As filed with the Securities and Exchange Commission on
August 17, 2007
Registration
No. 333-144405
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1
TO
Form S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
ULTA SALON,
COSMETICS & FRAGRANCE, INC.
(Exact name of Registrant as
specified in its charter)
|
|
|
|
|
Delaware
|
|
5999f
|
|
36-3685240
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification No.)
|
1135 Arbor Drive
Romeoville, Illinois 60446
(630) 226-0020
(Address, including
zip code, and telephone number, including area code, of
Registrants principal executive offices)
Lynelle P. Kirby
President, Chief Executive Officer and Director
Ulta Salon, Cosmetics & Fragrance, Inc.
1135 Arbor Drive
Romeoville, Illinois 60446
(630) 226-0020
(Name, address,
including zip code, and telephone number, including area code,
of agent for service)
Copies to:
|
|
|
Christopher D.
Lueking, Esq.
|
|
Leland Hutchinson, Esq.
|
Latham & Watkins LLP
|
|
Winston & Strawn LLP
|
233 S. Wacker Drive,
Suite 5800
|
|
35 W. Wacker Drive
|
Chicago, Illinois 60606
|
|
Chicago, Illinois 60601
|
(312)
876-7700
|
|
(312) 558-5600
|
Approximate date of commencement of proposed sale to the
public:
As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, as amended (the
Securities Act), check the following
box.
o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
CALCULATION OF
REGISTRATION FEE
|
|
|
|
|
|
|
Proposed
Maximum
|
|
Amount of
|
Title of Each
Class of Securities
|
|
Aggregate
|
|
Registration
|
to be
Registered
|
|
Offering
Price(1)
|
|
Fee(2)
|
Common Stock, par value $.01 per
share
|
|
$115,000,000
|
|
$3,531
|
Preferred stock purchase rights(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Estimated solely for the purpose of
computing the amount of the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933. Includes
shares of common stock subject to the underwriters option.
|
|
|
|
(3)
|
|
The preferred stock purchase rights
initially will trade together with the common stock. The value
attributable to the preferred stock purchase rights, if any, is
reflected in the offering price of the common stock.
|
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
|
Subject to
completion,
dated ,
2007
Prospectus
shares
Common stock
This is an initial public offering of shares of common stock of
Ulta Salon, Cosmetics & Fragrance, Inc. We are
selling shares
of common stock. The selling stockholders identified in this
prospectus are offering an
additional shares.
We will not receive any proceeds from the sale of shares by the
selling stockholders. Prior to this offering, there has been no
public market for our common stock. The estimated initial public
offering price is between $ and
$ per share.
We are applying to have our common stock listed on The NASDAQ
Global Select Market under the symbol ULTA.
|
|
|
|
|
|
|
|
|
|
Per
share
|
|
Total
|
|
|
Public offering price
|
|
$
|
|
|
$
|
|
Underwriting discounts and
commissions
|
|
$
|
|
|
$
|
|
Proceeds to ULTA, before expenses
|
|
$
|
|
|
$
|
|
Proceeds to the selling
stockholders, before expenses
|
|
$
|
|
|
$
|
|
|
|
The selling stockholders have granted the underwriters an option
for a period of 30 days to purchase up
to
additional shares of common stock to cover over-allotments, if
any.
Investing in our common stock involves a high degree of risk.
See Risk factors beginning on page 9.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed on the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares of common stock to
purchasers
on ,
2007.
|
|
JPMorgan
|
Wachovia
Securities
|
Thomas
Weisel Partners LLC
|
|
, 2007
Table of
contents
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
5
|
|
|
|
|
7
|
|
|
|
|
9
|
|
|
|
|
23
|
|
|
|
|
24
|
|
|
|
|
24
|
|
|
|
|
25
|
|
|
|
|
27
|
|
|
|
|
29
|
|
|
|
|
32
|
|
|
|
|
52
|
|
|
|
|
68
|
|
|
|
|
73
|
|
|
|
|
90
|
|
|
|
|
92
|
|
|
|
|
96
|
|
|
|
|
98
|
|
|
|
|
103
|
|
|
|
|
105
|
|
|
|
|
109
|
|
|
|
|
113
|
|
|
|
|
113
|
|
|
|
|
113
|
|
|
|
|
F-1
|
|
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information that is different. We are offering to sell and
seeking offers to buy shares of our common stock only in
jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of our common stock.
Unless the context requires otherwise, the words
ULTA, we, company,
us and our refer to Ulta Salon,
Cosmetics & Fragrance, Inc. For purposes of this
prospectus, the term stockholder shall refer to the
holders of our common stock.
i
Prospectus
summary
This summary highlights information contained elsewhere in
this prospectus. You should read the entire prospectus
carefully, including the Risk factors section and
our consolidated financial statements and the related notes
included in this prospectus before making an investment in our
common stock. In this prospectus, our fiscal years ended
January 29, 2000, February 3, 2001, February 2,
2002, February 1, 2003, January 31, 2004,
January 29, 2005, January 28, 2006, February 3,
2007 and February 2, 2008 are referred to as fiscal 1999,
2000, 2001, 2002, 2003, 2004, 2005, 2006 and 2007,
respectively.
Our
company
We are the largest beauty retailer that provides one-stop
shopping for prestige, mass and salon products and salon
services in the United States. We provide affordable indulgence
to our customers by combining the product breadth, value and
convenience of a beauty superstore with the distinctive
environment and experience of a specialty retailer. Key aspects
of our business include:
One-Stop Shopping.
We offer a unique
combination of over 21,000 prestige and mass beauty products
across the categories of cosmetics, fragrance, haircare,
skincare, bath and body products and salon styling tools, as
well as salon haircare products. We also offer a full-service
salon in all of our stores.
Our Value Proposition.
We focus on
delivering a compelling value proposition to our customers. For
example, we run frequent promotions and gift certificates for
our mass brands, gift-with-purchase offers and multi-product
gift sets for our prestige brands, and a comprehensive customer
loyalty program.
An Off-Mall Location.
We are
conveniently located in high-traffic, off-mall locations, and
our typical store is approximately 10,000 square feet,
including a salon of approximately 950 square feet. As of
May 31, 2007, we operated 207 stores across 26 states.
In addition to these fundamental elements of a beauty
superstore, we strive to offer an uplifting shopping experience
through what we refer to as The Four Es:
Escape
,
Education
,
Entertainment
and
Esthetics
.
Escape.
We offer our customer a timely
escape without the intimidating, commission-oriented and
brand-dedicated sales approach found in most department stores
and with a level of service typically unavailable in drug stores
and mass merchandisers.
Education.
We staff our stores with a
team of well-trained beauty consultants and professionally
licensed estheticians and stylists whose mission is to educate,
inform and advise our customers regarding their beauty needs.
Entertainment.
Our catalogs are
invitations for our customers to come to ULTA to play, touch,
test, learn and explore. We further enhance the shopping
experience through live demonstrations, customer makeovers and
in-store videos.
Esthetics.
Our store design features
sleek, modern lines, wide aisles that make the store easy to
navigate and pleasant lighting to create a luxurious and
welcoming environment.
1
We were founded in 1990 as a discount beauty retailer at a time
when prestige, mass and salon products were sold through
distinct channelsdepartment stores for prestige products,
drug stores and mass merchandisers for mass products, and salons
and authorized retail outlets for professional hair care
products. When Lyn Kirby, our current President and Chief
Executive Officer, joined us in December 1999, we pioneered our
unique combination of beauty superstore and specialty store
attributes. In October 2005, Ms. Kirby was recognized by
Cosmetics Executive Women (CEW) with a
2005 Achiever Award
for achievement in the beauty industry. In May 2007, we
received a
2007 Hot Retailer Award
from the International
Council of Shopping Centers (ICSC) for being an innovative
retail concept.
We believe our strategy provides us with competitive advantages
that have contributed to our strong financial performance. Our
net sales have increased from $206.5 million in fiscal 1999
to $755.1 million in fiscal 2006, representing a 20.3%
compounded annual growth rate. In that same period, we grew our
store base from 75 to 196 stores while growing our net income
from $1.2 million in fiscal 1999 to $22.5 million in
fiscal 2006, representing a 51.6% compounded annual growth rate.
In addition, we have achieved 29 consecutive quarters of
positive comparable store sales growth since fiscal 2000.
Our competitive
strengths
We believe the following competitive strengths differentiate us
from our competitors and are critical to our continuing success:
Differentiated merchandising strategy with broad
appeal.
We believe our broad selection of
merchandise across categories, price points and brands offers a
unique shopping experience for our customers. While the products
we sell can be found in department stores, specialty stores,
salons, drug stores and mass merchandisers, we offer all of
these products in one retail format. We offer over 500 brands,
such as
Bare Escentuals
cosmetics
, Chanel
and
Estée Lauder
fragrances
, LOréal
haircare and cosmetics and
Paul Mitchell
haircare.
Our unique customer experience.
We
combine the value and convenience of a beauty superstore with
the distinctive environment and experience of a specialty
retailer. We cater to the woman who loves to indulge in shopping
for beauty products as well as the woman who is time
constrained. We believe our unique shopping experience increases
both the frequency and length of our customers visits.
Retail format poised to benefit from shifting channel
dynamics.
Over the past several years, the
approximately $75 billion beauty products and salon
services industry has experienced significant changes, including
a shift in how manufacturers distribute and customers purchase
beauty products. We are capitalizing on these trends by offering
an off-mall, service-oriented specialty retail concept with a
comprehensive product mix across categories and price points.
Loyal and active customer base.
We have
approximately six million customer loyalty program members. We
utilize this valuable proprietary database to drive traffic,
better understand our customers purchasing patterns and
support new store site selection.
Strong vendor relationships across product
categories.
We have strong, active
relationships with over 300 vendors. We believe these
relationships, which span the three distinct beauty categories
of prestige, mass and salon, and have taken years to develop,
create a significant impediment for other retailers to replicate
our model.
2
Experienced management team.
Our senior
management team averages over 25 years of combined beauty
and retail experience and brings a creative merchandising
approach and a disciplined operating philosophy to our business.
Growth
strategy
We intend to expand our presence as a leading retailer of beauty
products and salon services by:
|
|
|
Growing our store base to our long-term potential of over 1,000
stores.
|
|
|
Increasing our sales and profitability by expanding our prestige
brand offerings.
|
|
|
Improving our profitability by leveraging our fixed costs.
|
|
|
Continuing to enhance our brand awareness to generate sales
growth.
|
|
|
Driving increased customer traffic to our salons.
|
|
|
Expanding our online business.
|
Risks relating to
our company
Investing in our common stock involves a high degree of risk. In
particular, we may not be able to successfully implement our
growth strategy or capitalize on our competitive strengths.
Additionally:
|
|
|
We may be unable to compete effectively in our highly
competitive markets.
|
|
|
If we are unable to gauge beauty trends and react to changing
consumer preferences in a timely manner, our sales will decrease.
|
|
|
Our failure to retain our existing senior management team and to
continue to attract qualified new personnel could adversely
affect our business.
|
|
|
We intend to continue to open new stores, which could strain our
resources and have a material adverse effect on our business and
financial performance.
|
|
|
The capacity of our distribution and order fulfillment
infrastructure may not be adequate to support our recent growth
and expected future growth plans, which could prevent the
successful implementation of these plans or cause us to incur
costs to expand this infrastructure.
|
|
|
Any material disruption of our information systems could
negatively impact financial results and materially adversely
affect our business operations.
|
If any of the foregoing events or circumstances occur, an
investment in our common stock may be impaired. You should read
Risk factors beginning on page 8 for a more
complete discussion of certain factors you should consider
together with all other information included in this prospectus
before making an investment decision.
3
Company
information
We were incorporated in Delaware on January 9, 1990 under
the name R.G. Trends Corporation. On June 7,
1990, we changed our name to Ulta3, Inc., on
February 7, 1992, we changed our name to
Ulta
3
The Cosmetic Savings Store, Inc., on July 12, 1995,
we changed our name to
Ulta
3
Cosmetics & Salon, Inc., and on July 29,
1999, we changed our name to Ulta Salon,
Cosmetics & Fragrance, Inc. Our principal
executive offices are located at 1135 Arbor Drive, Romeoville,
Illinois 60446 and our telephone number is
(630) 226-0020.
Our primary website is www.ulta.com. The information contained
in, or that can be accessed through, our website is not
incorporated by reference into this prospectus, and you should
not consider information contained on our website as part of
this prospectus.
ULTA
tm
,
our logo, Basically
U
tm
,
Formativ
tm
,
Ulta
3
tm
,
Ulta 3 and
design
tm
,
Ulta 3 Beauty
Club
tm
,
Ulta 3 Cosmetics Savings
Store
tm
,
Ulta 3 Salon Cosmetics Fragrance
design
tm
,
Ulta 3 The Ultimate Beauty
Store
tm
,
Ulta
Beauty
tm
,
Ulta
Salon-Cosmetics-Fragrance
tm
,
Ulta Salon-Cosmetics-Fragrance and
design
tm
,
Ulta.com
tm
and What a Woman
Wants
tm
are our trademarks. All service marks, trademarks and trade
names referred to in this prospectus are the property of their
respective owners. We do not intend our use or display of other
parties service marks, trademarks or trade names or to
imply, and such use or display should not be construed to imply,
a relationship with, or endorsement or sponsorship of us by
these other parties.
4
The
offering
|
|
|
Common stock offered by us
|
|
shares
|
|
|
|
Common stock offered by the selling stockholders
|
|
shares
|
|
|
|
Common stock to be outstanding after the offering
|
|
shares
|
|
|
|
Use of proceeds
|
|
We intend to use the net proceeds of
approximately million
from this offering to pay in full the approximately
$91.9 million of accumulated dividends in arrears on our
preferred stock and the approximately $4.8 million
redemption price of the Series III preferred stock, and to
use any remaining proceeds to reduce our borrowings under our
third amended and restated loan and security agreement. We will
not receive any proceeds from the sale of common stock by the
selling stockholders.
|
|
|
|
Dividends
|
|
We have never paid any dividends on our common stock and do not
anticipate paying any dividends on our common stock in the
foreseeable future. See Dividend policy.
|
|
|
|
Preferred stock purchase rights
|
|
Each share of common stock offered hereby will have associated
with it one preferred stock purchase right under the stockholder
rights agreement which we intend to adopt in connection with
this offering. Each of these rights will entitle its holder to
purchase one one-thousandth of a share of Series A junior
participating preferred stock at a purchase price specified in
the stockholder rights agreement under the circumstances
provided therein. See Description of capital
stockStockholder rights agreement.
|
|
|
|
Proposed NASDAQ Global Select Market symbol
|
|
ULTA
|
|
Risk factors
|
|
See Risk factors and other information included in
this prospectus for a discussion of some of the factors you
should consider before deciding to purchase our common stock.
|
The number of shares of common stock to be outstanding after
this offering is based on 77,411,747 shares outstanding as
of May 5, 2007 and excludes:
|
|
|
861,011 shares of common stock issuable upon exercise of
outstanding options under our Second Amended and Restated
Restricted Stock Option Plan, as amended, or the Old Plan, at a
weighted average exercise price of $0.48 per share. No further
awards will be made under the Old Plan; and
|
|
|
5,189,390 shares of common stock issuable upon exercise of
outstanding options under our 2002 Equity Incentive Plan, or the
2002 Plan, at a weighted average exercise price of $2.65.
|
5
Except as otherwise indicated, information in this prospectus
reflects or assumes the following:
|
|
|
the conversion on a one-for-one basis of all outstanding shares
of our Series I, Series II, Series IV, Series V
and
Series V-1
preferred stock into an aggregate of 65,702,530 shares of
common stock effective upon the consummation of this offering
pursuant to the terms of our restated certificate of
incorporation;
|
|
|
|
the redemption of all outstanding shares of our Series III
preferred stock effective upon the consummation of this offering
for an aggregate of approximately $4.8 million pursuant to
the terms of our restated certificate of incorporation; and
|
|
|
|
no exercise by the underwriters of their option to
purchase additional
shares of common stock to cover over-allotments.
|
6
Summary
consolidated financial information
The following table sets forth our summary consolidated
financial data for the periods indicated. You should read this
information in conjunction with our consolidated financial
statements, including the related notes, and
Managements discussion and analysis of financial
condition and results of operations included elsewhere in
this prospectus. The following summary consolidated balance
sheet data as of January 28, 2006 and February 3, 2007
and the summary consolidated income statement data for each of
the three fiscal years ended January 29, 2005,
January 28, 2006 and February 3, 2007 have been
derived from our audited consolidated financial statements
included elsewhere in this prospectus. The summary consolidated
balance sheet data as of May 5, 2007 and the summary
consolidated statement of operations data for the three months
ended April 29, 2006 and May 5, 2007 have been derived
from our unaudited consolidated financial statements included
elsewhere in this prospectus. The summary consolidated balance
sheet data as of January 29, 2005 has been derived from our
audited consolidated financial statements not included in this
prospectus. The selected balance sheet data as of April 29,
2006 has been derived from our unaudited consolidated financial
statements that are not included in this prospectus. Our
unaudited summary consolidated financial data as of
April 29, 2006 and May 5, 2007 and for the three
months then ended, has been prepared on the same basis as the
annual audited consolidated financial statements and includes
all adjustments, consisting of only normal recurring adjustments
necessary for the fair presentation of this data in all material
respects. The results for any interim period are not necessarily
indicative of the results of operations to be expected for a
full fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
ended(1)
|
|
Three months
ended
|
|
|
January 29,
|
|
|
January 28,
|
|
February 3,
|
|
April 29,
|
|
May 5,
|
(Dollars in
thousands, except per share and per square foot data)
|
|
2005
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
Consolidated income statement
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(2)
|
|
$
|
491,152
|
|
|
$
|
579,075
|
|
$
|
755,113
|
|
$
|
159,468
|
|
$
|
194,113
|
Cost of sales
|
|
|
346,585
|
|
|
|
404,794
|
|
|
519,929
|
|
|
108,813
|
|
|
134,600
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
144,567
|
|
|
|
174,281
|
|
|
235,184
|
|
|
50,655
|
|
|
59,513
|
Selling, general, and
administrative expenses
|
|
|
121,999
|
|
|
|
140,145
|
|
|
188,000
|
|
|
41,316
|
|
|
47,982
|
Pre-opening expenses
|
|
|
4,072
|
|
|
|
4,712
|
|
|
7,096
|
|
|
826
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
18,496
|
|
|
|
29,424
|
|
|
40,088
|
|
|
8,513
|
|
|
9,875
|
Interest expense
|
|
|
2,835
|
|
|
|
2,951
|
|
|
3,314
|
|
|
742
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
15,661
|
|
|
|
26,473
|
|
|
36,774
|
|
|
7,771
|
|
|
8,879
|
Income tax expense
|
|
|
6,201
|
|
|
|
10,504
|
|
|
14,231
|
|
|
3,071
|
|
|
3,560
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,460
|
|
|
$
|
15,969
|
|
$
|
22,543
|
|
$
|
4,700
|
|
$
|
5,319
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.44
|
)
|
|
$
|
0.47
|
|
$
|
0.87
|
|
$
|
0.18
|
|
$
|
0.14
|
Diluted
|
|
$
|
(0.44
|
)
|
|
$
|
0.21
|
|
$
|
0.29
|
|
$
|
0.06
|
|
$
|
0.07
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,032,612
|
|
|
|
6,478,217
|
|
|
9,130,697
|
|
|
6,960,640
|
|
|
11,368,805
|
Diluted
|
|
|
5,032,612
|
|
|
|
76,297,969
|
|
|
79,026,350
|
|
|
76,617,578
|
|
|
80,652,941
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
ended(1)
|
|
Three months
ended
|
|
|
January 29,
|
|
January 28,
|
|
February 3,
|
|
April 29,
|
|
May 5,
|
(Dollars in
thousands, except per share and per square foot data)
|
|
2005
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
Other operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable store sales increase(3)
|
|
|
8.0%
|
|
|
8.3%
|
|
|
14.5%
|
|
|
12.8%
|
|
|
9.2%
|
Number of stores end of period
|
|
|
142
|
|
|
167
|
|
|
196
|
|
|
170
|
|
|
203
|
Total square footage end of period
|
|
|
1,464,330
|
|
|
1,726,563
|
|
|
2,023,305
|
|
|
1,755,280
|
|
|
2,096,275
|
Total square footage per store(4)
|
|
|
10,312
|
|
|
10,339
|
|
|
10,323
|
|
|
10,325
|
|
|
10,326
|
Average total square footage(5)
|
|
|
1,374,005
|
|
|
1,582,935
|
|
|
1,857,885
|
|
|
1,650,697
|
|
|
1,934,871
|
Net sales per average total square
foot(6)
|
|
$
|
357
|
|
$
|
366
|
|
$
|
398
|
|
$
|
370
|
|
$
|
400
|
Capital expenditures
|
|
|
34,807
|
|
|
41,607
|
|
|
62,331
|
|
|
5,304
|
|
|
17,757
|
Depreciation and amortization
|
|
|
18,304
|
|
|
22,285
|
|
|
29,736
|
|
|
6,048
|
|
|
9,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated balance sheet
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,004
|
|
$
|
2,839
|
|
$
|
3,645
|
|
$
|
2,926
|
|
$
|
3,161
|
Working capital
|
|
|
69,955
|
|
|
76,473
|
|
|
88,105
|
|
|
75,733
|
|
|
85,870
|
Property and equipment, net
|
|
|
114,912
|
|
|
133,003
|
|
|
162,080
|
|
|
131,603
|
|
|
174,916
|
Total assets
|
|
|
253,425
|
|
|
282,615
|
|
|
338,597
|
|
|
287,601
|
|
|
377,852
|
Total debt(7)
|
|
|
47,008
|
|
|
50,173
|
|
|
55,529
|
|
|
63,537
|
|
|
87,883
|
Total stockholders equity
|
|
|
105,308
|
|
|
123,015
|
|
|
148,760
|
|
|
128,221
|
|
|
153,359
|
|
|
|
|
(1)
|
|
Our fiscal year-end is the Saturday
closest to January 31 based on a 52/53-week year. Each fiscal
year consists of four 13-week quarters, with an extra week added
onto the fourth quarter every five or six years.
|
|
(2)
|
|
Fiscal 2006 was a 53-week operating
year and the 53rd week represented approximately
$16.4 million in net sales.
|
|
(3)
|
|
Comparable store sales increase
reflects sales for stores beginning on the first day of the 14th
month of operation. Remodeled stores are included in comparable
store sales unless the store was closed for a portion of the
current or comparable prior period.
|
|
(4)
|
|
Total square footage per store is
calculated by dividing total square footage at end of period by
number of stores at end of period.
|
|
(5)
|
|
Average total square footage
represents a weighted average which reflects the effect of
opening stores in different months throughout the period.
|
|
(6)
|
|
Net sales per average total square
foot was calculated by dividing net sales for the trailing
12-month
period by the average square footage for those stores open
during each period. The fiscal 2006 and first quarter fiscal
2007 net sales per average total square foot amounts were
adjusted to exclude the net sales effects of the 53rd week.
|
|
|
|
(7)
|
|
Total debt includes approximately
$4.8 million related to the Series III redeemable preferred
stock, which is presented between the liabilities section and
the equity section of our consolidated balance sheet for all
periods presented.
|
8
Risk
factors
Investment in our common stock involves a high degree of risk
and uncertainty. You should carefully consider the following
risks and all of the other information contained in this
prospectus before making an investment decision. If any of the
following risks occur, our business, financial condition,
results of operations or future growth could suffer. In these
circumstances, the market price of our common stock could
decline, and you may lose all or part of your investment. The
risks described below are not the only ones facing our company.
Additional risks not presently known to us or which we currently
consider immaterial also may adversely affect our company.
Risks related to
our business
We may be
unable to compete effectively in our highly competitive
markets.
The markets for beauty products and salon services are highly
competitive with few barriers to entry. We compete against a
diverse group of retailers, both small and large, including
regional and national department stores, specialty retailers,
drug stores, mass merchandisers, high-end and discount salon
chains, locally owned beauty retailers and salons, Internet
businesses, catalog retailers and direct response television,
including television home shopping retailers and infomercials.
We believe the principal bases upon which we compete are the
quality of merchandise, our value proposition, the quality of
our customers shopping experience and the convenience of
our stores as one-stop destinations for beauty products and
salon services. Many of our competitors are, and many of our
potential competitors may be, larger and have greater financial,
marketing and other resources and therefore may be able to adapt
to changes in customer requirements more quickly, devote greater
resources to the marketing and sale of their products, generate
greater national brand recognition or adopt more aggressive
pricing policies than we can. As a result, we may lose market
share, which could have a material adverse effect on our
business, financial condition and results of operations.
If we are
unable to gauge beauty trends and react to changing consumer
preferences in a timely manner, our sales will
decrease.
We believe our success depends in substantial part on our
ability to:
|
|
|
recognize and define product and beauty trends;
|
|
|
anticipate, gauge and react to changing consumer demands in a
timely manner;
|
|
|
translate market trends into appropriate, saleable product and
service offerings in our stores and salons in advance of our
competitors;
|
|
|
develop and maintain vendor relationships that provide us access
to the newest merchandise on reasonable terms; and
|
|
|
distribute merchandise to our stores in an efficient and
effective manner and maintain appropriate in-stock levels.
|
If we are unable to anticipate and fulfill the merchandise needs
of the regions in which we operate, our net sales may decrease
and we may be forced to increase markdowns of slow-moving
merchandise, either of which could have a material adverse
effect on our business, financial condition and results of
operations.
9
If we fail to
retain our existing senior management team and continue to
attract qualified new personnel, such failure could have a
material adverse effect on our business, financial condition and
results of operations.
Our business requires disciplined execution at all levels of our
organization. This execution requires an experienced and
talented management team. Ms. Kirby, our President and
Chief Executive Officer since December 1999, is of key
importance to our business, including her relationships with our
vendors and influence on our sales and marketing. If we lost
Ms. Kirbys services or if we were to lose the benefit
of the experience, efforts and abilities of other key executive
and buying personnel, it could have a material adverse effect on
our business, financial condition and results of operations. We
have entered into employment agreements with Ms. Kirby and
Mr. Barkus, our Chief Operating Officer, expiring in
February 2008 and February 2009, respectively. For more
information on our management team and their employment
agreements and severance agreements, see Management.
Furthermore, our ability to manage our retail expansion will
require us to continue to train, motivate and manage our
associates and to attract, motivate and retain additional
qualified managerial and merchandising personnel and store
associates. Competition for this type of personnel is intense,
and we may not be successful in attracting, assimilating and
retaining the personnel required to grow and operate our
business profitably.
We intend to
continue to open new stores, which could strain our resources
and have a material adverse effect on our business and financial
performance.
Our continued and future growth largely depends on our ability
to successfully open and operate new stores on a profitable
basis. During 2006, we opened 31 new stores, and we are on track
to open approximately 50 new stores in 2007. We intend to
continue to grow our number of stores for the foreseeable
future, and believe we have the long-term potential to grow our
store base to over 1,000 stores in the United States over the
next 10 years. During fiscal 2006, the average investment
required to open a typical new store was approximately
$1.4 million. This continued expansion could place
increased demands on our financial, managerial, operational and
administrative resources. For example, our planned expansion
will require us to increase the number of people we employ as
well as to monitor and upgrade our management information and
other systems and our distribution infrastructure. These
increased demands and operating complexities could cause us to
operate our business less efficiently, have a material adverse
effect on our operations and financial performance and slow our
growth.
The capacity
of our distribution and order fulfillment infrastructure may not
be adequate to support our recent growth and expected future
growth plans, which could prevent the successful implementation
of these plans or cause us to incur costs to expand this
infrastructure, which could have a material adverse effect on
our business, financial condition and results of
operations.
We currently operate a single distribution facility (including
an overflow facility), which houses the distribution operations
for ULTA retail stores together with the order fulfillment
operations of our Internet business. We have identified the need
for a second distribution facility, which we expect will be
operational in the first half of 2008, as well as the need to
upgrade our existing information systems in order to support the
addition of the second distribution facility. If we are unable
to successfully implement the expansion of our distribution
infrastructure and upgrade of our information systems, the
efficient flow of our merchandise could be disrupted. In order
to support our recent and expected future growth and to maintain
the efficient operation of our business, additional distribution
centers may need to be added in the future.
10
Our failure to expand our distribution capacity on a timely
basis to keep pace with our anticipated growth in stores could
have a material adverse effect on our business, financial
condition and results of operations.
Any
significant interruption in the operations of our distribution
and order fulfillment infrastructure could disrupt our ability
to deliver our merchandise and to process customer orders in a
timely manner, which could have a material adverse effect on our
business, financial condition and results of
operations.
We currently distribute products to our stores from only one
distribution facility, without supplementing such deliveries
with direct-to-store arrangements from vendors or wholesalers.
This dependence on one distribution facility, combined with the
fact that we are a retailer carrying approximately
21,000 beauty products that change on a regular basis in
response to beauty trends, makes the success of our operations
particularly vulnerable to disruptions in our distribution
system. Any significant interruption in the operation of our
distribution infrastructure, including an interruption caused by
our failure to successfully open our second distribution
facility in the first half of 2008 or events beyond our control,
such as disruptions in our information systems, disruptions in
operations due to fire or other catastrophic events, labor
disagreements, or shipping problems, could drastically reduce
our ability to receive and process orders and provide products
and services to our stores. Given our merchandising strategy and
our dependence on only one distribution facility, this could
result in lost sales and a loss of customer loyalty, which could
have a material adverse effect on our business, financial
condition and results of operations.
