subcontractor, Sub-subcontractor or material or equipment supplier on other projects or for additions to this Project outside the scope of the Work without the specific written consent of the Owner and Architect. The Contractor, Subcontractors, Sub-subcontractors and material or equipment suppliers are granted a limited license to use and reproduce applicable portions of the Drawings, Specifications and other documents prepared by the Architect appropriate to and for use in the execution of their Work under the Contract Documents. All copies made under this license shall bear the statutory copyright notice, if any, shown on the Drawings, Specifications and other documents prepared by the Architect. Submittal or distribution to meet official regulatory requirements or for other purposes in connection with this Project is not to be construed as publication in derogation of the Architect's copyright or other reserved rights. 1.4 CAPITALIZATION 1.4.1 Terms capitalized in these General Conditions include those which are (1) specifically defined, (2) the titles of numbered articles and identified references to Paragraphs, Subparagraphs and Clauses in the document or (3) the titles of other documents published by the American Institute of Architects. 1.5 INTERPRETATION 1.5.1 In the interest of brevity the Contract Documents frequently omit modifying words such as "all" and "any" and articles such as "the" and "an," but the fact that a modifier or an article is absent from one statement and appears in another is not intended to affect the interpretation of either statement. ARTICLE 2 OWNER 2.1 DEFINITION 2.1.1 The Owner is the person or entity identified as such in the Agreement and is referred to throughout the Contract Documents as if singular in number. The term "Owner" means the Owner or the Owner's authorized representative. 2.1.2 The Owner upon reasonable written request shall furnish to the Contractor in writing information which is necessary and relevant for the Contractor to evaluate, give notice of or enforce mechanic's lien rights. Such information shall include a correct statement of the record legal title to the property on which the Project is located, usually referred to as the site, and the Owner's interest therein at the time of execution of the Agreement and, within five days after any change, information of such change in title, recorded or unrecorded. 2.2 INFORMATION AND SERVICES REQUIRED OF THE OWNER 2.2.1 NOT APPLICABLE 2.2.2 The Owner shall furnish surveys describing physical characteristics, legal limitations and utility locations for the site of the Project, and a legal description of the site. 2.2.3 Except for pennies and fees which are the responsibility of the Contractor under the Contract Documents, the Owner shall secure and pay for necessary Page # 8 24 approvals, easements, assessments and charges required for construction, use or occupancy of permanent structures or for permanent changes in existing facilities. 2.2.4 Information or services under the Owner's control shall be furnished by the Owner with reasonable promptness to avoid delay in orderly progress of the Work. 2.2.5 Unless otherwise provided in the Contract Documents, the Contractor will be furnished, free of charge, such copies of Drawings and Project Manuals as are reasonably necessary for execution of the Work. 2.2.6 The foregoing are in addition to other duties and responsibilities of the Owner enumerated herein and especially those in respect to Article 6 (Construction by Owner or by Separate Contractors), Article 9 (Payments and Completion) and Article II (Insurance and Bonds). 2.3 OWNER'S RIGHT TO STOP THE WORK 2.3.1 If the Contractor fails to correct Work which is not in accordance with the requirements of the Contract Documents as required by Paragraph 12.2 or fails to carry out Work in accordance with the Contract Documents, the Owner, by written order signed personally or by an agent specifically so empowered by the Owner in writing, may order the Contractor to stop the Work, or any portion thereof, until the cause for such order has been eliminated; however, the right of the Owner to stop the Work shall not give rise to a duty on the part of the Owner to exercise this right for the benefit of the Contractor or any other person or entity, except to the extent required by Subparagraph 6.1.3. 2.4 OWNER'S RIGHT TO CARRY OUT THE WORK 2.4.1 NOT APPLICABLE ARTICLE 3 CONTRACTOR 3.1 DEFINITION 3.1.1 The Contractor is the person or entity identified as such in the Agreement and is referred to throughout the Contract Documents as if singular in number. The term "Contractor" means the Contractor or the Contractor's authorized representative. 3.2 REVIEW OF CONTRACT DOCUMENTS AND FIELD CONDITIONS BY CONTRACTOR 3.2.1 The Contractor shall review the Contract Documents and shall report to the Architect errors, inconsistencies or omissions discovered. 3.2.2 The Contractor shall take field measurements and verify field conditions and shall carefully compare such field measurements and conditions and other information known to the Contractor with the Contract Documents before commencing activities. Errors, inconsistencies or omissions discovered shall be reported to the Architect at once. 3.2.3 The Contractor shall perform the Work in accordance with the Contract Documents and submittals approved pursuant to Paragraph 3.12. 3.3 SUPERVISION AND CONSTRUCTION PROCEDURES 3.3.1 The Contractor shall supervise and direct the Work, using the Contractor's best skill and attention. The Contractor Page # 9 25 shall be solely responsible for and have control over construction means, methods, techniques, sequences and procedures and for coordinating all portions of the Work under the Contract, unless Contract Documents give other specific instructions concerning these matters. 3.3.2 The Contractor shall be responsible to the Owner for acts and omissions of the Contractor's employees, Subcontractors and their agents and employees, and other persons performing portions of the Work under a contract with the Contractor. 3.3.3 The Contractor shall not be relieved of obligations to performing the Work in accordance with the Contract Documents either by activities or duties of the Architect in the Architect's administration of the Contract, or by tests, inspections or approvals required or performed by persons other than the Contractor. 3.3.4 The Contractor shall be responsible for inspection of portions of Work already performed under this Contract to determine that such portions are in proper condition to receive subsequent Work. 3.4 LABOR AND MATERIALS 3.4.1 Unless otherwise provided in the Contract Documents, the Contractor shall provide and pay for labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation, and other facilities and services necessary for proper execution and completion of the Work, whether temporary or permanent and whether or not incorporated or to be incorporated in the Work. 3.4.2 The Contractor shall enforce strict discipline and good order among the Contractor's employees and other persons carrying out the Contract. The Contractor shall not permit employment of unfit persons or persons not skilled in tasks assigned to them. 3.5 WARRANTY 3.5.1 The Contractor warrants to the Owner that materials and equipment furnished under the Contract will be new unless otherwise required or permitted by the Contract Documents, that the Work will be free from defects not inherent in the quality required or permitted, and that the Work will conform with the requirements of the Contract Documents. Work not conforming to these requirements, including substitutions not properly approved, may be considered non-conforming. The Contractor's warranty excludes remedy for damage or defect caused by abuse, modifications not executed by the Contractor, improper or insufficient maintenance, improper operation, or normal wear and tear under normal usage. If required by the Architect, the Contractor shall furnish satisfactory evidence as to the kind and quality of materials and equipment. Other than the above, Contractor make no other warranty, representation or guarantee whether express or implied, and such are expressly disclaimed. 3.6 TAXES 3.6.1 The Contractor shall pay sales, consumer, use and similar taxes for the Work or portions thereof provided by the Contractor which are legally enacted when bids are received or negotiations concluded, whether or not yet effective or merely scheduled to go into effect. 3.7 PERMITS, FEES AND NOTICES 3.7.1 Unless otherwise provided in the Contract Documents, the Contractor shall secure and pay for the building permit and other permits and governmental fees, licenses and inspections necessary for proper execution and completion of the Work. 3.7.2 The Contractor shall comply with and give notices required by laws, ordinances, rules, regulations and lawful orders of public authorities bearing on performance of the Work. 3.7.3 NOT APPLICABLE 3.7.4 If the Contractor performs Work knowing it to be contrary to laws, statutes, ordinances, building codes, and rules and regulations, the Contractor shall be responsible for such Work and for all attributable costs and resulting damages incurred by Owner or Architect. 3.8 ALLOWANCES 3.8.1 The Contractor shall include in the Contract Sum all allowances stated in the Contract Documents. Items covered by allowances shall be supplied for such amounts and by such Page # 10 26 persons or entities as the Owner may direct, but the Contractor shall not be required to employ persons or entities against which the Contractor makes reasonable objection. 3.8.2 Unless otherwise provided in the Contract Documents: .1 materials and equipment under an allowance shall be selected promptly by the Owner to avoid delay in the Work; .2 allowances shall cover the cost to the Contractor of materials and equipment delivered at the site and all required taxes, less applicable trade discounts; .3 Contractor's costs for unloading and handling at the site, labor, installation costs, overhead, profit and other expenses contemplated for stated allowance amounts shall be included in the Contract Sum and not in the allowances; .4 whenever costs are more than or less than allowances, the Contract Sum shall be adjusted accordingly by Change Order. The amount of the Change Order shall reflect (1) the difference between actual costs and the allowances under Clause 3.8.2.2 and (2) changes in Contractor's costs under Clause 3.8.2.3. 3.9 SUPERINTENDENT 3.9.1 The Contractor shall employ a competent superintendent and necessary assistants who shall be in attendance at the Project site during performance of the Work. The superintendent shall represent the Contractor, and communications given to the superintendent shall be as binding as if given to the Contractor. Important communications shall be confirmed in writing. Other communications shall be similarly confirmed on written request in each case. 3.10 CONTRACTOR'S CONSTRUCTION SCHEDULES 3.10.1 The Contractor, promptly after being awarded the Contract, shall prepare and submit for the Owner's and Architect's information a Contractor's construction schedule for the Work. The schedule shall not exceed time limits current under the Contract Documents, shall be revised at appropriate intervals as required by the conditions of the Work and Project, shall be related to the entire Project to the extent required by the Contract Documents, and shall provide for expeditious and practicable execution of the Work. 3.10.2 The Contractor shall prepare and keep current, for the Architect's approval, a schedule of submittals which is coordinated with the Contractor's construction schedule and allows the Architect reasonable time to review submittals. 3.10.3 The Contractor shall conform to the most recent schedules. 3.11 DOCUMENTS AND SAMPLES AT THE SITE 3.11.1 The Contractor shall maintain at the site for the Owner one record copy of the Drawings, Specifications, addenda, Change Orders and other Modifications, in good order and marked currently to record changes and selections made during constructions, and in addition approved Shop Drawings, Product Data, Samples and similar required submittals. These shall be available to the Architect and shall be delivered to the Architect for submittal to the Owner upon completion of the Work. 3.12 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES 3.12.1 Shop Drawings are drawings, diagrams, schedules and other data specially prepared for the Work by the Contractor or a Subcontractor, Sub-subcontractor, manufacturer, supplier or distributor to illustrate some portion of the Work. 3.12.2 Product Data are illustrations, standard schedules, performance charts, instructions, brochures, diagrams and other information furnished by the Contractor to illustrate materials or equipment for some portion of the Work. 3.12.3 Samples are physical examples which illustrate materials, equipment or workmanship and establish standards by which the Work will be judged. 3.12.4 Shop Drawings, Product Data, Samples and similar submittals are not Contract Documents. The purpose of their submittal is to demonstrate for those portions of the Work for which submittals are required the way the Contractor proposes to conform to the information given and the design concept expressed in the Contract Documents. Review by the Architect is subject to the limitations of Subparagraph 4.2.7. 3.12.5 The Contractor shall review, approve and submit to the Architect Shop Drawings, Product Data, Samples and similar submittals required by the Contract Documents with reasonable promptness and in such sequence as to cause no delay in the Work or in the activities of the Owner or of separate contractors. Submittals made by the Contractor Page # 11 27 which are not required by the Contract Documents may be returned without action. If Shop Drawings, Product Data Samples and similar submittals presented to the Architect by the Contractor contain deviations from requirements of the Contract Documents, the Contractor shall, in writing, designate such deviations as such at the time of submittal. 3.12.6 The Contractor shall perform no portion of the Work requiring submittal and review of Shop Drawings, Product Data, Samples or similar submittals until the respective submittal has been approved by the Architect. Such Work shall be in accordance with approved submittals. 3.12.7 By approving and submitting Shop Drawings, Product Data, Samples and similar submittals, the Contractor represents that the Contractor has determined and verified materials, field measurements and field construction criteria related thereto, or will do so, and has checked and coordinated the information contained within such submittals with the requirements of the Work and of the Contract Documents. 3.12.8 The Contractor shall not be relieved of responsibility for deviations from requirements of the Contract Documents by the Architect's approval of Shop Drawings, Product Data, Samples or similar submittals unless the Contractor has specifically informed the Architect in writing of such deviation at the time of submittal and the Architect has given written approval to the specific deviation. The Contractor shall not be relieved of responsibility for errors or omissions in Shop Drawings, Product Data, Samples or similar submittals by the Architect's approval thereof. 3.12.9 The Contractor shall direct specific attention, in writing or on resubmitted Shop Drawings, Product Data, Samples or similar submittals, to revisions other than those requested by the Architect on previous submittals. 3.12.10 Informational submittals upon which the Architect is not expected to take responsive action may be so identified in the Contract Documents. 3.12.11 When professional certification of performance criteria of materials, systems or equipment is required by the Contract Documents, the Architect shall be entitled to rely upon the accuracy and completeness of such calculations and certifications. 3.13 USE OF SITE 3.13.1 The Contractor shall confine operations at the site to areas permitted by law, ordinances, permits and the Contract Documents and applicable covenants, conditions and restrictions, shall not unreasonably encumber the site with materials or equipment and shall not interfere with the use of the roads adjoining the site or any parcel of real property other than the parcel containing the site. 3.14 CUTTING AND PATCHING 3.14.1 The Contractor shall be responsible for cutting, fitting or patching required to complete the Work or to make its parts fit together properly. 3.14.2 The Contractor shall not damage or endanger a portion of the Work or fully or partially completed construction of the Owner or separate contractors by cutting, patching or otherwise altering such construction, or by excavation. The Contractor shall not cut or otherwise alter such construction by the Owner or a separate contractor except with written consent of the Owner and of such separate contractor; such consent shall not be unreasonably withheld. The Contractor shall not unreasonably withhold from the Owner or a separate contractor the Contractor's consent to cutting or otherwise altering the Work. 3.15 CLEANING UP 3.15.1 The Contractor shall keep the premises and surrounding area free from accumulation of waste materials or rubbish caused by operations under the Contract. At completion of the Work the Contractor shall remove from and about the Project waste materials, rubbish, the Contractor's tools, construction equipment, machinery and surplus materials. 3.15.2 If the Contractor fails to clean up as provided in the Contract Documents, the Owner may do so and the cost thereof shall be charged to the Contractor. 3.16 ACCESS TO WORK 3.16.1 The Contractor shall provide the Owner and Architect access to the Work in preparation and progress wherever located. 3.17 ROYALTIES AND PATENTS 3.17.1 The Contractor shall pay all royalties and license fees. The Contractor shall defend suits or claims for infringement of patent rights and shall hold the Owner and Architect harmless from loss on account thereof, but shall not be responsible for such defense or loss when a particular design, process or product of a particular manufacturer or manufacturers is required by the Contract Documents. Page # 12 28 However, if the Contractor has reason to believe that the required design, process or product is an infringement of a patent, the Contractor shall be responsible for such loss unless such information is promptly furnished to the Architect. 3.18 INDEMNIFICATION 3.18.1 To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect's consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, but only to the extent caused in whole or in part by acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them, or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Paragraph 3.18. 3.18.2 In claims against any person or entity indemnified under this Paragraph 3.18 by an employee of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under this Paragraph 3.18 shall not be limited by a limitation on amount or type of damages, compensation or benefits payable by or for the Contractor or a Subcontractor under workers' or workmen's compensation acts, disability benefit acts or other employee benefit acts. 3.18.3 The obligations of the Contractor under this Paragraph 3.18 shall not extend to the liability of the Architect, the Architect's consultants, and agents and employees of any of them arising out of (1) the preparation or approval of maps, drawings, opinions, reports, surveys, Change Orders, designs or specifications, or (2) the giving of or the failure to give directions or instructions by the Architect, the Architect's consultants, and agents and employees of any of them provided such giving or failure to give is the primary cause of the injury or damage. ARTICLE 4 ADMINISTRATION OF THE CONTRACT 4.1 ARCHITECT 4.1.1 The Architect is the person lawfully licensed to practice architecture or an entity lawfully practicing architecture identified as such in the Agreement and is referred to throughout the Contract Documents as if singular in number. The term "Architect" means the Architect or the Architect's authorized representative. 4.1.2 Duties, responsibilities and limitations of authority of the Architect as set forth in the Contract Documents shall not be restricted, modified or extended without written consent of the Owner, Contractor and Architect. Consent shall not be unreasonably withheld. 4.1.3 In case of termination of employment of the Architect, the Owner shall appoint an architect against whom the Contractor makes no reasonable objection and whose status under the Contract Documents shall be that of the former architect. 4.1.4 Disputes arising under Subparagraphs 4.1.2 and 4.1.3 shall be subject to arbitration. 4.2 ARCHITECT'S ADMINISTRATION OF THE CONTRACT 4.2.1 The Architect will provide administration of the Contract as described in the Contract Documents, and will be the Owner's representative (1) during construction, (2) until final payment is due and (3) with the Owner's concurrence, from time to time during the correction period described in Paragraph 12.2. The Architect will advise and consult with the Owner. The Architect will have authority to act on behalf of the Owner only to the extent provided in the Contract Documents, unless otherwise modified by written instrument in accordance with other provisions of the Contract. 