Any material
disruption of our information systems could negatively impact
financial results and materially adversely affect our business
operations.
We are increasingly dependent on a variety of information
systems to effectively manage the operations of our growing
store base and fulfill customer orders from our Internet
business. In addition, we have identified the need to expand and
upgrade our information systems to support recent and expected
future growth, including the planned opening of our second
distribution facility in the first half of 2008. As part of this
planned expansion of our information systems, we expect to
construct a new data center and modify our warehouse management
system software to support our second distribution facility. Any
interruption during the transition of our information systems to
the new data center and the modification of our warehouse
management system software could have a material adverse effect
on our business, financial condition and results of operations.
The failure of our information systems to perform as designed,
including the failure of our warehouse management software
system to operate as expected during the holiday season or to
support our planned second distribution facility, could have an
adverse effect on our business and results of our operations.
Any material disruption of our systems could disrupt our ability
to track, record and analyze the merchandise that we sell and
could negatively impact our operations, shipment of goods,
ability to process financial information and credit card
transactions, and our ability to receive and process Internet
orders or engage in normal business activities. Moreover,
security breaches or leaks of proprietary information, including
leaks of customers private data, could result in
liability, decrease customer confidence in our company, and
weaken our ability to compete in the marketplace, which could
have a material adverse effect on our business, financial
condition and results of operations.
Our Internet operations, while relatively small, are
increasingly important to our business. We plan to go live with
a new version of our website in the first half of 2008 or
earlier. In addition
11
to changing consumer preferences and buying trends relating to
Internet usage, the re-launch of our website will occur before a
peak holiday season and before we have had time to conduct full
and extensive testing, which makes us particularly vulnerable to
website downtime and other technical failures. The re-launch of
our website is important to our marketing efforts because the
new website will serve as a more effective extension of
ULTAs marketing and prospecting strategies (beyond
catalogs, newspaper inserts and national advertising) by better
exposing potential new customers to the ULTA brand and product
offerings. Our failure to successfully respond to these risks
and uncertainties could reduce Internet sales and damage our
brands reputation.
A downturn in
the economy may affect consumer purchases of discretionary items
such as prestige beauty products and premium salon services,
which could delay our growth strategy and have a material
adverse effect on our business, financial condition,
profitability and cash flows.
We appeal to a wide demographic consumer profile and offer a
broad selection of prestige beauty products at higher price
points than mass beauty products. We also offer a wide selection
of premium salon services. A downturn in the economy could
adversely impact consumer purchases of discretionary items such
as prestige beauty products and premium salon services. Factors
that could affect consumers willingness to make such
discretionary purchases include general business conditions,
levels of employment, interest rates and tax rates, the
availability of consumer credit and consumer confidence in
future economic conditions. In the event of an economic
downturn, consumer spending habits could be adversely affected
and we could experience lower than expected net sales, which
could force us to delay or slow our growth strategy and have a
material adverse effect on our business, financial condition,
profitability and cash flows.
Increased
costs or interruption in our third-party vendors overseas
sourcing operations could disrupt production, shipment or
receipt of some of our merchandise, which would result in lost
sales and could increase our costs.
We directly source the majority of our gift-with-purchase and
other promotional products through third-party vendors using
foreign factories. In addition, many of our vendors use overseas
sourcing to varying degrees to manufacture some or all of their
products. Any event causing a sudden disruption of manufacturing
or imports from such foreign countries, including the imposition
of additional import restrictions, unanticipated political
changes, increased customs duties, legal or economic
restrictions on overseas suppliers ability to produce and
deliver products, and natural disasters, could materially harm
our operations. We have no long-term supply contracts with
respect to such foreign-sourced items, many of which are subject
to existing or potential duties, tariffs or quotas that may
limit the quantity of certain types of goods that may be
imported into the United States from such countries. Our
business is also subject to a variety of other risks generally
associated with sourcing goods from abroad, such as political
instability, disruption of imports by labor disputes and local
business practices.
Our sourcing operations may also be hurt by health concerns
regarding infectious diseases in countries in which our
merchandise is produced, adverse weather conditions or natural
disasters that may occur overseas or acts of war or terrorism in
the United States or worldwide, to the extent these acts affect
the production, shipment or receipt of merchandise. Our future
operations and performance will be subject to these factors,
which are beyond our control, and these factors could materially
hurt our business, financial condition and results of operations
or may require us to modify our current business practices and
incur increased costs.
12
Recent volatility in the global oil markets has resulted in
rising fuel and freight prices, which many shipping companies
are passing on to their customers. Our shipping costs have
increased, and these costs may continue to increase. We may be
unable to pass these increased costs on to our customers, which
will reduce our profitability. Additionally, recent increased
demand for shipping capacity between the United States and Asia
will further increase our costs for merchandise sourced from
Asia, which could have a material adverse effect on our
business, financial condition and results of operations.
A reduction in
traffic to, or the closing of, the other destination retailers
in the shopping areas where our stores are located could
significantly reduce our sales and leave us with unsold
inventory, which could have a material adverse effect on our
business, financial condition and results of
operations.
As result of our real estate strategy, most of our stores are
located in off-mall shopping areas known as power centers or
lifestyle centers, which also accommodate other well-known
destination retailers. Power centers typically contain three to
five big-box anchor stores along with a variety of smaller
specialty tenants, while lifestyle centers typically contain a
variety of high-end destination retailers but no large anchor
stores. As a consequence of most of our stores being located in
such shopping areas, our sales are derived, in part, from the
volume of traffic generated by the other destination retailers
and the anchor stores in the lifestyle centers and power centers
where our stores are located. Customer traffic to these shopping
areas may be adversely affected by the closing of such
destination retailers or anchor stores, or by a reduction in
traffic to such stores resulting from a regional economic
downturn, a general downturn in the local area where our store
is located, or a decline in the desirability of the shopping
environment of a particular power center or lifestyle center.
Such a reduction in customer traffic would reduce our sales and
leave us with excess inventory, which could have a material
adverse effect on our business, financial condition and results
of operations. We may respond by increasing markdowns or
initiating marketing promotions to reduce excess inventory,
which would further decrease our gross profits and net income.
Diversion of
exclusive salon products, or a decision by manufacturers of
exclusive salon products to utilize other distribution channels,
could negatively impact our revenue from the sale of such
products, which could have a material adverse effect on our
business, financial condition and results of
operations.
The retail products that we sell in our salons are meant to be
sold exclusively by professional salons and authorized
professional retail outlets. However, incidents of product
diversion occur, which involve the selling of salon exclusive
haircare products to unauthorized channels such as drug stores,
grocery stores or mass merchandisers. Diversion could result in
adverse publicity that harms the commercial prospects of our
products (if diverted products are old, tainted or damaged), as
well as lower product revenues should consumers choose to
purchase diverted product from these channels rather than
purchasing from one of our salons. Additionally, the various
product manufacturers could in the future decide to utilize
other distribution channels for such products, therefore
widening the availability of these products in other retail
channels, which could negatively impact the revenue we earn from
the sale of such products.
13
We rely on our
good relationships with vendors to purchase prestige, mass and
salon beauty products on reasonable terms. If these
relationships were to be impaired, we may not be able to obtain
a sufficient selection or volume of merchandise on reasonable
terms, and we may not be able to respond promptly to changing
trends in beauty products, either of which could have a material
adverse effect on our competitive position, our business and
financial performance.
We have no long-term supply agreements or exclusive arrangements
with vendors and, therefore, our success depends on maintaining
good relationships with our vendors. Our business depends to a
significant extent on the willingness and ability of our vendors
to supply us with a sufficient selection and volume of products
to stock our stores. We also have strategic partnerships with
certain core brands, which has allowed us to benefit from the
growing popularity of such brands. Any of our other core brands
could in the future decide to scale back or end its partnership
with us and strengthen its relationship with our competitors,
which could negatively impact the revenue we earn from the sale
of such products. If we fail to maintain strong relationships
with our existing vendors, or fail to continue acquiring and
strengthening relationships with additional vendors of beauty
products, our ability to obtain a sufficient amount and variety
of merchandise on reasonable terms may be limited, which could
have a negative impact on our competitive position.
During fiscal 2006, merchandise supplied to ULTA by our top ten
vendors accounted for approximately 35% of our net sales. The
loss of or a reduction in the amount of merchandise made
available to us by any one of these key vendors, or by any of
our other vendors, could have an adverse effect on our business.
If we fail to
maintain the value of our brand, our sales are likely to decline
and our growth strategy could be jeopardized.
Our success depends on the value of the ULTA brand. The ULTA
name is integral not only to our business but also to the
continuation of our growth strategy. A primary component of our
strategy involves expanding into other geographic markets in the
United States. As we expand into new geographic markets,
consumers in these markets may not accept our brand image.
Maintaining, promoting and positioning our brand will depend
largely on the success of our marketing and merchandising
efforts and our ability to provide a consistent, high quality
customer experience. We anticipate that, as our business expands
into new markets and as the market becomes increasingly
competitive, maintaining and enhancing our brand may become
increasingly difficult and expensive. Our brand could be
adversely affected if we fail to achieve these objectives or if
our public image or reputation were to be tarnished by negative
publicity. Any of these events could result in a decrease in
sales and jeopardize our growth strategy.
If we are
unable to protect our intellectual property rights, our brand
and reputation could be harmed, which could have a material
adverse effect on our business, financial condition and results
of operations.
We regard our trademarks, trade dress, copyrights, trade
secrets, know-how and similar intellectual property as critical
to our success. Our principal intellectual property rights
include registered trademarks on our name, ULTA,
copyrights in our website content, rights to our domain name
www.ulta.com and trade secrets and know-how with respect to our
ULTA
branded product formulations, product sourcing,
sales and marketing and other aspects of our business. As such,
we rely on trademark and copyright law, trade secret protection
and confidentiality agreements with certain of our employees,
consultants, suppliers and others to protect our proprietary
rights. If we are unable to protect or preserve the value of our
14
trademarks, copyrights, trade secrets or other proprietary
rights for any reason, or if other parties infringe on our
intellectual property rights, our brand and reputation could be
impaired and we could lose customers.
If our
manufacturers are unable to produce products manufactured
uniquely for ULTA, including ULTA branded products and
gift-with-purchase and other promotional products, consistent
with applicable regulatory requirements, we could suffer lost
sales and be required to take costly corrective action, which
could have a material adverse effect on our business, financial
condition and results of operations.
We do not own or operate any manufacturing facilities and
therefore depend upon independent third-party vendors for the
manufacture of all products manufactured uniquely for
ULTA
, including
ULTA
branded products and
gift-with-purchase and other promotional products. Our
third-party manufacturers of
ULTA
products may not
maintain adequate controls with respect to product
specifications and quality and may not continue to produce
products that are consistent with applicable regulatory
requirements. If we or our third-party manufacturers fail to
comply with applicable regulatory requirements, we could be
required to take costly corrective action. In addition,
sanctions under the FDC Act may include seizure of products,
injunctions against future shipment of products, restitution and
disgorgement of profits, operating restrictions and criminal
prosecution. The Food and Drug Administration, or FDA, does not
have a pre-market approval system for cosmetics, and we believe
we are permitted to market our cosmetics and have them
manufactured without submitting safety or efficacy data to the
FDA. However, the FDA may in the future determine to regulate
our cosmetics or the ingredients included in our cosmetics as
drugs. These events could interrupt the marketing and sale of
our
ULTA
products, severely damage our brand reputation
and image in the marketplace, increase the cost of our products,
cause us to fail to meet customer expectations or cause us to be
unable to deliver merchandise in sufficient quantities or of
sufficient quality to our stores, any of which could result in
lost sales, which could have a material adverse effect on our
business, financial condition and results of operations.
We, as well as
our vendors, are subject to laws and regulations that could
require us to modify our current business practices and incur
increased costs, which could have a material adverse effect on
our business, financial condition and results of
operations.
In our U.S. markets, numerous laws and regulations at the
federal, state and local levels can affect our business. Legal
requirements are frequently changed and subject to
interpretation, and we are unable to predict the ultimate cost
of compliance with these requirements or their effect on our
operations. If we fail to comply with any present or future laws
or regulations, we could be subject to future liabilities, a
prohibition on the operation of our stores or a prohibition on
the sale of our
ULTA
branded products. In particular,
failure to adequately comply with the following legal
requirements could have a material adverse effect on our
business, financial conditions and results of operations:
|
|
|
Our rapidly expanding workforce, growing in pace with our number
of stores, makes us vulnerable to changes in labor and
employment laws. In addition, changes in federal and state
minimum wage laws and other laws relating to employee benefits
could cause us to incur additional wage and benefits costs,
which could hurt our profitability and affect our growth
strategy.
|
|
|
|
Ensuring compliance with local zoning and real estate land use
restrictions is increasingly challenging as we grow the number
of our stores in new cities and states.
|
15
|
|
|
Our salon business is subject to state board regulations and
state licensing requirements for our stylists and our salon
procedures. Failure to maintain compliance with these regulatory
and licensing requirements could jeopardize the viability of our
salons.
|
|
|
|
We operate stores in California, which has enacted legislation
commonly referred to as Proposition 65 requiring
that clear and reasonable warnings be given to
consumers who are exposed to chemicals known to the State of
California to cause cancer or reproductive toxicity. Although we
have sought to comply with Proposition 65 requirements, there
can be no assurance that we will not be adversely affected by
litigation relating to Proposition 65.
|
In addition, the formulation, manufacturing, packaging,
labeling, distribution, sale and storage of our vendors
products and our
ULTA
products are subject to extensive
regulation by various federal agencies, including the FDA, the
Federal Trade Commission, or FTC, and state attorneys general in
the United States. If we, our vendors or the manufacturers of
our
ULTA
products fail to comply with those regulations,
we could become subject to significant penalties or claims,
which could harm our results of operations or our ability to
conduct our business. In addition, the adoption of new
regulations or changes in the interpretations of existing
regulations may result in significant compliance costs or
discontinuation of product sales and may impair the
marketability of our vendors products or our
ULTA
products, resulting in significant loss of net sales. Our
failure to comply with FTC or state regulations that cover our
vendors products or our
ULTA
product claims and
advertising, including direct claims and advertising by us, may
result in enforcement actions and imposition of penalties or
otherwise harm the distribution and sale of our products.
Our ULTA
products and salon services may cause unexpected and undesirable
side effects that could result in their discontinuance or expose
us to lawsuits, either of which could result in unexpected costs
and damage to our reputation, which could have a material
adverse effect on our business, financial condition and results
of operations.
Unexpected and undesirable side effects caused by our
ULTA
products for which we have not provided sufficient label
warnings, or salon services which may have been performed
negligently, could result in the discontinuance of sales of our
products or of certain salon services or prevent us from
achieving or maintaining market acceptance of the affected
products and services. Such side effects could also expose us to
product liability or negligence lawsuits. Any claims brought
against us may exceed our existing or future insurance policy
coverage or limits. Any judgment against us that is in excess of
our policy limits would have to be paid from our cash reserves,
which would reduce our capital resources. Further, we may not
have sufficient capital resources to pay a judgment, in which
case our creditors could levy against our assets. These events
could cause negative publicity regarding our company, brand or
products, which could in turn harm our reputation and net sales,
which could have a material adverse effect on our business,
financial condition and results of operations.
Legal
proceedings or third-party claims of intellectual property
infringement may require us to spend time and money and could
prevent us from developing certain aspects of our business
operations, which could have a material adverse effect on our
business, financial condition and results of
operations.
Our technologies, promotional products purchased from
third-party vendors, or
ULTA
products or potential
products in development may infringe rights under patents,
patent applications, trademark, copyright or other intellectual
property rights of third parties in the United States and
abroad. These third parties could bring claims against us that
would cause us to incur
16
substantial expenses and, if successful, could cause us to pay
substantial damages. Further, if a third party were to bring an
intellectual property infringement suit against us, we could be
forced to stop or delay development, manufacturing, or sales of
the product that is the subject of the suit.
As a result of intellectual property infringement claims, or to
avoid potential claims, we may choose to seek, or be required to
seek, a license from the third party and would most likely be
required to pay license fees or royalties or both. These
licenses may not be available on acceptable terms, or at all.
Ultimately, we could be prevented from commercializing a product
or be forced to cease some aspect of our business operations if,
as a result of actual or threatened intellectual property
infringement claims, we are unable to enter into licenses on
acceptable terms. Even if we were able to obtain a license, the
rights may be nonexclusive, which would give our competitors
access to the same intellectual property. The inability to enter
into licenses could harm our business significantly.
In addition to infringement claims against us, we may become a
party to other patent or trademark litigation and other
proceedings, including interference proceedings declared by the
United States Patent and Trademark Office, or USPTO, proceedings
before the USPTOs Trademark Trial and Appeal Board and
opposition proceedings in the European Patent Office, regarding
intellectual property rights with respect to promotional
products purchased from third-party vendors or our
ULTA
branded products and technology. Some of our competitors may
be able to sustain the costs of such litigation or proceedings
better than us because of their substantially greater financial
resources. Uncertainties resulting from the initiation and
continuation of intellectual property litigation or other
proceedings could impair our ability to compete in the
marketplace. Intellectual property litigation and other
proceedings may also absorb significant management time and
resources, which could have a material adverse effect on our
business, financial condition and results of operations.
Increases in
the demand for, or the price of, raw materials used to build and
remodel our stores could hurt our profitability.
The raw materials used to build and remodel our stores are
subject to availability constraints and price volatility caused
by weather, supply conditions, government regulations, general
economic conditions and other unpredictable factors. As a
retailer engaged in an active building and remodeling program,
we are particularly vulnerable to increases in construction and
remodeling costs. As a result, increases in the demand for, or
the price of, raw materials could hurt our profitability.
Increases in
costs of mailing, paper and printing will affect the cost of our
catalog and promotional mailings, which will reduce our
profitability.
Postal rate increases and paper and printing costs affect the
cost of our catalog and promotional mailings. In fiscal 2006,
approximately 23% of our selling, general, and administrative
expenses were attributable to such costs. Recent changes in
postal rates resulted in an average 14% increase in the cost of
our catalog mailings and a 5% increase in the cost of mailing
our newspaper inserts. In response to any future increases in
mailing costs, we may consider reducing the number and size of
certain catalog editions. In addition, we rely on discounts from
the basic postal rate structure, such as discounts for bulk
mailings and sorting by zip code and carrier routes. We are not
a party to any long-term contracts for the supply of paper. The
cost of paper fluctuates significantly, and our future paper
costs are subject to supply and demand forces that we cannot
control. Future additional increases in postal rates or in paper
or printing costs would reduce our profitability to
17
the extent that we are unable to pass those increases directly
to customers or offset those increases by raising selling prices
or by reducing the number and size of certain catalog editions.
Our secured
revolving credit facility contains certain restrictive covenants
that could limit our operational flexibility, including our
ability to open stores.
We have a $150 million secured revolving credit facility,
or credit facility (expandable under an accordion option to a
maximum of $200 million), with a term expiring May 2011.
Substantially all of our assets are pledged as collateral for
outstanding borrowings under the agreement. Outstanding
borrowings bear interest at the prime rate or the Eurodollar
rate plus 1.00% up to $100 million and 1.25% thereafter.
The credit facility agreement contains usual and customary
restrictive covenants relating to our management and the
operation of our business. These covenants, among other things,
restrict our ability to grant liens on our assets, incur
additional indebtedness, pay cash dividends and redeem our
stock, enter into transactions with affiliates and merge or
consolidate with another entity. These covenants could restrict
our operational flexibility, including our ability to open
stores, and any failure to comply with these covenants or our
payment obligations would limit our ability to borrow under the
credit facility and, in certain circumstances, may allow the
lenders thereunder to require repayment. For more information
regarding our credit facility, see Description of
indebtedness.
We will need
to raise additional funds to pursue our growth strategy or
continue our operations, and we may be unable to raise capital
when needed, which could have a material adverse effect on our
business, financial condition and results of
operations.
From time to time, in addition to this offering, we will seek
additional equity or debt financing to provide for capital
expenditures and working capital consistent with our growth
strategy. Based on our current growth strategy, we expect it to
be necessary to exercise the $50 million accordion option
of our credit facility during fiscal 2008. In addition, if
general economic, financial or political conditions in our
markets change, or if other circumstances arise that have a
material effect on our cash flow, the anticipated cash needs of
our business as well as our belief as to the adequacy of our
available sources of capital could change significantly. Any of
these events or circumstances could result in significant
additional funding needs, requiring us to raise additional
capital to meet those needs. If financing is not available on
satisfactory terms or at all, we may be unable to execute our
growth strategy as planned and our results of operations may
suffer.
Failure to
maintain adequate financial and management processes and
controls could lead to errors in our financial reporting and
could harm our ability to manage our expenses.
Reporting obligations as a public company and our anticipated
growth are likely to place a considerable strain on our
financial and management systems, processes and controls, as
well as on our personnel. In addition, as a public company we
will be required to document and test our internal controls over
financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002 so that our management can
periodically certify as to the effectiveness of our internal
controls over financial reporting. Our independent registered
public accounting firm will be required to render an opinion on
managements assessment and on the effectiveness of our
internal controls over financial reporting by the time our
annual report for fiscal 2008 is due and thereafter, which will
require us to further document and make additional changes to
our internal controls over financial reporting. As a result, we
have been required to improve our financial and managerial
controls, reporting systems and procedures and have incurred and
will continue to incur expenses to test our systems and to make
such improvements. If our
18
management is unable to certify the effectiveness of our
internal controls or if our independent registered public
accounting firm cannot render an opinion on managements
assessment and on the effectiveness of our internal control over
financial reporting, or if material weaknesses in our internal
controls are identified, we could be subject to regulatory
scrutiny and a loss of public confidence, which could have a
material adverse effect on our business and our stock price. In
addition, if we do not maintain adequate financial and
management personnel, processes and controls, we may not be able
to accurately report our financial performance on a timely
basis, which could cause a decline in our stock price and
adversely affect our ability to raise capital.
Risks related to
this offering
The market
price for our common stock may be volatile, and you may not be
able to sell our stock at a favorable price or at
all.
The market price of our common stock is likely to fluctuate
significantly from time to time in response to factors including:
|
|
|
differences between our actual financial and operating results
and those expected by investors;
|
|
|
fluctuations in quarterly operating results;
|
|
|
our performance during peak retail seasons such as the holiday
season;
|
|
|
market conditions in our industry and the economy as a whole;
|
|
|
changes in the estimates of our operating performance or changes
in recommendations by any research analysts that follow our
stock or any failure to meet the estimates made by research
analysts;
|
|
|
investors perceptions of our prospects and the prospects
of the beauty products and salon services industries;
|
|
|
the performance of our key vendors;
|
|
|
announcements by us, our vendors or our competitors of
significant acquisitions, divestitures, strategic partnerships,
joint ventures or capital commitments;
|
|
|
introductions of new products or new pricing policies by us or
by our competitors;
|
|
|
recruitment or departure of key personnel; and
|
|
|
the level and quality of securities research analyst coverage
for our common stock.
|
In addition, public announcements by our competitors and vendors
concerning, among other things, their performance, strategy, or
accounting practices could cause the market price of our common
stock to decline regardless of our actual operating performance.
Our comparable
store sales and quarterly financial performance may fluctuate
for a variety of reasons, which could result in a decline in the
price of our common stock.
Our comparable store sales and quarterly results of operations
have fluctuated in the past, and we expect them to continue to
fluctuate in the future. A variety of other factors affect our
comparable store sales and quarterly financial performance,
including:
|
|
|
changes in our merchandising strategy or mix;
|
|
|
performance of our new and remodeled stores;
|
19
|
|
|
the effectiveness of our inventory management;
|
|
|
timing and concentration of new store openings, including
additional human resource requirements and related pre-opening
and other
start-up
costs;
|
|
|
cannibalization of existing store sales by new store openings;
|
|
|
levels of pre-opening expenses associated with new stores;
|
|
|
timing and effectiveness of our marketing activities, such as
catalogs and newspaper inserts;
|
|
|
seasonal fluctuations due to weather conditions;
|
|
|
actions by our existing or new competitors; and
|
|
|
general U.S. economic conditions and, in particular, the
retail sales environment.
|
Accordingly, our results for any one fiscal quarter are not
necessarily indicative of the results to be expected for any
other quarter, and comparable store sales for any particular
future period may decrease. In that event, the price of our
common stock would likely decline. For more information on our
quarterly results of operations, see Managements
discussion and analysis of financial condition and results of
operations.
No public
market for our common stock currently exists, and we cannot
assure you that an active, liquid trading market will develop or
be sustained following this offering.
Prior to this offering, there has been no public market for our
common stock. An active, liquid trading market for our common
stock may not develop or be sustained following this offering.
As a result, you may not be able to sell your shares of our
common stock quickly or at the market price. The initial public
offering price of our common stock will be determined by
negotiations between us and the underwriters based upon a number
of factors and may not be indicative of prices that will prevail
following the consummation of this offering. The market price of
our common stock may decline below the initial public offering
price, and you may not be able to resell your shares of our
common stock at or above the initial offering price and may
suffer a loss on your investment.
You will
experience an immediate and substantial book value dilution
after this offering, and will experience further dilution with
the future exercise of stock options.
The initial public offering price of our common stock will be
substantially higher than the pro forma net tangible book value
per share of the outstanding common stock based on the
historical adjusted net book value per share as of May 5,
2007. Based on an assumed initial public offering price of
$ per share (the midpoint of the
range set forth on the cover of this prospectus) and our net
tangible book value as of May 5, 2007, if you purchase our
common stock in this offering you will pay more for your shares
than existing stockholders paid for their shares and you will
suffer immediate dilution of approximately
$ per share in pro forma net
tangible book value. As a result of this dilution, investors
purchasing stock in this offering may receive significantly less
than the full purchase price that they paid for the shares
purchased in this offering in the event of a liquidation.
As of May 5, 2007, there were outstanding options to
purchase 6,050,401 shares of our common stock, of which
3,255,294 were vested, at a weighted average exercise price for
all outstanding options of $2.34 per share. From time to time,
we may issue additional options to associates, non-employee
directors and consultants pursuant to our equity incentive
plans. These options generally vest commencing one year from the
date of grant and continue vesting over a four-year period. You
will experience further dilution as these stock options are
exercised.
20
Approximately %
of our total outstanding shares are restricted from immediate
resale, but may be sold into the market in the near future. The
large number of shares eligible for public sale or subject to
rights requiring us to register them for public sale could
depress the market price of our common stock.
The market price of our common stock could decline as a result
of sales of a large number of shares of our common stock in the
market after this offering, and the perception that these sales
could occur may also depress the market price. Upon completion
of this offering, we will
have shares
of our common stock outstanding. Of these shares, the common
stock sold in this initial public offering will be freely
tradable, except for any shares purchased by our
affiliates as defined in Rule 144 under the
Securities Act of 1933. The holders of
approximately % of our outstanding
common stock are obligated, subject to certain exceptions, not
to dispose of or hedge any of their common stock during the
180-day
period following the date of this prospectus. After the
expiration of the
lock-up
period, these shares may be sold in the public market, subject
to prior registration or qualification for an exemption from
registration, including, in the case of shares held by
affiliates, compliance with the volume restrictions of
Rule 144.
Upon the consummation of this offering, stockholders owning
68,411,623 shares are entitled, under contracts providing
for registration rights, to require us to register our common
stock owned by them for public sale.
Sales of our common stock as restrictions end or pursuant to
registration rights may make it more difficult for us to sell
equity securities in the future at a time and at a price that we
deem appropriate. These sales also could cause our stock price
to fall and make it more difficult for you to sell shares of our
common stock.
Our current
principal stockholders will continue to have significant
influence over us after this offering, and they could delay,
deter, or prevent a change of control or other business
combination or otherwise cause us to take action with which you
might not agree.
Upon the consummation of this offering, our principal
stockholders will own, in the aggregate,
approximately
of our outstanding common stock. As a result, these stockholders
will be able to exercise control over all matters requiring
stockholder approval, including the election of directors,
amendment of our certificate of incorporation and approval of
significant corporate transactions and will have significant
control over our management and policies. Such concentration of
voting power could have the effect of delaying, deterring, or
preventing a change of control or other business combination
that might otherwise be beneficial to our stockholders. In
addition, the significant concentration of share ownership may
adversely affect the trading price of our common stock because
investors often perceive disadvantages in owning shares in
companies with controlling stockholders.
We did not
register our stock options as required under the Securities
Exchange Act of 1934 and, as a result, we may face potential
claims under federal and state securities laws.
As of the last day of fiscal 2001, options granted under the Old
Plan and the Restricted Stock Option PlanConsultants, or
the Consultants Plan, were held by more than 500 holders.
Subsequently, these options also included options granted under
the 2002 Plan. As a result, we were required to file a
registration statement registering the options pursuant to
Section 12(g) of the Securities Exchange Act of 1934 no
later than 120 days following the last day of fiscal 2001.
We did not file a registration statement within this time period.