4.2.2 Architect's obligations for inspections and check of the quality or quantity of the Work shall be set forth in an agreement between owner and Architect. Page # 13 29 4.2.3 The Architect will not have control over or charge of and will not be responsible for construction means, methods, techniques, sequences or procedures, or for safety precautions and programs in connection with the Work, since these are solely the Contractor's responsibility as provided in Paragraph 3.3. The Architect will not be responsible for the Contractor's failure to carry out the Work in accordance with the Contract Documents. The Architect will not have control over or charge of and will not be responsible for acts or omissions of the Contractor, Subcontractors, or their agents or employees, or of any other persons performing portions of the Work. 4.2.4 COMMUNICATIONS FACILITATING CONTRACT ADMINISTRATION. Except as otherwise provided in the Contract Documents or when direct communications have been specialty authorized, the Owner and Contractor shall endeavor to communicate through the Architect. Communications by and with the Architect's consultants shall be through the Architect. Communications by and with Subcontractors and material suppliers shall be through the Contractor. Communications by and with separate contractors shall be through the Owner. 4.2.5 Based on the Architect's observations and evaluations of the Contractor's Applications for Payment, the Architect will review and certify the amounts due the Contractor and will issue Certificates for Payment in such amounts. 4.2.6 The Architect will have authority to reject Work which does not conform to the Contract Documents. Whenever the Architect considers it necessary or advisable for implementation of the intent of the Contract Documents, the Architect will have authority to require additional inspection or testing of the Work in accordance with Subparagraphs 13.5.2 and 13.5.3, whether or not such Work is fabricated, installed or completed. However, neither this authority of the Architect nor a decision made in good faith either to exercise or not to exercise such authority shall give rise to a duty or responsibility of the Architect to the Contractor, Subcontractors, material and equipment suppliers, their agents or employees, or other persons performing portions of the Work. 4.2.7 The Architect will review and approve or take other appropriate action upon the Contractor's submittals such as Shop Drawings, Product Data and Samples, but only for the limited purpose of checking for conformance with information given and the design concept expressed in the Contract Documents. The Architect's action will be taken with such reasonable promptness as to cause no delay in the Work or in the activities of the Owner, Contractor or separate contractors, while allowing sufficient time in the Architect's professional judgment to permit adequate review. Review of such submittals is not conducted for the purpose of determining the accuracy and completeness of other details such as dimensions and quantities, or for substantiating instructions for installation or performance of equipment or systems, all of which remain the responsibility of the Contractor as required by the Contract Documents. The Architect's review of the Contractor's submittals shall not relieve the Contractor of the obligations under Paragraphs 3.3, 3.5 and 3.12. The Architect's review shall not constitute approval of safety precautions or, unless otherwise specifically stated by the Architect, of any construction means, methods, techniques, sequences or procedures. The Architect's approval of a specific item shall not indicate approval of an assembly of which the item is a component. 4.2.8 The Architect will prepare Change Orders and Construction Change Directives, and may authorize minor changes in the Work as provided in Paragraph 7.4. 4.2.9 The Architect will conduct inspections to determine the date or dates of Substantial Completion and the date of final completion, will receive and forward to the Owner for the Owner's review and records written warranties and related documents required by the Contract and assembled by the Contractor, and will issue a final Certificate for Payment upon compliance with the requirements of the Contract Documents. 4.2.10 If the Owner and Architect agree, the Architect will provide one or more project representatives to assist in carrying out the Architect's responsibilities at the site. The duties, responsibilities and limitations of authority of such project representatives shall be as set forth in an exhibit to be incorporated in the Contract Documents. 4.2.11 The Architect will interpret and decide matters concerning performance under and requirements of the Contract Documents on written request of either the Owner or Contractor. The Architect's response to such requests will be made with reasonable promptness and within any time limits agreed upon. If no agreement is made concerning the time within which interpretations required of the Architect shall be furnished in compliance with this Paragraph 4.2, then delay shall not be recognized on account of failure by the Architect to furnish such interpretations until 15 days after written request is made for them. 4.2.12 Interpretations and decisions of the Architect will be consistent with the intent of and reasonably inferable from the Contract Documents and will be in writing or in the form of drawings. When making such interpretations and decisions, Page # 14 30 the Architect will endeavor to secure faithful performance by both Owner and Contractor, will not show partiality to either and will not be liable for results of interpretations or decisions so rendered in good faith. 4.2.13 The Architect's decisions on matters relating to aesthetic effect will be final if consistent with the intent expressed in the Contract Documents and approved by the Owner. 4.3 CLAIMS AND DISPUTES 4.3.1 DEFINITION. A Claim is a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of Contract terms, payment of money, extension of time or other relief with respect to the terms of the Contract. The term "Claim" also includes other disputes and matters in question between the Owner and Contractor arising out of or relating to the Contract. Claims must be made by written notice. The responsibility to substantiate Claims shall rest with the party making the Claim. 4.3.2 DECISION OF ARCHITECT. Claims, including those alleging an error or omission by the Architect, shall be referred initially to the Architect for action as provided in Paragraph 4.4. A decision by the Architect, as provided in Subparagraph 4.4.4, shall be required as a condition precedent to arbitration or litigation of a Claim between the Contractor and Owner as to all such matters arising prior to the date final payment is due, regardless of (1) whether such matters relate to execution and progress of the Work or (2) the extent to which the Work has been completed. The decision by the Architect in response to a Claim shall not be a condition precedent to arbitration or litigation in the event (1) the position of Architect is vacant, (2) the Architect has not received evidence or has failed to render a decision within agreed time limits, (3) the Architect has failed to take action required under Subparagraph 4.4.4 within 15 days after the Claim is made, (4) 30 days have passed after the Claim has been referred to the Architect or (5) the Claim relates to a mechanic's lien. 4.3.3 TIME LIMITS ON CLAIMS. Claims by either party must be made within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later. Claims must be made by written notice. An additional Claim made after the initial Claim has been implemented by Change Order will not be considered unless submitted in a timely manner. 4.3.4 CONTINUING CONTRACT PERFORMANCE. Pending final resolution of a Claim including arbitration, unless otherwise agreed in writing the Contractor shall proceed diligently with performance of the Contract and the Owner shall continue to make payments in accordance with the Contract Documents to the extent that such payments are undisputed by the Owner. 4.3.5 WAIVER OF CLAIMS: FINAL PAYMENT. The making of final payment shall constitute a waiver of Claims by the Owner except those arising from: .1 liens, Claims, security interests or encumbrances arising out of the Contract and unsettled; .2 failure of the Work to comply with the requirements of the Contract Documents; or .3 terms of special warranties required by the Contract Documents. 4.3.6 CLAIMS FOR CONCEALED OR UNKNOWN CONDITIONS. If conditions are encountered at the site which are (1) subsurface or otherwise concealed physical conditions which differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature, which differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, then notice by the observing party shall be given to the other party promptly before conditions are disturbed and in no event later than 5 days after first observance of the conditions. Contractor shall include in any such written notice a claim, if any, for equitable adjustment of the Contract Sum or Contract Time due to such unknown conditions. Any claim for equitable adjustment of the Contract Sum and/or the Contract Time which is not included in such notice shall be deemed to have been waived by the Contractor. 4.3.7 CLAIMS FOR ADDITIONAL COST. If the Contractor Page # 15 31 wishes to make Claim for an increase in the Contract Sum, written notice as provided herein shall be given before proceeding to execute the Work. Prior notice is not required for Claims relating to an emergency endangering life or property arising under Paragraph 10.3. If the Contractor believes additional cost is involved for reasons including but not limited to (1) a written interpretation from the Architect, (2) an order by the Owner to stop the Work where the Contractor was not at fault, (3) a written order for a minor change in the Work issued by the Architect, (4) failure of payment by the Owner, (5) termination of the Contract by the Owner, (6) Owner's suspension or (7) other reasonable grounds, Claim shall be filed in accordance with the procedure established herein. 4.3.8 CLAIMS FOR ADDITIONAL TIME 4.3.8.1 If the Contractor wishes to make Claim for all increase in the Contract Time, written notice as provided herein shall be given. The Contractor's Claim shall include an estimate of cost and of probable effect of delay on progress of the Work. In the case of a continuing delay only one Claim is necessary. 4.3.8.2 If adverse weather conditions are the basis for a Claim for additional time, such Claim shall be documented by data substantiating that weather conditions were abnormal for the period of time, and that weather conditions had an adverse effect on the scheduled construction. INSERT A: 4.3.8.3 Should a delay become apparent before the Work or any portion thereof is started, Contractor shall immediately notify the Owner in writing of such delay, the approximate duration of such delay and the effect on the Contract Time as estimated by the Contractor. 4.3.9 INJURY OR DAMAGE TO PERSON OR PROPERTY. If either party to the Contract suffers injury or damage to person or property because of an act or omission of the other party, of any of the other party's employees or agents, or of others for whose acts such party is legally liable, written notice of such injury or damage, whether or not insured, shall be given to the other party within a reasonable time not exceeding 21 days after first observance. The notice shall provide sufficient detail to enable the other party to investigate the matter. If a Claim for additional cost or time related to this Claim is to be asserted, it shall be filed as provided in Subparagraphs 4.3.7 or 4.3.8. 4.4 RESOLUTION OF CLAIMS AND DISPUTES 4.4.1 The Architect will review Claims and take one or more of the following actions within ten days of receipt of a Claim: (1) request additional supporting data from the claimant, (2) submit a schedule to the parties indicating when the Architect expects to take action, (3) reject the Claim in whole or in part, stating reasons for rejection, (4) recommend approval of the Claim by the other party or (5) suggest a compromise. The Architect may also, but is not obligated to, notify the surety, if any, of the nature and amount of the Claim. 4.4.2 If a Claim has been resolved, the Architect will prepare or obtain appropriate documentation. 4.4.3 If a Claim has not been resolved, the party making the Claim shall, within ten days after the Architect's preliminary response, take one or more of the following actions: (1) submit additional supporting data requested by the Architect, (2) modify the initial Claim or (3) notify the Architect that the initial Claim stands. 4.4.4 If a Claim has not been resolved after consideration of the foregoing and of further evidence presented by the parties or requested by the Architect, the Architect will notify the parties in writing that the Architect's decision will be made within seven days, which decision shall be final and binding on the parties but subject to arbitration. Upon expiration of such time period, the Architect will render to the parties the Architect's written decision relative to the Claim, including any change in the Contract Sum or Contract Time or both. If there is a surety and there appears to be a possibility of a Contractor's default, the Architect may, but is not obligated to, notify the surety and request the surety's assistance in resolving the controversy. Insert B. 4.4.5 If a dispute arises out of or relating to this Contract or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor in good faith to settle the dispute in an amicable manner within 45 days of submission to mediation under the Construction Industry Mediation Rules of the American Arbitration Association before having recourse to judicial forum. Insert C: The mediation shall be initiated by the written request of either party and shall be commended within 15 days of receipt of such notice. Insert D: The parties agree that if such mediation fails, the dispute will be settled by the courts of the State of California. 4.5 ARBITRATION 4.5.1 CONTROVERSIES AND CLAIMS SUBJECT TO ARBITRATION. Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled Page # 16 32 by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof, except controversies or Claims relating to aesthetic effect and except those waived as provided for in Subparagraph 4.3.5. Such controversies or Claims upon which the Architect has given notice and rendered a decision as provided in Subparagraph 4.4.4 shall be subject to arbitration upon written demand of either party. Arbitration may be commenced when 30 days have passed after a Claim has been referred to the Architect as provided in Paragraph 4.3 and no decision has been rendered. 4.5.2 RULES AND NOTICES FOR ARBITRATION. Claims between the Owner and Contractor not resolved under Paragraph 4.4 shall, if subject to arbitration under Subparagraph 4.5. 1, be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect, unless the parties mutually agree otherwise. Notice of demand for arbitration shall be filed in writing with the other party to the Agreement between the Owner and Contractor and with the American Arbitration Association, and a copy shall be filed with the Architect. 4.5.3 CONTACT PERFORMANCE DURING ARBITRATION. During arbitration proceedings, the Owner and Contractor shall comply with Subparagraph 4.3.4. 4.5.4 WHEN ARBITRATION MAY BE DEMANDED. Demand for arbitration of any Claim may not be made until the earlier of (1) the date on which the Architect has rendered a final written decision on the Claim, (2) the tenth day after the parties have presented evidence to the Architect or have been given reasonable opportunity to do so, if the Architect has not rendered a final written decision by that date, or (3) any of the five events described in Subparagraph 4.3.2. 4.5.4.1 When a written decision of the Architect states that (1) the decision is final but subject to arbitration and (2) a demand for arbitration of a Claim covered by such decision must be made within 30 days after the date on which the party making the demand receives the final written decision, then failure to demand arbitration within said 30 days' period shall result in the Architect's decision becoming final and binding upon the Owner and Contractor. If the Architect renders a decision after arbitration proceedings have been initiated, such decision may be entered as evidence, but shall not supersede arbitration proceedings unless the decision is acceptable to all parties concerned. 4.5.4.2 A demand for arbitration shall be made within the time limits specified in Subparagraphs 4.5.1 and 4.5.4 and Clause 4.5.4.1 as applicable. and in other cases within a reasonable time after the Claim has arisen, and in no event shall it be made after the date when institution of legal or equitable proceedings based on such Claim would be barred by the applicable statute of limitations as determined pursuant to Paragraph 13.7. 4.5.5 LIMITATION ON CONSOLIDATION OR JOINDER. 4.5.6 CLAIMS AND TIMELY ASSERTION OF CLAIMS. A party who files a notice of demand for arbitration must assert in the demand ail Claims then known to that party on which arbitration is permitted to be demanded. When a party fails to include a Claim through oversight, inadvertence or excusable neglect, or when a Claim has matured or been acquired subsequently, the arbitrator or arbitrators may permit amendment. 4.5.7 JUDGMENT ON FINAL AWARD. The award rendered by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. ARTICLE 5 SUBCONTRACTORS 5.1 DEFINITIONS Page # 17 33 5.1.1 A Subcontractor is a person or entity who has a direct contract with the Contractor to perform a portion of the Work at the site. The term "subcontractor" is referred to throughout the Contract Documents as if singular in number and means a Subcontractor or an authorized representative of the Subcontractor. The term "subcontractor" does not include a separate contractor or subcontractors of a separate contractor. 5.1.2 A Sub-subcontractor is a person or entity who has a direct or indirect contract with a Subcontractor to perform a portion of the Work at the site. The term "sub-subcontractor" is referred to throughout the Contract Documents as if singular in number and means a Sub-subcontractor or an authorized representative of the Sub-subcontractor. 5.2 AWARD OF SUBCONTRACTS AND OTHER CONTRACTS FOR PORTIONS OF THE WORK 5.2.1 Unless otherwise stated in the Contract Documents or the bidding requirements, the Contractor, as soon as practicable after award of the Contract, shall furnish in writing to the Owner through the Architect the names of persons or entities (including those who are to furnish materials or equipment fabricated to a special design) proposed for each principal portion of the Work. The Architect will promptly reply to the Contractor in writing stating whether or not the Owner or the Architect, after due investigation, has reasonable objection to any such proposed person or entity. Failure of the Owner or Architect to reply promptly shall constitute notice of no reasonable objection. 5.2.2 The Contractor shall not contract with a proposed person or entity to whom the Owner or Architect has made reasonable and timely objection. The Contractor shall not be required to contract with anyone to whom the Contractor has made reasonable objection. 5.2.3 If the Owner or Architect has reasonable objection to a person or entity proposed by the Contractor, the Contractor shall propose another to whom the Owner or Architect has no reasonable objection. The Contract Sum shall be increased or decreased by the difference in cost occasioned by such change and an appropriate Change Order shall be issued. However, no increase in the Contract Sum shall be allowed for such change unless the Contractor has acted responsively in submitting names as required. 5.2.4 The Contractor shall not change a Subcontractor, person or entity previously selected if the Owner or Architect makes reasonable objection to such change. 5.3 SUBCONTRACTUAL RELATIONS 5.3.1 By appropriate agreement, written where legally required for validity, the Contractor shall require each Subcontractor, to the extent of the Work to be performed by the Subcontractor, to be bound to the Contractor by terms of the Contract Documents, and to assume toward the Contractor all the obligations and responsibilities which the Contractor, by these Documents, assumes toward the Owner. Each subcontract agreement shall preserve and protect the rights of the Owner under the Contract Documents with respect to the Work to be performed by the Subcontractor so that subcontracting thereof will not prejudice such rights. Where appropriate, the Contractor shall require each Subcontractor to enter into similar agreements with Sub-subcontractors. The Contractor shall make available to each proposed Subcontractor, copies of the Contract Documents to which the Subcontractor will be bound. Subcontractors shall similarly make copies of applicable portions of such documents available to their respective proposed Sub-subcontractors. 5.4 CONTINGENT ASSIGNMENT OF SUBCONTRACTS 5.4.1 NOT APPLICABLE .1 NOT APPLICABLE .2 NOT APPLICABLE 5.4.2 NOT APPLICABLE ARTICLE 6 Page # 18 34 CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS 6.1 OWNERS RIGHT TO PERFORM CONSTRUCTION AND TO AWARD SEPARATE CONTRACTS 6.1.1 The Owner reserves the right to perform construction or operations related to the Project with the Owner's own forces, and to award separate contracts in connection with other portions of the Project or other construction or operations on the site under Conditions of the Contract identical or substantially similar to these including those portions related to insurance and waiver of subrogation. If the Contractor claims that delay or additional cost is involved because of such action by the Owner, the Contractor shall make such Claim as provided elsewhere in the Contract Documents. 