21
If we had filed a registration statement pursuant to
Section 12(g), we would have become subject to the periodic
reporting requirements of Section 13 of the Securities
Exchange Act of 1934 upon the effectiveness of that registration
statement. We have not filed any periodic reports, including
annual or quarterly reports on
Form 10-K
or
Form 10-Q,
and periodic reports on
Form 8-K,
during the period since 120 days following the last day of
fiscal 2001.
Our failure to file these periodic reports could give rise to
potential claims by present or former option holders based on
the theory that such holders were harmed by the absence of such
public reports. If any such claim or action were to be asserted,
we could incur significant expenses and managements
attention could be diverted in defending these claims.
Anti-takeover
provisions in our organizational documents, stockholder rights
agreement and Delaware law may discourage or prevent a change in
control, even if a sale of the company would be beneficial to
our stockholders, which could cause our stock price to decline
and prevent attempts by our stockholders to replace or remove
our current management.
Our amended and restated certificate of incorporation and
by-laws contain provisions that may delay or prevent a change in
control, discourage bids at a premium over the market price of
our common stock and harm the market price of our common stock
and diminish the voting and other rights of the holders of our
common stock. These provisions include:
|
|
|
dividing our board of directors into three classes serving
staggered three-year terms;
|
|
|
authorizing our board of directors to issue preferred stock and
additional shares of our common stock without stockholder
approval;
|
|
|
prohibiting stockholder actions by written consent;
|
|
|
prohibiting our stockholders from calling a special meeting of
stockholders;
|
|
|
prohibiting our stockholders from making certain changes to our
amended and restated certificate of incorporation or amended and
restated bylaws except with
66
2
/
3
%
stockholder approval; and
|
|
|
requiring advance notice for raising business matters or
nominating directors at stockholders meetings.
|
As permitted by our amended and restated certificate of
incorporation and by-laws, upon the consummation of this
offering we will have a stockholder rights agreement, sometimes
known as a poison pill, which provides for the
issuance of a new series of preferred stock to holders of common
stock. In the event of a takeover attempt, this preferred stock
gives rights to holders of common stock other than the acquirer
to buy additional shares of common stock at a discount, leading
to the dilution of the acquirers stake.
We are also subject to provisions of Delaware law that, in
general, prohibit any business combination with a beneficial
owner of 15% or more of our common stock for three years after
the stockholder becomes a 15% stockholder, subject to specified
exceptions. Together, these provisions of our certificate of
incorporation, by-laws and stockholder rights agreement and of
Delaware law could make the removal of management more difficult
and may discourage transactions that otherwise could involve
payment of a premium over prevailing market prices for our
common stock.
22
Special note
regarding forward-looking statements
Some of the statements under Prospectus summary,
Risk factors, Managements discussion and
analysis of financial condition and results of operations,
Business and elsewhere in this prospectus may
contain forward-looking statements which reflect our current
views with respect to, among other things, future events and
financial performance. You can identify these forward-looking
statements by the use of forward-looking words such as
outlook, believes, expects,
potential, continues, may,
will, should, seeks,
approximately, predicts,
project, intends, plans,
estimates, anticipates,
future or the negative version of those words or
other comparable words. Any forward-looking statements contained
in this prospectus are based upon our historical performance and
on current plans, estimates and expectations. The inclusion of
this forward-looking information should not be regarded as a
representation by us, the underwriters or any other person that
the future plans, estimates or expectations contemplated by us
will be achieved. Such forward-looking statements are subject to
various risks and uncertainties. Accordingly, there are or will
be important factors that could cause our actual results to
differ materially from those indicated in these statements. We
believe these factors include but are not limited to those
described under Risk factors. These factors should
not be construed as exhaustive and should be read in conjunction
with the other cautionary statements that are included in this
prospectus. We do not undertake any obligation to publicly
update or review any forward-looking statement, whether as a
result of new information, future developments or otherwise.
If one or more of these or other risks or uncertainties
materialize, or if our underlying assumptions prove to be
incorrect, actual results may vary materially from what we may
have projected. Any forward-looking statements you read in this
prospectus reflect our current views with respect to future
events and are subject to these and other risks, uncertainties
and assumptions relating to our operations, results of
operations, financial condition, growth strategy and liquidity.
You should specifically consider the factors identified in this
prospectus that could cause actual results to differ before
making an investment decision.
23
Use of
proceeds
We estimate that the net proceeds from our sale
of shares
of common stock in this offering will be approximately
$ million, based on the
initial public offering price of $
per share and after deducting estimated underwriting discounts
and commissions and estimated offering expenses, which are
payable by us. We intend to use the net proceeds from this
offering to pay in full the approximately $91.9 million of
accumulated dividends in arrears on our preferred stock, which
will satisfy all amounts due with respect to accumulated
dividends, and the approximately $4.8 million redemption
price of the Series III preferred stock, and to use any
remaining proceeds to reduce our borrowings under our third
amended and restated loan and security agreement. We will not
receive any of the proceeds from the sale of shares of common
stock by the selling stockholders.
Dividend
policy
We do not anticipate paying any dividends in the foreseeable
future. We currently intend to retain all of our future
earnings, if any, to repay existing indebtedness and to fund the
operation, development and growth of our business. In addition,
the terms of our credit facility currently, and any future debt
or credit facility may, restrict our ability to pay dividends.
As a result, capital appreciation, if any, of our common stock
will be your sole source of gain from your purchase of our
common stock for the foreseeable future.
24
Capitalization
The following table shows our capitalization as of May 5,
2007:
|
|
|
on a pro forma basis, giving effect to (i) the filing, and
effectiveness prior to the consummation of this offering, of an
amended and restated certificate of incorporation to provide for
authorized capital stock of 400,000,000 shares of common
stock and 70,000,000 shares of undesignated preferred
stock, (ii) the automatic conversion on a one-for-one basis
of all outstanding shares of our preferred stock, other than our
Series III preferred stock, into an aggregate of
65,702,530 shares of common stock, (iii) the payment
in full of the approximately $91.9 million of accumulated
dividends in arrears on our preferred stock upon the
consummation of this offering, (iv) the redemption of our
Series III preferred stock for approximately
$4.8 million concurrently with the closing of this
offering, and (v) the sale by us
of shares
of common stock in this offering, at an initial public offering
price of $ per share, after
deducting underwriting discounts and commissions and estimated
offering expenses; as if such amendment, conversion, payment,
redemption and sale had occurred on, or was effective as of,
May 5, 2007
|
This table should be read in conjunction with the consolidated
financial statements and notes to those consolidated financial
statements included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
(unaudited)
|
|
As of May 5,
2007
|
(Dollars in
thousands, except per share data)
|
|
Actual
|
|
Pro
forma
|
|
|
Long-term debt (including current
maturities)
|
|
$
|
83,091
|
|
|
|
|
|
|
|
|
|
Series III Preferred Stock;
4,792,302 shares authorized, actual; no shares authorized,
pro forma; 4,792,302 shares issued and outstanding, actual;
no shares issued and outstanding, pro forma(1)
|
|
|
4,792
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
Preferred stock, par value $.01
per share, 101,500,000 shares authorized, actual;
70,000,000 shares authorized, pro forma:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series I Convertible
Preferred Stock, par value $.01 per share;
17,207,532 shares authorized, actual; no shares authorized,
pro forma; 16,768,882 shares issued and outstanding,
actual; no shares issued and outstanding, pro forma(2)
|
|
|
44,405
|
|
|
|
|
|
|
|
|
|
|
Series II Convertible
Preferred Stock, par value $.01 per share; 7,634,207 shares
authorized, actual; no shares authorized, pro forma;
7,420,130 shares issued and outstanding, actual; no shares
issued and outstanding, pro forma
|
|
|
74,455
|
|
|
|
|
|
|
|
|
|
|
Series IV Convertible
Preferred Stock, par value $.01 per share;
19,183,653 shares authorized, actual; no shares authorized,
pro forma; 19,145,558 shares issued and outstanding,
actual; no shares issued and outstanding, pro forma(2)
|
|
|
48,044
|
|
|
|
25
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
As of May 5,
2007
|
(Dollars in
thousands, except per share data)
|
|
Actual
|
|
|
Pro forma
|
|
|
Series V Convertible
Preferred Stock, par value $.01 per share;
22,500,000 shares authorized, actual; no shares authorized,
pro forma; 21,447,959.34 shares issued and outstanding,
actual; no shares issued and outstanding, pro forma(2)
|
|
|
57,502
|
|
|
|
|
|
|
|
|
|
|
|
|
Series V-1
Convertible Preferred Stock, par value $.01 per share;
4,600,000 shares authorized, actual; no shares authorized,
pro forma; 920,000 shares issued and outstanding, actual;
no shares issued and outstanding, pro forma(2)
|
|
|
2,397
|
|
|
|
|
|
|
|
|
|
|
Total preferred stock:
|
|
$
|
226,803
|
|
|
|
|
Treasury stockpreferred, at
cost:
|
|
|
(1,815
|
)
|
|
|
|
Common stock, par value $.01 per
share, 106,500,000 shares authorized, actual;
400,000,000 shares authorized, pro forma;
11,709,217 shares issued and outstanding,
actual; shares issued and
outstanding, pro forma
|
|
|
121
|
|
|
|
|
Treasury stockcommon, at
cost:
|
|
|
(2,244
|
)
|
|
|
|
Additional paid-in capital:
|
|
|
16,333
|
|
|
|
|
Related party notes receivable:(3)
|
|
|
(4,094
|
)
|
|
|
|
Accumulated deficit:
|
|
|
(81,665
|
)
|
|
|
|
Accumulated other comprehensive
loss:
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity:
|
|
|
153,359
|
|
|
|
|
|
|
|
|
|
|
Total capitalization:
|
|
$
|
241,242
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Upon consummation of this offering,
the company is required to redeem all Series III preferred
stock. The company has determined that the Series III preferred
stock should be presented between the liabilities section and
the equity section of the balance sheet as provided by guidance
contained in EITF
Topic D-98,
Classification and Measurement of Redeemable
Securities.
Under this guidance, classification in the
permanent equity section is not considered appropriate because
the Series III preferred stock is redeemable upon majority
vote of the board of directors to authorize this offering and
the board of directors is controlled by the holders of our
preferred stock.
|
|
|
|
(2)
|
|
Preferred stock as presented in the
table above includes accumulated dividends in arrears as of
May 5, 2007 as follows (in thousands):
|
|
|
|
|
|
Series I
|
|
$
|
28,826
|
|
Series IV
|
|
|
28,884
|
|
Series V
|
|
|
26,745
|
|
Series V-I
|
|
|
1,073
|
|
|
|
|
|
|
|
|
$
|
85,528
|
|
|
|
|
|
|
|
|
|
(3)
|
|
The note was paid in full on
June 29, 2007.
|
The outstanding share information set forth above is as of
May 5, 2007, and excludes:
|
|
|
861,011 shares of common stock issuable upon exercise of
outstanding options under the Old Plan, at a weighted average
exercise price of $0.48 per share. No further awards will be
made under the Old Plan; and
|
|
|
5,189,390 shares of common stock issuable upon exercise of
outstanding options under the 2002 Plan, at a weighted average
exercise price of $2.65.
|
26
Dilution
If you invest in our common stock, your interest will be diluted
to the extent of the difference between the initial public
offering price per share of our common stock and the net
tangible book value per share of common stock upon the
completion of this offering.
Calculations relating to shares of common stock in the following
discussion and tables assume the following have occurred as of
May 5, 2007: (i) the conversion of all outstanding
shares of our preferred stock, other than our Series III
preferred stock, into 65,702,530 shares of common stock and
(ii) the redemption of all outstanding shares of our
Series III preferred stock.
Our net tangible book value as of May 5, 2007 equaled
approximately $153.4 million, or $1.98 per share of common
stock. Net tangible book value per share represents the amount
of our total tangible assets less total liabilities, divided by
the total number of shares of common stock outstanding. After
giving effect to the sale
of shares
of common stock offered by us in this offering at the initial
public offering price of $ per
share and after deducting the estimated underwriting discounts
and commissions and offering expenses payable by us, our net
tangible book value, as adjusted, as of May 5, 2007, would
have equaled approximately
$ million, or
$ per share of common stock. This
represents an immediate increase in net tangible book value of
$ per share to our existing
stockholders and an immediate dilution in net tangible book
value of $ per share to new
investors of common stock in this offering. The following table
illustrates this per share dilution to new investors purchasing
our common stock in this offering. The table assumes no issuance
of shares of common stock under our stock plans after
May 5, 2007. As of May 5, 2007, 6,050,401 shares
were subject to outstanding options, of which 3,255,294 were
vested, at a weighted average exercise price for all outstanding
options of $2.34 per share. To the extent outstanding options
are exercised, there will be further dilution to new investors.
|
|
|
|
|
|
|
Assumed initial public offering
price per share
|
|
|
|
|
$
|
|
Net tangible book value per share
as of May 5, 2007
|
|
$
|
|
|
|
|
Increase in net tangible book
value per share attributable to new investors
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net tangible book value
per share after this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution in net tangible book
value per share to new investors
|
|
|
|
|
$
|
|
|
|
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share
would increase (decrease) the adjusted net tangible book value
per share after this offering by approximately
$ million, and dilution in
net tangible book value per share to new investors by
approximately $ assuming that
the number of shares offered by us, as set forth on the cover
page of this prospectus, remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses.
27
The following table as of May 5, 2007 summarizes the
differences between our existing stockholders and new investors
with respect to the number of shares of common stock issued in
this offering, the total consideration paid and the average
price per share paid. The calculations with respect to shares
purchased by new investors in this offering reflect the initial
public offering price of $ per
share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
purchased
|
|
Total
consideration
|
|
Average price
|
|
|
Number
|
|
Percentage
|
|
Amount
|
|
Percentage
|
|
per
share
|
|
|
Existing stockholders
|
|
|
|
|
|
%
|
|
$
|
|
|
|
%
|
|
$
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
%
|
|
$
|
|
|
|
%
|
|
$
|
|
|
|
28
Selected
consolidated financial data
The following selected income statement data for each of the
fiscal years ended January 29, 2005, January 28, 2006
and February 3, 2007 and the selected balance sheet data as
of January 28, 2006 and February 3, 2007 have been
derived from our audited consolidated financial statements
included elsewhere in this prospectus. The selected income
statement data for the fiscal years ended February 1, 2003
and January 31, 2004 and the balance sheet data as of
February 1, 2003 and January 31, 2004, have been
derived from unaudited consolidated financial statements not
included in this prospectus. The selected balance sheet data as
of January 29, 2005 has been derived from our audited
financial statements not included in this prospectus. The
selected balance sheet data as of April 29, 2006 has been
derived from our unaudited consolidated financial statements
that are not included in this prospectus. The selected balance
sheet data as of May 5, 2007 and the selected income
statement data for the three months ended April 29, 2006
and May 5, 2007 have been derived from our unaudited
consolidated financial statements included elsewhere in this
prospectus.
Our unaudited selected consolidated financial data as of
April 29, 2006 and May 5, 2007 and for the three
months then ended, have been prepared on the same basis as the
annual audited consolidated financial statements and includes
all adjustments, consisting of only normal recurring adjustments
necessary for the fair presentation of this data in all material
respects. The results for any interim period are not necessarily
indicative of the results of operations to be expected for a
full fiscal year.
The following selected consolidated financial data should be
read in conjunction with our Managements discussion
and analysis of financial condition and results of
operations and consolidated financial statements and
related notes, included elsewhere in this prospectus.
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
thousands, except
|
|
Fiscal year
ended(1)
|
|
|
Three months
ended
|
per share and per
square
|
|
February 1,
|
|
January 31,
|
|
|
January 29,
|
|
|
January 28,
|
|
February 3,
|
|
|
April 29,
|
|
May 5,
|
foot
data)
|
|
2003
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
2007
|
|
|
2006
|
|
2007
|
|
|
|
|
Consolidated income statement
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(2)
|
|
$
|
362,217
|
|
$
|
423,863
|
|
|
$
|
491,152
|
|
|
$
|
579,075
|
|
$
|
755,113
|
|
|
$
|
159,468
|
|
$
|
194,113
|
Cost of sales
|
|
|
259,836
|
|
|
312,203
|
|
|
|
346,585
|
|
|
|
404,794
|
|
|
519,929
|
|
|
|
108,813
|
|
|
134,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
102,381
|
|
|
111,660
|
|
|
|
144,567
|
|
|
|
174,281
|
|
|
235,184
|
|
|
|
50,655
|
|
|
59,513
|
Selling, general, and
administrative expenses
|
|
|
86,382
|
|
|
98,446
|
|
|
|
121,999
|
|
|
|
140,145
|
|
|
188,000
|
|
|
|
41,316
|
|
|
47,982
|
Pre-opening expenses
|
|
|
2,751
|
|
|
2,318
|
|
|
|
4,072
|
|
|
|
4,712
|
|
|
7,096
|
|
|
|
826
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
13,248
|
|
|
10,896
|
|
|
|
18,496
|
|
|
|
29,424
|
|
|
40,088
|
|
|
|
8,513
|
|
|
9,875
|
Interest expense
|
|
|
2,349
|
|
|
2,789
|
|
|
|
2,835
|
|
|
|
2,951
|
|
|
3,314
|
|
|
|
742
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
10,899
|
|
|
8,107
|
|
|
|
15,661
|
|
|
|
26,473
|
|
|
36,774
|
|
|
|
7,771
|
|
|
8,879
|
Income tax expense
|
|
|
1,203
|
|
|
3,023
|
|
|
|
6,201
|
|
|
|
10,504
|
|
|
14,231
|
|
|
|
3,071
|
|
|
3,560
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,696
|
|
$
|
5,084
|
|
|
$
|
9,460
|
|
|
$
|
15,969
|
|
$
|
22,543
|
|
|
$
|
4,700
|
|
$
|
5,319
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
$
|
(1.49
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
0.47
|
|
$
|
0.87
|
|
|
$
|
0.18
|
|
$
|
0.14
|
Diluted
|
|
$
|
0.01
|
|
$
|
(1.49
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
0.21
|
|
$
|
0.29
|
|
|
$
|
0.06
|
|
$
|
0.07
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,063,950
|
|
|
3,688,093
|
|
|
|
5,032,612
|
|
|
|
6,478,217
|
|
|
9,130,697
|
|
|
|
6,960,640
|
|
|
11,368,805
|
Diluted
|
|
|
6,267,232
|
|
|
3,688,093
|
|
|
|
5,032,612
|
|
|
|
76,297,969
|
|
|
79,026,350
|
|
|
|
76,617,578
|
|
|
80,652,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable store sales increase(3)
|
|
|
6.9%
|
|
|
6.2%
|
|
|
|
8.0%
|
|
|
|
8.3%
|
|
|
14.5%
|
|
|
|
12.8%
|
|
|
9.2%
|
Number of stores end of period
|
|
|
112
|
|
|
126
|
|
|
|
142
|
|
|
|
167
|
|
|
196
|
|
|
|
170
|
|
|
203
|
Total square footage end of period
|
|
|
1,127,708
|
|
|
1,285,857
|
|
|
|
1,464,330
|
|
|
|
1,726,563
|
|
|
2,023,305
|
|
|
|
1,755,280
|
|
|
2,096,275
|
Total square footage per store(4)
|
|
|
10,069
|
|
|
10,205
|
|
|
|
10,312
|
|
|
|
10,339
|
|
|
10,323
|
|
|
|
10,325
|
|
|
10,326
|
Average total square footage(5)
|
|
|
1,046,793
|
|
|
1,216,777
|
|
|
|
1,374,005
|
|
|
|
1,582,935
|
|
|
1,857,885
|
|
|
|
1,650,697
|
|
|
1,934,871
|
Net sales per average total square
foot(6)
|
|
$
|
346
|
|
$
|
348
|
|
|
$
|
357
|
|
|
$
|
366
|
|
$
|
398
|
|
|
$
|
370
|
|
$
|
400
|
Capital expenditures
|
|
|
27,430
|
|
|
30,354
|
|
|
|
34,807
|
|
|
|
41,607
|
|
|
62,331
|
|
|
|
5,304
|
|
|
17,757
|
Depreciation and amortization
|
|
|
12,522
|
|
|
15,411
|
|
|
|
18,304
|
|
|
|
22,285
|
|
|
29,736
|
|
|
|
6,048
|
|
|
9,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated balance sheet
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,628
|
|
$
|
3,178
|
|
|
$
|
3,004
|
|
|
$
|
2,839
|
|
$
|
3,645
|
|
|
$
|
2,926
|
|
$
|
3,161
|
Working capital
|
|
|
59,589
|
|
|
60,751
|
|
|
|
69,955
|
|
|
|
76,473
|
|
|
88,105
|
|
|
|
75,733
|
|
|
85,870
|
Property and equipment, net
|
|
|
85,180
|
|
|
99,577
|
|
|
|
114,912
|
|
|
|
133,003
|
|
|
162,080
|
|
|
|
131,603
|
|
|
174,916
|
Total assets
|
|
|
195,059
|
|
|
206,420
|
|
|
|
253,425
|
|
|
|
282,615
|
|
|
338,597
|
|
|
|
287,601
|
|
|
377,852
|
Total debt(7)
|
|
|
37,229
|
|
|
42,906
|
|
|
|
47,008
|
|
|
|
50,173
|
|
|
55,529
|
|
|
|
63,537
|
|
|
87,883
|
Total stockholders equity
|
|
|
87,359
|
|
|
92,778
|
|
|
|
105,308
|
|
|
|
123,015
|
|
|
148,760
|
|
|
|
128,221
|
|
|
153,359
|
|
|
|
|
|
(1)
|
|
Our fiscal year-end is the Saturday
closest to January 31 based on a 52/53-week year. Each fiscal
year consists of four 13-week quarters, with an extra week added
onto the fourth quarter every five or six years.
|
|
(2)
|
|
Fiscal 2006 was a 53-week operating
year and the 53rd week represented approximately
$16.4 million in net sales.
|
30
|
|
|
(3)
|
|
Comparable store sales increase
reflects sales for stores beginning on the first day of the 14th
month of operation. Remodeled stores are included in comparable
store sales unless the store was closed for a portion of the
current or comparable prior period.
|
|
(4)
|
|
Total square footage per store is
calculated by dividing total square footage at end of period by
number of stores at end of period.
|
|
(5)
|
|
Average total square footage
represents a weighted average which reflects the effect of
opening stores in different months throughout the period.
|
|
(6)
|
|
Net sales per average total square
foot was calculated by dividing net sales for the trailing
12-month
period by the average square footage for those stores open
during each period. The fiscal 2006 and first quarter fiscal
2007 net sales per average total square foot amounts were
adjusted to exclude the net sales effects of the 53rd week.
|
|
|
|
(7)
|
|
Total debt includes approximately
$4.8 million related to the Series III preferred stock,
which is presented between the liabilities section and the
equity section of our consolidated balance sheet for all periods.
|
31
Managements
discussion and analysis of
financial condition and results of operations
You should read the following discussion and analysis of our
financial condition and results of operations in conjunction
with the Selected consolidated financial data
section of this prospectus and our consolidated financial
statements and related notes included elsewhere in this
prospectus. This discussion and analysis contains
forward-looking statements based on current expectations that
involve risks and uncertainties. As a result of many factors,
such as those set forth under Risk factors and
elsewhere in this prospectus, our actual results may differ
materially from those anticipated in these forward-looking
statements.
Overview
We were founded in 1990 as a discount beauty retailer at a time
when prestige, mass and salon products were sold through
separate distribution channels. In 1999, we embarked on a
multi-year strategy to understand and embrace what women want in
a beauty retailer and transform ULTA into the shopping
experience that it is today. We pioneered our unique combination
of beauty superstore and specialty store attributes. We believe
our strategy provides us with the competitive advantages that
have contributed to our strong financial performance.
We are currently the largest beauty retailer that provides
one-stop shopping for prestige, mass and salon products and
salon services in the United States. We combine the unique
elements of a beauty superstore with the distinctive environment
and experience of a specialty retailer. Key aspects of our
beauty superstore strategy include our ability to offer our
customers a broad selection of over 21,000 beauty products
across the categories of cosmetics, fragrance, haircare,
skincare, bath and body products and salon styling tools, as
well as salon haircare products. We focus on delivering a
compelling value proposition to our customers across all of our
product categories. Our stores are conveniently located in
high-traffic, off-mall locations such as power centers and
lifestyle centers with other destination retailers. As of
May 31, 2007, we operated 207 stores across 26 states.
In addition to these fundamental elements of a beauty
superstore, we strive to offer an uplifting shopping experience
through what we refer to as The Four Es:
Escape
,
Education
,
Entertainment
and
Esthetics
.
Over the past seven years, we believe we have demonstrated our
ability to deliver profitable sales and square footage growth.
From fiscal 1999 to fiscal 2006, we grew our net sales and
square footage at a compounded annual growth rate of 20.3% and
16.0%, respectively, while delivering increases in net income at
a compounded annual growth rate of 51.6%. In addition, we have
achieved 29 consecutive quarters of positive comparable sales
growth since fiscal 2000. In fiscal 2006, we achieved net sales
and net income of $755.1 million and $22.5 million,
respectively.
The continued growth of our business and any future increases in
net sales, net income, and cash flows is dependent on our
ability to execute our growth strategy, including growing our
store base, expanding our prestige brand offerings, driving
incremental salon traffic, expanding our online business, and
continuing to enhance our brand awareness. We believe that the
steadily expanding U.S. beauty products and services
industry, the shift in distribution of prestige beauty products
from department stores to specialty retail stores, coupled with
ULTAs competitive strengths, positions us to capture
additional market share in the industry through successful
execution of our growth strategy.
32
With the successful development and execution of ULTAs
consumer experience strategy over the last several years, we
began to accelerate our store unit growth in fiscal 2007 to
approximately 25%, compared to the average growth rate of 17%
achieved in fiscal 2005 and 2006, respectively. In fiscal 2007,
we implemented our remodel program. To support this rate of
store unit growth in fiscal 2007 and execute our future growth
strategy, we have made and will continue to make the necessary
infrastructure investments and therefore do not expect to
sustain the net income growth rates of 68% and 40%,
respectively, achieved in fiscal 2005 and 2006. We plan to
finance investments in new and remodeled ULTA stores and our
infrastructure with cash flows from operations and borrowings
under our credit facility, when necessary. Several factors,
including the availability of the appropriate real estate
locations could impact our ability to open new stores
contemplated by our growth strategy on a timely and consistent
basis.
Comparable store sales is a key metric that is monitored closely
within the retail industry. We do not expect our future
comparable store sales increases to reflect the levels
experienced in the fourth fiscal quarter 2005 and in fiscal
2006. This is due in part to the difficulty in improving on such
significant increases in subsequent periods.
We seek to increase our total net sales through increases in our
comparable store sales and by opening new stores. Gross profit
as a percentage of net sales is expected to be consistent with
historical rates given our planned distribution infrastructure
investments and the impact of the rate of new store growth. We
plan to continue to improve our operating results by leveraging
our fixed costs and decreasing our selling, general, and
administrative expenses, as a percentage of our net sales.
First quarter fiscal 2007 net sales increased
$34.6 million, or 21.7%, to $194.1 million, compared
to $159.5 million in first quarter fiscal 2006. During
first quarter fiscal 2007, we opened seven new stores and our
comparable store sales increase was 9.2%. Gross profit as a
percentage of net sales decreased 1.1 percentage points to
30.7% in first quarter fiscal 2007 compared to 31.8% in first
quarter fiscal 2006. The decease is primarily due to accelerated
depreciation on store assets as a result of our remodel
strategy. The decrease in gross profit as a percentage of net
sales was partially offset by a 1.2 percentage points
improvement in our selling, general, and administrative expense
as a percentage of net sales. Net income was $5.3 million
in first quarter fiscal 2007 representing an increase of
$0.6 million, or 13.2%, compared to $4.7 million in
first quarter fiscal 2006. Net income in first quarter fiscal
2007 was negatively impacted by $2.1 million of planned
accelerated depreciation related to our store remodel program.
Fiscal 2006 net sales increased $176.0 million, or
30.4%, to $755.1 million, compared to $579.1 million
in fiscal 2005. Fiscal 2006 was a 53-week operating year and the
53rd week represented approximately $16.4 million of
the net sales increase. Adjusted for the 53rd week, fiscal
2006 net sales increased $159.6 million, or 27.6%,
compared to fiscal 2005. We added 31 new stores in fiscal 2006
and our comparable store sales increase was $82.4 million,
or 14.5%. Our gross profit as a percentage of net sales
increased 1.0 percentage point to 31.1% and total gross
profit increased 34.9% to $235.2 million in fiscal 2006
compared to $174.3 million in fiscal 2005. Selling,
general, and administrative expenses were $188.0 million,
representing a $47.9 million, or 34.2%, increase compared
to $140.1 million in fiscal 2005. Selling, general, and
administrative expenses in fiscal 2006 included a non-recurring
stock compensation charge of $2.8 million
($1.7 million net of income taxes). Net income was
$22.5 million, a $6.5 million, or 41.2%, increase over
fiscal 2005. Cash flow from operations increased
$18.0 million, or 48.0%, to $55.6 million in fiscal
2006 compared to $37.6 million in fiscal 2005.
33
Fiscal 2005 net sales increased $87.9 million, or
17.9%, to $579.1 million compared to $491.2 million in
fiscal 2004. We added 25 new stores in fiscal 2005 and our
comparable store sales increase was 8.3%. Gross profit as a
percentage of net sales increased 0.7 percentage point to
30.1% and total gross profit increased $29.7 million, or
20.5%, to $174.3 million compared to $144.6 million in
fiscal 2004. Selling, general, and administrative expenses
increased $18.1 million or 14.9% to $140.1 million,
compared to $122.0 million in fiscal 2004. Cash flow from
operations increased $8.3 million, or 28.5%, to
$37.6 million in fiscal 2005 compared to $29.3 million
in fiscal 2004.
Basis of
presentation
Net sales include store and Internet merchandise sales as well
as salon service revenue. Salon service revenue represents less
than 10% of our combined product sales and services revenues and
therefore, these revenues are combined with product sales. We
recognize merchandise revenue at the point of sale, or POS, in
our retail stores and the time of shipment in the case of
Internet sales. Merchandise sales are recorded net of estimated
returns. Salon service revenue is recognized at the time the
service is provided. Gift card sales revenue is deferred until
the customer redeems the gift card. Company coupons and other
incentives are recorded as a reduction of net sales.
Comparable store sales reflect sales for stores beginning on the
first day of the 14th month of operation. Therefore, a
store is included in our comparable store base on the first day
of the period after it has cycled its grand opening sales period
which generally covers the first month of operation.
Non-comparable store sales include sales from new stores that
have not yet completed their 13th month of operation and
stores that were closed for part or all of the period in either
year as a result of remodel activity. Remodeled stores are
included in comparable store sales unless the store was closed
for a portion of the current or prior period. There may be
variations in the way in which some of our competitors and other
retailers calculate comparable or same store sales. As a result,
data herein regarding our comparable store sales may not be
comparable to similar data made available by our competitors or
other retailers.
Comparable store sales is a critical measure that allows us to
evaluate the performance of our store base as well as several
other aspects of our overall strategy. Several factors could
positively or negatively impact our comparable store sales
results:
|
|
|
the introduction of new products or brands;
|
|
|
the location of new stores in existing store markets;
|
|
|
competition;
|
|
|
our ability to respond on a timely basis to changes in consumer
preferences;
|
|
|
the effectiveness of our various marketing activities; and
|
|
|
the number of new stores opened and the impact on the average
age of all of our comparable stores.
|
Cost of sales includes:
|
|
|
the cost of merchandise sold, including all vendor allowances,
which are treated as a reduction of merchandise costs;
|
34
|
|
|
warehousing and distribution costs including labor and related
benefits, freight, rent, depreciation and amortization, real
estate taxes, utilities, and insurance;
|
|
|
store occupancy costs including rent, depreciation and
amortization, real estate taxes, utilities, repairs and
maintenance, insurance, licenses, and cleaning expenses;
|
|
|
salon payroll and benefits; and
|
|
|
shrink and inventory valuation reserves.
|
Our cost of sales may be impacted as we open an increasing
number of stores. We also expect that cost of sales as a
percentage of net sales will be negatively impacted in the next
several years as a result of accelerated depreciation related to
our store remodel program. The program was adopted in third
quarter fiscal 2006. We have accelerated depreciation expense on
assets to be disposed of during the remodel process such that
those assets will be fully depreciated at the time of the
planned remodel. Changes in our merchandise mix may also have an
impact on cost of sales.
This presentation of items included in cost of sales may not be
comparable to the way in which our competitors or other
retailers compute their cost of sales.
Selling, general, and administrative expenses include:
|
|
|
payroll, bonus, and benefit costs for retail and corporate
employees;
|
|
|
advertising and marketing costs;
|
|
|
occupancy costs related to our corporate office facilities;
|
|
|
public company expense including Sarbanes-Oxley compliance
expenses;
|
|
|
stock-based compensation expense related to option exercises
which will result in increases in expense as we implemented a
structured stock option compensation program in 2007;
|
|
|
depreciation and amortization for all assets except those
related to our retail and warehouse operations which is included
in cost of sales; and
|
|
|
legal, finance, information systems and other corporate overhead
costs.
|
This presentation of items in selling, general, and
administrative expenses may not be comparable to the way in
which our competitors or other retailers compute their selling,
general, and administrative expenses.
Pre-opening expenses includes non-capital expenditures during
the period prior to store opening for new and remodeled stores
including store
set-up
labor, management and employee training, and grand opening
advertising. Pre-opening expenses also includes rent during the
construction period related to new stores.
Interest expense includes interest costs associated with our
credit facility which is structured as an asset based lending
instrument. Our interest expense will fluctuate based on the
seasonal borrowing requirements associated with acquiring
inventory in advance of key holiday selling periods and
fluctuation in the variable interest rates we are charged on
outstanding balances. Our credit facility is used to fund
seasonal inventory needs and new and remodel store capital
requirements in excess of our cash flow from operations. Our
credit facility interest is based on
35
a variable interest rate structure which can result in increased
cost in periods of rising interest rates.
Income tax expense reflects the federal statutory tax rate and
the weighted average state statutory tax rate for the states in
which we operate stores.
Results of
operations
Our fiscal year is the 52 or 53 weeks ending on the
Saturday closest to January 31. The companys fiscal
years ended January 29, 2005, January 28, 2006, and
February 3, 2007, were 52, 52, and 53 week years,
respectively, and are hereafter referred to as fiscal 2004,
fiscal 2005, and fiscal 2006.
Our quarterly periods are the 13 or 14 weeks ending on the
Saturday closest to April 30, July 31,
October 31, and January 31. Our first quarters ended
April 29, 2006 and May 5, 2007, were 13 weeks and
are hereafter referred to as first quarter fiscal 2006 and first
quarter fiscal 2007.
The following tables present the components of our results of
operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
ended
|
|
Three months
ended
|
|
|
January 29,
|
|
January 28,
|
|
February 3,
|
|
April 29,
|
|
May 5,
|
(Dollars
in thousands)
|
|
2005
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
Net sales
|
|
$
|
491,152
|
|
$
|
579,075
|
|
$
|
755,113
|
|
$
|
159,468
|
|
$
|
194,113
|
Cost of sales
|
|
|
346,585
|
|
|
404,794
|
|
|
519,929
|
|
|
108,813
|
|
|
134,600
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
144,567
|
|
|
174,281
|
|
|
235,184
|
|
|
50,655
|
|
|
59,513
|
Selling, general, and
administrative expenses
|
|
|
121,999
|
|
|
140,145
|
|
|
188,000
|
|
|
41,316
|
|
|
47,982
|
Pre-opening expenses
|
|
|
4,072
|
|
|
4,712
|
|
|
7,096
|
|
|
826
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
18,496
|
|
|
29,424
|
|
|
40,088
|
|
|
8,513
|
|
|
9,875
|
Interest expense
|
|
|
2,835
|
|
|
2,951
|
|
|
3,314
|
|
|
742
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
15,661
|
|
|
26,473
|
|
|
36,774
|
|
|
7,771
|
|
|
8,879
|
Income tax expense
|
|
|
6,201
|
|
|
10,504
|
|
|
14,231
|
|
|
3,071
|
|
|
3,560
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,460
|
|
$
|
15,969
|
|
$
|
22,543
|
|
$
|
4,700
|
|
$
|
5,319
|
|
|
|
|
|
|
|
|
|
|
Other operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores end of period
|
|
|
142
|
|
|
167
|
|
|
196
|
|
|
170
|
|
|
203
|
Comparable store sales increase
|
|
|
8.0%
|
|
|
8.3%
|
|
|
14.5%
|
|
|
12.8%
|
|
|
9.2%
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
ended
|
|
Three months
ended
|
|
|
January 29,
|
|
January 28,
|
|
February 3,
|
|
April 29,
|
|
May 5,
|
(Percentage
of net sales)
|
|
2005
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
Net sales
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
Cost of sales
|
|
|
70.6%
|
|
|
69.9%
|
|
|
68.9%
|
|
|
68.2%
|
|
|
69.3%
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
29.4%
|
|
|
30.1%
|
|
|
31.1%
|
|
|
31.8%
|
|
|
30.7%
|
Selling, general, and
administrative expenses
|
|
|
24.8%
|
|
|
24.2%
|
|
|
24.9%
|
|
|
25.9%
|
|
|
24.7%
|
Pre-opening expenses
|
|
|
0.8%
|
|
|
0.8%
|
|
|
0.9%
|
|
|
0.5%
|
|
|
0.9%
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3.8%
|
|
|
5.1%
|
|
|
5.3%
|
|
|
5.4%
|
|
|
5.1%
|
Interest expense
|
|
|
0.6%
|
|
|
0.5%
|
|
|
0.4%
|
|
|
0.5%
|
|
|
0.5%
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3.2%
|
|
|
4.6%
|
|
|
4.9%
|
|
|
4.9%
|
|
|
4.6%
|
Income tax expense
|
|
|
1.3%
|
|
|
1.8%
|
|
|
1.9%
|
|
|
1.9%
|
|
|
1.8%
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1.9%
|
|
|
2.8%
|
|
|
3.0%
|
|
|
3.0%
|
|
|
2.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
fiscal 2007 versus first quarter fiscal 2006
Net
sales
Net sales increased $34.6 million, or 21.7%, to
$194.1 million in first quarter fiscal 2007 compared to
$159.5 million in first quarter fiscal 2006. This increase
is due to an additional 34 stores operating since first quarter
fiscal 2006, one store closure and a 9.2% increase in comparable
store sales. Non-comparable stores contributed
$20.8 million of the net sales increase while comparable
stores contributed $13.8 million of the total net sales
increase. Our comparable store sales growth in first quarter
fiscal 2007 was driven by growth in existing brands, as well as
new brands which were introduced in fiscal 2006 and resulted in
increased customer traffic and growth in average transaction
value.
Gross
profit
Gross profit increased $8.8 million, or 17.5%, to
$59.5 million in first quarter fiscal 2007 compared to
$50.7 million in first quarter fiscal 2006. Gross profit as
a percentage of net sales decreased 1.1 percentage points
to 30.7% in first quarter fiscal 2007 compared to 31.8% in first
quarter fiscal 2006. The 1.1 percentage points decrease in
the gross profit percentage primarily resulted from
$2.1 million of planned accelerated depreciation related to
our store remodel program. The store remodel program was adopted
late in third quarter fiscal 2006. Our fiscal 2007 second
quarter gross margin will include a similar accelerated
depreciation variance as there was no similar expense in the
prior year period.
Selling, general,
and administrative expenses
Selling, general, and administrative expenses increased
$6.7 million, or 16.1%, to $48.0 million in first
quarter fiscal 2007 compared to $41.3 million in first
quarter fiscal 2006. As a percentage of net sales, selling,
general, and administrative expenses decreased
1.2 percentage points to 24.7% in first quarter fiscal 2007
compared to 25.9% in first quarter fiscal 2006. The decrease as
37
a percentage of net sales is primarily due to a shift in
advertising expense as compared to first quarter fiscal 2006.
Pre-opening
expenses
Pre-opening expenses increased $0.9 million, or 100.5%, to
$1.7 million in first quarter fiscal 2007 compared to
$0.8 million in first quarter fiscal 2006. During first
quarter fiscal 2007, we opened seven new stores and remodeled
three stores as compared to four new store openings in first
quarter fiscal 2006.
Interest
expense
Interest expense increased by $0.3 million, or 34.2%, to
$1.0 million in first quarter fiscal 2007 compared to
$0.7 million in first quarter fiscal 2006. This increase is
due to an increase to the average debt outstanding on our credit
facility compared to the same period in fiscal 2006.
Income tax
expense
Income tax expense of $3.6 million in first quarter fiscal
2007 represents an effective tax rate of 40.1%, compared to
$3.1 million of tax expense representing an effective tax
rate of 39.5% for first quarter fiscal 2006. The increase in the
effective tax rate is primarily due to the increasing number of
stores in states with higher income tax rates.
Net
income
Net income increased $0.6 million, or 13.2%, to
$5.3 million in first quarter fiscal 2007, compared to
$4.7 million in first quarter fiscal 2006. The increase
resulted from an increase in gross profit of $8.9 million
driven by a comparable store sales increase of 9.2%, net of
increased expenses of $2.1 million of planned accelerated
depreciation for our remodel store program. The increase in
gross profit was partially offset by a $6.7 million
increase in selling, general, and administrative expenses
primarily related to operating costs for new stores opened in
first quarter fiscal 2006 and first quarter fiscal 2007.
Fiscal year 2006
versus fiscal year 2005
Net
sales
Net sales increased $176.0 million, or 30.4%, to
$755.1 million in fiscal 2006 compared to
$579.1 million in fiscal 2005. Fiscal 2006 was a 53-week
operating year and the 53rd week represented approximately
$16.4 million in net sales. Adjusted for the
53rd week, fiscal 2006 net sales increased
$159.6 million, or 27.6% compared to fiscal 2005. This
increase is due to the opening of 31 new stores in 2006, two
store closures, and a 14.5% increase in comparable store sales.
Non-comparable stores, which include stores opened in fiscal
2006 as well as stores opened in fiscal 2005 which have not yet
turned comparable, contributed $77.3 million of the net
sales increase while comparable stores contributed
$82.3 million of the total net sales increase. Our
comparable store sales growth in fiscal 2006 was driven by
strong performance of existing and new brands. We introduced
several new fragrance brands in the first half of the year which
resulted in increased customer traffic and growth in average
transaction value.
38
Gross
profit
Gross profit increased $60.9 million, or 34.9%, to
$235.2 million in fiscal 2006, compared to
$174.3 million, in fiscal 2005. Gross profit as a
percentage of net sales increased 1.0 percentage point to
31.1% in fiscal 2006 from 30.1% in fiscal 2005. The increase in
gross profit resulted from:
|
|
|
an increase of $176.0 million in net sales from new stores
and comparable sales growth;
|
|
|
a 0.6 percentage point improvement in salon payroll and
benefits as a percentage of net sales driven by improved salon
stylist productivity resulting from a continued focus on
training programs and other strategic initiatives;
|
|
|
a 0.5 percentage point decrease due to $3.5 million of
planned accelerated depreciation related to our store remodel
program;
|
|
|
a 0.3 percentage point improvement resulting from a
reduction in merchandise shrink as a result of continued focus
and improvement in overall store and supply chain inventory
controls and specific in-store initiatives targeted at
controlling merchandise loss, and improvement in our
distribution and supply chain costs as we focus on increasing
the efficiency of these operations and leverage the growth in
our store base; and
|
|
|
a 0.3 percentage point improvement in leverage of store
occupancy costs as a result of comparable store sales growth.
|
Selling, general,
and administrative expenses
Selling, general, and administrative expenses increased
$47.9 million, or 34.2%, to $188.0 million in fiscal
2006 compared to $140.1 million in fiscal 2005. As a
percentage of net sales, selling, general, and administrative
expenses increased 0.7 percentage point to 24.9% for fiscal
2006 compared to 24.2% in fiscal 2005. This increase in the
selling, general, and administrative percentage resulted from:
|
|
|
operating expenses from new stores opened in fiscal 2005 and
fiscal 2006;
|
|
|
a non-recurring stock compensation charge of $2.8 million,
or 0.4 percentage point of net sales, primarily related to
a former executive of the company;
|
|
|
$0.7 million of share-based compensation expense related to
our adoption of Statement of Financial Accounting Standards
(SFAS) 123R in fiscal 2006 which increased selling, general, and
administrative expenses by 0.1 percentage point of net
sales; and
|
|
|
$0.6 million of incremental asset write-offs related to
closed or remodeled stores representing 0.1 percentage
point of net sales.
|
Pre-opening
expenses
Pre-opening expenses increased $2.4 million, or 50.6%, to
$7.1 million in fiscal 2006 compared to $4.7 million
in fiscal 2005. During fiscal 2006, we opened 31 new stores and
remodeled seven stores. During fiscal 2005, we opened 25 new
stores and remodeled one store.
39
Interest
expense
Interest expense increased $0.3 million, or 12.3%, to
$3.3 million in fiscal 2006 compared to $3.0 million
in fiscal 2005 primarily due to an increase in the interest
rates on our variable rate credit facility.
Income tax
expense
Income tax expense of $14.2 million in fiscal 2006
represents an effective tax rate of 38.7%, compared to fiscal
2005 tax expense of $10.5 million which represents an
effective tax rate of 39.7%. The decrease in the effective tax
rate is primarily due to an adjustment to reflect the state tax
effects of our net operating loss carry forwards.
Net
income
Net income increased $6.5 million, or 41.2%, to
$22.5 million in fiscal 2006 compared to $16.0 million
in fiscal 2005. The after-tax impact of the non-recurring stock
compensation charge was approximately $1.7 million. The
increase in net income of $6.5 million resulted from an
increase in gross profit of $60.9 million driven by a
comparable store sales increase of 14.5% and a
1.0 percentage point increase in gross profit as a
percentage of sales. The increase in gross profit was partially
offset by a $47.9 million (including the $2.8 million
non-recurring stock compensation charge) increase in selling,
general, and administrative expenses related to operating costs
for new stores opened in fiscal 2005 and fiscal 2006 as well as
costs incurred to support the infrastructure necessary to manage
current and future store growth.
Fiscal year 2005
versus fiscal year 2004
Net
sales
Net sales increased $87.9 million, or 17.9%, to
$579.1 million in fiscal 2005 compared to
$491.2 million in fiscal 2004. This increase is due to the
addition of 25 new stores in fiscal 2005 and an 8.3% increase in
comparable store sales. Our comparable store growth for fiscal
2004 was 8.0%. Non-comparable stores, which include stores
opened in fiscal 2005 as well as stores opened in fiscal 2004
which have not yet turned comparable, contributed
$48.5 million of the net sales increase while comparable
stores contributed $39.4 million of the total net sales
increase. Our comparable store sales growth was primarily due to
increased penetration of the prestige, salon styling tools, and
private label product categories, which drove increased traffic
and an increase in average transaction value.
Gross
profit
Gross profit increased $29.7 million, or 20.5%, to
$174.3 million in fiscal 2005 compared to
$144.6 million in fiscal 2004. Gross profit as a percentage
of net sales increased 0.7 percentage point to 30.1% in
fiscal 2005 compared to 29.4% in fiscal 2004. The increase in
gross profit resulted from:
|
|
|
an increase of $87.9 million in net sales from new store
sales and comparable sales growth;
|
|
|
a 0.4 percentage point improvement due to reduction in
merchandise shrink resulting from specific supply chain and
in-store initiatives targeted at controlling merchandise loss,
and improvement in our distribution and supply-chain costs as we
focus on increasing the efficiency of those operations and
leverage the growth in our store base; and
|
40
|
|
|
a 0.4 percentage point improvement in salon payroll and
benefits as a percentage of net sales driven by improved salon
stylist productivity resulting from focused training programs
and other strategic initiatives.
|
Selling, general,
and administrative expenses
Selling, general, and administrative expenses increased
$18.1 million, or 14.9%, to $140.1 million in fiscal
2005 compared to $122.0 million in fiscal 2004. As a
percentage of net sales, selling, general, and administrative
expenses decreased 0.6 percentage point to 24.2% in fiscal
2005 compared to 24.8% in fiscal 2004, respectively. This
increase in expenses resulted from:
|
|
|
operating expenses from new stores opened in fiscal 2004 and
fiscal 2005; and
|
|
|
a 0.4 percentage point decrease in corporate and field
overhead, advertising, and store operating expenses as a
percentage of sales driven by leverage from the net sales
increase.
|
Pre-opening
expenses
Pre-opening expenses increased $0.6 million, or 15.7%, to
$4.7 million in fiscal 2005 compared to $4.1 million
in fiscal 2004. During fiscal 2005, we opened 25 new stores and
remodeled one store. During fiscal 2004, we opened 20 new stores
and remodeled none.
Interest
expense
Interest expense increased $0.2 million, or 4.1%, to
$3.0 million in fiscal 2005 compared to $2.8 million
in fiscal 2004 primarily due to an increase in the interest
rates on our variable rate credit facility.
Income tax
expense
Income tax expense of $10.5 million in fiscal 2005
represents an effective tax rate of 39.7%, compared to income
tax expense of $6.2 million in fiscal 2004 which represents
an effective tax rate of 39.6%.
Net
income
Net income increased $6.5 million, or 68.8%, to
$16.0 million in fiscal 2005 compared to $9.5 million
in fiscal 2004. The increase in net income of $6.5 million
resulted from an increase in gross profit of $29.7 million
driven by a comparable store sales increase of 8.3% and
additional sales from new stores opened during fiscal 2004 and
fiscal 2005 as well as a 0.7 percentage point increase in
gross profit as a percentage of net sales. The increase in gross
profit was partially offset by an $18.1 million increase in
selling, general, and administrative expenses which resulted
from expenses to operate new stores opened in fiscal 2004 and
fiscal 2005 as well as costs incurred to support the
infrastructure necessary to manage current and future store
growth.
Seasonality and
unaudited quarterly statements of operations
Our business is subject to seasonal fluctuation. Significant
portions of our net sales and profits are realized during the
fourth quarter of the fiscal year due to the holiday selling
season. To a lesser extent, our business is also affected by
Mothers Day as well as the Back to School
period and Valentines Day. Any decrease in sales during
these higher sales volume periods could have an adverse effect
on our business, financial condition, or operating results for
the entire fiscal year.
41
The following tables set forth our unaudited quarterly results
of operations for each of the quarters in fiscal 2005 and fiscal
2006. The information for each of these periods has been
prepared on the same basis as the audited consolidated financial
statements included in this prospectus. This information
includes all adjustments, which consist only of normal and
recurring adjustments that management considers necessary for
the fair presentation of such data. We use a 13 week
(14 week in fourth quarter fiscal 2006) fiscal quarter
ending on the last Saturday of the quarter. The data should be
read in conjunction with the audited and unaudited consolidated
financial statements included elsewhere in this prospectus. Our
quarterly results of operations have varied in the past and are
likely to do so again in the future. As such, we believe that
period-to-period comparisons of our results of operations should
not be relied upon as an indication of our future performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
quarter
|
|
|
2005
|
|
2006
|
(Dollars in
thousands)
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
Net sales
|
|
$
|
127,583
|
|
$
|
131,485
|
|
$
|
129,949
|
|
$
|
190,058
|
|
$
|
159,468
|
|
$
|
162,558
|
|
$
|
166,075
|
|
$
|
267,012
|
Cost of sales
|
|
|
89,707
|
|
|
93,783
|
|
|
91,313
|
|
|
129,991
|
|
|
108,813
|
|
|
113,093
|
|
|
115,332
|
|
|
182,691
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
37,876
|
|
|
37,702
|
|
|
38,636
|
|
|
60,067
|
|
|
50,655
|
|
|
49,465
|
|
|
50,743
|
|
|
84,321
|
Selling, general, and
administrative expenses
|
|
|
32,833
|
|
|
31,958
|
|
|
32,239
|
|
|
43,115
|
|
|
41,316
|
|
|
39,605
|
|
|
40,797
|
|
|
66,282
|
Pre-opening expenses
|
|
|
864
|
|
|
1,002
|
|
|
1,641
|
|
|
1,205
|
|
|
826
|
|
|
1,601
|
|
|
2,901
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,179
|
|
|
4,742
|
|
|
4,756
|
|
|
15,747
|
|
|
8,513
|
|
|
8,259
|
|
|
7,045
|
|
|
16,271
|
Interest expense
|
|
|
755
|
|
|
770
|
|
|
700
|
|
|
726
|
|
|
742
|
|
|
715
|
|
|
1,031
|
|
|
826
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,424
|
|
|
3,972
|
|
|
4,056
|
|
|
15,021
|
|
|
7,771
|
|
|
7,544
|
|
|
6,014
|
|
|
15,445
|
Income tax expense
|
|
|
1,353
|
|
|
1,568
|
|
|
1,607
|
|
|
5,976
|
|
|
3,071
|
|
|
2,980
|
|
|
2,397
|
|
|
5,783
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,071
|
|
$
|
2,404
|
|
$
|
2,449
|
|
$
|
9,045
|
|
$
|
4,700
|
|
$
|
4,564
|
|
$
|
3,617
|
|
$
|
9,662
|
|
|
|
|
|
|
|
|
|
|
Other operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores end of period
|
|
|
147
|
|
|
150
|
|
|
158
|
|
|
167
|
|
|
170
|
|
|
177
|
|
|
188
|
|
|
196
|
Comparable store sales increase
|
|
|
7.3%
|
|
|
7.2%
|
|
|
7.9%
|
|
|
10.0%
|
|
|
12.8%
|
|
|
13.0%
|
|
|
16.8%
|
|
|
15.0%
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
quarter
|
|
|
2005
|
|
2006
|
(Percentage of
net sales)
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
Net sales
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
Cost of sales
|
|
|
70.3%
|
|
|
71.3%
|
|
|
70.3%
|
|
|
68.4%
|
|
|
68.2%
|
|
|
69.6%
|
|
|
69.4%
|
|
|
68.4%
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
29.7%
|
|
|
28.7%
|
|
|
29.7%
|
|
|
31.6%
|
|
|
31.8%
|
|
|
30.4%
|
|
|
30.6%
|
|
|
31.6%
|
Selling, general, and
administrative expenses
|
|
|
25.7%
|
|
|
24.3%
|
|
|
24.8%
|
|
|
22.7%
|
|
|
25.9%
|
|
|
24.4%
|
|
|
24.6%
|
|
|
24.8%
|
Pre-opening expenses
|
|
|
0.7%
|
|
|
0.8%
|
|
|
1.3%
|
|
|
0.6%
|
|
|
0.5%
|
|
|
1.0%
|
|
|
1.7%
|
|
|
0.7%
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3.3%
|
|
|
3.6%
|
|
|
3.6%
|
|
|
8.3%
|
|
|
5.4%
|
|
|
5.0%
|
|
|
4.3%
|
|
|
6.1%
|
Interest expense
|
|
|
0.6%
|
|
|
0.6%
|
|
|
0.5%
|
|
|
0.4%
|
|
|
0.5%
|
|
|
0.4%
|
|
|
0.6%
|
|
|
0.3%
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2.7%
|
|
|
3.0%
|
|
|
3.1%
|
|
|
7.9%
|
|
|
4.9%
|
|
|
4.6%
|
|
|
3.7%
|
|
|
5.8%
|
Income tax expense
|
|
|
1.1%
|
|
|
1.2%
|
|
|
1.2%
|
|
|
3.1%
|
|
|
1.9%
|
|
|
1.8%
|
|
|
1.4%
|
|
|
2.2%
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1.6%
|
|
|
1.8%
|
|
|
1.9%
|
|
|
4.8%
|
|
|
3.0%
|
|
|
2.8%
|
|
|
2.3%
|
|
|
3.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Liquidity and
capital resources
Our primary cash needs are for capital expenditures for new,
relocated, and remodeled stores, increased merchandise
inventories related to store expansion, planned expansion of our
headquarters, new second distribution facility, and for
continued improvement in our information technology systems.
Our primary sources of liquidity are cash flows from operations,
changes in working capital, and borrowings under our credit
facility. The most significant component of our working capital
is merchandise inventories reduced by related accounts payable
and accrued expenses. Our working capital position benefits from
the fact that we generally collect cash from sales to customers
the same day or within several days of the related sale, while
we typically have up to 30 days to pay our vendors.
During fiscal 2006, the average investment required to open a
new ULTA store was approximately $1.4 million, which
includes capital investments, net of landlord contributions, and
initial inventory, net of payables. We began to implement our
remodel program and accelerate our store unit growth in fiscal
2007 to approximately 25% compared to the average growth rate of
17% in fiscal 2005 and 2006. We plan to finance the capital
expenditures related to our new and remodeled stores from
operating cash flows and borrowings under our credit facility,
including the accordion option.
Our working capital needs are greatest from August through
November each year as a result of our inventory
build-up
during this period for the approaching holiday season. This is
also the time of year when we are at maximum investment levels
in our new store class and have not yet collected the landlord
allowances due us as part of our lease agreement. Based on past
performance and current expectations, we believe that cash
generated from operations and borrowings under the credit
facility, with the accordion option exercised, will satisfy the
companys working capital needs, capital expenditure needs,
commitments, and other liquidity requirements through at least
the next 12 months.
Credit
facility
Our credit facility is with LaSalle Bank National Association as
the administrative agent, Wachovia Capital Finance Corporation
as collateral agent, and JPMorgan Chase Bank, N.A. as
documentation agent. The credit facility, as amended with our
existing bank group on June 29, 2007, provides for a
maximum credit of $150 million and a $50 million
accordion option through May 31, 2011. Substantially all of
the companys assets are pledged as collateral for
outstanding borrowings under the facility. Outstanding
borrowings bear interest at the prime rate or the Eurodollar
rate plus 1.00% up to $100 million and 1.25% thereafter.
The advance rates on owned inventory are 80% (85% from September
1 to January 31). The interest rate on the outstanding balances
under the facility as of January 28, 2006 and
February 3, 2007 was 6.146% and 7.025%, respectively. We
had approximately $49.0 million and $48.9 million of
availability as of January 28, 2006 and February 3,
2007, respectively, excluding the accordion option. The credit
facility agreement contains a restrictive financial covenant on
tangible net worth and also requires us to provide financial
statements and other related information to our lenders. We have
been in compliance with all covenants during the three fiscal
years ended February 3, 2007. We also have an ongoing
letter of credit that renews annually. The balance was $326,000
at January 28, 2006 and February 3, 2007.