6.1.2 When separate contracts are awarded for different portions of the Project or other construction or operations on the site, the term "Contractor" in the Contract Documents in each case shall mean the Contractor who executes each separate Owner-Contractor Agreement. 6.1.3 The Owner shall provide for coordination of the activities of the Owner's own forces and of each separate contractor with the Work of the Contractor, who shall cooperate with them. The Contractor shall participate with other separate contractors and the Owner in reviewing their construction schedules when directed to do so. The Contractor shall make any revisions to the construction schedule and Contract Sum deemed necessary after a joint review and mutual agreement. 6.1.4 Unless otherwise provided in the Contract Documents, when the Owner performs construction or operations related to the Project with the Owner's own forces, the Owner shall be deemed to be subject to the same obligations and to have the same rights which apply to the Contractor under the Conditions of the Contract, including, without excluding others, those stated in Article 3, this Article 6 and Articles 10, 11 and 12. 6.2 MUTUAL RESPONSIBILITY 6.2.1 The Contractor shall afford the Owner and separate contractors reasonable opportunity for introduction and storage of their materials and equipment and performance of their activities and shall connect and coordinate the Contractor's construction and operations with theirs as required by the Contract Documents. 6.2.2 If part of the Contractor's Work depends for proper execution or results upon construction or operations by the Owner or a separate contractor, the Contractor shall, immediately upon recognizing such dependence, inform the Owner of that dependence and, prior to proceeding with that portion of the Work, the Contractor shall promptly report to the Architect and Owner discrepancies or defects discovered in such other construction that would render it unsuitable for such proper execution and results. Failure of the Contractor so to report shall constitute an acknowledgment that the Owner's or separate contractors' construction or operations will not affect Contractor's Work. Failure of the Contractor to report any apparent discrepancies or defects in such other construction shall constitute an acknowledgment that the Owner's or separate contractors' completed or partially completed construction is fit and proper to receive the Contractor's Work, except as to defects not then reasonably discoverable. 6.2.3 Costs caused by delays or by improperly timed activities or nonconforming construction shall be borne by the party responsible therefor. 6.2.4 The Contractor shall, at its sole cost, promptly remedy damage wrongfully caused by the Contractor to completed or partially completed construction or to property of the Owner or separate contractors as provided in Subparagraph 10.2.5. 6.2.6 Claims and other disputes and matters in question between the Contractor and a separate contractor shall be subject to the provisions of Paragraph 4.3 provided the separate contractor has reciprocal obligations. 6.2.6 The Owner and each separate contractor shall have the same responsibilities for cutting and patching as are described for the Contractor in Paragraph 3.14. 6.3 OWNER'S RIGHT TO CLEAN UP 6.3.1 If a dispute arises among the Contractor, separate contractors and the Owner as to the responsibility under their respective contracts for maintaining the premises and surrounding area free from waste materials and rubbish as described in Paragraph 3.15, the Owner may clean up and allocate the cost among those responsible as the Architect determines to be just. ARTICLE 7 CHANGES IN THE WORK Page # 19 35 7.1 CHANGES 7.1.1 Changes in the Work may be accomplished after execution of the Contract, and without invalidating the Contract, by Change Order, Construction Change Directive or order for a minor change in the Work, subject to the limitations stated in this Article 7 and elsewhere in the Contract Documents. 7.1.2 A Change Order shall be based upon agreement among the Owner, Contractor and Architect; a Construction Change Directive requires agreement by the Owner and Architect and may or may not be agreed to by the Contractor; an order for a minor change in the Work may be issued by the Architect alone. 7.1.3 Changes in the Work shall be performed under applicable provisions of the Contract Documents, and the Contractor shall proceed promptly, unless otherwise provided in the Change Order, Construction Change Directive or order for a minor change in the Work. 7.1.4 If unit prices are stated in the Contract Documents or subsequently agreed upon, and if quantities originally contemplated are so changed in a proposed Change Order or Construction Change Directive that application of such unit prices to quantities of Work proposed will cause substantial inequity to the Owner or Contractor, the applicable unit prices shall be equitably adjusted. 7.2 CHANGE ORDERS 7.2.1 A Change Order is a written instrument prepared by the Architect and signed by the Owner, Contractor and Architect, stating their agreement upon all of the following: .1 a change in the Work; .2 the amount of the adjustment in the Contract Sum, if any; and .3 the extent of the adjustment in the Contract Time, if any. 7.2.2 Methods used in determining adjustments to the Contract Sum may include those listed in Subparagraph 7.3.3. 7.3 CONSTRUCTION CHANGE DIRECTIVES 7.3.1 A Construction Change Directive is a written order prepared by the Architect and signed by the Owner and Architect, directing a change in the Work and stating a proposed basis for adjustment, if any, in the Contract Sum, or Contract Time, or both. The Owner may by Construction Change Directive, without invalidating the Contract, order changes in the Work within the general scope of the Contract consisting of additions, deletions or other revisions, the Contract Sum and Contract Time being adjusted accordingly. 7.3.2 A Construction Change Directive shall be used in the absence of total agreement on the terms of a Change Order. 7.3.3 If the Construction Change Directive provides for an adjustment to the Contract Sum, the adjustment shall be based on one of the following methods: .1 mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation; .2 unit prices stated in the Contract Documents or subsequently agreed upon; .3 cost to be determined in a manner agreed upon by the parties and a mutually acceptable fixed or percentage fee; or .4 as provided in Subparagraph 7.3.6. 7.3.4 Upon receipt of a Construction Change Directive, the Contractor shall promptly proceed with the change in the Work involved and advise the Architect of the Contractor's agreement or disagreement with the method, if any, provided in the Construction Change Directive for determining the proposed adjustment in the Contract Sum or Contract Time. 7.3.5 A Construction Change Directive signed by the Contractor indicates the agreement of the Contractor therewith, including adjustment in Contract Sum and Contract Time or the method for determining them. Such agreement shall be effective immediately and shall be recorded as a Change Order. 7.3.6 If the Contractor does not respond promptly or disagrees with the method for adjustment in the Contract Sum, the method and the adjustment shall be determined by the Architect on the basis of reasonable expenditures and savings of those performing the Work attributable to the change, including, in case of an increase in the Contract Sum, a reasonable allowance for overhead and profit. In such case, and also under Clause 7.3.3.3, the Contractor shall keep and present, in such form as the Architect may prescribe, an itemized accounting together with appropriate supporting data. Unless otherwise provided in the Contract Documents, Page # 20 36 costs for the purposes of this Subparagraph 7.3.6 shall be limited to the following .1 costs of labor, including social security, old age and unemployment insurance, fringe benefits required by agreement or custom, and workers' or workmen's compensation insurance; .2 costs of materials, supplies and equipment, including cost of transportation, whether incorporated or consumed; .3 rental costs of machinery and equipment, exclusive of hand tools, whether rented from the Contractor or others; .4 costs of premiums for all bonds arid insurance, permit fees, and sales, use or similar taxes related to the Work; and .5 additional costs of supervision and field office personnel directly attributable to the change. 7.3.7 NOT APPLICABLE 7.3.8 If the Owner and Contractor do not agree with the adjustment in Contract Time or the method for determining it, the adjustment or the method shall be referred to the Architect for determination. 7.3.9 When the Owner and Contractor agree with the determination made by the Architect concerning the adjustments in the Contract Sum and Contract Time, or otherwise reach agreement upon the adjustments, such agreement shall be effective immediately and shall be recorded by preparation and execution of an appropriate Change Order. 7.4 MINOR CHANGES IN THE WORK 7.4.1 The Owner, after review by the Architect will have authority to order minor changes in the Work not involving adjustment in the Contract Sum or extension of the Contract Time and not inconsistent with the intent of the Contract Documents. Such changes shall be effected by written order and shall be binding on the Owner and Contractor. The Contractor shall carry out such written orders promptly. ARTICLE 8 TIME 8.1 DEFINITIONS 8.1.1 Unless otherwise provided, Contract Time is the period of time, including authorized adjustments, allotted in the Contract Documents for Substantial Completion of the Work. 8.1.2 "The date of commencement of the Work is the date established in the Agreement. The date shall not be postponed by the failure to act of the Contractor or of persons or entities for whom the Contractor is responsible. 8.1.3 The date of Substantial Completion is the date as established in Paragraph 9.8. also per A101 Paragraph 3.1 Insert A. 8.1.4 The term "day" as used in the Contract Documents shall mean calendar day unless otherwise specifically defined. 8.2 PROGRESS AND COMPLETION 8.2.1 Time limits stated in the Contract Documents are of the essence of the Contract. By executing the Agreement the Contractor confirms that the Contract Time is a reasonable period for performing the Work. 8.2.2 The Contractor shall not knowingly, except by agreement or instruction of the Owner in writing, prematurely commence operations on the site or elsewhere prior to the effective date of insurance required by Article 11 to be furnished by the Contractor. The date of commencement of the Work shall not be changed by the effective date of such insurance. Unless the date of commencement is established by a notice to proceed given by the Owner, the Contractor shall notify the Owner in writing not less than five days or other agreed period before commencing the Work to permit the timely filing of mortgages, mechanic's liens and other security interests. 8.2.3 The Contractor shall proceed expeditiously with adequate forces and shall achieve Substantial Completion within the Contract Time. 8.3 DELAYS AND EXTENSIONS OF TIME Page # 21 37 8.3.1 NOT APPLICABLE 8.3.2 Claims relating to time shall be made in accordance with applicable provisions of Paragraph 4.3. 8.3.3 This Paragraph 8.3 does not preclude recovery of damages for delay by either party under other provisions of the Contract Documents. ARTICLE 9 PAYMENTS AND COMPLETION 9.1 CONTRACT SUM 9.1.1 The Contract Sum is stated in the Agreement and, including authorized adjustments, is the total amount payable by the Owner to the Contractor for performance of the Work under the Contract Documents. 9.2 SCHEDULE OF VALUES 9.2.1 Before the first Application for Payment, the Contractor shall submit to the Architect a schedule of values allocated to various portions of the Work, prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 9.3 APPLICATIONS FOR PAYMENT 9.3.1 At least ten days before the date established for each progress payment, the Contractor shall submit to the Architect an itemized Application for Payment for operations completed in accordance with the schedule of values. Such application shall be notarized, if required, and supported by such data substantiating the Contractor's right to payment as the Owner or Architect may require. 9.3.1.1 Such applications may include requests for payment on account of changes in the Work which have been properly authorized by Construction Change Directives on which the agreement of Owner and Contractor has been reached as to adjustment in the Contract Sum. 9.3.1.2 NOT APPLICABLE 9.3.2 Unless otherwise provided in the Contract Documents, payments shall be made on account of materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work. If approved in advance by the Owner, payment may similarly be made for materials and equipment suitably stored off the site at a location agreed upon in writing. Payment for materials and equipment stored on or off the site shall be conditioned upon compliance by the Contractor with procedures satisfactory to the Owner to establish the Owner's title to such materials and equipment or otherwise protect the Owner's interest, and shall include applicable insurance, storage, and transportation to the site for such materials and equipment stored off the site. 9.3.3 The Contractor warrants that title to all Work covered by an Application for Payment will pass to the Owner no later than the time of payment. The Contractor further warrants that upon submittal of an Application for Payment all Work for which Certificates for Payment have been previously issued and payments received from the Owner shall, to the best of the Contractor's knowledge, information and belief, be free and clear of liens, claims, security interests or encumbrances favor of the Contractor, Subcontractors, material suppliers, or other persons or entities making a claim by reason of having provided labor, materials and equipment relating to the Work. 9.4 CERTIFICATES FOR PAYMENT 9.4.1 The Architect will, within seven days after receipt of the Contractor's Application for Payment, either issue to the Owner a Certificate for Payment, with a copy to the Contractor, for such amount as the Architect determines is properly due, or notify the Contractor and Owner in writing of the Architect's reasons for withholding certification in whole or in part as provided in Subparagraph 9.5.1. 9.4.2 The issuance of a Certificate for Payment will constitute a representation by the Architect to the Owner, based on the Architect's observations at the site and the data comprising the application for Payment, that the Work has Page # 22 38 progressed to the point indicated and that, to the best of the Architect's knowledge, information and belief, quality of the Work is in accordance with the Contract Documents. The foregoing representations are subject to an evaluation of the Work for conformance with the Contract Documents upon Substantial Completion, to results of subsequent tests and inspections, to minor deviations from the Contract Documents correctable prior to completion and to specific qualifications expressed by the Architect. The issuance of a Certificate for Payment will further constitute a representation that the Contractor is entitled to payment in the amount certified. However, the issuance of a Certificate for Payment will not be a representation that the Architect has (1) made exhaustive or continuous on-site inspections to check the quality or quantity of the Work, (2) reviewed construction means, methods, techniques, sequences or procedures, (3) reviewed copies of requisitions received from Subcontractors and material suppliers and other data requested by the Owner to substantiate the Contractor's right to payment or (4) made examination to ascertain how or for what purpose the Contractor has used money previously paid on account of the Contract Sum. 9.5 DECISIONS TO WITHHOLD CERTIFICATION 9.5.1 The Architect may decide not to certify payment and may withhold a Certificate for Payment in whole or in part, to the extent reasonably necessary to protect the Owner, if in the Architect's opinion the representations to the Owner required by Subparagraph 9.4.2 cannot be made. If the Architect is unable to certify payment in the amount of the Application, the Architect will notify the Contractor and Owner as provided in Subparagraph 9.4.1. If the Contractor and Architect cannot agree on a revised amount, the Architect will promptly issue a Certificate for Payment for the amount for which the Architect is able to make such representations to the Owner. The Architect may also decide not to certify to such extent as may be necessary in the Architect's opinion to protect the Owner from loss because of: .1 defective Work not remedied; .2 third party claims filed; .3 failure of the Contractor to make payments to Subcontractors or for labor, materials or equipment; .4 reasonable evidence that the Work cannot be completed for the unpaid balance of the Contract Sum; .5 damage to the Owner or another contractor; .6 NOT APPLICABLE .7 persistent failure to carry out the Work in accordance with the Contract Documents 9.5.2 When the above reasons for withholding certification are removed, certification will be made for amounts previously withheld. 9.6 PROGRESS PAYMENTS 9.6.1 After the Architect has issued a Certificate for Payment, the Owner shall make payment in the manner and within the time provided in the Contract Documents, and shall so notify the Architect. 9.6.2 NOT APPLICABLE 9.6. 3 NOT APPLICABLE 9.6.4 Neither the Owner nor Architect shall have an obligation to pay or to see to the payment of money to a Subcontractor except as may otherwise be required by law. 9.6.5 NOT APPLICABLE 9.6.6 A Certificate for Payment, a progress payment, or Page # 23 39 partial or entire use or occupancy of the Project by the Owner shall not constitute acceptance of Work not in accordance with the Contract Documents. 9.7 FAILURE OF PAYMENT 9.7.1 If the Architect does not issue a Certificate for Payment, through no fault of the Contractor, within seven days after receipt of the Contractor's Application for Payment, or if the Owner does not pay the Contractor within seven days after the date established in the Contract Documents the amount certified by the Architect or awarded by arbitration, then the Contractor may, upon seven additional days' written notice to the Owner and Architect, stop the Work until payment of the amount owing has been received. The Contract Time shall be extended appropriately and the Contract Sum shall be increased by the amount of the Contractor's reasonable costs of shut-down, delay and start-up, and interest as provided in paragraph 13.6.1, which shall be accomplished as provided in Article 7. 9.8 SUBSTANTIAL COMPLETION 9.8.1 Substantial Completion is the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so the Owner can occupy or utilize the Work for its intended use. 9.8.2 When the Contractor considers that the Work, or a portion thereof which the Owner agrees to accept separately, is substantially complete, the Contractor shall prepare and submit to the Architect a list of items to be completed or corrected. The Contractor shall proceed promptly to complete and correct items on the list. Failure to include an item on such list does not alter the responsibility of the Contractor to complete all Work in accordance with the Contract Documents. Upon receipt of the Contractor's list, the Architect will make an inspection to determine whether the Work or designated portion thereof is substantially complete. If the Architect's inspection discloses any item, whether or not included on the Contractor's list, which is not in accordance with the requirements of the Contract Documents, the Contractor shall, , complete or correct such item, upon notification by the Architect. When the Work or designated portion thereof is substantially complete, the Architect will prepare a Certificate of Substantial Completion which shall establish the date of Substantial Completion, shall establish responsibilities of the Owner and Contractor for security, maintenance, heat, utilities, damage to the Work and insurance, and shall fix the time within which the Contractor shall finish all items on the list accompanying the Certificate. Warranties required by the Contract Documents shall commence on the date of Substantial Completion of the Work or designated portion thereof unless otherwise provided in the Certificate of Substantial Completion. The Certificate of Substantial Completion shall be submitted to the Owner and Contractor for their written acceptance of responsibilities assigned to them in such Certificate. 9.8.3 Upon Substantial Completion of the Work or designated portion thereof and upon application by the Contractor and certification by the Architect, and acceptance by the owner, Owner shall make payment, reflecting adjustment in retainage, as provided in the Contract Documents. 9.9 PARTIAL OCCUPANCY OR USE 9.9.1 The Owner may occupy or use any completed or partially completed portion of the Work at any stage when such portion is designated by separate agreement with the Contractor, provided such occupancy or use is consented to by the insurer as required under Subparagraph 11.3.11 and authorized by public authorities having jurisdiction over the Work. Such partial occupancy or use may commence whether or not the portion is substantially complete, provided the Owner and Contractor have accepted in writing the responsibilities assigned to each of them for payments, retainage if any, security, maintenance, heat, utilities, damage to the Work and insurance, and have agreed in writing concerning the period for correction of the Work and commencement of warranties required by the Contract Documents. When the Contractor considers a portion substantially complete, the Contractor shall prepare and submit a list to the Architect as provided under Subparagraph 9.8.2. Consent of the Contractor to partial occupancy or use shall not be unreasonably withheld. The stage of the progress of the Work shall be determined by written agreement between the Owner and Contractor or, if no agreement is reached, by decision of the Architect. For any partial occupancy or use, the Owner shall reduce retainage proportional to the Contractor at the time of partial occupancy or use. 9.9.2 Immediately prior to such partial occupancy or use, the Owner, Contractor and Architect shall jointly inspect the area to be occupied or portion of the Work to be used in order to determine and record the condition of the Work. 9.9.3 Unless otherwise agreed upon, partial occupancy or use of a portion or portions of the Work shall not constitute acceptance of Work not complying with the requirements of 40 the Contract Documents. 9.10 FINAL COMPLETION AND FINAL PAYMENT 9.10.1 Upon receipt of written notice that the Work is ready for final inspection and acceptance and upon receipt of a final Application for Payment, the Architect will promptly make such inspection and, when the Architect finds the Work acceptable under the Contract Documents and the Contract fully performed, the Architect will promptly issue a final Certificate for Payment stating that to the best of the Architect's knowledge, information and belief, and on the basis of the Architect's observations and inspections, the Work has been completed in accordance with terms and conditions of the Contract Documents and that the entire balance found to be due the Contractor and noted in said final Certificate is due and payable. The Architect's final Certificate for Payment will constitute a further representation that conditions listed in Subparagraph 9.10.2 as precedent to the Contractor's being entitled to final payment have been fulfilled. 9.10.2 Neither final payment nor any remaining retained percentage shall become due until the Contractor submits to the Architect (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the Work for which the Owner or the Owner's property might be responsible or encumbered (less amounts withheld by Owner) have been paid or otherwise satisfied, (2) a certificate evidencing that insurance required by the Contract Documents to remain in force after final payment is currently in effect and will not be cancelled or allowed to expire until at least 30 days' prior written notice has been given to the Owner, (3) a written statement that the Contractor knows of no substantial reason that the insurance will not be renewable to cover the period required by the Contract Documents, (4) consent of surety, if any, to final payment. 9.10.3 If, after Substantial Completion of the Work, final completion thereof is materially delayed through no fault of the Contractor or by, issuance of Change Orders affecting shall, upon application by the Contractor and certification by the Architect, and without terminating the Contract, make payment of the balance due for that portion of the Work fully completed and accepted. If the remaining balance for Work not fully completed or corrected is less than retainage stipulated in the Contract Documents, and if bonds have been furnished, the written consent of surety to payment of the balance due for that portion of the Work fully completed and accepted shall be submitted by the Contractor to the Architect prior to certification of such payment, Such payment shall be made under terms and conditions governing final payment, except that it shall not constitute a waiver of claims. 9.10.4 Acceptance of final payment by the Contractor, a Subcontractor or material supplier shall constitute a waiver of claims by that payee except those previously made in writing and identified by that payee as unsettled at the time of final Application for Payment. Such waivers shall be in addition to the waiver described in Subparagraph 4.3.7 and 4.3.8. ARTICLE 10 PROTECTION OF PERSONS AND PROPERTY 10.1 SAFETY PRECAUTIONS AND PROGRAMS 10.1.1 The Contractor shall be responsible for initiating, maintaining and supervising all safety precautions and programs in connection with the performance of the Contract. 10.1.2 Each time the phrase "asbestos or polychlorinated biphenyl (PCB)" is used, change this phrase to read "a hazardous material in any form including but not limited to, asbestos, asbestos products, polychlorinated biphenyl (PCB) or other toxic substances". In the event the Contractor encounters on the site material reasonably believed to be asbestos or polychlorinated biphenyl (PCB) which has not been rendered harmless, the Contractor shall immediately stop Work in the area affected and report the condition to the Owner and Architect in writing. The Work in the affected area shall not thereafter be resumed except by written agreement of the Owner and Contractor if in fact the material is asbestos or polychlorinated biphenyl (PCB) and has not been rendered harmless. The Work in the affected area shall be resumed in the absence of asbestos or polychlorinated biphenyl (PCB), or when it has been rendered harmless, by written agreement of the Owner and Contractor, or in accordance with final determination by the Architect on which arbitration has not been demanded, or by arbitration under Article 4.; 41 10.1.3 The Contractor shall not be required pursuant to Article 7 to perform without consent any Work relating to asbestos or polychlorinated biphenyl (PCB). 10.1.4 To the fullest extent permitted by law, the Owner shall indemnify and hold harmless the Contractor, Architect, Architect' s consultants and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work in the affected area if in fact the material is asbestos or polychlorinated biphenyl (PCB) and has not been rendered harmless, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom; caused in whole or in part by negligent acts or omissions of the Owner, anyone directly or indirectly employed by the Owner or anyone for whose acts the Owner may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder, Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Subparagraph 10.1.4. 10.2 SAFETY OF PERSONS AND PROPERTY 10.2.1 The Contractor shall take reasonable precautions for safety of, and shall provide reasonable protection to prevent damage, injury or loss to: .1 employees on the Work and other persons who may be affected thereby; .2 the Work and materials and equipment to be incorporated therein, whether in storage on or off the site, under care, custody or control of the Contractor or the Contractor's Subcontractors or Sub-subcontractors; and .3 other property at the site or adjacent thereto, such as trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, relocation or replacement in the course of construction. 10.2.2 The Contractor shall give notices and comply with applicable laws, ordinances, rules, regulations and lawful orders of public authorities bearing on safety of persons or property or their protection from damage, injury or loss. 10.2.3 The Contractor shall erect and maintain, as required by existing conditions and performance of the contract, reasonable safeguards for safety and protection, including posting danger signs and other warnings against hazards, promulgating safety regulations and notifying owners and users of adjacent sites and utilities. 10.2.4 When use or storage of explosives or other hazardous materials or equipment or unusual methods are necessary for execution of the Work, the Contractor shall exercise utmost care and carry on such activities under supervision of properly qualified personnel. 10.2.5 The Contractor shall promptly remedy damage and loss caused in whole or in part by the Contractor, a Subcontractor, a Sub-subcontractor, or anyone directly or indirectly employed by any of them, or by anyone for whose acts they may be liable and for which the Contractor is responsible 10.2.6 The Contractor shall designate a responsible member of the Contractor's organization at the site whose duty shall be the prevention of accidents. This person shall be the Contractor's superintendent unless otherwise designated by the Contractor in writing to the Owner and Architect. 10.2.7 The Contractor shall not load or permit any part of the Instruction or site to be loaded so as to endanger its safety. 10.3 EMERGENCIES 1O.3.1 In an emergency affecting safety of persons or property, the Contractor shall act, at the Contractor's discretion, to prevent threatened damage, injury or loss. Additional compensation or extension of time claimed by the Contractor on account of an emergency shall be determined as provided in Paragraph 4.3 and Article 7. ARTICLE 11 INSURANCE AND BONDS 11.1 CONTRACTOR'S LIABILITY INSURANCE 11.1.1 The Contractor shall purchase from and maintain in 42 a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located such insurance as will protect the Contractor from claims set forth below which may arise out of or result from the Contractor's operations under the Contract and for which the Contractor may be legally liable, whether such operations be by the Contractor or by a Subcontractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable: .1 claims under workers' or workmen's compensation, disability benefit and other similar employee benefit acts which are applicable to the Work to be performed; .2 claims for damages because of bodily injury, occupational sickness or disease, or death of the Contractor's employees, .3 claims for damages because of bodily injury, sickness or disease, or death of any person other than the Contractor's employees, .4 claims for damages insured by usual personal injury liability coverage which are sustained (1) by a person as a result of an offense directly or indirectly related to employment of such person by the Contractor, or (2) by another person; .5 claims for damages, other than to the Work itself, because of injury to or destruction of tangible property, .6 claims for damages because of bodily injury, death of a person or property damage arising out of ownership, maintenance or use of a motor vehicle; and .7 claims involving contractual liability insurance applicable to the Contractor's obligations under Paragraph 3.18. 11.1.2 The insurance required by Subparagraph 11.1.1 shall be written for not less than limits of liability specified in the Contract Documents or required by law, whichever coverage is greater. Coverage's, whether written on an occurrence or claims-made basis, shall be maintained without interruption from date of commencement of the Work until date of final payment and termination of any coverage required to be maintained after final payment. 11.1.3 Certificates of Insurance acceptable to the Owner shall be filed with the Owner prior to commencement of the Work. These Certificates and the insurance policies required by this Paragraph 11.1 shall contain a provision that coverages afforded under the policies will not be cancelled or allowed to expire until at least 30 days' prior written notice has been given to the Owner. If any of the foregoing insurance coverages are required to remain in force after final payment and are reasonably available, all additional certificate evidencing continuation of such coverage shall be submitted with the final Application for Payment as required by Subparagraph 9.10.2. Information concerning reduction of coverage shall be furnished by the Contractor with reasonable promptness in accordance with the Contractor's information and belief. In addition to Certificates of Insurance, Contractor shall supply a written endorsement to Contractor's General Liability insurance policy that names the Owner as an Additional Insured, The endorsement shall provide that Contractor's Liability Insurance policies shall be primary, and that any liability insurance of Owner shall be secondary and non-contributory. 11.2 OWNER'S LIABILITY INSURANCE 11.2.1 NOT APPLICABLE 11.3 PROPERTY INSURANCE 11.3.1 NOT APPLICABLE 11.3.1.1 Property insurance shall be on an all-risk policy form and shall insure against the perils of fire and extended coverage and physical loss or damage including, without duplication of coverage, theft, vandalism, malicious mischief, 43 collapse, false-work, and flood, temporary buildings and debris removal including demolition occasioned by enforcement of any applicable legal requirements, and shall cover reasonable compensation for Architect's services and expenses required as a result of such insured loss. Coverage for other perils shall not be required unless otherwise provided in the Contract Documents. 11.3.1.2 If the Owner does not intend to purchase such property insurance required by the Contract and with all of the coverages in the amount described above, the Owner shall so inform the Contractor in writing prior to commencement of the Work. The Contractor may then effect insurance which will protect the interests of the Contractor, Subcontractors and Sub-subcontractors in the Work, and by appropriate Change Order the cost thereof shall be charged to the Owner. If the Contractor is damaged by the failure or neglect of the Owner to purchase or maintain insurance as described above, without so notifying the Contractor, then the Owner shall bear all reasonable costs properly attributable thereto. 11.3.1.3 NOT APPLICABLE 11.3.1.4 Unless otherwise provided in the Contract Documents, this property insurance shall cover portions of the Work stored off the site after written approval of the owner at the value established in the approval, and also portions of the Work in transit. 11.3.2 BOILER AND MACHINERY INSURANCE. The Owner shall purchase and maintain boiler and machinery insurance required by the Contract Documents or by law, which shall specifically cover such insured objects during installation and until final acceptance by the Owner; this insurance shall include interests of the Owner, Contractor, Subcontractors and Sub-subcontractors in the Work, and the Owner and Contractor shall be named insureds. 11.3.3 LOSS OF USE INSURANCE. The Owner, at the Owner's option, may purchase and maintain such insurance as will insure the Owner against loss of use of the Owner's property due to fire or other hazards, however caused. The Owner waives all rights of action against the Contractor for loss of use of the Owner's property, including consequential losses due to fire or other hazards however caused. 11.3.4 If the Contractor requests in writing that insurance for risks other than those described herein or for other special hazards be included in the property insurance policy, the Owner shall, if possible, include such insurance, and the cost there of shall be charged to the Contractor by appropriate Change Order. 11.3.5 If during the Project construction period the Owner insures properties, real or personal or both, adjoining or adjacent to the site by property insurance under policies separate from those insuring the Project, or if after final payment property insurance is to be provided on the completed Project through a policy or policies other than those insuring the Project during the construction period, the Owner shall waive all rights in accordance with the terms of Subparagraph 11.3.7 for damages caused by fire or other perils covered by this separate property insurance. All separate policies shall provide this waiver of subrogation by endorsement or otherwise. 11.3.6 Before an exposure to loss may occur, the Owner shall file with the Contractor a copy of each policy that includes insurance coverages required by this Paragraph 11.3. Each policy shall contain all generally applicable conditions, definitions, exclusions and endorsements related to this Project. Each policy shall contain a provision that the policy will not be cancelled or allowed to expire until at least 30 days' prior written notice has been given to the Contractor. INSERT E: 11.3.6.1 If the Owner has not provided acceptable evidence of property insurance coverage required herein at the start of work, then the Contractor may obtain such coverage and the cost therefore shall become a cost reimbursable item. If adequate coverage is later obtained by the Owner, then the Contractor shall terminate any property insurance coverage so obtained. 11.3.7 WAIVERS OF SUBROGATION. The Owner and Contractor waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other, and (2) the Architect, Architect's consultants, separate contractors described in Article 6, if any, and any of their subcontractors, sub-subcontractors, agents and employees, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 11.3 or other property insurance applicable to the Work, except such rights as they have to proceeds of such insurance held by 44 the Owner as fiduciary. The Owner or Contractor, as appropriate, shall require of the Architect, Architect's consultants, separate contractors described in Article 6, if any, and the subcontractors, sub-subcontractors, agents and employees of any of them, by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated herein, The policies shall provide such waivers of subrogation by endorsement or otherwise. A waiver of subrogation shall be effective as to a person or entity even though that person or entity would otherwise have a duty of indemnifica- tion. contractual or otherwise, did not pay the insurance premium directly or indirectly, and whether or not the person or entity had an insurable interest in the property damaged. 11.3.8 A loss insured under Owner's property insurance shall be adjusted by the Owner as fiduciary and made payable to the Owner as fiduciary for the insureds, as their interests may appear, subject to requirements of any applicable mortgagee clause and of Subparagraph 11.3.10. The Contractor shall pay Subcontractors their just shares of insurance proceeds received by the Contractor, and by appropriate agreements, written where legally required for validity, shall require Subcontractors to make payments to their Sub-subcontractors in similar manner. 11.3.9 If required in writing by a party in interest, the Owner as fiduciary shall, upon occurrence of an insured loss, give bond for proper performance of the Owner's duties. The cost of required bonds shall be charged against proceeds received as fiduciary. The Owner shall deposit in a separate account proceeds so received, which the Owner shall distribute in accordance with such agreement as the parties in interest may reach, or in accordance with an arbitration award in which case the procedure shall be as provided in Paragraph 4.5, If after such loss no other special agreement is made, replacement of damaged property shall be covered by appropriate Change Order. 11.3.10 The Owner as fiduciary shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object in writing within five days after occurrence of loss to the Owner's exercise of this power; if such objection be made, arbitrators shall be chosen as provided in Paragraph 4.5. The Owner as fiduciary shall, in that case, make settlement with insurers in accordance with directions of such arbitrators. If distribution of insurance proceeds by arbitration is required, the arbitrators will direct such distribution. 11.3.11 Partial occupancy or use in accordance with Paragraph 9.9 shall not commence until the insurance company or companies providing property insurance have consented to such partial occupancy or use by endorsement or otherwise. The Owner and the Contractor shall take reasonable steps to obtain consent of the insurance company or companies and shall, without mutual written consent, take no action with respect to partial occupancy or use that would cause cancellation, lapse or reduction of insurance. 11.4 PERFORMANCE BOND AND PAYMENT BOND 11.4.1 The Owner shall have the right to require the Contractor to furnish bonds covering faithful performance of the Contract and payment of obligations arising thereunder as stipulated in bidding requirements or specifically required in the Contract Documents on the date of execution of the Contract. 11.4.2 NOT APPLICABLE ARTICLE 12 UNCOVERING AND CORRECTION OF WORK 12.1 UNCOVERING OF WORK 12.1.1 If a portion of the Work is covered contrary to the Architect's request or to requirements specifically expressed in the Contract Documents, it must, if required in writing by the Architect, be uncovered for the Architect's observation and be replaced at the Contractor's expense without change in the Contract Time. 12.1.2 If a portion of the Work has been covered which the Architect has not specifically requested to observe prior to its being covered, the Architect may request to see such Work and it shall be uncovered by the Contractor. If such Work is in accordance with the Contract Documents, costs of uncovering and replacement shall, by appropriate Change Order, be charged to the Owner, If such Work is not in accordance with the Contract Documents, the Contractor shall pay such costs unless the condition was caused by the Owner or a separate contractor in which event the Owner shall be responsible for payment of such costs. 12.2 CORRECTION OF WORK 12.2.1 The Contractor shall promptly correct Work rejected by the Architect or failing to conform to the requirements of the Contract Documents, whether observed before or after Substantial Completion and whether or not fabricated, installed or completed. The Contractor shall bear all costs of 45 correcting such rejected Work, including without limitation, additional testing and inspections costs and compensation for the Architect's services and expenses made necessary thereby and all costs and damages incurred by Owner. 