44
As of May 5, 2007, we have classified $55,038,000 of
outstanding borrowings under the facility as long-term, as this
is the minimum amount we believe will remain outstanding for an
uninterrupted period over the next year.
Operating
activities
Operating activities consist primarily of net income adjusted
for certain non-cash items, including depreciation and
amortization, deferred income taxes, realized gains and losses
on disposal of property and equipment, non-cash stock-based
compensation, and the effect of working capital changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
ended
|
|
|
Three months
ended
|
|
|
|
January 29,
|
|
|
January 28,
|
|
|
February 3,
|
|
|
April 29,
|
|
|
May 5,
|
|
(Dollars
in thousands)
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,460
|
|
|
$
|
15,969
|
|
|
$
|
22,543
|
|
|
$
|
4,700
|
|
|
$
|
5,319
|
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,304
|
|
|
|
22,285
|
|
|
|
29,736
|
|
|
|
6,048
|
|
|
|
9,840
|
|
Deferred income taxes
|
|
|
961
|
|
|
|
(3,037
|
)
|
|
|
(3,080
|
)
|
|
|
|
|
|
|
(822
|
)
|
Non-cash stock compensation charges
|
|
|
634
|
|
|
|
468
|
|
|
|
983
|
|
|
|
228
|
|
|
|
289
|
|
Excess tax benefits from
stock-based compensation
|
|
|
|
|
|
|
(213
|
)
|
|
|
(5,360
|
)
|
|
|
|
|
|
|
|
|
Loss on disposal of property and
equipment
|
|
|
1,167
|
|
|
|
1,230
|
|
|
|
3,518
|
|
|
|
656
|
|
|
|
135
|
|
Changes in working capital items
|
|
|
(1,265
|
)
|
|
|
899
|
|
|
|
7,290
|
|
|
|
(19,838
|
)
|
|
|
(28,932
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operations
|
|
$
|
29,261
|
|
|
$
|
37,601
|
|
|
$
|
55,630
|
|
|
$
|
(8,206
|
)
|
|
$
|
(14,171
|
)
|
|
|
Net cash provided by operating activities was
$29.3 million, $37.6 million, and $55.6 million
in fiscal 2004, 2005, and 2006, respectively. The increase in
net cash from operating activities of $18.0 million in
fiscal 2006 compared to fiscal 2005 is primarily attributed to
the following:
|
|
|
an increase in depreciation and amortization of
$7.5 million attributed to new stores opened in fiscal 2006
and fiscal 2005 and accelerated depreciation related to our
remodel program;
|
|
|
an increase in net income of $6.6 million;
|
|
|
an increase of $6.4 million in net working capital changes
mainly attributed to a combination of increases in deferred rent
related to new store lease terms ($2.8 million), an
increase in accrued liabilities ($4.0 million), a decrease
in prepaid and other assets ($2.1 million), and an increase
in landlord allowances receivable related to additional new
stores opened in fiscal 2006 ($2.5 million);
|
|
|
a decrease of $5.1 million related to increased volume of
excess tax benefits recognized from stock-based compensation
(described further below); and
|
45
|
|
|
an increase of $2.3 million on loss on disposal of property
and equipment representing write-offs of remodel store assets
and other store fixtures.
|
The increase in net cash from operating activities of
$8.3 million in fiscal 2005 compared to fiscal 2004 is
primarily attributed to the following:
|
|
|
an increase in net income of $6.5 million;
|
|
|
an increase in depreciation and amortization of
$4.0 million attributed to new stores opened in fiscal 2005
and fiscal 2004;
|
|
|
a deduction from operating cash flows for the effects of
deferred income taxes of $4.0 million; and
|
|
|
an increase of $2.2 million in net working capital changes
mainly related to the increase in deferred rent related to new
store lease terms.
|
The increase in net cash used in operating activities of
$6.0 million in first quarter fiscal 2007 compared to first
quarter fiscal 2006 is primarily attributed to the following:
|
|
|
an increase of $9.1 million used for working capital items
mainly attributed to merchandise inventories; and
|
|
|
an increase in depreciation and amortization of
$3.8 million attributed to new stores and accelerated
depreciation related to our remodel program.
|
Prior to the adoption of SFAS 123R, we presented all tax
benefits related to tax deductions resulting from the exercise
of stock options as operating activities in the consolidated
statement of cash flows. SFAS 123R requires that cash flows
resulting from tax benefits related to tax deductions in excess
of compensation expense recognized for those options (excess tax
benefits) be classified as financing cash flows. As a result, we
classified $5.4 million and $0.2 million in fiscal
2006 and fiscal 2005, respectively, as an operating cash outflow
and a financing cash inflow. There was no corresponding amount
in fiscal 2004.
Investing
activities
Investing activities consist primarily of capital expenditures
for new and remodeled stores as well as investments in
information technology systems.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
ended
|
|
|
Three months
ended
|
|
|
|
January 29,
|
|
|
January 28,
|
|
|
February 3,
|
|
|
April 29,
|
|
May 5,
|
|
(Dollars
in thousands)
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
$
|
(34,807
|
)
|
|
$
|
(41,607
|
)
|
|
$
|
(62,331
|
)
|
|
$
|
5,304
|
|
$
|
(17,757
|
)
|
Issuance of related party notes
receivable
|
|
|
|
|
|
|
|
|
|
|
(2,414
|
)
|
|
|
|
|
|
|
|
Receipt of related party notes
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
$
|
(34,807
|
)
|
|
$
|
(41,607
|
)
|
|
$
|
(64,745
|
)
|
|
$
|
5,304
|
|
$
|
(17,384
|
)
|
|
|
46
Net cash used in investing activities was $34.8 million,
$41.6 million, and $64.7 million in fiscal 2004, 2005,
and 2006, respectively. During fiscal 2006, our Chief Executive
Officer exercised stock options in exchange for a promissory
note for $4.1 million. The company withheld
$2.4 million of payroll-related taxes in connection with
the exercised options and that portion of the note has been
classified as an investing activity. The remainder of the
promissory note of $1.7 million related to exercise
proceeds of the options and was classified as a non-cash
financing activity. The note was paid in full on June 29,
2007.
Net cash used in investing activities was $5.3 million and
$17.4 million in first quarter fiscal 2006 and first
quarter fiscal 2007, respectively, primarily representing new
store and information technology investments. In addition, two
related party notes receivable were settled during first fiscal
quarter 2007.
Financing
activities
Financing activities consist principally of borrowings and
payments on our credit facility and capital stock transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
ended
|
|
|
Three months
ended
|
|
|
|
January 29,
|
|
|
January 28,
|
|
|
February 3,
|
|
|
April 29,
|
|
|
May 5,
|
|
(Dollars
in thousands)
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
Proceeds on long-term borrowings
|
|
$
|
532,002
|
|
|
$
|
644,817
|
|
|
$
|
851,468
|
|
|
$
|
184,053
|
|
|
$
|
239,123
|
|
Payments on long-term borrowings
|
|
|
(528,010
|
)
|
|
|
(641,652
|
)
|
|
|
(846,112
|
)
|
|
|
(170,689
|
)
|
|
|
(206,769
|
)
|
Excess tax benefits from
stock-based compensation
|
|
|
|
|
|
|
213
|
|
|
|
5,360
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock
|
|
|
1,801
|
|
|
|
615
|
|
|
|
1,422
|
|
|
|
233
|
|
|
|
547
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(2,217
|
)
|
|
|
|
|
|
|
(1,830
|
)
|
Principal payments under capital
lease obligations
|
|
|
(421
|
)
|
|
|
(167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of
preferred stock
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
$
|
5,372
|
|
|
$
|
3,841
|
|
|
$
|
9,921
|
|
|
$
|
13,597
|
|
|
$
|
31,071
|
|
|
|
Net cash provided by financing activities was $5.4 million,
$3.8 million, and $9.9 million in fiscal 2004, 2005,
and 2006, respectively.
The increase in net cash provided by financing activities in
fiscal 2006 of $6.1 million is due to the $5.1 million
increase in excess tax benefits from stock-based compensation,
$0.8 million increase in proceeds recognized by the company
resulting from the exercise of stock options by employees, net
of a $2.2 million outflow related to a treasury stock
transaction with an investor.
47
The decrease in net cash provided by financing activities in
fiscal 2005 of $1.5 million is mainly attributed to the
decrease in the amount of proceeds resulting from stock option
exercises from the dollar levels in fiscal 2004.
The increase in net cash provided by financing activities in
first quarter fiscal 2007 of $17.5 million, compared to
first quarter fiscal 2006, is mainly attributed to the
$19.0 million net increase in long-term borrowings.
As discussed above, the statement of cash flow presentation of
tax benefits related to tax deductions in excess of compensation
expense recognized for those options was modified by
SFAS 123R. Accordingly, we classified $5.4 million and
$0.2 million in fiscal 2006 and 2005, respectively, as
financing cash inflows. There was no corresponding amount in
fiscal 2004.
Leases and other
commitments
We lease retail stores, warehouses, corporate offices, and
certain equipment under operating leases with various expiration
dates through fiscal 2019. Our store leases generally have
initial lease terms of 10 years and include renewal options
under substantially the same terms and conditions as the
original leases. In addition to future minimum lease payments,
most of our lease agreements include escalating rent provisions
which we recognize straight-line over the term of the lease,
including any lease renewal periods deemed to be probable. For
certain locations, we receive cash tenant allowances and we
report these amounts as deferred rent, which is amortized into
rent expense over the term of the lease, including any lease
renewal periods deemed to be probable. While a number of our
store leases include contingent rentals, contingent rent amounts
are insignificant.
The following table summarizes our contractual arrangements and
the timing and effect that such commitments are expected to have
on our liquidity and cash flows in future periods. The table
below excludes contingent rent, common area maintenance charges,
and real estate taxes. The table below includes obligations for
executed agreements for which we do not yet have the right to
control the use of the property as of February 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
1 to 3
|
|
4 to 5
|
|
After 5
|
(Dollars
in thousands)
|
|
Total
|
|
1 year
|
|
years
|
|
years
|
|
years
|
|
|
Contractual cash obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations(1)
|
|
$
|
421,641
|
|
$
|
53,494
|
|
$
|
115,026
|
|
$
|
97,228
|
|
$
|
155,893
|
Revolving credit facility(2)
|
|
|
50,737
|
|
|
|
|
|
|
|
|
50,737
|
|
|
|
|
|
|
|
|
|
Total(3)
|
|
$
|
472,378
|
|
$
|
53,494
|
|
$
|
115,026
|
|
$
|
147,965
|
|
$
|
155,893
|
|
|
|
|
|
(1)
|
|
Operating lease obligations consist
primarily of future minimum lease commitments related to store
operating leases (see Note 4 of the Notes to the
Consolidated Financial Statements). Operating lease obligations
do not include common area maintenance, or CAM, insurance, or
tax payments for which the Company is also obligated. Total
expense related to CAM, insurance and taxes for the 2006 fiscal
year was $11.7 million.
|
|
(2)
|
|
Interest payments on the variable
rate revolving credit facility are not included in the table
above. Outstanding borrowings bear interest at the prime rate or
the Eurodollar rate plus 1.25% up to $50 million and 1.50%
thereafter. The interest rate on the outstanding balances under
the facility as of January 28, 2006 and February 3,
2007 was 6.146% and 7.025%, respectively.
|
|
(3)
|
|
In June 2007, we finalized a lease
for a second distribution facility located in Phoenix, Arizona.
The lease expires in March 2019. Minimum lease payments,
excluding CAM, insurance, and real estate taxes, are
approximately $18.4 million over the lease term.
|
In April 2007, we finalized a lease for additional office space
in Romeoville, Illinois. The lease expires in August 2018.
Minimum lease payments, excluding CAM, insurance, and real
estate taxes, are approximately $15.6 million over the
lease term.
48
Effects of
inflation
Although we do not believe that inflation has had a material
impact on our financial position or results of operations to
date, a high rate of inflation in the future may have an adverse
effect on our ability to maintain current levels of gross margin
and selling, general, and administrative expenses as a
percentage of net sales if the selling prices of our products do
not increase with these increased costs. In addition, inflation
could materially increase the interest rates on our debt.
Quantitative and
qualitative disclosures about market risk
Market risk represents the risk of loss that may impact our
financial position due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily the
result of fluctuations in interest rates. We do not hold or
issue financial instruments for trading purposes.
Interest rate
sensitivity
We are exposed to interest rate risks primarily through
borrowing under our credit facility. Interest on our borrowings
is based upon variable rates. We have an interest rate swap
agreement in place with a notional amount of $25 million
which effectively converts variable rate debt to fixed rate debt
at an interest rate of 5.11%. The interest rate swap is
reflected in the consolidated financial statements at negative
fair value of $80,000 and a positive fair value of $32,000 at
January 28, 2006 and February 3, 2007, respectively.
The interest rate swap is designated as a cash flow hedge, the
effective portion of which is recorded as an unrecognized
gain/(loss) in other comprehensive income in stockholders
equity. Our weighted average debt for fiscal 2006 was
$30 million adjusted for the $25 million hedged
amount. A hypothetical 1% increase or decrease in interest rates
would have resulted in a $0.3 million change to our
interest expense in fiscal 2006.
Critical
accounting policies and estimates
Managements discussion and analysis of financial condition
and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance
with U.S. GAAP. The preparation of these financial
statements required the use of estimates and judgments that
affect the reported amounts of our assets, liabilities, revenues
and expenses. Management bases estimates on historical
experience and other assumptions it believes to be reasonable
under the circumstances and evaluates these estimates on an
on-going basis. Actual results may differ from these estimates.
A discussion of our more significant estimates follows.
Management has discussed the development, selection, and
disclosure of these estimates and assumptions with the audit
committee of the board of directors.
Inventory
valuation
Merchandise inventories are carried at the lower of average cost
or market value. Cost is determined using the weighted-average
cost method and includes costs incurred to purchase and
distribute goods as well as related vendor allowances including
co-op advertising, markdowns, and volume discounts. We record
valuation adjustments to our inventories if the cost of a
specific product on hand exceeds the amount we expect to realize
from the ultimate sale or disposal of the
49
inventory. These estimates are based on managements
judgment regarding future demand, age of inventory, and analysis
of historical experience. If actual demand or market conditions
are different than those projected by management, future
merchandise margin rates may be unfavorably or favorably
affected by adjustments to these estimates.
Inventories are adjusted for the results of periodic physical
inventory counts at each of our locations. We record a shrink
reserve representing managements estimate of inventory
losses by location that have occurred since the date of the last
physical count. This estimate is based on managements
analysis of historical results and operating trends.
Adjustments to earnings resulting from revisions to
managements estimates of the lower of cost or market and
shrink reserves have been insignificant during fiscal 2004, 2005
and 2006.
Self-insurance
We are self-insured for certain losses related to health,
workers compensation, and general liability insurance. We
maintain stop loss coverage with third-party insurers to limit
our liability exposure. Current stop loss coverage is $150,000
for health claims, $100,000 for general liability claims, and
$250,000 for workers compensation claims. Management
estimates undiscounted loss reserves associated with these
liabilities in part by considering historical claims experience,
industry factors, and other actuarial assumptions including
information provided by third parties. Self-insurance reserves
for fiscal 2004, 2005, and 2006 were $2.2 million,
$2.1 million, and $2.3 million, respectively.
Adjustments to earnings resulting from revisions to
managements estimates of these reserves have been
insignificant for fiscal 2004, 2005, and 2006.
Impairment of
long-lived tangible assets
We review long-lived tangible assets whenever events or
circumstances indicate these assets might not be recoverable
based on undiscounted future cash flows. Assets are reviewed at
the lowest level for which cash flows can be identified, which
is the store level. Significant estimates are used in
determining future operating results of each store over its
remaining lease term. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. We have not recorded an impairment
charge in any of the periods presented in the accompanying
consolidated financial statements.
Stock-based
compensation
Effective January 29, 2006, we adopted the fair value
method of accounting for stock-based compensation arrangements
in accordance with Financial Accounting Standards Board, or
FASB, Statement No. 123(R),
Share-Based Payment
(FAS 123(R)), using the prospective method of transition.
We use the Black-Scholes option pricing model which requires the
input of assumptions. The assumptions include estimating the
fair value of the companys common shares, the length of
time employees will retain their vested stock options before
exercising them (expected term), the estimated future volatility
of the companys common stock over the expected term, and
the number of options that will ultimately not complete their
vesting requirements (forfeitures). Stock-based compensation
expense is recognized on a straight-line basis over the
requisite employee service period. Changes in assumptions can
materially affect the estimate of fair value of stock-based
compensation and consequently, the related amounts recognized in
the consolidated financial statements.
50
The fair value of our common shares at the time of option grants
is determined by our board of directors based on all known facts
and circumstances, including valuations prepared by a nationally
recognized independent third-party appraisal firm. Future
volatility estimates are based on the historical volatility of a
peer group of publicly-traded companies. The expected term is
based on the shortcut approach in accordance with SAB 107,
Share-Based Payment
. During fiscal 2006, we recorded
$665,000 of share-based compensation expense pursuant to the
provisions of FAS 123(R). Managements valuation model
weighted-average assumptions are summarized in Note 11 of
our consolidated financial statements. A 10% increase or
decrease in the volatility assumption would have impacted the
actual expense recorded by approximately $100,000. At
February 3, 2007, there was approximately $2.2 million
of total unrecognized compensation expense related to unvested
options. The cost is expected to be recognized over a
weighted-average period of approximately three years.
Prior to January 29, 2006, we accounted for stock-based
compensation using the intrinsic value method of accounting in
accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB25), and
related interpretations. Under APB25, no compensation expense
was recognized when stock options were granted with exercise
prices equal to or greater than market value on the date of
grant.
Recent accounting
pronouncements
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan
Interpretation of FASB Statement No. 109
(FIN 48).
FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return, and provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. We
adopted FIN 48 on February 4, 2007. The adoption of
FIN 48 had no impact on the companys consolidated
financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value in accordance with U.S. GAAP and expands disclosures
about fair value measurements. SFAS 157 is effective for
financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. The company does not expect the adoption of SFAS 157
to have a material effect on the companys consolidated
financial position or results of operations.
In September 2006, the Securities and Exchange Commission
released Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements
(SAB 108). SAB 108 provides guidance on how the
effects of the carryover or reversal of prior year financial
statement misstatements should be considered in quantifying a
current year misstatement. The adoption of SAB 108 by the
company as of February 3, 2007, did not have any impact on
the companys consolidated financial position or results of
operations.
In February 2007, the FASB issued SFAS 159,
The Fair
Value Option for Financial Assets and Financial Liabilities
,
which permits all entities to choose to measure eligible items
at fair value on specified election dates. The associated
unrealized gains and losses on the items for which the fair
value option has been elected shall be reported in earnings.
SFAS 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. Currently,
we are not able to estimate the impact SFAS 159 will have
on our financial statements.
51
Business
Overview
We are the largest beauty retailer that provides one-stop
shopping for prestige, mass and salon products and salon
services in the United States. We provide affordable indulgence
to our customers by combining the product breadth, value and
convenience of a beauty superstore with the distinctive
environment and experience of a specialty retailer. Key aspects
of our business include:
One-Stop Shopping.
Our customers can satisfy
all of their beauty needs at ULTA. We offer a unique combination
of over 21,000 prestige and mass beauty products organized by
category in bright, open, self-service displays to encourage our
customers to play, touch, test, learn and explore. We believe we
offer the widest selection of categories across prestige and
mass cosmetics, fragrance, haircare, skincare, bath and body
products and salon styling tools. We also offer a full-service
salon and a wide range of salon haircare products in all of our
stores.
Our Value Proposition.
We believe our focus
on delivering a compelling value proposition to our customers
across all of our product categories is fundamental to our
customer loyalty. For example, we run frequent promotions and
gift certificates for our mass brands, gift-with-purchase offers
and multi-product gift sets for our prestige brands, and a
comprehensive customer loyalty program.
An Off-Mall Location.
We are conveniently
located in high-traffic, off-mall locations such as power
centers and lifestyle centers with other destination retailers.
Our typical store is approximately 10,000 square feet,
including approximately 950 square feet dedicated to our
full-service salon. Our displays, store design and open layout
allow us the flexibility to respond to consumer trends and
changes in our merchandising strategy. As of May 31, 2007,
we operated 207 stores across 26 states.
While our stores appeal to a wide demographic, our typical
customer is in her early 30s, trend focused and actively uses a
mixture of prestige, mass and salon products. She is college
educated and has an annual household income of approximately
$73,000. She understands her beauty needs and seeks a retail
partner that can deliver convenience and great value.
In addition to the fundamental elements of a beauty superstore,
we strive to offer an uplifting shopping experience through what
we refer to as The Four Es:
Escape
,
Education
,
Entertainment
and
Esthetics
.
Escape.
We offer our customers a timely
escape from the stresses of daily life in a welcoming and
approachable environment. Our customer can immerse herself in
our extensive product selection, indulge herself in our hair or
skin treatments, or discover new and exciting products in an
interactive setting. We provide a shopping experience without
the intimidating, commission-oriented and brand-dedicated sales
approach found in most department stores and with a level of
service typically unavailable in drug stores and mass
merchandisers.
Education.
We staff our stores with a team of
well-trained beauty consultants and professionally licensed
estheticians and stylists whose mission is to educate, inform
and advise our customers regarding their beauty needs. We also
provide product education
52
through demonstrations, in-store videos and informational
displays. Our focus on educating our customer reinforces our
authority as her primary resource for beauty products and our
credibility as a provider of consistent, high-quality salon
services. Our beauty consultants are trained to service
customers across all prestige lines and within our prestige
boutiques where customers can receive a makeover or
skin analysis.
Entertainment.
The entertainment experience
for our customer begins at home when she receives our catalogs.
Our catalogs are designed to introduce our customers to our
newest products and promotions and to be invitations to come to
ULTA to play, touch, test, learn and explore. A significant
percentage of our sales throughout the year is derived from new
products, making every visit to ULTA an opportunity to discover
something new and exciting. In addition to providing
approximately 3,900 testers in categories such as fragrance,
cosmetics, skincare, and salon styling tools, we further enhance
the shopping experience and store atmosphere through live
demonstrations from our licensed salon professionals and beauty
consultants, and through customer makeovers and in-store videos.
Esthetics.
We strive to create a visually
pleasing and inviting store and salon environment that
exemplifies and reinforces the quality of our products and
services. Our stores are brightly lit, spacious and attractive
on the inside and outside of the store. Our store and salon
design features sleek, modern lines that reinforce our status as
a fashion authority, together with wide aisles that make the
store easy to navigate and pleasant lighting to create a
luxurious and welcoming environment. This strategy enables us to
provide an extensive product selection in a well-organized store
and to offer a salon experience that is both fashionable and
contemporary.
We were founded in 1990 as a discount beauty retailer at a time
when prestige, mass and salon products were sold through
distinct channels department stores for prestige
products, drug stores and mass merchandisers for mass products,
and salons and authorized retail outlets for professional hair
care products. When Lyn Kirby, our current President and Chief
Executive Officer, joined us in December 1999, we embarked on a
multi-year strategy to understand and embrace what women want in
a beauty retailer and transform ULTA into the shopping
experience that it is today. We conducted extensive research and
surveys to analyze customer response and our effectiveness in
areas such as in-store experience, merchandise selection, salon
services and marketing strategies. We believe we pioneered a
unique retail approach that focuses on all aspects of how women
prefer to shop for beauty products by combining the fundamental
elements of a beauty superstore, including one-stop shopping, a
compelling value proposition and convenient locations, together
with an uplifting specialty retail experience through our
emphasis on The Four Es. While we are
currently executing on the core elements of our business
strategy, we plan to continually refine our approach in order to
further enhance the shopping experience for our customers.
The success of our strategy has been recognized by various
industry organizations. In October 2005, Ms. Kirby was
recognized by Cosmetics Executive Women (CEW), a leading trade
organization in the beauty industry, with a 2005 Achiever Award
for professional achievement in the beauty industry. In May
2007, we received a 2007 Hot Retailer Award from the
International Council of Shopping Centers (ICSC), a global trade
association of the shopping center industry, for being an
innovative retail concept.
We believe our strategy provides us with competitive advantages
that have contributed to our strong financial performance. Our
net sales have increased from $206.5 million in fiscal 1999
to
53
$755.1 million in fiscal 2006, representing a 20.3%
compounded annual growth rate. In that same period, we grew our
store base from 75 to 196 stores while growing our net income
from $1.2 million in fiscal 1999 to $22.5 million in
fiscal 2006, representing a 51.6% compounded annual growth rate.
In addition, we have achieved 29 consecutive quarters of
positive comparable store sales growth since fiscal 2000.
Our competitive
strengths
We believe the following competitive strengths differentiate us
from our competitors and are critical to our continuing success:
Differentiated merchandising strategy with broad
appeal.
We believe our broad selection of
merchandise across categories, price points and brands offers a
unique shopping experience for our customers. While the products
we sell can be found in department stores, specialty stores,
salons, drug stores and mass merchandisers, we offer all of
these products in one retail format so that our customer can
find everything she needs in one shopping trip. We appeal to a
wide range of customers by offering over 500 brands, such as
Bare Escentuals
cosmetics
, Chanel
and
Estée Lauder
fragrances
, LOréal
haircare and cosmetics and
Paul Mitchell
haircare. We
also have private label
ULTA
offerings in key categories.
Because our offerings span a broad array of product categories
in prestige, mass and salon, we appeal to a wide range of
customers including women of all ages, demographics, and
lifestyles.
Our unique customer experience.
We combine
the value and convenience of a beauty superstore with the
distinctive environment and experience of a specialty retailer.
The Four Es provide the foundation for our
operating strategy. We cater to the woman who loves to indulge
in shopping for beauty products as well as the woman who is time
constrained and comes to the store knowing exactly what she
wants. Our distribution infrastructure consistently delivers a
greater than 95% in-stock rate, so our customers know they will
find the products they are looking for. Our well-trained beauty
consultants are not commission-based or brand-dedicated and
therefore can provide unbiased and customized advice tailored to
our customers needs. Together with our customer service
strategy, our store locations, layout and design help create our
unique retail shopping experience, which we believe increases
both the frequency and length of our customers visits.
Retail format poised to benefit from shifting channel
dynamics.
Over the past several years, the
approximately $75 billion beauty products and salon
services industry has experienced significant changes, including
a shift in how manufacturers distribute and customers purchase
beauty products. This has enabled the specialty retail channel
in which we operate to grow at a greater rate than the industry
overall since at least 2000. We are capitalizing on these trends
by offering an off-mall, service-oriented specialty retail
concept with a comprehensive product mix across categories and
price points.
Loyal and active customer base.
We have
approximately six million customer loyalty program members, the
majority of whom have shopped at one of our stores within the
past 12 months. We utilize this valuable proprietary
database to drive traffic, better understand our customers
purchasing patterns and support new store site selection. We
regularly distribute catalogs and newspaper inserts to entertain
and educate our customers and, most importantly, to drive
traffic to our stores.
Strong vendor relationships across product
categories.
We have strong, active relationships
with over 300 vendors, including
Estée Lauder, Bare
Escentuals
,
Coty, LOréal
and
Procter &
54
Gamble. We believe the scope and extent of these relationships,
which span the three distinct beauty categories of prestige,
mass and salon and have taken years to develop, create a
significant impediment for other retailers to replicate our
model. These relationships also frequently afford us the
opportunity to work closely with our vendors to market both new
and existing brands in a collaborative manner.
Experienced management team.
Our senior
management team averages over 25 years of combined beauty
and retail experience and brings a creative merchandising
approach and a disciplined operating philosophy to our business.
Our senior management team is led by Lyn Kirby, our President
and Chief Executive Officer. Other key senior executives include
Bruce Barkus, our Chief Operating Officer, and Gregg Bodnar, our
Chief Financial Officer. Additionally, over the past three
years, we have significantly expanded the depth of our
management team at all levels and in all functional areas to
support our growth strategy.
Growth
strategy
We intend to expand our presence as a leading retailer of beauty
products and salon services by:
Growing our store base to our long-term potential of over
1,000 stores.
We believe our successful track
record of opening new stores in diverse markets throughout the
United States demonstrates the portability and growth potential
of our retail concept.
|
|
|
Based on the broad demographic appeal of our retail concept, the
significant size of the market in which we operate and our
internal real estate planning model which we use to evaluate
potential new store growth opportunities, we believe we have the
potential to grow our store base to over 1,000 ULTA stores in
the United States over the next 10 years. Our internal real
estate model takes into account a number of variables, including
demographic and sociographic data as well as population density
relative to maximum drive times, economic and competitive
factors. We plan to open stores both in markets in which we
currently operate and in new markets.
|
We opened 31 stores in fiscal 2006 and plan to open
approximately 50 stores in fiscal 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
2006
|
|
|
|
|
Total stores beginning of period
|
|
|
112
|
|
|
|
126
|
|
|
|
142
|
|
|
167
|
|
Stores opened
|
|
|
15
|
|
|
|
20
|
|
|
|
25
|
|
|
31
|
|
Stores closed
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
Total stores end of period
|
|
|
126
|
|
|
|
142
|
|
|
|
167
|
|
|
196
|
|
Total square footage
|
|
|
1,285,857
|
|
|
|
1,464,330
|
|
|
|
1,726,563
|
|
|
2,023,305
|
|
Total square footage per store
|
|
|
10,205
|
|
|
|
10,312
|
|
|
|
10,339
|
|
|
10,323
|
|
|
|
|
|
|
In addition, we developed and initiated a store remodel program
in 2006 to update our older stores to provide a modern and
consistent shopping experience across all of our locations. We
remodeled seven stores in fiscal 2006 and plan to remodel
approximately 18 stores in fiscal 2007. We believe this program
will improve the appeal of our stores, drive additional traffic
and increase our sales and profitability.
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year
|
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
Stores remodeled
|
|
|
2
|
|
|
0
|
|
|
1
|
|
|
7
|
|
|
Increasing our sales and profitability by expanding our
prestige brand offerings.
Our strategy is to
continue to expand our portfolio of products and brands, in
particular to enhance our offering of prestige brands, both by
capitalizing on the success of our existing vendor relationships
and by identifying and developing new supply sources. We plan to
continue to expand and attract additional prestige brands to our
stores by increasing education for our beauty consultants,
providing high levels of customer service, and tailoring the
presentation and merchandising of these products in our stores
to appeal to prestige vendors. For example, by the end of 2007,
we will have installed boutique areas of
approximately 200 square feet in over 90 of our stores to
showcase and build brand equity for key vendors and to provide
our customers with a place to experiment and learn about these
products. We intend to install this feature in most of our
stores over time. Over the past two years, we have added several
prestige brands including
Estée Lauder
fragrance,
Frédéric Fekkai
haircare,
Smashbox
cosmetics and
T3
salon styling tools. We believe this
strategy will result in a continued increase in our number of
transactions and our average transaction value.
Improving our profitability by leveraging our fixed
costs.
We plan to continue to improve our operating
results by leveraging our existing infrastructure and
continually optimizing our operations. We will continue to make
investments in our information systems to enable us to enhance
our efficiency in such areas as merchandise planning and
allocation, inventory management, distribution and point of
sale, or POS, functions. We believe we will continue to improve
our profitability by reducing our operating expenses, in
particular general corporate overhead and fixed costs, as a
percentage of sales.
Continuing to enhance our brand awareness to generate
sales growth.
We believe a key component of our
success is the brand exposure we get from our marketing
initiatives. Our direct mail advertising programs are designed
to drive additional traffic to our stores by highlighting
current promotional events and new product offerings. Our
national magazine print advertising campaign exposes potential
new customers to our retail concept by conveying an attractive
and sophisticated brand message. We believe we have an
opportunity to increase our in-store marketing efforts as an
additional means of educating our customers and increasing the
frequency of their visits to our stores.
Driving increased customer traffic to our
salons.
We are committed to establishing ULTA as a
leading salon authority. We seek to increase salon traffic and
grow salon revenues by providing high quality and consistent
services from our licensed stylists, who are knowledgeable about
the newest hair fashion trends. Our objective is to create
customer loyalty, increase conversion of our retail customers to
our salon services, encourage referrals and distinguish our
salons from those of our competitors. Our stylists are trained
to sell haircare products to their customers by demonstrating
the products while styling their customers hair.
Additionally, we have refined our recruiting methods, hiring
procedures and training programs to enhance stylist retention,
which is an important factor in salon productivity.
Expanding our online business.
We plan to go
live with a new version of our website in the first half of 2008
or earlier to enhance the overall ULTA experience with greater
functionality, ease-of-use and integration with our customer
loyalty program. We also intend to establish
56
ourselves as a leading online beauty resource for women by
providing our customers with information on key trends and
products, including editorial content and links to our vendor
partners. Through the re-launch of our website, we believe we
will be well positioned to capitalize on the growth of Internet
sales of beauty products. We believe our website and retail
stores will provide our customers with an integrated
multi-channel shopping experience and increased flexibility for
their beauty buying needs.
Our
market
We operate within the large and steadily growing
U.S. beauty products and salon services industry. This
market represented approximately $75 billion in retail
sales, according to Kline & Company and IBISWorld Inc.
The approximately $35 billion beauty products industry
includes color cosmetics, haircare, fragrance, bath and body,
skincare, salon styling tools and other toiletries. Within this
market, we compete across all major categories as well as a
range of price points by offering prestige, mass and salon
products. The approximately $40 billion salon services
industry consists of hair, face and nail services.
Distribution for beauty products is varied. Prestige products
are typically purchased in department or specialty stores, while
mass products and staple items are generally purchased at drug
stores, food retail stores and mass merchandisers. In addition,
salon haircare products are sold in salons and authorized
professional retail outlets. From 2000 to 2006, changes in
consumer shopping preferences and industry consolidation have
resulted in declines in the market share of department stores
from 18% to 15% and of food retail stores and other channels
from 33% to 31%, while the specialty retail channel has
increased its share of the beauty retail market from 7% to 9%,
according to Kline & Company. Distribution for salon
products and services is highly fragmented, with approximately
230,000 salons in the United States, according to
Professional Consultants & Resources, a market research
firm.
The following table represents retail sales of beauty products
by channel in the United States:
Source: Kline & Company
|
|
|
*
|
|
Other includes the
following categories: food stores, salons and spas, direct
sales, and all other.
|
57
Key
trends
We believe an important shift is occurring in the distribution
of beauty products. Department stores, which have traditionally
been the primary distribution channel for prestige beauty
products, have been meaningfully affected by changing consumer
preferences and industry consolidation over the past decade. We
believe women, particularly younger generations, tend to find
department stores intimidating, high-pressured and hinder a
multi-brand shopping experience and, as such, are choosing to
shop elsewhere for their beauty care needs. According to NPD,
55% of women aged 18 to 24 shop in specialty stores, compared to
40% of women aged 18 to 64. Over the past ten years, department
stores have lost significant market share to specialty stores in
apparel, and we believe the beauty category is undergoing a
similar shift in retail channels. We believe women are seeking a
shopping experience that provides something different, a place
to experiment, learn about various products, find what they want
and indulge themselves. A recent NPD study found that nine out
of ten women who shop at specialty retailers for beauty products
do so because they can touch, feel and smell the products.
As a result of this market transformation, there has been an
increase in the number of prestige beauty brands pursuing new
distribution channels for their products, such as specialty
retail, spas and salons, direct response television (i.e., home
shopping and infomercials) and the Internet. In addition, many
smaller prestige brands are selling their products through these
channels due to the high fixed costs associated with operating
in most department stores and to capitalize on consumers
growing propensity to shop in these channels. According to
industry sources, color cosmetics sales through these channels
are projected to grow at a higher rate than sales of color
cosmetics in total. We believe that, based on our recent success
in attracting new prestige brands, we are well-positioned to
continue to capture additional prestige brands as they expand
into specialty stores. Also, there are a growing number of
brands that have built significant consumer awareness and sales
by initially offering their products on direct response
television. We benefit from offering brands that sell their
products through this channel, as we experience increased store
traffic and sales after these brands appear on television.
Historically, manufacturers have distributed their products
through distinct channelsdepartment stores for prestige
products, drug stores and mass merchandisers for mass products,
and salons and authorized retail outlets for professional hair
care products. We believe women are increasingly shopping across
retail channels as well as purchasing a combination of prestige
and mass beauty products. We attribute this trend to a number of
factors, including the growing availability of prestige brands
outside of department stores and increased innovation in mass
products. Based on the competitive environment in which we
operate, we believe that we have been at the forefront of
breaking down the industrys historical distribution
paradigm by combining a wide range of beauty products,
categories and price points under one roof. Our strategy
reflects a more customer-centric model of how women prefer to
shop today for their beauty needs.
Major growth drivers for the industry include favorable consumer
spending trends, product innovation and growth of certain
population segments.
|
|
|
Baby Boomers (currently
41-60 years
old):
Baby Boomers have large disposable incomes and
are increasing their spending on personal care as well as health
and wellness. The aging of the Baby Boomer generation is also
influencing product innovation and demand for anti-aging
products and cosmetic procedures.
|
|
|
Generation X (currently 31-40 years
old):
Generation X is entering their peak earning years
and represents a significant contributor to overall consumer
spending, including beauty
|
58
|
|
|
products. A recent survey by American Express showed that
Generation X spends 60% more on beauty products than Baby
Boomers. In addition, Generation X has grown up shopping in
specialty stores and seeks a retail environment that combines a
compelling experience, functionality, variety and location.
|
|
|
|
Generation Y (currently 13-30 years
old):
According to U.S. Census Bureau data, the 20
to 34 year-old age group is expected to grow by
approximately 10% from 2003 to 2015. As Generation Y continues
to enter the workforce, they will have increased disposable
income to spend on beauty products.
|
We believe we are well positioned to capitalize on these trends
and capture additional market share in the industry. We believe
we have demonstrated an ability to provide a differentiated
store experience for customers as well as offer a breadth and
depth of merchandise previously unavailable from more
traditional beauty retailers.
Stores
We are conveniently located in high-traffic, off-mall locations
such as power centers and lifestyle centers with other
destination retailers. Our typical store is approximately
10,000 square feet, including approximately 950 square
feet dedicated to our full-service salon. As of May 31,
2007, we operated 207 stores in 26 states, as shown in the
table below:
|
|
|
|
|
|
Number of
|
State
|
|
stores
|
|
Arizona
|
|
|
19
|
California
|
|
|
25
|
Colorado
|
|
|
9
|
Delaware
|
|
|
1
|
Florida
|
|
|
9
|
Georgia
|
|
|
11
|
Illinois
|
|
|
27
|
Indiana
|
|
|
4
|
Iowa
|
|
|
1
|
Kansas
|
|
|
1
|
Kentucky
|
|
|
2
|
Maryland
|
|
|
3
|
Michigan
|
|
|
4
|
Minnesota
|
|
|
6
|
Nevada
|
|
|
5
|
New Jersey
|
|
|
9
|
New York
|
|
|
6
|
North Carolina
|
|
|
8
|
Oklahoma
|
|
|
4
|
Oregon
|
|
|
1
|
Pennsylvania
|
|
|
11
|
South Carolina
|
|
|
3
|
Texas
|
|
|
27
|
Virginia
|
|
|
7
|
Washington
|
|
|
3
|
Wisconsin
|
|
|
1
|
|
|
|
|
Total
|
|
|
207
|
We believe we have the long-term potential to grow our store
base to over 1,000 stores in the United States over the next 10
years. We opened 31 stores in fiscal 2006 and plan to open
approximately 50 stores in fiscal 2007. All of our stores are
leased. During fiscal 2006, the average investment required to
open a new ULTA store was approximately $1.4 million, which
includes capital investments, net of landlord contributions, and
initial inventory, net of payables. However, our net investment
required to open new stores and the net sales generated by new
stores may vary depending on a number of factors, including
geographic location.
59
Store remodel
program
Our retail store concept, including physical layout, displays,
lighting and quality of finishes, has continued to evolve over
time to match the rising expectations of our customers and to
keep pace with our merchandising and operating strategies. In
recent years, our strategic focus has been on refining our new
store model, improving our real estate selection process, and
executing on our new store opening program. As a result, we
decided to limit the investments made in our existing store base
from fiscal 2000 to fiscal 2005. In fiscal 2006, we developed
and initiated a store remodel program to update our older stores
to provide a consistent shopping experience across all of our
locations. We remodeled seven stores in fiscal 2006 and plan to
remodel approximately 18 stores in fiscal 2007. We believe
this program will improve the appeal of our stores, drive
additional customer traffic and increase our sales and
profitability.
The remodel store selection process is subject to the same
discipline as our new store real estate decision process. Our
focus is to remodel the oldest, highest performing stores first,
subject to criteria such as rate of return, lease terms, market
performance and quality of real estate. We expect to remodel the
majority of our older stores (those opened prior to fiscal
2000) by the end of 2008. The average investment to remodel
a store in fiscal 2006 was approximately $1 million. Each
remodel takes approximately 13 weeks to complete, during
which time we typically keep the store open.
Salon
We operate full-service salons in all of our stores. Our current
ULTA store format includes an open and modern salon area with
eight to ten stations. The entire salon area is approximately
950 square feet with a concierge desk, esthetics room,
semi-private shampoo and hair color processing areas. Each salon
is a full-service salon offering hair cuts, hair coloring,
permanent texture, with most salons also providing facials and
waxing. We employ licensed professional stylists and
estheticians that offer highly skilled services as well as an
educational experience, including consultations, styling
lessons, skincare regimens, and
at-home
care
recommendations.
ULTA.com
We established ULTA.com to give our customers an integrated
multi-channel buying experience by providing them with an
opportunity to access our product offerings beyond our
brick-and-mortar
retail stores. We plan to go live with a new version of our
website in 2008 or earlier. The new version of ULTA.com will
more effectively support the key elements of the ULTA brand
proposition by providing access to over 9,000 beauty products
from over 400 brands. We also intend to establish ourselves as a
leading online beauty resource for women by providing our
customers with information on key trends and products, including
editorial content and links to our vendor partners.
Additionally, ULTA.com will serve as an extension of ULTAs
marketing and prospecting strategies (beyond catalogs, newspaper
inserts and national advertising) by exposing potential new
customers to the ULTA brand and product offerings. This role for
ULTA.com will be implemented through online marketing strategies
such as banner advertising and paid and natural search vehicles.
ULTA.coms email marketing programs are also effective in
communicating with and driving sales from online and retail
store customers. As ULTA.com continues to grow in terms of
functionality and content, it will become an important element
in ULTAs customer loyalty programs and a valued resource
for customers to access product information and beauty trends
and techniques.
60
Merchandising
Strategy
We focus on offering one of the most extensive product and brand
selections in our industry, including a broad assortment of
branded and private label beauty products in cosmetics,
fragrance, haircare, skincare, bath and body products and salon
styling tools. A typical ULTA store carries over
19,000 basic and over 2,000 promotional products. We
present these products in an assisted self-service environment
using centrally produced planograms (detailed schematics showing
product placement in the store) and promotional merchandising
planners. Our merchandising team continually monitors current
fashion trends, historical sales trends and new product launches
to keep ULTAs product assortment fresh and relevant to our
customers.
We believe our broad selection of merchandise, from
moderate-priced brands to higher-end prestige brands, offers a
unique shopping experience for our customers. The products we
sell can also be found in department stores, specialty stores,
salons, mass merchandisers and drug stores, but we offer all of
these products in one retail format so that our customer can
find everything she needs in one stop.
We believe we offer a compelling value proposition to our
customers across all of our product categories. For example, we
run frequent promotions and gift certificates for our mass
brands, gift-with-purchase offers and multi-product gift sets
for our prestige brands, and a comprehensive customer loyalty
program.
We believe our private label products are a strategically
important category for growth and profit contribution. Our
objective is to provide quality, trend-right private label
products at a good value to continue to strengthen our
customers perception of ULTA as a contemporary beauty
destination. ULTA manages the full development cycle of these
products from concept through production in order to deliver
differentiated packaging and formulas to build brand image.
Current
ULTA
cosmetics and bath brands have a strong
following and we have plans to expand our private label products
into additional categories.
Category
mix
We offer products in the following categories:
|
|
|
Cosmetics
, which includes products for the face, eyes,
cheeks, lips and nails;
|
|
|
Haircare
, which includes shampoos, conditioners, styling
products, and hair accessories;
|
|
|
Salon styling tools
, which includes hair dryers, curling
irons and flat irons;
|
|
|
Skincare and bath and body
, which includes products for
the face, hands and body;
|
|
|
Fragrance
for both men and women;
|
|
|
Private label
, consisting of
ULTA
branded
cosmetics, skincare, bath and body products; and
|
|
|
Other
, including candles, home fragrance products,
exercise accessories, educational DVDs and other miscellaneous
health and beauty products.
|
61
Organization
Our merchandising team reports directly to our Chief Executive
Officer and consists of a Vice President of Prestige Cosmetics,
Skin & Fragrance; a Vice President of Mass Cosmetics,
Skincare & Haircare; a Vice President of Salon
Products, Styling Tools & Bath; and a Senior Vice
President of Private Brand Development. The vice presidents have
one or two divisional merchandise managers reporting to them,
and the divisional merchandise managers have a buyer
and/or
associate/assistant buyer reporting to them. There are
approximately 17 divisional merchandise managers, buyers
and/or
associate/assistant buyers on the merchandising team. Our
merchandising team works directly with our centralized planning
and replenishment group to ensure a consistent delivery of
products across our store base.
Our planogram department assists the merchants to keep new
products flowing into stores on a timely basis. All major
product categories undergo planogram revisions once or twice a
year and adjustments are made to assortment mix and product
placement based on current sales trends.
Our visual department works with our merchandising team on every
advertising event regarding strategic placement of promotional
merchandise, along with functional signage and creative product
presentation standards, in all of our stores. All stores receive
a centrally produced promotional planner for each event to
ensure consistent implementation.
Planning and
allocation
We have developed a disciplined approach to buying and a dynamic
inventory planning and allocation process to support our
merchandising strategy. We centrally manage product
replenishment to our stores through our planning and
replenishment group. This group serves as a strategic partner
to, and provides financial oversight of, the merchandising team.
The merchandising team creates a sales forecast by category for
the year. Our planning and replenishment group creates an
open-to-buy plan, approved by senior executives, for each
product category. The open-to-buy plan is updated weekly with
point of sale, or POS, data, receipts and inventory levels and
is used throughout the year to balance buying opportunities and
inventory return on investment. We believe this structure
maximizes our buying opportunities while maintaining
organizational and financial control.
Regularly replenished products are presented consistently in all
stores utilizing a merchandising planogram process. POS data is
used to calculate sales forecasts and to determine replenishment
levels. We determine promotional product replenishment levels
using sales histories from similar or comparable events. To
ensure our inventory remains productive, our planning and
replenishment group, along with senior executives, monitors the
levels of clearance and aged inventory in our stores on a weekly
basis. In addition, we have structured our accounting policies
to ensure appropriate clearance and movement of aged inventory.
Vendor
relationships
We work with over 300 vendors. Each merchandising vice
president has over 15 years of experience developing
relationships in the industry with which he or she works. We
have no long-term supply agreements or exclusive arrangements
with our vendors. Our top ten vendors represent approximately
35% of our total annual sales. These include vendors across all
product categories, such as
Bare Essentials, Farouk Systems,
Helen of Troy, LOréal
and
Procter &
Gamble
, among others. We have top-to-top
meetings with each of these vendors at least once a year, which
in most instances includes our Chief Executive Officer and the
vendors senior
62
management team. We believe our vendors view us as a significant
distribution channel for growth and brand enhancement.
Marketing and
advertising
Marketing
strategy
We employ a multi-faceted marketing strategy to increase brand
awareness and drive traffic to our stores. Our marketing
strategy complements a basic tenet of our business strategy,
which is to provide our customers with a satisfying and
uplifting experience. We communicate this vision through a
multi-media approach. Our primary media expenditure is in direct
mail catalogs and free-standing newspaper inserts. These
vehicles allow the customer to see the breadth of our selection
of prestige, mass and salon beauty products.
In order to reach new customers and to establish ULTA as a
national brand, we advertise in national magazines such as
InStyle
,
Allure
,
Lucky
,
Cosmopolitan
and
Vanity Fair
. These advertising channels have proven
successful in raising our brand awareness on a national level
and driving additional sales from both existing and new
customers. In conjunction with our national brand advertising,
we have initiated a public relations strategy that focuses on
reaching top tier magazine editors to ensure consistent
messaging in beauty magazines as well as direct-to-customer
efforts through multi-media channels.
Our Internet advertising strategy complements our print media
strategy. We send out email distributions to our key customers,
and we integrate promotional messaging in banner advertising
during certain times of the year.
Our gross advertising budget over the next five years is
decreasing as a percentage of sales, due in part to the
effectiveness of our strategy of opening new stores in existing
markets as well as the cost efficiencies we are able to achieve
as our catalogs and newspaper inserts circulate more widely.
Customer loyalty
programs - The Club at ULTA
The strategy of our customer loyalty program, which we initiated
in 1996, is to engage, motivate and reward existing ULTA
customers while increasing our customer count and sales. We have
approximately six million customer loyalty program members, the
majority of whom have shopped at one of our stores within the
past 12 months. Customers sign up to become members
in-store and receive free gifts four times a year, with the
value of such gifts based on customers spending levels. We
also send reward certificates to members in our catalogs.
Staffing and
operations
Retail
Our current ULTA store format is typically staffed with a
general manager, a salon manager, four assistant managers, and
approximately 20 full and part-time associates, including
approximately six to eight beauty consultants and eight to
fifteen licensed salon professionals. The management team in
each store reports to the general manager. The general manager
oversees all store activities and salon management, which
include inventory management, merchandising, cash management,
scheduling, hiring and guest services. Members of store
management receive bonuses depending on their position and on
sales, shrink, payroll, or a
63
combination of these three factors. Each general manager reports
to a district manager, who in turn reports to the Vice President
of Operations East, the Vice President of Operations West or the
Senior Vice President of Operations. The Senior Vice President
of Operations reports to our Chief Operating Officer. Each store
team receives additional support from time to time from
recruiting specialists for the retail and salon operations, a
field loss prevention team, market trainers, and management
trainers.
ULTA stores are open seven days a week, 11 hours a day,
Monday through Saturday, and seven hours on Sunday. Our stores
have extended hours during the holiday season.
Salon
A typical salon is staffed with eight to 15 licensed salon
professionals, including one salon manager, eight to
12 stylists, and one to two estheticians. Our higher
producing salons may also have a salon coordinator and assistant
manager. Our training teams, vendor education classes and
leadership conferences create a comprehensive educational
program for our approximately 1,900 salon professionals.
Training and
development
Our success is dependent in part on our ability to attract,
train, retain and motivate qualified employees at all levels of
the organization. We have developed a corporate culture that
enables individual store managers to make store-level operating
decisions and consistently rewards their success. We are
committed to improving the skills and careers of our workforce
and providing advancement opportunities for our associates. Our
associates and regional managers are essential to our store
expansion strategy. We primarily use existing managers or
promote from within to support our new stores, although many
outlying stores have all-new teams.
All of our associates participate in an interactive new-hire
orientation through which each associate becomes acquainted with
ULTAs vision and mission. Training for new store managers,
beauty consultants and sales associates familiarizes them with
opening and closing routines, guest service expectations, our
loss prevention policy and procedures, and our culture. We also
have ongoing development programs that include operational
training for hourly associates, beauty consultants, management
and stylists. We provide continuing education to both salon
professionals and retail associates throughout their careers at
ULTA to enable them to deliver the Four Es to
our customers. In contrast to the sales teams at traditional
department stores, our sales teams are not commissioned or
brand-dedicated. Our beauty consultants are trained to work
across all prestige lines and within our prestige
boutiques, where customers can receive a makeover or
skin analysis.
Distribution
Our distribution facility (including an overflow facility) is
located in an approximately 317,000 square foot facility in
Romeoville, Illinois. We have negotiated a lease for a second
distribution facility in Phoenix, Arizona that is approximately
330,000 square feet in size. This new facility, which we
expect will be completed and operational in the first half of
2008, will service our Western region and accommodate our
anticipated growth by providing support for our current
distribution facility.
64
Inventory is shipped from our suppliers to our distribution
facility. We carry over 21,000 products and replenish our stores
with such products primarily in eaches (i.e., less-than-case
quantities), which allows us to ship less than an entire case
when only one or two of a particular product is needed. Our
distribution facility uses a WM software system, which was
upgraded in early 2007. Products are bar-coded and scanned using
handheld radio-frequency devices as they move within the
warehouse to ensure accuracy. Product is delivered to stores
using contract carriers. One vendor currently provides
store-ready orders that can be quickly forwarded to our stores.
We use advance ship notices, or ASNs, and carton barcode labels
to facilitate these shipments. We expect to increase the number
of vendors using ASNs and carton barcodes to expedite our
receiving process.
Information
technology
We are committed to using technology to enhance our competitive
position. We depend on a variety of information systems and
technologies to maintain and improve our competitive position
and to manage the operations of our growing store base. We rely
on computer systems to provide information for all areas of our
business, including supply chain, merchandising, POS, electronic
commerce, finance, accounting and human resources. Our core
business systems consist mostly of a purchased software program
that integrates with our internally developed software
solutions. Our technology also includes a company-wide network
that connects all corporate users, stores, and our distribution
infrastructure and provides communications for credit card and
daily polling of sales and merchandise movement at the store
level. We intend to leverage our technology infrastructure and
systems where appropriate to gain operational efficiencies
through more effective use of our systems, people and processes.
We update the technology supporting our stores, distribution
infrastructure and corporate headquarters on a continual basis.
From fiscal 2006 through fiscal 2007, we will have invested
$22.6 million to improve the technology in our distribution
infrastructure, stores and corporate headquarters. We will
continue to make investments in our information systems to
facilitate our growth and enable us to enhance our competitive
position.
We use a POS system that includes registers with full scanning
capabilities in order to maintain speed and accuracy at customer
checkouts. Our POS system is integrated with our customer
loyalty program and has the ability to look up our
customers loyalty numbers. We are planning to upgrade the
POS system to enable the acceptance of debit cards by the end of
2007.
During 2007, we have launched several initiatives to support our
expected growth, including the transition of a legacy WM
software system to the core purchased software program,
construction of a modern, secure data center, a technical
upgrade of the same purchased software program system and an
update of our website technology. In anticipation of our planned
second distribution facility, our WM software system was
recently upgraded to make it capable of supporting multiple
distribution facilities. Further development and testing of our
WM software system is necessary before it will be ready to
operate a second distribution facility. We believe these
initiatives will provide the needed functionality and capacity
to support the business and will provide the foundation for
future stores and distribution facilities.
Competition
Distribution for beauty products is varied. Prestige products
are typically purchased in department or specialty stores, while
mass products and staple items are generally purchased at drug
stores, grocery stores and mass merchandisers. In addition,
salon haircare products are sold
65
in salons and authorized professional retail outlets. From 2000
to 2006, changes in consumer shopping preferences and industry
consolidation have resulted in declines in the market share of
department stores from 18% to 15% and of food retail stores and
other channels from 33% to 31%, while the specialty retail
channel has increased its share of the beauty retail market from
7% to 9%, according to Kline & Company. Our major
competitors for prestige and mass products include traditional
department stores such as
Macys
and
Nordstrom
, specialty stores such as
Sephora
and
Bath & Body Works
, drug stores such as
CVS/pharmacy
and
Walgreens
and mass merchandisers
such as
Target
and
Wal-Mart
. We believe the
principal bases upon which we compete are the quality of
merchandise, our value proposition, the quality of our
customers shopping experience and the convenience of our
stores as one-stop destinations for beauty products and salon
services.
The market for salon services and products is highly fragmented,
with approximately 230,000 salons in the United States,
according to Professional Consultants & Resources, a market
research firm. Our competitors for salon services and products
include
Regis Corp.
,
Sally Beauty
,
JCPenney
salons and independent salons.
Intellectual
property
We have registered a number of trademarks in the United States,
including Ulta 3 (and design), Ulta Salon Cosmetics and
Fragrances (and design), ULTA.com, and several brands and
service marks. The renewal dates for these marks are
December 29, 2008, January 22, 2012 and
October 8, 2012, respectively. The application for ULTA
Beauty and design is pending. All marks that are deemed material
to our business have been protected in the United States, Canada
and select foreign countries.
We believe our trademarks, especially those related to the ULTA
concept, have significant value and are important to building
brand recognition.
Government
regulation
In our U.S. markets, we are affected by extensive laws,
governmental regulations, administrative determinations, court
decisions and similar constraints. Such laws, regulations and
other constraints may exist at the federal, state or local
levels in the United States. Our
ULTA
branded products
are subject to regulation by the FDA, the FTC and State
Attorneys General in the United States. Such regulations
principally relate to the safety of our ingredients, proper
labeling, advertising, packaging and marketing of our products.
Products classified as cosmetics (as defined in the FDC Act) are
not subject to pre-market approval by the FDA, but the products
and the ingredients must be tested to ensure safety. The FDA
also utilizes an intended use doctrine to determine
whether a product is a drug or cosmetic by the labeling claims
made for the product. Certain ingredients commonly used in
cosmetics products such as sunscreens and acne treatment
ingredients are classified as over-the-counter drugs which have
specific label requirements and allowable claims. The labeling
of cosmetic products is subject to the requirements of the FDC
Act, the Fair Packaging and Labeling Act and other FDA
regulations.
The government regulations that most impact our day-to-day
operations are the labor and employment and taxation laws to
which most retailers are typically subject. We are also subject
to typical zoning and real estate land use restrictions and
typical advertising and consumer
66
protection laws (both federal and state). Our salon business is
subject to state board regulations and state licensing
requirements for our stylists and our salon procedures.
In our store leases, we require our landlords to obtain all
necessary zoning approvals and permits for the site to be used
as a retail site and we also ask them to obtain any zoning
approvals and permits for our specific use (but at times the
responsibility of obtaining zoning approvals and permits for our
specific use falls to us). We require our landlords to deliver a
certificate of occupation for any work they perform on our
buildings or the shopping centers in which our stores are
located. We are responsible for delivering a certificate of
occupation for any remodeling or build-outs that we perform and
are responsible for complying with all applicable laws in
connection with such construction projects or build-outs.