12.2.2 If, within one year after the date of Substantial Completion of the Work. or designated portion thereof, or after the date for commencement of warranties established under Subparagraph 9.9.1, or by terms of an applicable special warranty required by the Contract Documents, any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of written notice from the Owner to do so unless the Owner has previously given the Contractor a written acceptance of such condition. This period of one year shall be extended with respect to portions of Work first performed after Substantial Completion by the period of time between Substantial Completion and the actual performance of the Work. This obligation under this Subparagraph 12.2.2 shall survive acceptance of the Work under the Contract. The Owner shall give such notice promptly after discovery of the condition. 12.2.3 The Contractor shall remove from the site portions of the Work which are not in accordance with the requirements of the Contract Documents and are neither corrected by the Contractor nor accepted by the Owner. 12.2.4 If the Contractor fails to correct nonconforming Work within a reasonable time, the Owner may correct it in accordance with Paragraph 2.4. If the Contractor does not proceed with correction of such nonconforming, Work within a reasonable time fixed by written notice from the Architect, the Owner may remove it and store the salvable materials or equipment at the Contractor's expense. If the Contractor does not pay costs of such removal and storage within ten days after written notice, the Owner may upon ten additional days' written notice sell such materials and equipment at auction or at private sale and shall account for the proceeds thereof, after deducting costs and damages that should have been borne by the Contractor. If such proceeds of sale do not cover costs which the Contractor should have borne, the Contract Sum shall be reduced by the deficiency. If payments then or thereafter due the Contractor are not sufficient to cover such amount. the Contractor shall pay the difference to the Owner. 12.2.5 The Contractor shall bear the cost of correcting destroyed or damaged construction, whether completed or partially completed, of the Owner or separate contractors caused by the Contractor's correction or removal of Work which is not in accordance with the requirements of the Contract Documents. 12.2.6 Nothing contained in this Paragraph 12.2 shall be construed to establish a period of limitation with respect to other obligations which the Contractor might have under the Contract Documents. Establishment of the time period of one year as described in Subparagraph 12.2.2 relates only to the specific obligation of the Contractor to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced, nor to the time within which proceedings may be commenced to establish the Contractor's liability with respect to the Contractor's obligations other than specifically to correct the Work. 12.3 ACCEPTANCE OF NONCONFORMING WORK 12.3.1 If the Owner prefers to accept Work which is not in accordance with the requirements of the Contract Documents, the Owner may do so instead of requiring its removal and correction, in which case the Contract Sum will he reduced as appropriate and equitable. Such adjustment shall be effected whether or not final payment has been made. ARTICLE 13 MISCELLANEOUS PROVISIONS 13.1 GOVERNING LAW 13.1.1 The Contract shall be governed by the law of the place where the Project is located. 13.2 SUCCESSORS AND ASSIGNS 13.2.1 The Owner and Contractor respectively bind themselves, their partners, successors, assigns and legal representatives to the other party hereto and to partners, successors, assigns and legal representatives of such other party in respect to covenants, agreements and obligations contained in the Contract Documents. Neither party to the Contract shall assign the Contract as a whole without written consent of the other. If either party attempts to make such an assignment without such consent, that party shall nevertheless remain legally responsible for all obligations under the Contract. 13.3 WRITTEN NOTICE 13.3.1 Written notice shall be deemed to have been duly served if delivered in person to the individual or a member of the firm or entity or to an officer of the corporation for which 46 it was intended, or if delivered at or sent by registered or certified mail to the last business address known to the party giving notice. 13.4 RIGHTS AND REMEDIES 13.4.1 Duties and obligations imposed by the Contract Documents and rights and remedies available thereunder shall be in addition to and not a limitation of duties, obligations, rights and remedies otherwise imposed or available by law. 13.4.2 No action or failure to act by the Owner, Architect or Contractor shall constitute a waiver of a right or duty afforded them under the Contract, nor shall such action or failure to act constitute approval of or acquiescence in a breach thereunder, except as may be specifically agreed in writing. 13.5 TESTS AND INSPECTIONS 13.5.1 Tests, inspections and approvals of portions of the Work required by the Contract Documents or by laws, ordinances, rules, regulations or orders of public authorities having jurisdiction shall be made at an appropriate time. Unless otherwise provided, the Contractor shall make arrangements for such tests, inspections and approvals with an entity acceptable to the Owner, or with the appropriate public authority, and shall bear all related costs of tests, inspections and approvals as provided for in the Contract Documents. The Contractor shall give the Architect timely notice of when and where tests and inspections are to be made so the Architect may observe such procedures. The Owner shall bear costs of tests, inspections or approvals which do not become requirements until after bids are received or negotiations concluded. 13.5.2 If the Architect, Owner or public authorities having jurisdiction determine that portions of the Work require additional testing, inspection or approval not included under Subparagraph 13.5.1, the Architect will, upon written authorization from the Owner, instruct the Contractor to make arrangements for such additional testing, inspection or approval by an entity acceptable to the Owner, and the Contractor shall give timely notice to the Architect of when and where tests and inspections are to be made so the Architect may observe such procedures. 13.5.3 If such procedures for testing, inspection or approval under Subpara- graphs 131.5.1 and 13.5.2 reveal failure of the portions of the Work to comply with requirements established by the Contract Documents, the Contractor shall bear all costs made necessary by such failure including those of repeated procedures and compensation for the Architect's services and expenses. 13.5.4 Required certificates of testing inspection or approval shall, unless otherwise required by the Contract Documents, be secured by the Contractor and promptly delivered to the Architect. 13.5.5 If the Architect is to observe tests, inspections or approvals required by the Contract Documents, the Architect will do so promptly and, where practicable, at the normal place of testing. 13.5.6 Tests or inspections conducted pursuant to the Contract Documents shall be made promptly to avoid unreasonable delay in the Work. 13.6 INTEREST 13.6.1 Payments due and unpaid under the Contract Documents shall bear interest from the date payment is due at such rate as the parties may agree upon in writing or, in the absence thereof, at the prime rate prevailing from time to time at the place where the Project is located. 13.7 COMMENCEMENT OF STATUTORY LIMITATION PERIOD 13.7.1 As between the Owner and Contractor; .1 BEFORE SUBSTANTIAL COMPLETION. As to acts or failures to act occurring prior to the relevant date of Substantial Completion, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of Substantial Completion; .2 BETWEEN SUBSTANTIAL COMPLETION AND FINAL CERTIFICATE FOR PAYMENT. As to acts or failures to act occurring subsequent to the relevant date of Substantial Completion and prior to issuance of the final Certificate for Payment, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than the date of issuance of the final Certificate for Payment; and .3 AFTER FINAL CERTIFICATE FOR PAYMENT. As to acts or failures to act occurring after the relevant date of issuance of the final Certificate for Payment, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed 47 to have accrued in any and all events not later than the date of any act or failure to act by the Contractor pursuant to any warranty provided under Paragraph 3.5, the date of any correction of the Work or failure to correct the Work by the Contractor under Paragraph 12.2, or the date of actual commission of any other act or failure to perform any duty or obligation by the Contractor or Owner, whichever occurs last. ARTICLE 14 TERMINATION OR SUSPENSION OF THE CONTRACT 14.1 TERMINATION BY THE CONTRACTOR 14.1.1 The Contractor may terminate the Contract if the Work is stopped for a period of 30 days through no act or fault of the Contractor or a Subcontractor, Sub-subcontractor or their agents or employees or any other persons performing portions of the Work under contract with the Contractor, for any of the following reasons: .1 issuance of an order of a court or other public authority having jurisdiction; .2 an act of government, such as a declaration of national emergency, making material unavailable; .3 because the Architect has not issued a Certificate for Payment and has not notified the Contractor of the reason for withholding certification as provided in Subparagraph 9.4.1, or because the Owner has not made payment on a Certificate for Payment within the time stated in the Contract Documents; .4 if suspensions, delays or interruptions by the Owner as described in Paragraph 14.3 constitute in the aggregate more than 100 percent of the total number of days scheduled for completion, or 60 days in any 365-day period, whichever is less; or .5 NOT APPLICABLE 14.1.2 If one of the above reasons exists, the Contractor may, upon seven additional days' written notice to the Owner and Architect, terminate the Contract and recover from the Owner payment for Work completed prior to termination and for proven loss with respect to materials, equipment, tools and construction equipment and machinery and overhead and profit at a maximum amount of ten percent (10%) of the payment made for completed Work. 14.1.3 If the Work is stopped for a period of 60 days through no act or fault of the Contractor or a Subcontractor or their agents or employees or any other persons performing portions of the Work under contract with the Contractor because the Owner has persistently failed to fulfill the Owner's obligations under the Contract Documents with respect to matters important to the progress of the Work, the Contractor may, upon seven additional days' written notice to the Owner and the Architect, terminate the Contract and recover from the Owner as provided in Subparagraph 14.1.2. 14.2 TERMINATION BY THE OWNER FOR CAUSE 14.2.1 NOT APPLICABLE .1 NOT APPLICABLE .2 NOT APPLICABLE .3 NOT APPLICABLE .4 NOT APPLICABLE 14.2.2 NOT APPLICABLE .1 NOT APPLICABLE .2 NOT APPLICABLE .3 NOT APPLICABLE 48 14.2.3 NOT APPLICABLE 14.2.4 NOT APPLICABLE 14.3 SUSPENSION BY THE OWNER FOR CONVENIENCE 14.3.1 The Owner may, without cause, order the Contractor in writing to suspend, delay or interrupt the Work in whole or in part for such period of time as the Owner may determine. 14.3.2 An adjustment shall be made for increases in the cost of performance of the Contract, including profit on the increased cost of performance, caused by suspension, delay or interruption. No adjustment shall be made to the extent: .1 that performance is, was or would have been so suspended, delayed or interrupted by another cause for which the Contractor is responsible; or .2 that an equitable adjustment is made or denied under another provision of this Contract. 14.3.3 Adjustments made in the cost of performance shall have a mutually agreed fixed or percentage fee. 49 June 6, 1997 ADDENDUM THIS ADDENDUM AMENDS AND SUPPLEMENTS THE GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION (AIA DOCUMENT A201) ("GENERAL CONDITIONS") WHICH CONSTITUTES A PART OF THE CONTRACT FOR CONSTRUCTION BETWEEN THE GYMBOREE CORPORATION AND DPR CONSTRUCTION, INC. 1. Subparagraph 2.4.1 is hereby deleted in its entirety and replaced by the following: 2.4.1 If the contractor defaults or neglects to carry out work in accordance with the Contract Documents and fails within a seven (7)-day period after receipt of written notice from the Owner to commence and pursue correction of such default or neglect with diligence and promptness, the Owner may, without prejudice to other remedies the Owner may have, correct such deficiencies. In such case an appropriate Construction Change Directive shall be issued deducting from payments then or thereafter due the Contractor the cost of correcting such deficiencies, including compensation for the Architect's additional services and expenses made necessary by such default, neglect or failure. If payments then or thereafter due the Contractor are not sufficient to cover such amounts, the Contractor shall pay the difference to the Owner. 2. Subparagraph 3.2.1 shall be amended by deleting the second and third sentences thereof and replacing them with the following: The Contractor shall not be liable to the Owner or Architect for damage resulting from errors, inconsistencies or omissions in the Contract Documents unless: (i) the Contractor recognized such error, inconsistency or omission and knowingly failed to report it to the Architect; or (ii) the Contractor is responsible for the occurrence of the error, inconsistency or omission. If the Contractor performs any construction activity which it knows involves a recognized error, inconsistency or omission in the Contract Documents or includes in the construction any Work based upon any error, inconsistency or omission in the Contract Documents for which it is responsible, the Contractor shall be responsible for all costs for correction of such Work and for all damages incurred by Owner or Architect due to such Work. 3. Subparagraph 4.5.2 shall be amended by adding the following thereto: The Arbitrator shall resolve the controversy in accordance with applicable law and the terms and conditions of the Contract Documents. The Arbitrator shall allow the parties reasonable opportunities for per-hearing document exchange and other pre-hearing discovery of evidence as determined by the Arbitrator in his or her discretion. In addition, subparagraph 1283.05 Of the California Code of Civil Procedure shall apply to such Arbitration, and said code subparagraph is hereby incorporated by reference. The cost of the Arbitration shall be shared equally between the parties provided, however, that such costs along with all other costs and expenses, including attorneys fees, shall be subject to award in full or in part by the Arbitrator, in the Arbitrator's discretion, to the prevailing party. 4. Subparagraph 7.3.7 shall be deleted in its entirety and replaced by the following: 7.3.7 Subject to the provisions of the Contract Documents regarding the Application for Payment, pending final determination of cost to the Owner, amounts not in dispute may be included in Applications for Payment. The amount of credit to be allowed by the Contractor to the Owner for a deletion or change which results in a net decrease in the Contract Sum will be the actual net cost 1 50 (excluding the corresponding decrease in the Contractor's overhead and profit). When both additions and credits covering related Work or substitutions are involved in a change, the allowance for overhead and profit shall be figured on the basis of the net increase or decrease, as the case may be, with respect to that change. Notwithstanding, no sum shall be added as a result of a bonafide dispute between Owner and Contractor. 5. The following shall be added as Subparagraph 7.3.10: 7.3.10 Notwithstanding any other provision of the Contract Documents, no change in the Work, whether by way of alteration or addition to the Work, shall be the basis of an addition to the Contract Sum or a change or in the Contract Time unless and until such alteration or addition has been authorized by a Change Order in strict compliance with the requirements of the Contract Documents. This requirement is of the essence of the Contract Documents. Accordingly, no course of conduct or dealings between the parties, nor express or implied acceptance of alterations or additions to the Work, and no claim that the Owner has been unjustly enriched by any alteration or addition to the Work, whether or not there is in fact any such unjust enrichment, shall be the basis for any claim to an increase in the Contract Sum or change in the Contract Time. 6. The following shall be added as new Subparagraph 7.5: 7.5.1 Notwithstanding any other provision of the Contract Documents, no increase in the Contract Sum shall include an allowance of more than ten percent (10%) for Contractor's overhead and profit, or more than ten percent (1O%) for overhead and profit of any subcontractor or sub-subcontractor. Refer to Paragraph 5.2.2 of AIA A111 Contract. 7. Subparagraph 8.3.1 shall be deleted in its entirety and replaced by the following: 8.3.1 If the Contractor is delayed at any time in the progress of the Work, Contractor shall immediately notify Owner in writing of such delay as provided in Subparagraph 13.3.1. If such delay is: (i) not due to any act or omission of Contractor; and (ii) due to (a) the negligent or intentional act of Owner or its employees or contractors, or (b) labor disputes, fire, unusual delay in deliveries, adverse weather conditions not reasonably anticipated, unavoidable casualties or other causes beyond the Contractor's reasonable control (except for Changes permitted pursuant to Article 7 hereof), or (c) delay authorized in writing by the Owner pending Arbitration, which authorization shall be at the Owner's sole and absolute discretion, or (d) other causes which the Owner and Contractor mutually agree, in their sole and absolute discretion, may justify delay, then the Contract Time shall be reasonably extended by Change Order. Any claim for extension of the Contract Time shall be delivered to the Owner with the written notice required above and the Contractor shall immediately take all steps reasonably possible to lessen the adverse impact of such delay. 8. Subparagraph 9.3.1 shall be amended by adding the following thereto: Notwithstanding the above, the Owner shall have the right, in its sole discretion, to verify the representations contained in the application for payment by independent source satisfactory to Owner. In the event Owner chooses to verify such representations, Owner shall have five (5) days in addition to the time specified in Subparagraph 9.4.1 in which to conduct such independent verification. 8. The following shall be added as Subparagraph 9.3.1.3: 9.3.1.3 Until Substantial Completion, the Owner shall pay ninety percent (90%) of the amount due the Contractor on account of progress payments. Upon Substantial Completion, the previous retainage shall be reduced to five percent (5%) of the amount previously paid to the Contractor on 2 51 account of progress payments and the Owner shall pay ninety-five percent (95%) of the amount due the Contractor on account of all remaining progress payments. 9. Subparagraph 9.8.2 shall be amended by the addition of the following: Notwithstanding the above, the Owner shall have the right, in its sole discretion, to verify that there has been Substantial Completion, including any corrections or completions of Work for which Owner may withhold the retainage as provided above, by independent source satisfactory to Owner. In the event Owner chooses to verify substantial completion. Owner has ten (10) days in which to conduct such independent verification following Owner's receipt from the Architect of a proposed Certificate of Substantial Completion. 10. Subparagraph 9.10.2 shall be amended by deleting that portion of the first sentence of that Subparagraph commencing with the number (5) through the end of that subparagraph, and replacing that language with the following: (5), evidence satisfactory to Owner establishing payment or satisfaction of all obligations incurred in connection with the Work which could result in a lien, claim, security interest or other encumbrance of the Owner's Property, including, without limitation, releases and waivers of all liens, claims, security interests or encumbrances arising out of the Contract or the Work; evidence that full payment has been made to all union fringe benefits and into all union trust funds and any and all taxes and insurance arising due to the Work; evidence that there have been no liens recorded or stop notices filed against the Project which have not been discharged (by bonding or otherwise) and Contractor's affidavit that there are no threats of any claims or lawsuits against the Owner for alleged failure of Contractor to make any payment or to fulfill any indemnities provided for in the Contract. Notwithstanding the foregoing, Owner's obligation to make final payment to Contractor shall be conditioned upon the following: (i) that Contractor has not failed to fulfill any indemnity requirement provided for in this Contract; (ii) dismissal of the Owner as a party from any lawsuit which may exist to foreclose any mechanics' lien against the Owner's property; (iii) acceptance of the Work by Owner's construction lender; (iv) delivery by the Contractor to the Architect and the Owner of as-built drawings, a complete list of subcontractors and principal vendors (including addresses and telephone number), a complete set of all operation and maintenance manuals and manufacturer's literature of equipment and materials used in the Work; and (v) any and all other items required pursuant to the Contract Documents. 