Associates
As of May 5, 2007, we employed approximately
3,400 people on a full-time basis and approximately 3,700
on a part-time basis. We have no collective bargaining
agreements. We have not experienced any work stoppages and
believe we have good relationships with our associates.
Properties
All ULTA retail stores, our principal executive offices and all
of our distribution, warehouse and other office facilities are
leased or subleased. Most of our retail store leases provide for
a fixed minimum annual rent and have a fixed term with options
for two or three extension periods of five years each,
exercisable at our option. As of May 31, 2007, we operated
207 ULTA retail stores.
As of May 31, 2007, we operated one distribution facility
(including an overflow facility), or the Arbor Drive warehouse,
which is located in Romeoville, Illinois. The Arbor Drive
warehouse contains approximately 317,000 square feet. The
lease for the Arbor Drive warehouse expires as of April 30,
2010 and has two renewal options with terms of five years each.
We have negotiated a lease for a second distribution facility
located in Phoenix, Arizona for approximately
330,000 square feet to be operational in the first half of
2008.
Our principal executive offices are currently located in two
separate buildings. One portion of our executive offices, or the
Arbor Drive offices, is located on the site of the Arbor Drive
warehouse. Our remaining executive offices, or the Windham
Parkway offices, are located in a separate building in
Romeoville, Illinois. The lease for the Arbor Drive offices
expires as of April 30, 2010 and the lease for the Windham
Parkway offices expires as of January 31, 2008. We have
secured additional office space in Romeoville, Illinois for
corporate use to accommodate future human resource requirements
over the next several years.
Legal
proceedings
We are involved in various legal proceedings that are incidental
to the conduct of our business, including, but not limited to,
employment discrimination claims. In the opinion of management,
the amount of any liability with respect to these proceedings,
either individually or in the aggregate, will not be material.
67
Management
Executive
officers and directors
Upon the consummation of this offering, our executive officers
and directors will be as follows:
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
|
Lyn P. Kirby
|
|
|
53
|
|
|
President, Chief Executive Officer
and Director
|
Bruce E. Barkus
|
|
|
54
|
|
|
Chief Operating Officer and
Assistant Secretary
|
Gregg R. Bodnar
|
|
|
42
|
|
|
Chief Financial Officer and
Assistant Secretary
|
Hervé J.F. Defforey
|
|
|
57
|
|
|
Director
|
Robert F. DiRomualdo
|
|
|
63
|
|
|
Director
|
Dennis K. Eck
|
|
|
64
|
|
|
Non-Executive Chairman of the
Board of Directors
|
Gerald R. Gallagher
|
|
|
66
|
|
|
Director
|
Terry J. Hanson
|
|
|
60
|
|
|
Director
|
Charles Heilbronn
|
|
|
52
|
|
|
Director
|
Steven E. Lebow
|
|
|
53
|
|
|
Director
|
Yves Sisteron
|
|
|
52
|
|
|
Director
|
|
|
Lyn P. Kirby:
Ms. Kirby has been our President,
Chief Executive Officer and Director since December 1999. Prior
to joining ULTA, Ms. Kirby was President of Circle of
Beauty, a subsidiary of Sears, from March 1998 to December 1999;
Vice President and General Manager of new business for Gryphon
Development, a subsidiary of Limited Brands, Inc. from 1995 to
March 1998; and Vice President of Avon Products Inc. and general
manager of the gift business, the in-house creative agency and
color cosmetics prior to 1995. Ms. Kirby holds a Bachelor
degree (honors) in commerce and marketing from the University of
New South Wales in Sydney, Australia.
Bruce E. Barkus:
Mr. Barkus has been our Chief
Operating Officer since December 2005, our Corporate Secretary
from April 2006 to August 2007, an Assistant Corporate Secretary
since August 2007, and served as our Acting Chief Financial
Officer from April 2006 to October 2006. Prior to joining ULTA,
Mr. Barkus was President and Chief Executive Officer of GNC
and its wholly owned subsidiary, General Nutrition Centers, Inc.
from May 2005 to November 2005. Prior to that, Mr. Barkus
was an executive at Family Dollar Stores, Inc., as Executive
Vice President from October 2003 to May 2005; Senior Vice
President of Store Operations from August 2000 to October 2003;
and Vice President of Store Operations from June 1999 to July
2000. Prior to June 1999, Mr. Barkus served in various
executive roles at Eckerd Corporation, where he was Vice
President of Operations for the North Texas Region.
Mr. Barkus holds a Doctorate degree in business
administration from Nova Southeastern University School of
Business.
Gregg R. Bodnar:
Mr. Bodnar has been our Chief
Financial Officer and Assistant Corporate Secretary since
October 2006. Prior to joining ULTA, Mr. Bodnar was Senior
Vice President and Chief Financial Officer of Borders
International from January 2003 to June 2006; Vice President
Group Financial Reporting and Planning of Borders Group, Inc.
from January 2000 to December 2002; Director of Finance of
Borders Group, Inc. from January 1996 to December 1999; Vice
President, Finance and Chief Financial Officer of Rao Group Inc.
from 1993 to 1996; and as an
68
auditor and certified public accountant at the public accounting
firm of Coopers & Lybrand from 1988 to 1993.
Mr. Bodnar holds a Bachelor degree in finance and
accounting from Wayne State University in Detroit, Michigan.
Hervé J.F. Defforey
: Mr. Defforey has been a
director of ULTA since July 2004. Mr. Defforey has been an
operating partner of GRP, a venture capital firm, in Los
Angeles, California since September 2006. Prior to September
2006, Mr. Defforey was a partner in GRP Europe Ltd. from
November 2001 to September 2006; Chief Financial Officer and
Managing Director of Carrefour S.A. from 1993 to 2004; and
Treasurer at BMW Group and General Manager of various BMW AG
group subsidiaries and also held senior positions at Chase
Manhattan Bank, EBRO Agricolas, S.A. and Nestlé S.A. prior
to 1993. Mr. Defforey holds a business degree in marketing
from HEC St. Gall (Switzerland). Mr. Defforey is a director
of X5 Retail Group (chairman of the supervisory board), IFCO
Systems (member of the audit committee), PrePay Technologies
Ltd. and Kyriba Corporation.
Robert F. DiRomualdo:
Mr. DiRomualdo has been a
director of ULTA since February 2004. Mr. DiRomualdo is
Chairman and Chief Executive Officer of Naples Ventures, LLC, a
private investment company that he formed in 2002. Prior to
2002, Mr. DiRomualdo was Chairman of the Board of Directors
of Borders Group, Inc. and its predecessor companies from August
1994 to January 2002; Chief Executive Officer of Borders Group,
Inc. and its predecessor companies from 1989 to December 1999;
and President and Chief Executive Officer of Hickory Farms, the
food store chain, prior to 1989. Mr. DiRomualdo holds a
Bachelor degree from Drexel Institute of Technology and a Master
of Business Administration degree from the Harvard Business
School. Mr. DiRomualdo is a director of Bill Me Later, Inc.
(chairman of the compensation committee and member of the audit
committee).
Dennis K. Eck:
Mr. Eck has been our
Non-Executive Chairman of the Board of Directors and a director
of ULTA since October 2003. Prior to that, Mr. Eck served
in various executive roles with Coles Myer, one of
Australias largest retailers, where he was Chief Executive
Officer and a member of the board of Coles Myer LTD Australia
from November 1997 to September 2001; Chief Operating Officer
and a member of the board of Coles Myer LTD from April 1997 to
November 1997; Managing Director-Basic Needs of Coles Myer LTD
from November 1996 to April 1997; and Managing Director of Coles
Myer Supermarkets from May 1994 to November 1996. Prior to 1994,
Mr. Eck was Chief Operating Officer and a member of the
board of The Vons Companies Inc. from February 1990 to November
1993. From 1988 to February 1990, Mr. Eck served as Vice
Chairman of the Board and Executive Vice President of American
Stores, Inc. and Chairman and Chief Executive Officer of
American Food and Drug, a subsidiary of American Stores, Inc.
From 1987 to 1988, Mr. Eck was President and Chief
Executive Officer and a member of the board of American Food and
Drug. Prior to that, he served as President and Chief Operating
Officer of Acme Markets, Inc. from 1985 to 1987; Senior Vice
President Marketing of Acme Markets, Inc. from 1984 to 1985;
Executive Vice President Drug Buying / Marketing and
General Manager Superstores of American Stores Sav-On
Drugs division in southern California from 1982 to 1984; and,
from 1968 to 1982, served in various positions with Jewel
Companies Inc. Mr. Eck holds a Bachelor degree in history
and political science from the University of Montana.
Mr. Eck is a director of eStyle (babystyle).
Gerald R. Gallagher:
Mr. Gallagher has been a
director of ULTA since December 1998. Mr. Gallagher has
been a General Partner of Oak Investment Partners, a venture
capital partnership, since 1987. Prior to 1987,
Mr. Gallagher was Vice Chairman of Dayton Hudson
Corporation where, he served in both operating and staff
positions from 1977 to 1987; and a retail industry analyst at
Donaldson,
69
Lufkin & Jenrette prior to 1977. Mr. Gallagher
holds a Bachelor degree from Princeton University and a Master
of Business Administration from the University of Chicago.
Mr. Gallagher is a director of Cheddars Casual
Café (member of the compensation committee), eStyle (member
of the compensation committee), Lucy Activewear (member of the
audit committee) and Xiotech.
Terry J. Hanson:
Mr. Hanson has been a director
of ULTA since January 1990 and is one of ULTAs
co-founders. He served as President and Chief Operating Officer
from January 1990 until September 1994 and as President and
Chief Executive Officer from September 1994 until December 1999.
From December 1999 until July 2000, Mr. Hanson served as
Chairman of the board of directors. He also served as
ULTA.coms Chairman of the board of directors, Chief
Executive Officer and as a director from August 2000 until
February 2002. Subsequently, Mr. Hanson served as President
of Pearle Vision, Inc. from May 2003 until October 2004 and has
been Managing Partner of RIMC LLC since December 2004. He also
held positions at American Drugstores, Inc.
(Osco-Sav-On)
from September 1969 to October 1989, where he served as
President from 1988 until 1989 and as Executive Vice President,
Vice President Chicagoland Operations, and Vice President
Personnel from 1977 until 1988. Mr. Hanson holds a Bachelor
degree and a Master of Science degree from North Dakota State
University.
Charles Heilbronn:
Mr. Heilbronn has been a
director of ULTA since July 1995. Mr. Heilbronn has been
Executive Vice President and Secretary of Chanel, Inc. since
1998, and, since December 2004, Executive Vice President of
Chanel Limited, a privately-held international luxury goods
company selling fragrance and cosmetics, womens clothing,
shoes and accessories, leather goods, fine jewelry and watches.
Prior to that, Mr. Heilbronn was Vice President and General
Counsel of Chanel Limited and Senior Vice President, General
Counsel and Secretary of Chanel, Inc. from 1987 to December
2004. Mr. Heilbronn served as a director of RedEnvelope
from October 2002 to August 2006, and is currently a director of
Doublemousse B.V., Chanel, Inc. (U.S.) and various other Chanel
companies or their affiliates in the United States and
worldwide, as well as several unrelated private companies. He is
also a
Membre du Conseil de Surveillance
(a non-executive
board of trustees) of Bourjois SAS, a French company.
Mr. Heilbronn received a Master in Law from Universite de
Paris V, Law School and an LLM from New York University Law
School.
Steven E. Lebow:
Mr. Lebow has been a director
of ULTA since May 1997. Mr. Lebow has been a Managing
Partner and Co-Founder of GRP Partners, a venture capital firm,
since 2000. Prior to 2000, Mr. Lebow spent 21 years at
Donaldson, Lufkin & Jenrette in a variety of positions,
most recently as Chairman of Global Retail Partners, and as
Managing Director and head of the Retail Group within the
Investment Banking Division. Mr. Lebow holds a Bachelor
degree in political science and economics from the University of
California Los Angeles and a Master of Business Administration
from the Wharton School of Business at the University of
Pennsylvania. Mr. Lebow is a director of eStyle
(babystyle), EnvestNet Asset Management and Bill Me
Later, Inc.
Yves Sisteron:
Mr. Sisteron has been a director
of ULTA since July 1993. Mr. Sisteron has been a Managing
Partner and Co-Founder of GRP Partners, a venture capital firm,
since 2000. Prior to that, Mr. Sisteron was a managing
director at Donaldson Lufkin & Jenrette overseeing the
operations of Global Retail Partners, which he started with
Mr. Lebow in 1996. From 1989 to 1996, Mr. Sisteron
managed the U.S. investments of Fourcar B.V., a division of
Carrefour S.A. Mr. Sisteron holds a Juris Doctorate degree
and LLM degree from the University of Law (Lyon) and a LLM
degree (MCJ) from the New York University School of
Law. Mr. Sisteron is a director of UGO, Inc. (member of
compensation committee), EnvestNet Asset Management
70
(member of compensation committee), HealthDataInsights, Kyriba,
Inc., Qualys, Inc., Netsize, S.A., and Actimagine, Inc.
Board of
directors composition
Our board of directors currently has nine members. Each director
was elected to the board of directors to serve until a successor
is duly elected and qualified or until his or her earlier death,
resignation or removal. Our Second Amended and Restated Voting
Agreement, or the voting agreement, entered into as of
December 18, 2000, which by its terms will terminate upon
the consummation of this offering, designates that
Mr. Sisteron is to be elected as a director of the company
representing GRP II, L.P. and its affiliates and
Mr. Heilbronn is to be elected as a director of the company
representing Doublemousse B.V., and if either of them are
unwilling or unable to serve as director, Mr. Lebow is to
be elected in his place. The voting agreement also provides that
Oak Investment Partners has the right to elect one member of the
board of directors, with Mr. Gallagher currently serving as
Oak Investment Partners director. Upon the consummation of
this offering, a majority of our board of directors, consisting
of Messrs. Defforey, DiRomualdo, Eck, Gallagher, Hanson,
Heilbronn, Lebow and Sisteron, will satisfy the current
independence requirements of the NASDAQ Global Select Market and
the SEC.
Upon the consummation of this offering, our bylaws will provide
that our board of directors consists of no less than three
persons. The exact number of members of our board of directors
will be determined from time to time by resolution of a majority
of our full board of directors. Our board of directors will be
divided into three classes as described below, with each
director serving a three-year term and one class being elected
at each years annual meeting of stockholders.
Messrs. Eck, Sisteron and Hanson will serve initially as
Class I directors (with a term expiring in 2008).
Messrs. Gallagher, Defforey and DiRomualdo will serve
initially as Class II directors (with a term expiring in
2009). Messrs. Heilbronn and Lebow and Ms. Kirby will
serve initially as Class III directors (with a term
expiring in 2010).
Board of
directors committees
Our board of directors has an audit committee, a compensation
committee and a nominating and corporate governance committee.
Upon the consummation of this offering, the composition and
functioning of all of our committees will comply with all
applicable requirements of the NASDAQ and the SEC.
Audit committee.
Upon the consummation of this
offering, the audit committee will consist of
Messrs. Defforey (Chairman), DiRomualdo and Hanson. The
board of directors has determined that each committee member
qualifies as a nonemployee director under SEC rules
and regulations, as well as the independence requirements of the
NASDAQ. The board of directors has determined that
Mr. Defforey qualifies as an audit committee
financial expert under SEC rules and regulations. The
audit committee assists the board of directors in monitoring the
integrity of our financial statements, our independent
auditors qualifications and independence, the performance
of our audit function and independent auditors, and our
compliance with legal and regulatory requirements. The audit
committee has direct responsibility for the appointment,
compensation, retention (including termination) and oversight of
our independent auditors, and our independent auditors report
directly to the audit committee.
71
Compensation committee.
Upon the consummation of
this offering, the compensation committee will consist of
Messrs. Eck (Chairman), Lebow and Heilbronn. The board of
directors has determined that each committee member qualifies as
a nonemployee director under SEC rules and
regulations, as well as the independence requirements of the
NASDAQ. The primary duty of the compensation committee is to
discharge the responsibilities of the board of directors
relating to compensation practices for our executive officers
and other key associates, as the committee may determine, to
ensure that managements interests are aligned with the
interests of our equity holders. The compensation committee also
reviews and makes recommendations to the board of directors with
respect to our employee benefits plans, compensation and
equity-based plans and compensation of directors. The
compensation committee approves the compensation and benefits of
the chief executive officer and all other executive officers.
The board of directors ratifies the compensation of the Chief
Executive Officer.
Nominating and corporate governance committee.
Upon
the consummation of this offering, the nominating and corporate
governance committee will consist of Messrs. Heilbronn
(Chairman), Lebow and Gallagher. The board of directors has
determined that each committee member qualifies as a
nonemployee director under SEC rules and
regulations, as well as the independence requirements of the
NASDAQ. The primary responsibility of the nomination and
corporate governance committee is to recommend to the board of
directors candidates for nomination as directors. The committee
reviews the performance and independence of each director, and
in appropriate circumstances, may recommend the removal of a
director for cause. The committee oversees the evaluation of the
board of directors and management. The committee also recommends
to the board of directors policies with respect to corporate
governance.
72
Compensation
Compensation
discussion and analysis
Philosophy and
overview of compensation
Our executive compensation philosophy is to provide compensation
opportunities that attract, retain and motivate talented key
executives. We accomplish this by:
|
|
|
evaluating the competitiveness and effectiveness of our
compensation programs by benchmarking against other comparable
businesses based on industry, size, results and other relevant
business factors;
|
|
|
linking annual incentive compensation to the companys
performance on key financial, operational and strategic goals
that support stockholder value;
|
|
|
focusing a significant portion of the executives
compensation on equity based incentives to align interests
closely with stockholders; and
|
|
|
managing pay for performance such that pay is tied to business
and individual performance.
|
Our compensation program consists of a fixed base salary,
variable cash bonus and stock option awards, with a significant
portion weighted towards the variable components. This mix of
compensation is intended to ensure that total compensation
reflects our overall success or failure and to motivate
executive officers to meet appropriate performance measures.
Because we have been a private company, historically our
compensation committee has made compensation recommendations to
the board of directors and the full board of directors has
approved the compensation of our executive officers. After
completion of this offering, the compensation committee will
determine the compensation of our executive officers.
From time to time, the compensation committee has used
compensation consultants in order to determine whether our
compensation programs and pay levels are competitive in the
marketplace. However, the compensation committee did not rely
upon any compensation consultant in setting compensation for our
named executive officers, or NEOs, for 2006. Rather compensation
decisions in 2006 were, in part, driven by company discussions
with recruiting consultants and experiences with the hiring of
certain key executives, including our Chief Operating Officer
and Chief Financial Officer. Based on their compensation levels,
which the compensation committee determined were necessary to
hire talented executives, and in a review of general and retail
industry surveys, the compensation committee determined that the
compensation of our Chief Executive Officer, as well as that of
other executives, should be increased to reflect the competitive
marketplace, and to achieve a level of internal pay consistency.
Consequently, we entered into a new employment agreement with
our Chief Executive Officer, as described below.
In 2007, in order to assist the compensation committee in its
responsibilities (including evaluating the competitiveness of
executive compensation levels), the compensation committee
retained an independent outside consultant (Towers Perrin). This
outside consultant was engaged directly by the compensation
committee. Specifically, the consultants role was to work
with the compensation committee to benchmark our compensation to
the marketplace, develop an ongoing equity based program and
provide advice with respect to the overall structure of our
compensation programs. The consultants competitive market data
was based on a review of a
73
peer group of 18 retail industry companies, including: Guitar
Center, Inc., The Childrens Place; CHICOS FAS Inc.;
Timberland Co.; Revlon Inc.; DSW, Inc.; Urban Outfitters; Guess,
Inc.; J.Crew Group Inc.; Fossil Inc.; Coldwater Creek; Panera
Bread Co.; Oakley Inc.; Sharper Image Corp.; Kenneth Cole Prod.
Inc.; Lifetime Fitness Inc.; Hibbert Sports, Inc.; and K-Swiss
Inc. To assist us in our 2007 equity program grants, our
consultant also prepared a binomial option valuation model.
In making its individual compensation determinations, the
Compensation Committee considers the report of individual
performances prepared by Ms. Kirby in her capacity of Chief
Executive Officer. The compensation committee also considers the
accounting and tax impact of each element of compensation and in
the past has tried to minimize the compensation expense impact
of equity grants on our financial statements, while minimizing
the tax consequences to executives.
The following briefly describes each element of our executive
compensation program:
Base salary
Base salaries are reviewed annually and are set based on
individual performance, individual contract negotiation,
competitiveness versus the external market, and internal merit
increase budgets. Factors that are taken into account to
increase or decrease compensation include significant changes in
individual job responsibilities, performance
and/or
our
growth.
Annual bonuses
Each year the compensation committee recommends, and the board
of directors approves, performance targets for Ms. Kirby
and Mr. Barkus. If 100% of these pre-established
performance targets are met, then Ms. Kirby will earn a
target bonus of $812,500 per year and Mr. Barkus will earn
a bonus of $725,000. At least 91% of the performance targets
must be achieved in order for Ms. Kirby or Mr. Barkus
to receive any bonus. In fiscal 2006, Ms. Kirbys and
Mr. Barkus performance targets were based on an
internally defined operating earnings target, or bonus operating
earnings, with a target of $43,792,000. Actual fiscal 2006 bonus
operating earnings was $51,406,000, or an achievement of 117.4%
of the target.
The established bonus operating earnings targets for 2007
represent a substantial stretch beyond the actual results
achieved in 2006. In setting these performance objectives, and
based on 2007 results to date, we realize that the achievement
of the planned performance will be challenging. However, we
believe that stretch performance objectives are appropriate in
pursuit of continuous improvement.
Mr. Bodnar became an employee on October 22, 2006, and
has a target bonus of 40% of his base salary.
Based on achievement of 117.4% of the bonus operating earnings
performance target, Ms. Kirby and Mr. Barkus each were
entitled to 100% of their target bonus. Based on the terms of
his employment, Mr. Bodnar was entitled to 100% of his
target bonus, pro rated to reflect the period of his employment.
Because they exceeded their performance targets, the
compensation committee determined in its discretion as approved
by the Board, to pay Ms. Kirby $100,000, Mr. Barkus
$75,000 and Mr. Bodnar $10,000 as discretionary bonuses.
Based on the terms of employment for Ms. Kirby and
Messrs. Barkus and Bodnar, the board has the discretion to
increase awards in the event the targets are either not achieved
or exceeded.
In addition to his annual performance bonus, as long as
Mr. Barkus is employed on the last day of each fiscal year,
he will receive a bonus of $100,000 beginning with the 2006
fiscal year and ending with the 2011 fiscal year. Such bonus was
agreed to in June of 2006, as a means of
74
allowing Mr. Barkus the opportunity to receive compensation
he would have otherwise lost because the exercise price of his
options was higher than originally intended under the terms of
his employment agreement. In particular, Mr. Barkus was to
receive his options on the date of the first board of directors
meeting following his start date with us, which would have been
in January 2006. Mr. Barkus accepted employment and the
number of options with the expectation that such an option grant
would have a certain value. However, such grant was delayed by
the board of directors until April 2006. Between such dates, the
board of directors, based on all known facts and circumstances,
determined that the fair market value of our stock had
increased, and correspondingly the exercise price of his options
also increased. This increase in the exercise price diminished
the ultimate value of the option grant. As a result, the board
of directors elected to provide the bonus as a means of
providing Mr. Barkus with potential total compensation on
the level anticipated at the time of his employment agreement.
Mr. Weber did not receive a bonus for fiscal 2006, as his
employment terminated during the year.
Stock options
We have historically granted stock options to a broad group of
employees. Employees receive grants of stock options upon hire
or promotion. We have also made grants to executives from time
to time, at the discretion of the board of directors, based on
performance and for retention purposes. Grants made to senior
executives such as Ms. Kirby, Messrs. Barkus and
Bodnar, however, are not determined based on a set formula.
Rather the amount of their option grants is separately
determined by the compensation committee. In particular,
Messrs. Barkus and Bodnars option grants in fiscal
2006 were negotiated as part of their initial compensation
packages at the time of their hire. In determining the amount of
such grants, the compensation committee assessed the potential
value that it thought such options would deliver to
Messrs. Barkus and Bodnar over a period of years based on
its assumptions as to the growth in the value of our common
stock. It then determined whether the potential value realizable
was reasonable given the executives level of
responsibility and experience.
In making such assessment, the compensation committee considered
competitive data available to it through its consultants and
reviewed various hypothetical results based on a variety of
potential appreciation rates for the value of our stock over the
vesting period, recognizing that there was no certainty there
would be any material appreciation or that the company would
become a public company, and that fundamentally the judgment of
what level of options is reasonable for the particular person or
position is related to the executives level of
responsibility and experience, but is still subjective. The
timing of these grants was in each case a function of the date
of the individuals hire, the completion of a stock
valuation, and the date of the next following board of directors
meeting.
Option grants to executive officers have the following
characteristics:
|
|
|
all options have an exercise price equal to the fair market
value of our common stock on the date of grant, which is
determined by our board of directors based on all known facts
and circumstances, including valuations prepared by a nationally
recognized independent third-party appraisal firm;
|
|
|
Except for grants to Ms. Kirby described below and the
grants to Mr. Barkus under his employment agreement,
options vest ratably, on an annual basis over a three or
four-year period; and
|
75
|
|
|
options granted under the 2002 Plan expire ten years after the
date of grant. Options granted under the Old Plan expire
14 years after the date of grant.
|
Pursuant to the terms of his employment agreement,
Mr. Barkus was to receive a grant of 1,000,000 stock
options at the first board of directors meeting following
commencement of his employment. Of those 1,000,000 options,
198,000 options were to vest on the date of grant and
198,000 and 204,000 options were to vest on the first and
second anniversaries of the date of grant, respectively, for a
total of 600,000 of the 1,000,000 options. In addition,
400,000 of the options vest only after an initial public
offering of our common stock, with 50% of such options vesting
on each of the first and second anniversaries of an initial
public offering. The intention of these options was to provide
Mr. Barkus with an incentive to complete an initial public
offering and provide our investors with a means of realizing
value. Because of a delay in the board of directors being able
to determine the fair market value of our common stock,
Mr. Barkus did not receive his option grants until April of
2006. As a result of this delay, the exercise price of the
options increased. Accordingly, the board of directors
determined to grant Mr. Barkus additional guaranteed bonus
compensation of $100,000 each year, as described above. The
board of directors also later determined to change the reference
date for vesting in his first 600,000 options from the grant
date to the commencement date of his employment,
December 12, 2005.
Upon his commencement of employment in October 2006,
Mr. Bodnar was granted 200,000 options that vest over four
years as described above. In addition, the board of directors
agreed to grant to Mr. Bodnar at its July 2007 meeting an
additional 70,000 options. Such options will vest over four
years as described and will have an exercise price equal to the
fair market value of our common stock on the date of grant.
Until June of 2006, Ms. Kirby held 3,000,000 stock options,
all of which were fully vested. In June 2006, Ms. Kirby
exercised all of these options. At that time, we loaned
Ms. Kirby $4,094,340, which was the amount necessary for
her to exercise all of her stock options and pay associated
taxes. This loan was intended to allow Ms. Kirby to gain
favorable tax treatment by exercising the options while the
value of our common stock was relatively low and begin her
capital gain holding period. The terms of the loan are more
fully described below in the description of
Ms. Kirbys employment agreement. On June 29,
2007 Ms. Kirby repaid all outstanding balances on such loan.
As Ms. Kirby did not have any equity compensation subject
to vesting, the board of directors granted Ms. Kirby up to
1,300,000 options at its July 2007 meeting, as follows:
|
|
|
500,000 options with an exercise price equal to the fair
market value of our common stock on the date of grant, and which
vest in four installments starting with 25% at the effective
date of an initial public offering and 25% per year for the next
three anniversary dates of an initial public offering;
|
|
|
500,000 options with an exercise price of
$ , which is
anticipated to be in excess of the fair market value of our
common stock on the date of grant. These options will also vest
in four installments starting with 25% at the effective date of
an initial public offering and 25% per year for the next three
anniversary dates of the initial public offering; and
|
|
|
up to an additional 300,000 options to be granted one-third
annually starting one year after an initial public offering, but
only if a sustained 25% plus increase in share price is achieved
that year. Vesting will be ratable over two years beginning on
the first anniversary of the grant. The exercise price will be
equal to the fair market value on the date the options are
granted.
|
76
As a result, Ms. Kirby will realize value only if there is
an initial public offering, and with respect to a majority
portion of such options only if stockholders also receive
additional value on their investment following an initial public
offering.
Our policy is to set the exercise price of options based on
their fair market value on the date of grant and all options
have been granted at meetings of the board of directors after
consideration and determination of the fair market value of our
common stock based on all known facts and circumstances,
including valuations prepared by a nationally recognized
independent third-party appraisal firm.
Benefits and perquisites
None of the NEOs is eligible for special perquisites or other
benefits that are not available to all of our employees. We
offer a 401(k) plan with matching contributions equal to 40% of
contributions made up to 3% of compensation, group health, life,
accident and disability insurance. In addition, all employees
are entitled to a discount on purchases at our stores.