11. The following shall be added as Subparagraph 9.11: 9.11 LIQUIDATED DAMAGES 9.11.1 The Contractor and the Contractor's surety, if any, shall be liable for and shall pay the Owner the sums hereinafter stipulated as liquidated damages for each calendar day of delay until the Work is substantially completed: Seven Hundred Fifty Dollars ($750.00) per day for the first thirty (30) days and Two Thousand Dollars ($2,000.00) for each day thereafter. 9.11.2 Notwithstanding any other provision of the Contract Documents, Contractor agrees to complete not later than September 15, 1997 that portion of the Work is the warehouse area of the building to be constructed as part of the Project necessary to provide Owner's conveyor contractor with the ability to access the area of that warehouse in which a conveyor system is to be installed, and adjacent areas necessary for completion of the conveyor contractor's work, and to permit installation of that conveyor system without interference or complication by Contractor's Work (the "Minimum Conveyor Area Work"). Should the Minimum Conveyor Area Work not be completed by September 15, 1997, the Contractor and the Contractor's surety, if any, shall be liable for and shall pay the Owner the sums hereinafter stipulated as liquidated damages for each calendar day of delay after such dated until the Minimum Conveyor Area Work is completed: 3 52 Seven Hundred Fifty Dollars ($750.00) per day for the first thirty (30) calendar days and Two Thousand Dollars ($2,000.00) for each day thereafter. 12. The following shall be added as new Subparagraph 11.1.4: 11.1.4 Contractor shall require that all subcontractors of every tier supply Certificates of Insurance evidencing liability insurance that complies with the requirements of Subparagraph 11.1.1 with limits according to a schedule of subcontractor's liability insurance to be submitted by Contractor and approved by Owner. Subcontractors of every tier shall also supply copies of endorsements to their insurance policies naming Owner as an additional insured as respects to the operations of subcontractor, and providing that the insurance of subcontractor is primary and the insurance of Owner is secondary and non-contributory. 13. Subparagraphs 11.2.1 and 11.3.1 are deleted in their entirety and replaced by the following: 11.2.1 The Owner will purchase, effect and maintain property insurance for all of the Work to be performed under this Contract. The policy of insurance shall be a Builder's Risk type on a replacement cost basis, "All-Risk" form, and copies of the policy form to be used will be made available to the Contractor at its request. The policy shall be equal to the full insurable value of the Work. The coverage of the insurance shall not extend to tools and equipment of the Contractor, subcontractors or any tier or property owned by employees of any of them; vehicles of any kind; trees, shrubs, drawings or specifications. 11.3.1 No other type of insurance than that set forth in Subparagraph 11.2.1 shall be required to be furnished by Owner. The furnishing of insurance by the Owner shall in no way relieve, nor be construed to relieved, the Contractor or subcontractors of any tier of any responsibility of obligation whatsoever otherwise imposed by this Contract. 14. Subparagraph 12.2.3 shall be amended by the addition of the following: In addition, the Contractor shall be responsible, at its sole cost and expense, for the removal of any materials or substances which may be considered to be hazardous materials and/or hazardous substances under applicable law which are on the Project site as a result of the acts or omissions of Contractor, it subcontractors, materialmen or any other party for which Contractor is responsible or for whose acts Contractor may be liable. 15. Subparagraph 13.5.1 shall be amended by deleting the last sentence thereof and replacing it with the following: Except for tests, inspections or approvals which are made necessary by the act or omission of Contractor, the Owner shall bear costs of test, inspections or approvals which do not become requirements until after negotiation of the terms of the Contract are concluded between Owner and Contractor. 16. Subparagraph 13.5.2 shall be amended by deleting the last sentence thereof and replacing it with the following: Except where such additional testing, inspection or approval is required due to the act or omission of Contractor or Architect, the Owner shall bear the cost thereof, except as provided in Subparagraph 13.5.3. All costs of such additional testing, inspection or approval required due to the act or omission or Contractor or Architect shall be paid by the party responsible therefor. 17. Subparagraph 14.2.1 shall be deleted in its entirety and replaced by the following: 4 53 The Owner, at its option, may terminate this Contract in whole or from time to time in part at any time by written notice thereof to Contractor. Upon any such termination, Contractor agrees to waive any claims for damages, including loss of anticipated profits, on account thereof, and as the sole right and remedy of Contractor in the event of such termination, Owner shall pay Contractor in accordance with Subparagraph 14.2.1.2, below. The provisions of the Contract which by their nature survive final acceptance of the Work shall remain in full force and effect after such termination to the extent therein provided. .1 Upon receipt of any such notice of termination, Contractor shall, unless the notice directs otherwise, immediately discontinue the Work on that date and to the extent specified in the notice; place no further orders or subcontracts for materials, equipment, services or facilities, except as may be necessary for completion of such portion of the Work as is not discontinued; promptly make every reasonable effort to procure cancellation upon terms satisfactory to Owner of all orders and subcontracts to the extent they relate to the performance of the discontinued portion of the Work; and shall thereafter do only such Work as may be necessary to preserve and protect Work already in progress and to protect materials, plant and equipment on the Project site or in transit thereto. .2 Upon termination, Contractor shall be entitled to be paid the full cost of all Work properly done by Contractor to the date of termination not previously paid. If at the date of such termination, Contractor has properly prepared or fabricated off the site any goods for subsequent incorporation in the Work, and if Contractor delivers such goods to the site or to such other place AS the Owner shall reasonably direct, the Contractor shall be paid for such goods or materials. .3 Upon termination of the Contract, the obligations of the Contract shall continue as to portions of the Work already performed and as to bonafide obligations assumed by Contractor prior to the date of termination. 18. Subparagraph 14.2.3 shall be deleted in its entirety and replaced by the following: 14.2.3 Upon termination of the Contact by Owner under the terms of this Subparagraph 14.2, a Contractor shall not be entitled to receive further payment until the Work which is not discontinued is completed. 19. Subparagraph 14.2.4 shall be deleted in its entirety and replaced by the following: 14.2.4 If the unpaid balance of the Contract Sum exceeds the cost to Owner of finishing the Work and all damages Owner may incur due to any breach of the Contract by Contractor causing the termination, including compensation for the Architect's services and expenses made necessary thereby, such excess shall be paid to the Contractor. If such costs and damages exceed the unpaid balance, the Contractor shall pay the difference to the Owner forthwith. End of Addendum 5
EX-11.1 12 STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11.1 The Gymboree Corporation Computation of Net Income Per Share (In thousands, except per share data)
Fiscal Year Ended ------------------------------------- January 31, February 2, February 4, 1998 1997 1996 ----------- ----------- ----------- NET INCOME $35,170 $31,788 $26,381 Weighted average number of shares of Common Stock outstanding during the period: Common Stock 24,302 25,111 24,862 ------- ------- ------- 24,302 25,111 24,862 ======= ======= ======= BASIC NET INCOME PER SHARE $ 1.45 $ 1.27 $ 1.06 ======= ======= ======= Weighted average number of shares outstanding during the period: Common Stock 24,302 25,111 24,862 Add incremental shares from assumed exercise of stock options and warrants 698 559 495 ------- ------- ------- Weighted average common and common equivalent shares outstanding during the period 25,000 25,670 25,357 ======= ======= ======= DILUTED NET INCOME PER SHARE $ 1.41 $ 1.24 $ 1.04 ======= ======= =======
21
EX-13.1 13 1997 ANNUAL REPORT TO STOCKHOLDERS 1 THE GYMBOREE CORPORATION SELECTED FINANCIAL AND OPERATING DATA The following selected financial data have been derived from the consolidated financial statements of the Company. The data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and notes thereto.
- ------------------------------------------------------------------------------------------------------------------------------- (In thousands, except operating data and per share amounts) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA:(1) Net sales $ 373,440 $ 303,111 $ 259,381 $ 188,424 $ 129,582 Cost of goods sold, including buying and occupancy expenses (207,630) (164,052) (149,428) (100,651) (69,462) ----------- ----------- ----------- ----------- ----------- Gross profit 165,810 139,059 109,953 87,773 60,120 Selling, general and administrative expenses (112,443) (91,540) (69,845) (53,095) (38,312) Play programs income, net 517 74 316 554 1,237 ----------- ----------- ----------- ----------- ----------- Operating income 53,884 47,593 40,424 35,232 23,045 Foreign exchange losses (837) 0 0 0 0 Interest income 2,778 3,678 2,823 1,760 867 ----------- ----------- ----------- ----------- ----------- Income before income taxes 55,825 51,271 43,247 36,992 23,912 Income taxes (20,655) (19,483) (16,866) (14,797) (9,806) ----------- ----------- ----------- ----------- ----------- Net income $ 35,170 $ 31,788 $ 26,381 $ 22,195 $ 14,106 =========== =========== =========== =========== =========== Basic income per share $ 1.45 $ 1.27 $ 1.06 $ 0.91 $ 0.61 =========== =========== =========== =========== =========== Diluted income per share $ 1.41 $ 1.24 $ 1.04 $ 0.88 $ 0.57 =========== =========== =========== =========== =========== Basic weighted average shares outstanding 24,302 25,111 24,862 24,279 22,969 Diluted weighted average shares outstanding 25,000 25,670 25,357 25,265 24,858 OPERATING DATA: Number of stores at end of period 435 354 279 209 152 Net sales per average gross square foot $ 621 $ 670 $ 827 $ 882 $ 851 Net sales per average store $ 947,000 $ 948,000 $ 1,063,000 $ 1,050,000 $ 982,000 Comparable store net sales increase/(decrease)(2) 2% (6%) 3% 12% 11% BALANCE SHEET DATA: Working capital $ 71,590 $ 105,190 $ 89,417 $ 73,937 $ 49,907 Total assets 229,200 216,909 160,009 126,083 87,607 Stockholders' equity $ 157,710 $ 161,933 $ 123,934 $ 92,629 $ 63,305 - -------------------------------------------------------------------------------------------------------------------------------
(1) 1997 and 1996 included 52 weeks, 1995 included 53 weeks, and 1994 and 1993 included 52 weeks. (2) A store becomes comparable after it is opened for 14 full months. Comparable store net sales in 1997 through 1993 were calculated on a 52 week basis. This annual report contains forward-looking statements reflecting the Company's current expectations and there can be no assurance that the Company's actual future performance will meet such expectations. Factors that could cause future performance to vary from current expectations include, but are not limited to, the factors discussed later under the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section. 10 2 THE GYMBOREE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Gymboree Corporation was founded in 1976 as a provider of interactive parent-child play programs and began to franchise this business in 1979. In 1986, the Company opened its first retail store featuring children's apparel and accessories. Through the end of fiscal 1997, the Company had grown to 435 stores, including 418 stores in 48 states in the United States, 11 stores in Canada and 6 stores in Europe. The Company's net sales for the 52 weeks ended January 31, 1998 increased to $373.4 million from $303.1 million in the 52 weeks ended February 2, 1997 and $259.4 million in the 53 weeks ended February 4, 1996. Net income increased to $35.2 million in 1997 from $31.8 million in 1996 and $26.4 million in 1995. These increases in net sales and net income were due principally to the Company's store expansion. Comparable store net sales, all based on a 52 week period, increased 2% for 1997, decreased 6% for 1996 and increased 3% for 1995. The Company expects that future increases in net sales and net income will be increasingly dependent on the opening and profitability of new domestic and international stores. In fiscal 1997, the Company changed its fiscal year end to be the Saturday closest to January 31. As a result, fiscal 1997, which included 52 weeks, ended on Saturday, January 31, 1998. In previous years, the Company's fiscal year ended on the Sunday closest to January 31 of each year. 1996, which included 52 weeks, ended February 2, 1997, while 1995, which included 53 weeks, ended February 4, 1996. This change did not have a significant effect on the consolidated financial statements of the Company. 1997 COMPARED TO 1996 NET SALES Net sales increased 23% to $373.4 million for 1997, compared to $303.1 million for 1996. Sales for the 82 stores opened in 1997 contributed $40.9 million of the increase in net sales. Stores opened or expanded prior to 1997 but not qualifying as comparable stores, including the 16 stores expanded in 1997, contributed $24.2 million of the increase in net sales. Increases in comparable store net sales for 1997 contributed $5.2 million of the increase in net sales. Comparable store net sales increased 2% over 1996. The increase in comparable store net sales was primarily due to the Company operating with higher store inventory levels throughout 1997 and somewhat higher levels of markdowns compared to 1996. GROSS PROFIT Gross profit increased 19% to $165.8 million in 1997 from $139.1 million in 1996. As a percentage of net sales, gross profit decreased to 44.4% in 1997 from 45.9% in 1996. The decrease in gross profit as a percentage of net sales was attributable to increases in average markdowns per store in 1997 compared to 1996. The Company is planning higher average per store inventory levels in 1998 as compared to 1997. While the increase in average per store inventory levels is expected to have a favorable impact on comparable store sales, this may result in downward pressure on gross profit as a percent of sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("S,G&A"), which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, remained relatively flat as a percentage of net sales at 30.1% in 1997 compared to 30.2% in 1996. S,G & A, as a percentage of net sales has remained flat during fiscal 1997 as compared to 1996 due primarily to increases in comparable store sales and the discontinuation of the Company's catalog business at the end of 1996 largely offset by S,G&A associated with its international store expansions. The Company expects S,G&A to increase in 1998, in absolute dollars and as a percentage of sales, as a result of continued international expansion, the 2nd retail concept and increased marketing programs. PLAY PROGRAMS INCOME Play Programs income increased 599% to $517 thousand in 1997, from $74 thousand in 1996, due primarily to new franchise sales, enrollment growth in both franchised and corporate owned centers and increased play product sales. FOREIGN EXCHANGE LOSSES Foreign exchange losses increased $837 thousand in 1997 as compared to 1996. Total losses from foreign exchange transactions during 1997 were 0.2% of sales. This increase was primarily attributed to losses incurred from currency fluctuations in intercompany transactions between the Company's U.S. operations and its foreign subsidiaries. INTEREST INCOME Interest income decreased to $2.8 million in 1997, from $3.7 million in 1996, due to lower average cash and investment balances resulting from two stock repurchases during 1997. This trend of declining interest income is expected to continue in the future. INCOME TAXES The Company's effective tax rate for 1997 was 37% compared to 38% in 1996 due to implementation of tax planning strategies. See Note 6 of Notes to Consolidated Financial Statements. 1996 COMPARED TO 1995 NET SALES Net sales increased 17% to $303.1 million for 1996, compared to $259.4 million for 1995. Sales for the 75 stores opened in 1996 contributed $35.3 million of the increase in net sales. Stores opened prior to 1996 but not qualifying as comparable stores, including the 19 stores expanded in 1996, contributed $20.9 million of the increase in net sales. These were offset, in part, by a decrease in comparable store net sales for 1996 of $12.5 million. Comparable store net sales for 1996 decreased 6% over the same period in 1995. The decrease in comparable store net sales was primarily due to the Company operating with significantly lower average store inventory levels and lower levels of markdowns compared to 1995. 11 3 THE GYMBOREE CORPORATION GROSS PROFIT Gross profit increased 26% to $139.1 million in 1996 from $110.0 million in 1995. As a percentage of net sales, gross profit increased to 45.9% in 1996 from 42.4% in 1995. The increase in gross profit was attributable to the trend of lower per store inventory levels which contributed to a reduction in average markdowns per store in 1996 compared to 1995. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased as a percentage of net sales to 30.2% in 1996 compared to 26.9% in 1995. The increase in S,G&A, as a percentage of net sales, was largely due to a decline in comparable store sales, the funding of a new catalog business and international store expansion. PLAY PROGRAMS INCOME Play Programs income decreased 77% to $74 thousand in 1996, from $316 thousand in 1995, due to a reduction in sales of new franchises. INTEREST INCOME Interest income increased to $3.7 million in 1996, from $2.8 million in 1995, due to higher average cash and investment balances as compared to the prior year. INCOME TAXES The Company's effective tax rate for 1996 was 38% compared to 39% in 1995 due to implementation of tax planning strategies. LIQUIDITY AND CAPITAL RESOURCES During 1997, 1996 and 1995, the Company satisfied its cash requirements through cash flow from operations. Primary uses of cash have been to purchase outstanding common stock in 1997, finance the construction of new stores, purchase merchandise inventories and to purchase land and construct a new 300,000 square foot distribution center in Dixon, California. The combined balances of cash, cash equivalents and investments were $36.5 million and $90.4 million at the end of 1997 and 1996, respectively. Working capital as of January 31, 1998 was $71.6 million compared to $105.2 million at February 2, 1997. The decrease in working capital was primarily due to lower cash, cash equivalents and investments balances offset in part by larger merchandise inventories. The Company's investments are largely made in short to medium-term investment grade securities. See Note 2 of Notes of Consolidated Financial Statements. During 1997, the Company generated $37.8 million of cash from operations, $63.5 million from the sale of investments and $8.8 million from the exercise of stock options. Uses of cash consisted primarily of $49.7 million for the repurchase of the Company's common stock and $49.0 million for capital expenditures, related largely to the opening of 82 new stores, the new Dixon Distribution Center, the expansion of 16 existing stores and the roll-out of an all new in-store POS system for all stores. During 1996, the Company generated $49.1 million of cash from operations and $4.8 million from the exercise of stock options. In 1996, the Company used cash of $37.1 million primarily to open 75 new stores and expand 19 existing stores and develop and enhance management information systems. The Company has no long-term debt and did not require any cash borrowings in either 1997 or 1996. The Company's only outside financing requirement was for documentary letters of credit used mainly to fund its foreign sourcing of merchandise inventories. As of January 31, 1998, the Company had one bank line of credit that allowed up to $100 million in unsecured letters of credit and up to $10 million in foreign exchange contracts, of which $61.5 million was available pursuant to such lines. In March 1998, this line of credit agreement was amended. The amended $100 million facility allows up to $74 million in unsecured commercial letters of credit, $11 million in standby letters of credit, and $15 million in borrowings. In addition, under this same facility, the Company may engage in up to $50 million in foreign exchange contracts. The Company estimates that capital expenditures during 1998 will be between $50 and $55 million, which will primarily be used to open approximately 100 to 130 new domestic and international stores and to expand approximately 30 to 40 existing stores. The Company anticipates that cash generated from operations, together with its existing cash resources and funds available from its current letters of credit and line of credit facilities, will be sufficient to satisfy its cash needs through at least fiscal 1998. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company has historically experienced and expects to continue to experience seasonal fluctuations in its retail sales and net income. Historically, a disproportionate amount of the Company's retail sales and a majority of its net income have been realized during the months of November and December. In anticipation of increased sales activity during these months, the Company hires a significant number of temporary employees to bolster its permanent store staff. In addition, the company has experienced periods of increased sales activity in early spring and early fall. If, for any reason, the Company's sales were below seasonal norms during November and December, or during the early spring or early fall, the Company's annual operating results could be materially and adversely affected. Historically, retail sales and net income have been weakest during the second fiscal quarter, and the Company expects this trend to continue. the Company's quarterly results of operations may also fluctuate significantly as a result of a variety of factors, including the timing of new store openings, the costs and increased overhead associated with the opening and future operation of new stores and the new sales contributed by new stores, advertising and marketing expenditures, merchandise mix and timing and level of markdowns. FACTORS THAT MAY AFFECT FUTURE PERFORMANCE The discussion in this annual report contains certain forward-looking statements, including statements regarding future net sales and net income, future inventory levels, future comparable store net sales, future S,G&A expenses, future interest income, planned capital expenditures, planned store expansions, international expansion and future cash needs. Such forward-looking statements in particular, and the Company's business and operating results in 12 4 THE GYMBOREE CORPORATION general, involve risks and uncertainties. Actual results may differ significantly from the results discussed in the forward-looking statements. Future operating results will depend upon many factors, including general economic conditions, levels of competition, growth in the childrens' apparel market, financing and working capital needs, the availability of suitable new store locations, the ability to develop new merchandise and the ability to hire and train qualified sale associates, the ability of the Company to successfully identify and respond to emerging children's fashion trends and effectively monitor and control costs. There can be no assurance that the Company will be able to effectively realize its plans for future growth. While the Company also expects that its increased inventory levels will have a favorable effect on comparable store sales, there can be no assurance that the Company will experience increases in comparable store sales. The Company's sales and profitability depend upon the continued demand by its customers for its apparel and accessories. The Company believes that its future success will depend in large part upon its ability to anticipate, gauge and respond in a timely manner to changing consumer demands and fashion trends and upon the appeal of the Company's products. There can be no assurance that the demand of the Company's apparel or accessories will not decline or that the Company will be able to anticipate, gauge and respond to changes in fashion trends. If demand for the Company's apparel and accessories were to decline or if the Company were to misjudge fashion trends, the Company's business, financial condition and results of operations could be materially and adversely affected. During 1997, the Company expanded its operations in Europe and Canada. As a result, the Company's business is subject to the risks generally associated with doing business abroad, such as foreign governmental regulations, foreign consumer preferences, currency fluctuations, political unrest, disruptions or delays in shipments and changes in economic conditions in countries in which the Company's operates its stores. These factors, among others, could influence the Company's ability to sell its products in these international markets. If any such factors were to render the conduct of business in a particular country undesirable or impractical, there could be a material and adverse effect on the Company's results of operations and financial condition. The matters discussed in this report with respect to opening a 2nd retail concept are also forward looking statements that involve risk and uncertainties, including no prior operating history, no prior history of market acceptance, potentially higher expenses without corresponding revenue increases, impact to earnings, ability to obtain new store sites, ability to obtain adequate sources of merchandise, competition from other retailers and uncertainties generally associated with apparel retailing. In addition, the Company has recently hired several highly experienced executives to support the production, merchandising and promotion of the products of this 2nd retail concept. The Company's limited experience with marketing apparel to this demographic could materially and adversely affect its ability to introduce this 2nd retail concept successfully or to develop this concept's product line. The Company's future profitability is critically dependent on its ability to achieve and manage potential future growth effectively. There can be no assurance that the Company will be successful in increasing net sales in the future or that the rate of period-to-period net sales growth, if any, will not decline. If the Company's operations were to continue to grow, of which there can be no assurance, there could be increasing strain on other resources, and the Company may experience serious operating difficulties, including difficulties in hiring, training, managing an increasing number of employees, difficulties in obtaining sufficient fabric and sourcing capacity to produce its products, problems in upgrading its management information systems and delays in product distribution shipments. There can be no assurance that the Company will be able to manage future growth effectively. Any failure to manage growth effectively could have a material adverse effect on the Company's results of operations and financial condition. The success of this expansion will depend upon a number of factors, including the ability to provide an adequate supply of inventory and the ability to hire and train qualified employees (hereinafter "team members"), of which there can be no assurance. The Company is assessing the impact of the acceptance of the Euro in the Economic and Monetary Union in Europe commencing in January 1999 and developing a strategy for a smooth transition to the Euro in its European stores. Many existing computer systems and applications, and other control devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the millennium. As a result, such systems and applications could fail or create erroneous results unless corrected so that they can process data related to the year 2000. The Company relies on its systems, applications and devices in operating and monitoring all major aspects of its business, including financial systems (such as general ledger, accounts payable and payroll modules), customer services, infrastructure, embedded computer chips, networks and telecommunications equipment. The Company also relies, directly and indirectly, on external systems of business enterprises such as suppliers, creditors, financial organizations, and of governmental entities, both domestic and international, for accurate exchange of data. The Company's current estimate is that the costs associated with the year 2000 issue, and the consequences of incomplete or untimely resolution of the year 2000 issue, will not have a material adverse effect on the result of operations or financial position of the Company in any given year. However, despite the Company's efforts to address the year 2000 impact on its internal systems, the Company has not fully identified such impact or whether it can resolve it without disruption of its business and without incurring significant expense. In addition, even if the internal systems of the Company are not materially affected by the year 2000 issue, the Company could be effected through disruption in the operation of the enterprises with which the Company interacts. 13 5 THE GYMBOREE CORPORATION CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------- January 31, February 2, (In thousands, except share data) 1998 1997 - --------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 17,870 $ 8,027 Investments 18,642 82,360 Accounts receivable 5,184 4,336 Merchandise inventories 75,293 48,979 Prepaid expenses and other 4,467 1,893 ---------- ---------- Total current assets 121,456 145,595 ---------- ---------- Property and Equipment: Land 810 Construction in progress -- building 9,595 Leasehold improvements 58,082 44,231 Furniture, fixtures, and equipment 66,819 45,820 ---------- ---------- 135,306 90,051 Less accumulated depreciation and amortization (30,934) (19,465) ---------- ---------- 104,372 70,586 Lease Rights and Other Assets 3,372 728 ---------- ---------- Total Assets $ 229,200 $ 216,909 ========== ========== - --------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 26,046 $ 21,949 Accrued liabilities 15,781 11,825 Income taxes payable 8,039 6,631 ---------- ---------- Total current liabilities 49,866 40,405 ---------- ---------- Deferred Rent and Other Liabilities 21,624 14,571 Stockholders' Equity: Common stock, including excess paid-in capital ($.001 par value: 100,000,000 shares authorized; 24,015,096 and 25,324,060 shares outstanding at January 31, 1998 and February 2, 1997, respectively) 23,109 62,694 Restricted stock deferred compensation (337) (753) Retained earnings 134,938 99,992 ---------- ---------- Total stockholders' equity 157,710 161,933 ---------- ---------- Total Liabilities and Stockholders' Equity $ 229,200 $ 216,909 ========== ========== - ---------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 14 6 THE GYMBOREE CORPORATION CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------------------------------------------------- As a Percentage of Net Sales Year Ended: for the Year Ended -------------------------------------- --------------------------------------- JANUARY 31, February 2, February 4, January 31, February 2, February 4, 1998 1997 1996 1998 1997 1996 (In thousands, except per share data) (52 WEEKS) (52 weeks) (53 weeks) (52 weeks) (52 weeks) (53 weeks) - --------------------------------------------------------------------------------------------------------------------------------- Net sales $ 373,440 $ 303,111 $ 259,381 100.0% 100.0% 100.0% Cost of goods sold, including buying and occupancy expenses (207,630) (164,052) (149,428) (55.6) (54.1) (57.6) --------- --------- --------- --------- --------- --------- Gross profit 165,810 139,059 109,953 44.4 45.9 42.4 Selling, general and administrative expenses (112,443) (91,540) (69,845) (30.1) (30.2) (26.9) Play program income, net 517 74 316 0.1 0.0 0.1 --------- --------- --------- --------- --------- --------- Operating income 53,884 47,593 40,424 14.4 15.7 15.6 Foreign exchange losses (837) 0 0 (0.2) 0 0 Interest income 2,778 3,678 2,823 0.7 1.2 1.1 --------- --------- --------- --------- --------- --------- Income before income taxes 55,825 51,271 43,247 14.9 16.9 16.7 Income taxes (20,655) (19,483) (16,866) (5.5) (6.4) (6.5) --------- --------- --------- --------- --------- --------- Net income $ 35,170 $ 31,788 $ 26,381 9.4% 10.5% 10.2% ========= ========= ========= ========= ========= ========= Income per share: Basic $ 1.45 $ 1.27 $ 1.06 Diluted $ 1.41 $ 1.24 $ 1.04 Weighted average shares outstanding: Basic 24,302 25,111 24,862 Diluted 25,000 25,670 25,357 - ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 15 7 THE GYMBOREE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------- Year Ended: --------------------------------------------- January 31, February 2, February 4, 1998 1997 1996 (In thousands) (52 weeks) (52 weeks) (53 weeks) - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 35,170 $ 31,788 $ 26,381 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,549 8,899 5,367 Non-cash compensation expenses 416 386 394 Loss on disposal of property and equipment 1,510 980 712 Provision for deferred income taxes 2,136 1,200 647 Tax benefit from exercise of stock options 1,217 1,167 1,217 Change in assets and liabilities: Accounts receivable (848) (1,468) (727) Merchandise inventories (26,346) (11,327) (3,555) Prepaid expenses and other assets (1,176) (1,338) (374) Accounts payable 4,097 12,292 (1,983) Accrued liabilities 1,554 1,089 (176) Income taxes payable 1,408 387 1,695 Deferred rent and other liabilities 5,067 5,085 3,085 -------- -------- -------- Net cash provided by operating activities 37,754 49,140 32,683 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (48,964) (37,059) (25,500) Proceeds from sales of assets 117 Sales (purchases) of investments 63,526 (17,649) (11,905) Acquisition of lease rights (1,788) -------- -------- -------- Net cash provided by (used in) investing activities 12,891 (54,708) (37,405) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 8,844 4,840 2,449 Repurchase of common stock (49,646) -------- -------- -------- Net cash provided by (used in) financing activities (40,802) 4,840 2,449 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 9,843 (728) (2,273) CASH AND CASH EQUIVALENTS: Beginning of year 8,027 8,755 11,028 -------- -------- -------- End of year $ 17,870 $ 8,027 $ 8,755 ======== ======== ======== OTHER CASH FLOW INFORMATION: Cash paid during the year for income taxes $ 16,298 $ 16,822 $ 13,605 - -------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 16 8 THE GYMBOREE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------- Common Stock and Restricted Excess Paid-in Capital Stock --------------------------- Deferred Retained (In thousands, except share data) Shares Amount Compensation Earnings Total - ------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 29, 1995 24,585,202 $53,021 $(1,533) $ 41,141 $ 92,629 Issuance of common stock under stock option plans 407,074 2,449 2,449 Tax benefit from exercise of stock options 1,217 1,217 Unrealized gain on investments 864 864 Amortization of restricted stock 394 394 Net income 26,381 26,381 ---------- ------- ------- --------- --------- BALANCE AT FEBRUARY 4, 1996 24,992,276 56,687 (1,139) 68,386 123,934 Issuance of common stock under stock option plans 331,784 4,840 4,840 Tax benefit from exercise of stock options 1,167 1,167 Unrealized loss on investments (182) (182) Amortization of restricted stock 386 386 Net income 31,788 31,788 ---------- ------- ------- --------- --------- BALANCE AT FEBRUARY 2, 1997 25,324,060 62,694 (753) 99,992 161,933 Issuance of common stock under stock option plans 613,036 8,844 8,844 Stock repurchase (1,922,000) (49,646) (49,646) Tax benefit from exercise of stock options 1,217 1,217 Unrealized loss on investments and cumulative translation adjustments (224) (224) Amortization of restricted stock 416 416 Net income 35,170 35,170 ---------- ------- ------- --------- --------- BALANCE AT JANUARY 31, 1998 24,015,096 $23,109 $ (337) $ 134,938 $ 157,710 ========== ======= ======= ========= ========= - -------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 17 9 THE GYMBOREE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include The Gymboree Corporation and its wholly-owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. NATURE OF THE BUSINESS The Company is a leading specialty retailer of high quality apparel and accessories for children ages newborn to seven years. As of January 31, 1998, February 2, 1997, and February 4, 1996, the Company had 435, 354 and 279 retail stores, respectively. The Company also offers directed parent-child developmental play programs at approximately 390 franchised locations and 12 Company-operated locations. FISCAL YEAR In fiscal 1997, the Company changed its fiscal period end date to be the Saturday closest to January 31. As a result, fiscal 1997, which included 52 weeks, ended on Saturday, January 31, 1998. In previous years, the Company's year ended on the Sunday closest to January 31 of each year. Fiscal 1996, which included 52 weeks, ended February 2, 1997, while fiscal 1995, which included 53 weeks, ended on February 4, 1996. This change did not have a significant effect on the consolidated financial statements of the Company. CASH AND CASH EQUIVALENTS Cash equivalents consist of highly liquid investment instruments with a maturity of three months or less, at date of purchase. INVESTMENTS The Company's investments, consisting primarily of municipal bonds, are classified as available-for-sale and are recorded at fair market value. Fair market value is based upon quoted market prices on the last day of the year. Unrealized gains and losses are included in retained earnings. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates their estimated fair value. MERCHANDISE INVENTORIES Merchandise inventories are recorded under the retail method of accounting and are stated at the lower of cost or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from approximately three to ten years. Leasehold improvements are amortized over the lesser of the lease term which range from 10 to 25 years, or the estimated useful lives of the improvements. Internally developed and purchased computer software is recorded at cost and is amortized using the straight-line method based on an estimated useful life of five years. INCOME TAXES The Company computes income taxes using the asset and liability method. Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. LEASE RIGHTS Lease rights are recorded at cost and are amortized over 10 years or the life of the lease, whichever is less. DEFERRED RENT Many of the Company's operating leases contain predetermined fixed increases of the minimum rental rate during the initial lease term. For these leases, the Company recognizes the related rental expense on a straight-line basis and records the difference between the amount charged to expense and the rent paid as deferred rent. FOREIGN CURRENCIES Assets and liabilities of foreign subsidiaries are translated to U.S. dollars at the exchange rates effective on the balance sheet date. Translation adjustments resulting from this process are recorded in stockholders' equity. Revenues, costs of sales, expenses and other income are translated at average rates of exchange prevailing during the year. Gains and losses on foreign currency transactions are included in net income. STORE PREOPENING COSTS Store preopening costs are expensed as incurred. PLAY PROGRAMS REVENUE RECOGNITION Initial franchise fees for all sites sold in a territory are recognized as revenue when the franchisee has paid the initial franchise fee, has received government approval in the case of international franchises, and has completed the training program. At that time, the Company has provided substantially all of the initial services required by the franchise agreement. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. STOCK-BASED COMPENSATION The Company accounts for stock-based awards to team members using the intrinsic value method in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." RECLASSIFICATIONS Certain amounts for prior years have been reclassified to conform to the 1997 presentation. 18 10 THE GYMBOREE CORPORATION INCOME PER SHARE In the fourth quarter of 1997, the Company adopted the Statement of the Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which requires dual presentation of basic and diluted income per share. Basic income per share is computed as net income divided by the weighted average number of common shares outstanding for the period. Diluted income per share reflects the potential dilution that could occur from common shares issuable through stock options and restricted stock and is computed by dividing net income by the weighted average number of common shares outstanding for the period plus the dilutive effect of outstanding stock options and restricted stock. All prior periods have been restated to conform with the new statement. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," and No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 requires the presentation, by major components and as a single total, the change in the Company's net assets during a period from non-owner sources. SFAS No. 131 establishes annual and interim reporting standards for operating segments of an enterprise and related disclosures about its products, services, geographic areas and major customers. SFAS No. 130 and No. 131 are effective for the Company's fiscal years ending after January 31, 1998. Adoption of these standards will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. 2. INVESTMENTS As of January 31, 1998 and February 2, 1997, all of the Company's investment securities were classified as available-for-sale. The Company's investments consist of the following (in thousands):
- ------------------------------------------------------------------------------------------------------------------------------- January 31, 1998 February 2, 1997 ---------------------------------------- --------------------------------------- Gross Gross Unrealized Fair Unrealized Fair Amortized Holding Market Amortized Holding Market Cost Gain (Loss) Value Cost Gain Value - ------------------------------------------------------------------------------------------------------------------------------- Municipal obligations $ 7,771 $ 27 $ 7,798 $ 47,597 $ 169 $ 47,766 U.S. Treasury bills/Agency obligations 4,097 (1) 4,096 20,847 2 20,849 Corporate notes/bonds 3,071 2 3,073 0 0 0 Money market securities 323 0 323 0 0 0 Commercial paper 3,352 0 3,352 8,755 19 8,774 Asset backed securities 0 0 0 2,618 5 2,623 Collateralized mortgage obligations 0 0 0 2,323 25 2,348 -------- ---------- -------- -------- ---------- -------- Totals $ 18,614 $ 28 $ 18,642 $ 82,140 $ 220 $ 82,360 - -------------------------------------------------------------------------------------------------------------------------------
The following table shows the amortized cost and approximate fair market value of investment securities by contractual maturity at January 31, 1998 (in thousands):
- -------------------------------------------------------------------------------- Amortized Fair Market Cost Value - -------------------------------------------------------------------------------- Within one year $ 14,809 $ 14,819 After one but within five years 3,805 3,823 -------- -------- Totals $ 18,614 $ 18,642 - --------------------------------------------------------------------------------
3. LEASES The Company leases its store locations, corporate headquarters, distribution centers and certain fixtures and equipment under operating leases. The leases expire at various dates through the year 2023. Store leases typically provide for payment by the Company of operating expenses, real estate taxes and additional rent based on a percentage of sales if a specified sales target is exceeded. Future minimum lease payments under operating leases at January 31, 1998 are as follows:
- -------------------------------------------------------------------------------- (In thousands) Operating Leases - -------------------------------------------------------------------------------- Year: 1998 $ 26,603 1999 26,321 2000 26,047 2001 25,771 2002 24,667 Later years 86,647 -------- Total minimum lease commitments $216,056 - --------------------------------------------------------------------------------
Rent expense for all operating leases was $36.9 million, $29.1 million and $23.1 million, in 1997, 1996 and 1995 respectively, which includes percentage rent expense and other lease required expenses of $12.7 million, $10.9 million and $9.7 million for 1997, 1996 and 1995, respectively. 19 11 THE GYMBOREE CORPORATION 4. LINES OF CREDIT As of January 31, 1998, the Company had a bank line of credit that allows up to $100 million of long-term, unsecured letters of credit, and up to $50 million in foreign exchange contracts. As of January 31, 1998, $61.5 million was available. On March 9, 1998, the Company amended its line of credit agreement with Bank of America NT & SA. The amended $100 million facility allows for up to $74 million in unsecured commercial letters of credit, $11 million in standby letters of credit and a revolving line of credit in the aggregate principal amount of $15 million (the "Advance Limit"). The Interest rate will be based on the Bank of America's Reference Rate minus 0.5%, or LIBOR (London Interbank Offered Rate) plus 0.5%. A fee is charged equal to 1/16% per annum of the Advance Limit, payable in arrears. 5. ACCRUED LIABILITIES Accrued liabilities consist of the following :
- -------------------------------------------------------------------------------- January 31, February 2, (in thousand) 1998 1997 - -------------------------------------------------------------------------------- Employee compensation $ 6,293 $ 5,290 Sales taxes 881 1,582 Percentage rent 1,057 561 Store credits and gift certificates 3,223 2,150 Deferred taxes 2,402 Store operating expenses and other 1,925 2,242 ------- ------- Total $15,781 $11,825 - --------------------------------------------------------------------------------
Other accrued liabilities relate primarily to store operating expenses. 6. INCOME TAXES The provision for income taxes consists of the following:
- -------------------------------------------------------------------------------- (in thousand) 1997 1996 1995 - -------------------------------------------------------------------------------- Current: Federal $14,996 $15,100 $13,406 State 3,523 3,183 2,813 ------- ------- ------- Total current 18,519 18,283 16,219 ------- ------- ------- Deferred: Federal 1,796 960 438 State 340 240 209 ------- ------- ------- Total deferred 2,136 1,200 647 ------- ------- ------- Total provision $20,655 $19,483 $16,866 - --------------------------------------------------------------------------------
A reconciliation of the statutory federal income tax rate with the Company's effective income tax rate is as follows:
- -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Statutory federal rate 35% 35% 35% State income taxes, net of federal income tax benefit 4 4 5 Tax exempt interest (1) (1) (1) Other (1) -- -- ---- ---- ---- Effective tax rate 37% 38% 39% - --------------------------------------------------------------------------------
Deferred income taxes reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:
- -------------------------------------------------------------------------------- January 31, February 2, (in thousand) 1998 1997 - -------------------------------------------------------------------------------- Deferred tax assets: Uniform capitalization costs $ 1,399 $ 735 Accrued reserves 672 650 State taxes 481 388 Deferred rent 1,654 1,353 Other 58 210 ------- ------- 4,264 3,336 ------- ------- Deferred tax liabilities: Prepaid expenses (510) (389) Fixed asset basis differences (5,717) (2,774) ------- ------- (6,227) (3,163) ------- ------- Net deferred tax assets (liabilities) $(1,963) $ 173 - --------------------------------------------------------------------------------
7. STOCK PLANS STOCK OPTION PLANS The Company's 1983 Incentive Stock Option Plan (the "1983 Plan") and 1993 Stock Option Plan (the "1993 Plan") provide for grants to team members of incentive stock options within the meaning of Section 422 of the Internal Revenue Code and for grants of non-statutory stock options and stock purchase rights to team members, consultants and non-employee directors of the Company. The Company has reserved a total of 3,600,000 shares of common stock for issuance under the 1983 Plan and 4,025,000 shares of common stock for issuance under the 1993 Plan. Options granted pursuant to the plans have been granted at exercise prices equal to the fair market value of the Company's common stock on the date of grant. The options have a term of either five or ten years and generally vest over a four year period. No further options may be granted under the 1983 Plan. There were 743,589 and 1,587,668 shares available for the grant of options under the 1993 Plan at January 31, 1998 and February 2, 1997, respectively. 20 12 THE GYMBOREE CORPORATION The following summarizes all stock option transactions for the three years ended January 31, 1998 (shares in thousands):
- -------------------------------------------------------------------------------- Shares Weighted Average Outstanding Price Per Share - -------------------------------------------------------------------------------- Balance, January 29, 1995 1,847 $12.26 Options granted 529 24.87 Options exercised (382) 5.28 Options canceled (226) 17.44 - -------------------------------------------------------- ------ Balance, February 4, 1996 1,768 17.50 Options granted 704 24.37 Options exercised (294) 14.48 Options canceled (252) 23.92 - -------------------------------------------------------- ------ Balance, February 2, 1997 1,926 19.51 Options granted 1,299 24.55 Options exercised (577) 13.67 Options canceled (323) 24.42 - -------------------------------------------------------- ------ Balance, January 31, 1998 2,325 $22.11 - --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at January 31, 1998 (shares in thousands):
- -------------------------------------------------------------------------------------- Options Outstanding Options Exercisable (Vested) - -------------------------------------------------------------------------------------- Weighted Average Weighted Weighted Range of Remaining Average Number Average Exercisable Number Life Exercise of Options Exercise Prices of Options (in years) Price at 1/31/98 Price - -------------------------------------------------------------------------------------- $ 0.17 to 10.00 272 4.4 $ 5.53 252 $ 5.98 14.94 to 20.81 267 6.6 19.62 202 19.92 21.25 to 23.50 362 7.5 23.17 178 23.06 23.85 to 26.50 1,116 9.2 24.64 156 24.37 26.75 to 28.50 181 7.4 26.90 109 26.84 28.63 to 36.63 127 7.6 30.76 67 30.74 ----- ------ --- ------ $ 0.17 to 36.63 2,325 $22.11 964 $19.11 - --------------------------------------------------------------------------------------
1993 EMPLOYEE STOCK PURCHASE PLAN The Company has reserved a total of 600,000 shares of common stock for issuance under the 1993 Employee Stock Purchase Plan (the "Purchase Plan"). The price at which stock is purchased under the Purchase Plan is equal to 85% of the fair market value of the common stock on the first day of the applicable offering period or the last day of the applicable purchase period, whichever is lower. Unless terminated earlier, the Purchase Plan will terminate in 2013. There were 35,797 and 37,840 shares issued under the Purchase Plan in fiscal 1997 and 1996, respectively. RESTRICTED STOCK In 1994, the Company granted 100,000 shares of its common stock to its former President and Chief Executive Officer at an aggregate purchase price of $50.00. The aggregate fair market value of the shares, as measured by the stock price on the vesting commencement date was $1,937,500. The shares, which were issued pursuant to the 1993 Plan, are subject to a repurchase option that lapses over a period of 60 months. The difference between the purchase price and the aggregate fair market value of the shares will be amortized as compensation expense over the five year vesting period. Accordingly, the Company recognized compensation expense of $415,926 in 1997, $386,000 in 1996, and $394,000 in 1995. ADDITIONAL STOCK PLAN INFORMATION The Company applies APB Opinion No. 25 and related interpretations in accounting for its three stock-based compensation plans, described above. Accordingly, no compensation expense has been recognized for its stock option plans and its employee stock purchase plan. Compensation expense has been charged against income for its restricted stock plan. Had compensation expense for the Company's stock option plans and the Purchase Plan been determined based on the fair value at the grant dates for awards under these plans, consistent with the method of SFAS No.123, "Accounting for Stock-Based Compensation," the Company's net income and income per share would have been reduced to the pro forma amounts indicated below:
- --------------------------------------------------------------------------------- Year Ended -------------------------------------------- January 31, February 2, February 4, (in thousands) 1998 1997 1996 - --------------------------------------------------------------------------------- Net income As reported $35,170 $31,788 $26,381 Pro forma 32,210 29,317 25,430 Basic income per share As reported $ 1.45 $ 1.27 $ 1.06 Pro forma 1.33 1.17 1.02 Diluted income per share As reported $ 1.41 $ 1.24 $ 1.04 Pro forma 1.29 1.14 1.00 - ---------------------------------------------------------------------------------
The weighted average fair value of options granted during 1997, 1996 and 1995 were $10.29, $8.67 and $8.75, respectively. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
- -------------------------------------------------------------------------------- Year Ended ------------------------------------------- January 31, February 2, February 4, 1998 1997 1996 - -------------------------------------------------------------------------------- Expected Dividend Rate 0.0% 0.0% 0.0% Expected volatility 54.4% 55.0% 55.0% Risk-free interest rate 6.0% 6.0% 6.0% Expected lives (yrs.) 3.0 3.0 2.9 - --------------------------------------------------------------------------------
21 13 THE GYMBOREE CORPORATION 8. 401(K) PLAN The Company maintains a voluntary defined contribution 401(k) profit sharing plan (the "Plan") covering all team members who have met certain service and eligibility requirements. Team members may elect to contribute up to 20% of their compensation to the Plan, not to exceed the dollar limit set by law. The Company matches $0.50 to the Plan for each $1.00 contributed by a team member, up to a maximum Company contribution of $500 per team member per year. The Company's matching contributions to the Plan were $176,000, $133,000, and $102,000 in 1997, 1996, and 1995, respectively. 9. STOCKHOLDER RIGHTS PLAN In March 1997, the Company adopted a Stockholder Rights Plan (the "Plan"). The Plan entails a dividend of one right for each outstanding share of the Company's common stock. The rights are represented by and traded with the Company's common stock. There are no separate certificates or market for the rights. The rights do not become exercisable or trade separately from the common stock unless 17.5% or more of the common stock of the Company has been acquired, or after a tender or exchange offer is made for 17.5% or greater ownership of the Company's common stock. Should the rights become exercisable, each right will entitle the holder thereof to buy 1/1,000th of a share of the Company's Series A Preferred Stock at an exercise price of $125. Each 1/1,000th of a share of the new Series A Preferred Stock will essentially be the economic equivalent of one share of common stock. Under certain circumstances, the rights "flip-in" and become rights to buy the Company's common stock at a 50% discount. Under certain other circumstances, the rights "flip-over" and become rights to buy an acquirer's common stock at a 50% discount. The rights may be redeemed by the Company for $0.01 per right at any time on or prior to the fifth day (or a later date as determined by the Board of Directors) following the first public announcement by the Company of the acquisition of beneficial ownership of 17.5% of the Company's common stock. 10. STOCK REPURCHASE During fiscal 1997, common stock repurchase programs were authorized by the Board of Directors whereby the Company could buy back up to $60 million of its common stock. As of January 31, 1998, 1,922,000 shares have been repurchased by the Company for an aggregate amount of $49,646,000. 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The quarterly financial information presented below reflects all adjustments which, in the opinion of the Company's management, are of a normal and recurring nature necessary to present fairly the results of operations for the periods presented.
1997 Quarter Ended ----------------------------------------------- (In thousands, except per share May 3, Aug. 2, Nov. 1, Jan. 31, amounts and store data) 1997 1997 1997 1998 - ------------------------------------------------------------------------------------ Net sales $ 85,240 $ 71,684 $101,120 $115,396 Gross profit 38,946 30,452 45,859 50,553 Operating income 12,640 6,544 16,893 17,804 Net income 8,599 4,578 10,865 11,128 Basic income per share $ 0.34 $ 0.19 $ 0.44 $ 0.46 Diluted income per share $ 0.34 $ 0.19 $ 0.44 $ 0.46 Stores at end of period 380 401 427 435
1996 Quarter Ended ----------------------------------------------- May 5, Aug. 4, Nov. 3, Feb. 2, 1996 1996 1996 1997 - ------------------------------------------------------------------------------------ Net sales $ 69,103 $ 57,898 $ 84,685 $ 91,425 Gross profit 33,656 25,148 40,255 40,000 Operating income 12,969 5,949 13,690 14,985 Net income 8,593 4,285 8,995 9,915 Basic income per share $ 0.34 $ 0.17 $ 0.36 $ 0.39 Diluted income per share $ 0.34 $ 0.17 $ 0.35 $ 0.39 Stores at end of period 305 326 348 354 - ------------------------------------------------------------------------------------
22 14 THE GYMBOREE CORPORATION INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of The Gymboree Corporation: We have audited the accompanying consolidated balance sheets of The Gymboree Corporation and subsidiaries (the "Company") as of January 31, 1998 and February 2, 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended January 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Gymboree Corporation and subsidiaries as of January 31, 1998 and February 2, 1997, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 31, 1998 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP - ----------------------------- San Francisco, California March 9, 1998 23
EX-21.1 14 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT Gymboree Manufacturing, Inc., a California corporation. Gym-mark, Inc., a California corporation. Gymboree Retail Stores, Inc., a California corporation. Gymboree Logistics Partnership, a California partnership (wholly owned by Gym-mark, Inc. and Gymboree Retail Stores, Inc.). Gymboree Play Program, Inc., a California corporation. Gymboree Operations, Inc., a California corporation. Gymboree, Inc., a Canadian and Delaware corporation. Gymboree Japan K.K., a Japan corporation. Gymboree Industries Holdings Ltd., a Republic of Ireland and Delaware corporation. Gymboree Hong Kong Ltd., a Hong Kong corporation, wholly owned by Gymboree Industries Holdings Ltd. Gymboree Industries Ltd., a Republic of Ireland corporation, wholly owned by Gymboree Industries Holdings Ltd. Gymboree Ireland Leasing Ltd., a Republic of Ireland corporation. Gymboree of Ireland, Ltd., a Republic of Ireland corporation. Gymboree U.K. Leasing Ltd., a United Kingdom and Delaware corporation. Gymboree U.K. Ltd., a United Kingdom corporation. 21 EX-23.1 15 INDEPENDENT AUDITORS' CONSENT 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-60310, 33-90452 and 33-94594 of The Gymboree Corporation on all Forms S-8 of our report dated March 9, 1998, incorporated by reference in this Annual Report on Form 10-K of The Gymboree Corporation for the fiscal year ended January 31, 1998. Deloitte & Touche LLP April 17, 1998 EX-27.1 16 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GYMBOREE CORPORATION'S ANNUAL REPORT FOR THE YEAR ENDED JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JAN-31-1998 FEB-03-1997 JAN-31-1998 17,870 18,642 5,184 0 75,293 121,456 135,306 (30,934) 229,200 49,866 0 0 0 23,109 134,601 229,200 373,440 373,957 (207,630) (112,443) 0 0 0 55,825 (20,655) 0 0 0 0 35,170 1.45 1.41
EX-27.2 17 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GYMBOREE CORPORATION'S QUARTERLY REPORTS ON FORMS 10-Q FOR THE QUARTERS ENDED MAY 3, 1997, AUGUST 2, 1997, AND NOVEMBER 1, 1997 EXCEPT FOR THE EARNINGS PER SHARE DATA WHICH HAS BEEN RESTATED IN ACCORDANCE WITH THE STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE" AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 3-MOS 3-MOS JAN-31-1998 JAN-31-1998 JAN-31-1998 FEB-03-1997 MAY-04-1997 AUG-03-1997 MAY-03-1997 AUG-02-1997 NOV-01-1997 7,725 4,776 8,413 73,458 46,011 37,848 4,654 4,988 6,005 0 0 0 36,568 56,840 68,641 123,958 114,214 123,732 101,164 114,444 126,624 (21,748) (24,391) (27,649) 204,532 205,563 225,687 27,790 35,816 41,164 0 0 0 0 0 0 0 0 0 52,762 39,928 42,491 107,972 112,440 123,614 204,532 205,563 225,687 85,240 71,684 101,120 85,240 71,787 101,283 (46,294) (41,232) (55,261) (26,306) (24,011) (29,129) 0 0 0 0 0 0 0 0 0 13,650 7,266 17,246 (5,051) (2,688) (6,381) 0 0 0 0 0 0 0 0 0 0 0 0 8,599 4,578 10,865 0.34 0.19 0.44 0.34 0.19 0.44
EX-27.3 18 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GYMBOREE CORPORATION'S ANNUAL REPORT FOR THE YEAR ENDED FEBRUARY 2, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS FEB-02-1997 FEB-04-1996 FEB-02-1997 8,027 82,360 4,336 0 48,979 145,595 90,051 (19,465) 216,909 40,405 0 0 0 62,694 99,239 216,909 303,111 303,185 (164,052) (91,540) 0 0 0 51,271 (19,483) 0 0 0 0 31,788 1.24 1.24
EX-27.4 19 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GYMBOREE CORPORATION'S QUARERLY REPORTS ON FORMS 10-Q FOR THE QUARTERS ENDED MAY 5, 1996, AUGUST 4, 1996, AND NOVEMBER 3, 1996 EXCEPT FOR THE EARNINGS PER SHARE DATA WHICH HAS BEEN RESTATED IN ACCORDANCE WITH THE STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE" AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 3-MOS 3-MOS FEB-02-1997 FEB-02-1997 FEB-02-1997 FEB-04-1996 MAY-06-1996 AUG-05-1996 MAY-05-1996 AUG-04-1996 NOV-03-1996 11,476 5,940 6,960 74,983 72,941 72,546 4,319 4,825 4,937 0 0 0 29,091 45,065 51,725 122,211 132,512 138,086 62,800 70,397 78,584 (13,554) (15,532) (17,259) 171,974 187,603 199,746 28,045 34,026 34,433 0 0 0 0 0 0 0 0 0 57,355 60,929 61,874 75,264 79,932 89,165 132,619 140,862 151,039 69,103 57,898 84,685 69,231 57,787 84,685 (35,447) (32,750) (44,432) (20,687) (19,199) (26,565) 0 0 0 0 0 0 0 0 0 13,859 6,911 14,507 (5,266) (2,626) (5,512) 0 0 0 0 0 0 0 0 0 0 0 0 8,593 4,285 8,995 0.34 0.17 0.35 0.34 0.17 0.35
EX-27.5 20 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GYMBOREE CORPORATION'S ANNUAL REPORT FOR THE YEAR ENDED FEBRUARY 4, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS FEB-04-1996 JAN-30-1995 FEB-04-1996 8,755 64,893 2,868 0 37,652 116,054 55,493 (12,085) 160,009 26,637 0 0 0 56,687 67,247 160,009 259,381 259,697 (149,428) (69,845) 0 0 0 43,247 (16,866) 0 0 0 0 26,381 1.04 1.04
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