Summary
compensation table
The following table sets forth the compensation of our Chief
Executive Officer, our Chief Operating Officer, our Chief
Financial Officer and our former Chief Financial Officer for our
fiscal year ending February 3, 2007. We refer to these four
individuals collectively as the NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
incentive plan
|
|
All other
|
|
|
Name and
|
|
Year
|
|
Salary
|
|
Bonus
|
|
awards(1)
|
|
compensation
|
|
compensation
|
|
Total
|
principal
position
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
Lyn P. Kirby
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
|
2006
|
|
|
598,651
|
|
|
100,000
|
|
|
|
|
|
750,000
|
|
|
|
|
|
1,448,651
|
Bruce E. Barkus
Chief Operating Officer(2)
|
|
|
2006
|
|
|
580,008
|
|
|
175,000
|
|
|
296,530
|
|
|
725,000
|
|
|
102,896
|
|
|
1,879,434
|
Gregg R. Bodnar
Chief Financial Officer (Principal Financial Officer)(3)
|
|
|
2006
|
|
|
74,043
|
|
|
10,000
|
|
|
37,006
|
|
|
30,335
|
|
|
58,572
|
|
|
209,956
|
Charles R. Weber
Former Chief Financial Officer(4)
|
|
|
2006
|
|
|
230,525
|
|
|
|
|
|
|
|
|
|
|
|
2,640
|
|
|
233,165
|
|
|
|
|
|
(1)
|
|
Represents the aggregate expense
recognized for financial statement reporting purposes in 2006,
disregarding the purposes of forfeitures related to vesting
conditions, in accordance with the FASBs SFAS No.
123(R),
Share-Based Payment
, for stock option awards
granted during 2006 and prior to 2006 for which we continue to
recognize expense in 2006. The assumptions we used for
calculating the grant date fair values are set forth in
Note 11 to our consolidated financial statements included
in this prospectus.
|
|
(2)
|
|
Mr. Barkus received $102,896
as reimbursement for relocation expenses.
|
|
(3)
|
|
Mr. Bodnars salary is
from his commencement of employment in October of 2006. His
annual base salary for 2006 was set at $275,000. He received
$58,572 as reimbursement for relocation expenses.
|
|
(4)
|
|
Mr. Weber terminated his
employment on October 7, 2006. He received $2,640 in
matching contributions to our 401(k) plan.
|
77
Grants of
plan-based awards
The following table sets forth certain information with respect
to grants of plan-based awards for fiscal 2006 to the NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Exercise or
|
|
Grant date
|
|
|
|
|
|
Estimated future
payouts under
|
|
securities
|
|
base price
|
|
fair value
|
|
|
|
|
|
non-equity
incentive plan awards
|
|
underlying
|
|
of option
|
|
of option
|
Name
|
|
Grant
Date
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
options
|
|
awards(2)
|
|
award(3)
|
|
|
Lyn P. Kirby
|
|
|
2/23/2006
|
(1)
|
|
$
|
75,000
|
|
$
|
750,000
|
|
$
|
750,000
|
|
|
|
|
|
|
|
|
|
Bruce E. Barkus
|
|
|
2/23/2006
|
(1)
|
|
|
72,500
|
|
|
725,000
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
$
|
2.60
|
|
|
|
|
|
|
4/26/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
600,000
|
|
|
2.60
|
|
$
|
296,530
|
Gregg R. Bodnar
|
|
|
10/24/2006
|
(1)
|
|
|
3,033
|
|
|
30,335
|
|
|
30,335
|
|
|
|
|
|
|
|
|
|
|
|
|
10/24/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
5.80
|
|
|
37,006
|
Charles R. Weber
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Amounts shown represent ranges of
potential payouts under annual performance-based bonus program
as of the award date. Actual bonus amounts paid for 2006
performance are shown in the Summary compensation table under
Non-equity incentive plan compensation.
|
|
(2)
|
|
The exercise price of all the
option grants was the price determined to be the fair market
value of our common stock on the grant date by our board of
directors in light of all the facts and circumstances known to
the board of directors, including valuation reports presented by
a nationally recognized independent third-party appraisal firm.
|
|
(3)
|
|
In determining the estimated fair
value of our option awards as of the grant date, we used the
Black-Scholes option-pricing model. The assumptions underlying
our model are described in the notes to our consolidated
financial statements (Note 11Share-based awards),
included in this prospectus.
|
Outstanding
equity awards to Named Executive Officers as of end of fiscal
2006
The following table presents information concerning options to
purchase shares of our common stock held by the NEOs as of the
end of fiscal 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
awards
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
securities
|
|
securities
|
|
|
|
|
|
|
underlying
|
|
underlying
|
|
Option
|
|
|
|
|
unexercised
|
|
unexercised
|
|
exercise
|
|
Option
|
|
|
options
|
|
options
|
|
price per
|
|
expiration
|
Name
|
|
exercisable
|
|
unexercisable
|
|
share
|
|
date
|
|
|
Lyn P. Kirby
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce E. Barkus(1)
|
|
|
346,000
|
|
|
604,000
|
|
$
|
2.60
|
|
|
4/26/2016
|
Gregg R. Bodnar(2)
|
|
|
|
|
|
200,000
|
|
|
5.80
|
|
|
10/24/2016
|
Charles R. Weber
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Mr. Barkus received 1,000,000
options on April 26, 2006, of which 198,000 shares
were vested on the date of grant, 198,000 vested on
December 12, 2006, 204,000 vest on December 12, 2007,
200,000 vest on the first anniversary of an initial public
offering and 200,000 vest on the second anniversary of an
initial public offering. Mr. Barkus transferred these
options to a revocable trust of which he is the beneficiary.
Such transfer was made for estate planning purposes by gift
without any payment therefor.
|
78
|
|
|
(2)
|
|
Mr. Bodnars options were
granted on October 24, 2006 and vest 25% on each
anniversary of the date of grant. Mr. Bodnar transferred these
options to a revocable trust of which he is the beneficiary.
Such transfer was made for estate planning purposes by gift
without any payment therefor.
|
Option exercises
during fiscal 2006
The following table sets forth information regarding options
held by the NEOs that were exercised during fiscal 2006.
|
|
|
|
|
|
|
|
|
|
Number of
shares
|
|
|
|
|
acquired on
|
|
Value realized
on
|
Name
|
|
exercise
|
|
exercise
(1)
|
|
|
Lyn P. Kirby
|
|
|
3,000,000
|
|
$
|
6,120,000
|
Bruce E. Barkus
|
|
|
50,000
|
|
|
160,000
|
Gregg R. Bodnar
|
|
|
|
|
|
|
Charles R. Weber
|
|
|
1,214,894
|
|
|
6,307,190
|
|
|
|
|
|
(1)
|
|
There was no public trading of our
common stock on the dates of exercise. Accordingly, these values
are calculated based on the aggregate difference between the
exercise price of the option and the last determination of fair
market value of our common stock by our board of directors based
on all known facts and circumstances, including valuations
prepared by a nationally recognized independent third-party
appraisal firm.
|
Employment
contracts
We have entered into employment agreements only with our CEO and
COO. No other executives have employment agreements and all are
employed on an at will basis.
Lyn P.
Kirby
On June 23, 2006, we entered into a new employment
agreement with Ms. Kirby. Under such agreement,
Ms. Kirby serves as our President and Chief Executive
Officer, but may transition such duties to a successor and
assume the role of Executive Chairman. The term of the agreement
is through the last day of the fiscal year ending in February
2008, but with annual renewals thereafter unless 60 days
prior notice of non-renewal is given. By the terms of her
agreement, Ms. Kirby is entitled to receive an annual base
salary of $600,000, as may be adjusted from time to time. For
the current fiscal year, Ms. Kirbys adjusted salary
is $650,000. Ms. Kirby may also earn annual cash bonus
targeted at 125% of her base salary based upon the attainment of
pre-established performance criteria.
Ms. Kirby was eligible for a loan from us up to $4,094,340
for her to exercise previously granted and vested options. In
June 2006, we made such a loan, which was secured by the shares
purchased upon exercise of her options and was fully recourse
against her other assets. The loan carried interest at 5.06% per
year. Ms. Kirby was required to pay the outstanding
interest with any bonus compensation that she received while the
loan remained outstanding. Ms. Kirby was able to prepay the
loan at anytime, but was required to repay the loan in full
(i) immediately prior to our becoming an issuer
under the Sarbanes-Oxley Act of 2002, (ii) expiration of
the time period provided under the terms of her option
agreements and our stockholders agreements for the
repurchase of shares following her termination of employment; or
(iii) after five years. On June 29, 2007,
Ms. Kirby repaid the outstanding balance on the loan.
Under the employment agreement, if her employment is terminated
by us without cause, by her for good
reason, or upon the non-renewal of her employment
agreement, Ms. Kirby will
79
receive severance equal to one years base salary (at the
rate in effect on her termination date) payable over twelve
months. Such severance is subject to her delivery of a general
release of claims. In the event of her death or disability,
Ms. Kirby will receive a cash payment equal to one
years base salary (at the rate in effect at that time)
less any amounts she is eligible to receive from any company
provided disability insurance.
Ms. Kirby also has signed our companys policy
regarding non-competition, non-solicitation, and confidential
information that will apply during her employment and for a
period of one year following her termination.
Bruce E.
Barkus
We entered into an employment agreement with Mr. Barkus as
of December 12, 2005. Under this agreement, Mr. Barkus
serves as our Chief Operating Officer. The term of such
agreement is through the last day of the fiscal year ending in
February 2009, but will renew annually thereafter unless
60 days notice of non-renewal is given. By the terms of
this agreement, Mr. Barkus is entitled to receive an annual
base salary of $580,000, as may be adjusted from time to time.
Mr. Barkus may also earn an annual cash bonus beginning
with the 2006 fiscal year, targeted at $725,000 based upon the
attainment of pre-established performance criteria. On
June 28, 2006, we amended his employment agreement to
provide an additional guaranteed annual cash bonus of $100,000
each year beginning in fiscal 2006 until the fiscal year ending
in 2012, provided he is employed by us on such date.
On April 26, 2006 we granted Mr. Barkus options to
purchase up to 1,000,000 shares of our common stock,
198,000 of which vested on the date of grant and 198,000 and
204,000 of which were to vest on the first and second
anniversaries of December 12, 2005, respectively, for a
total of 600,000 of the 1,000,000 options. In addition, 400,000
of the options vest only after an initial public offering of our
common stock, with 50% of such options vesting on each of the
first and second anniversaries of an initial public offering.
These options were all granted with an exercise price per share
equal to the fair market value of our common stock on the date
of grant, as determined by our board of directors based on all
known facts and circumstances, including valuations prepared by
a nationally recognized independent third-party appraisal firm.
All shares of common stock acquired upon exercise of such option
are subject to repurchase rights upon the termination of
employment at the then fair market value as described in the
2002 Plan, however, such repurchase rights will expire upon the
closing of this offering.
If we terminate Mr. Barkus, without cause, he
resigns for good reason, or his employment
terminates upon the non-renewal of his employment agreement, he
will receive severance equal to one years base salary (at
the rate in effect on termination) payable over twelve months.
Such severance is subject to his delivery of a general release
of claims. In the event of his death or disability,
Mr. Barkus will receive a cash payment equal to one
years base salary (at the rate in effect at that time)
less any amount he is eligible to receive from any company
provided disability insurance.
Mr. Barkus has also signed our policy regarding
non-competition, non-solicitation, and confidential information
that will apply during his employment and for a period of one
year following termination.
80
Potential
payments upon termination or change in control
The following chart set forth the amount that each of the NEOs
would receive assuming that their employment was terminated
involuntarily on the last day of the 2006 fiscal year,
February 3, 2007. The amount set forth below regarding
change in control is based on the acceleration of the vesting of
otherwise unvested stock options and assuming the fair market
value of our common stock as of February 3, 2007 of $5.80,
which was the last determination of fair market value of our
common stock by our board of directors prior to such date.
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
not for cause
|
|
|
|
|
|
|
termination/
|
|
Death/
|
|
Change in
|
Name
|
|
good
reason
|
|
disability
|
|
control
|
|
|
Lyn P. Kirby
|
|
$
|
600,000
|
|
$
|
600,000
|
|
|
|
Bruce E. Barkus
|
|
|
580,000
|
|
|
580,000
|
|
$
|
1,932,800
|
Gregg R. Bodnar
|
|
|
|
|
|
|
|
|
|
Charles R. Weber(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Mr. Webers employment
terminated on October 7, 2006 and he received no severance
in connection therewith.
|
Non-executive
director compensation for fiscal 2006
During fiscal 2006, no fees, options or shares of stock were
paid or awarded to any of the non-executive members of our board
of directors. The following table provides information related
to the compensation of our non-employee directors for fiscal
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
compensation
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Fees earned or
|
|
compensation
|
|
Option
|
|
All other
|
|
|
Name
|
|
paid
in cash
|
|
(1)(2)
|
|
compensation
|
|
compensation
|
|
Total
|
|
|
Hervé J.F. Defforey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert F. DiRomualdo
|
|
|
|
|
$
|
83,856
|
|
|
|
|
|
|
|
$
|
83,856
|
Dennis K. Eck
|
|
|
|
|
|
209,640
|
|
|
|
|
|
|
|
|
209,640
|
Gerald R. Gallagher
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry J. Hanson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Heilbronn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven E. Lebow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yves Sisteron
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents the aggregate expense
recognized for financial statement reporting purposes in 2006,
disregarding the purposes of forfeitures related to vesting
conditions, in accordance with the FASBs SFAS No.
123(R),
Share-Based Payment
, for stock option awards
granted prior to 2006 for which we continue to recognize expense
in 2006. The assumptions we used for calculating the grant date
fair values are set forth in Note 11 to our consolidated
financial statements included in this prospectus.
|
|
(2)
|
|
On June 21, 2004, we issued
500,000 shares of common stock to Mr. Eck, pursuant to
a restricted stock agreement. As of February 3, 2007,
125,000 shares remained unvested, but vested in full on
May 1, 2007. On June 21, 2004, we issued
200,000 shares of common stock to Mr. DiRomualdo,
pursuant to a restricted stock agreement under which 25% of the
shares vest annually beginning February 26, 2005, with full
vesting on February 26, 2008. As of February 3, 2007,
Mr. DiRomualdo held 100,000 unvested shares.
|
81
Equity Incentive
Plans
We have granted options pursuant to three plans: the 2002 Plan,
the Old Plan and the Consultants Plan. We will refer to the 2002
Plan, the Old Plan and the Consultants Plan together as the
Prior Plans.
2007 Incentive
Award Plan
We recently adopted the 2007 Incentive Award Plan, or the 2007
Plan. Following its adoption, awards are only being made under
the 2007 Plan, and no further awards will be made under the
Prior Plans.
The 2007 Plan provides for the grant of incentive stock options
as defined in section 422 of the Internal Revenue Code of
1986, as amended, nonstatutory stock options, restricted stock,
restricted stock units, stock appreciation rights, or SARs,
deferred stock, dividend equivalents, performance based awards
(including performance share awards, performance stock units and
performance bonus awards) and stock payments, (collectively
referred to as Awards) to our employees, consultants
and directors.
Share
reserve
The 2007 Plan reserves for issuance upon grant or exercise of
Awards up to 6,500,000 shares of our common stock plus any
shares which are not issued under the Prior Plans. After our
common stock is listed on a securities exchange, and other
subsequent conditions are met, no more than
4,550,000 shares will be granted or $5,000,000 paid in cash
pursuant to Awards which are intended to be performance based
compensation within the meaning of Internal Revenue Code
Section 162(m) to any one participant in a calendar year.
The shares subject to the 2007 Plan, the limitations on the
number of shares that may be awarded under the 2007 Plan and
shares and option prices subject to awards outstanding under the
2007 Plan will be adjusted as the plan administrator deems
appropriate to reflect stock dividends, stock splits,
combinations or exchanges of shares, merger, consolidation, or
other distributions of company assets. As of the date hereof, no
shares of common stock or Awards have been granted under the
2007 Plan.
Shares withheld for taxes, shares used to pay the exercise price
of an option in a net exercise and shares tendered to us to pay
the exercise price of an option or other Award may be available
for future grants of Awards under the 2007 Plan. In addition,
shares subject to stock Awards that have expired, been forfeited
or otherwise terminated without having been exercised may be
subject to new Awards. Shares issued under the 2007 Plan may be
previously authorized but unissued shares or reacquired shares
bought on the open market or otherwise.
Administration
Generally, the board of directors will administer the 2007 Plan,
unless the board delegates this task to a committee of outside
directors. Pursuant to its charter, the board has delegated
administration of our equity incentive plans to the compensation
committee. However, with respect to Awards made to our
non-employee directors or to individuals subject to
Section 16 of the Securities Exchange Act of 1934, the full
board will act as the administrator of the 2007 Plan. The
compensation committee or the full board, as appropriate, has
the authority to:
|
|
|
select the individuals who will receive Awards;
|
82
|
|
|
determine the type or types of Awards to be granted;
|
|
|
|
determine the number of Awards to be granted and the number of
shares to which the Award relates;
|
|
|
|
determine the terms and conditions of any Award, including the
exercise price and vesting;
|
|
|
|
determine the terms of settlement of any Award;
|
|
|
|
prescribe the form of Award agreement;
|
|
|
|
establish, adopt or revise rules for administration of the 2007
Plan;
|
|
|
|
interpret the terms of the 2007 Plan and any matters arising
under the 2007 Plan; and
|
|
|
|
make all other decisions and determinations as may be necessary
to administer the 2007 Plan.
|
The board may delegate its authority to grant or amend Awards
with respect to participants other than senior executive
officers, employees covered by Section 162(m) of the
Internal Revenue Code or the officers to whom the authority to
grant or amend Awards has been delegated.
The compensation committee, with the approval of the board, may
also amend the 2007 Plan. Amendments to the 2007 Plan are
subject to stockholder approval to the extent required by law,
or The Nasdaq National Market rules or regulations.
Additionally, stockholder approval will be specifically required
to increase the number of shares available for issuance under
the 2007 Plan or to extend the term of an option beyond ten
years.
Eligibility
Awards under the 2007 Plan may be granted to individuals who are
our employees or employees of our subsidiaries, our non-employee
directors and our consultants and advisors. However, options
which are intended to qualify as incentive stock options may
only be granted to employees.
Awards
The following will briefly describe the principal features of
the various Awards that may be granted under the 2007 Plan.
Options
Options provide for the right to purchase
our common stock at a specified price, and usually will become
exercisable in the discretion of the compensation committee in
one or more installments after the grant date. The option
exercise price may be paid in cash, shares of our common stock
which have been held by the option holder for a period of time
as determined by the compensation committee, other property with
value equal to the exercise price, through a broker assisted
cash-less exercise or such other methods as the compensation
committee may approve from time to time. Options may take two
forms, nonqualified options, or NQOs, and incentive stock
options, or ISOs.
NQOs may be granted for any term specified by the compensation
committee, but shall not exceed ten years. NQOs may not be
granted at an exercise price that is less than 100% of the fair
market value of our common stock on the date of grant.
83
ISOs will be designed to comply with the provisions of the
Internal Revenue Code and will be subject to certain
restrictions contained in the Internal Revenue Code in order to
qualify as ISOs. Among such restrictions, ISOs must:
|
|
|
have an exercise price not less than the fair market value of
our common stock on the date of grant, or if granted to certain
individuals who own or are deemed to own at least 10% of the
total combined voting power of all of our classes of stock (10%
stockholders), then such exercise price may not be less than
110% of the fair market value of our common stock on the date of
grant;
|
|
|
|
be granted only to our employees and employees of our subsidiary
corporations;
|
|
|
|
expire with a specified time following the option holders
termination of employment;
|
|
|
|
be exercised within ten years after the date of grant, or with
respect to 10% stockholders, no more than five years after the
date of grant;
|
|
|
|
not be first exercisable for more than $100,000 worth,
determined based on the exercise price.
|
No ISO may be granted under the 2007 Plan after ten years from
the date the 2007 Plan is approved by our stockholders.
Restricted Stock
A restricted stock award is the
grant of shares of our common stock at a price determined by the
compensation committee (which price may be zero), is
nontransferable and unless otherwise determined by the
compensation committee at the time of award, may be forfeited
upon termination of employment or service during a restricted
period. The compensation committee shall also determine in the
award agreement whether the participant will be entitled to vote
the shares of restricted stock and or receive dividends on such
shares.
Stock Appreciation Rights
SARs provide for payment
to the holder based upon increases in the price of our common
stock over a set base price. SARs may be granted in connection
with stock options or other Awards or separately. SARs granted
in connection with options will be exercisable only when and to
the extent the option is exercisable and will only entitle the
holder to the difference between the option exercise price and
the fair market value of our common stock on the date of
exercise. Payment for SARs may be made in cash, our common stock
or any combination of the two.
Restricted Stock Units
Restricted stock units
represent the right to receive shares of our common stock at a
specified date in the future, subject to forfeiture of such
right. If the restricted stock unit has not been forfeited, then
on the date specified in the restricted stock we shall deliver
to the holder of the restricted stock unit, unrestricted shares
of our common stock which will be freely transferable.
Dividend Equivalents
Dividend equivalents represent
the value of the dividends per share we pay, calculated with
reference to the number of shares covered by an Award (other
than a dividend equivalent award) held by the participant.
Performance Based Awards
Performance based awards
are denominated in shares of our common stock, stock units or
cash, and are linked to the satisfaction of performance criteria
established by the compensation committee. If the compensation
committee determines that the performance based award to an
employee is intended to meet the requirements of qualified
performance based compensation and therefore is deductible
under Section 162(m) of the Internal Revenue Code, then the
performance based criteria upon which the Awards will be based
84
shall be with reference to any one or more of the following:
net earnings (either before or after interest, taxes,
depreciation and amortization), economic value-added, sales or
revenue, net income (either before or after taxes), operating
earnings, cash flow (including, but not limited to, operating
cash flow and free cash flow), cash flow, return on capital,
return on invested capital, return on net assets, return on
stockholders equity, return on assets, stockholder
returns, return on sales, gross or net profit margin,
productivity, expense, margins, operating efficiency, customer
satisfaction, working capital, earnings per share, price per
share of our common stock, market capitalization and market
share, any of which may be measured either in absolute terms or
as compared to any incremental increase or as compared to
results of a peer group.
Stock Payments
Payments to participants of bonuses
or other compensation may be made under the 2007 Plan in the
form our common stock.
Deferred Stock
Deferred stock typically is awarded
without payment of consideration and is subject to vesting
conditions, including satisfaction of performance criteria. Like
restricted stock, deferred stock may not be sold or otherwise
transferred until the vesting conditions are removed or expire.
Unlike restricted stock, deferred stock is not actually issued
until the deferred stock award has vested. Recipients of
deferred stock also will have no voting or dividend rights prior
to the time when the vesting conditions are met and the deferred
stock is delivered.
Changes in
Control
All Awards granted under the 2007 Plan will be exercisable in
full upon the occurrence of a change in control unless the Award
is assumed by any successor in such change in control, or the
award agreement otherwise provides. In connection with a change
in control, the compensation committee may cause the Awards to
terminate but shall give the holder of the Awards the right to
exercise their outstanding Awards or receive their other rights
under the Awards outstanding for some period of time prior to
the change in control, even though the Awards may not be
exercisable or otherwise payable.
Adjustments
upon Certain Events
The number and kind of securities subject to an Award and the
exercise price or base price may be adjusted in the discretion
of the compensation committee to reflect any stock dividends,
stock split, combination or exchange of shares, merger,
consolidation, or other distribution (other than normal cash
dividends) of company assets to stockholders, or other similar
changes affecting the shares. In addition, upon such events the
compensation committee may provide for (i) the termination
of any Awards in exchange for cash equal to the amount the
holder would otherwise be entitled if they had exercised the
Award, (ii) the full vesting, exercisability or payment of
any Award, (iii) the assumption of such Award by any
successor, (iv) the replacement of such Award with other
rights or property, (v) the adjustment of the number, type
of shares
and/or
the
terms and conditions of the Awards which may be granted in the
future, or (v) that Awards cannot vest, be exercised or
become payable after such event.
Awards Not
Transferable
Generally the Awards may not be pledged, assigned or otherwise
transferred other than by will or by laws of descent and
distribution. The compensation committee may allow Awards other
than ISOs to be transferred for estate or tax planning purposes
to members of the holders family, charitable institutions
or trusts for the benefit of family members. In addition, the
85
compensation committee may allow Awards to be transferred to
so-called blind trusts by a holder of an Award who
is terminating employment in connection with the holders
service with the government, an educational or other non-profit
institution.
Miscellaneous
As a condition to the issuance or delivery of stock or payment
of other compensation pursuant to the exercise or lapse of
restrictions on any Award, the company requires participants to
discharge all applicable withholding tax obligations. Shares
held by or to be issued to a participant may also be used to
discharge tax withholding obligations, subject to the discretion
of the compensation committee to disapprove of such use.
The 2007 Plan will expire and no further Awards may be granted
after the tenth anniversary of its approval by our stockholders
or if later the approval by our board of directors.
Prior
Plans
Our board of directors administers the Prior Plans and as such
has the power to determine the terms and conditions of the
options and rights granted, including:
|
|
|
the exercise price;
|
|
|
the number of shares to be covered by each option;
|
|
|
the vesting and exercisability of the options; and
|
|
|
any restrictions regarding the options.
|
Shares purchased by exercise of options granted under the Prior
Plans are generally subject to a repurchase right in our favor,
and then our preferred stockholders, consecutively. These
repurchase rights are exercisable only upon certain specified
events, including, without limitation, an option holders
termination, divorce, bankruptcy or insolvency. The repurchase
right gives us, and then our preferred stockholders, the
opportunity to purchase shares acquired upon exercise of options
at a price per share equal to the fair market value of our
common stock as of the date of repurchase, as determined by the
board of directors based on all known facts and circumstances,
including valuations prepared by a nationally recognized
independent third-party appraisal firm. The repurchase right
terminates upon a sale of the company or a qualified public
offering such as this offering.
We and then the preferred stockholders, consecutively, also have
a right of first refusal to purchase all, but not less than all,
of any shares acquired upon exercise of options proposed to be
transferred by the original option holder to third parties. This
right is not applicable to transfers (i) pursuant to
applicable laws of descent and distribution or (ii) among a
participants spouse and descendants, and any trust,
partnership or entity solely for the benefit of the option
holder
and/or
the
option holders spouse
and/or
descendants. Any transferee must become a party to and agree to
be bound by the terms of the applicable Prior Plan. The right of
first refusal terminates on the first to occur of (i) the
ninth anniversary of the date of issuance of the restricted
stock, (ii) a qualified public offering (such as this
offering), and (iii) a sale of the company.
Options are generally not transferable. However, upon death,
options may be transferred by the participants will or by
the laws of descent and distribution. Each option is exercisable
during the lifetime of the participant, only by such
participant. However, with the consent of the board
86
of directors, options may be transferred by gift, without
receipt of any consideration, to a member of the option
holders immediate family, including ancestors or siblings,
or to a trust, partnership or entity for the benefit of the
option holder
and/or
such
immediate family members.
The following briefly describes the other unique features of
each of the Prior Plans:
2002 Equity
Incentive Plan
We adopted the 2002 Plan in September 2002 to replace the Old
Plan and the Consultants Plan. The 2002 Plan provides for the
grant of stock options to our employees, directors, and
consultants. Under the 2002 Plan, we may grant both incentive
stock options that qualify for favorable tax treatment under
Section 422 of the Internal Revenue Code, and options that
do not so qualify. The maximum aggregate number of shares of
common stock issuable under the 2002 Plan is 5,686,799, plus any
shares subject to options cancelled under the Old Plan, subject
to adjustments to reflect certain transactions affecting the
number of our common shares outstanding. As of May 5, 2007,
we have 5,189,390 outstanding options under the 2002 Plan.
To date, all options granted under the 2002 Plan have a ten-year
term. Unless otherwise specified at the time of the option
grant, options under the 2002 Plan vest and become exercisable
over four years at a rate of 25% per year provided the optionee
remains employed. In addition, options become 100% vested and
fully exercisable upon death or disability. Options are
immediately cancelled and forfeited upon termination for cause.
Options under the 2002 Plan only accelerate and become vested
and exercisable in connection with a change in control of the
company if they are not assumed by any successor entity in the
transaction.
Options granted under the 2002 Plan must generally be exercised,
to the extent vested, within twelve months of the
optionees termination by reason of death, disability or
retirement, or within three months after such optionees
termination other than for death, disability, retirement or
cause, but in no event later than the expiration of the ten-year
option term.
Second Amended
and Restated Restricted Stock Option Plan
We adopted the Old Plan in December, 1998. It has
subsequently been amended from time to time, including an
amendment that provides that no further grants will be made
under the Old Plan after March 22, 2002. The maximum
aggregate number of shares of common stock issuable under the
Old Plan is 10,143,156, subject to adjustment in the event of
certain corporate transactions affecting the number of shares
outstanding. As of May 5, 2007, we have
861,011 outstanding options under the Old Plan.
Pursuant to the Old Plan, options have a fourteen-year term.
Options granted under the Old Plan vested over four years in 25%
installments on each anniversary of the date of grant. At this
time, all options granted under the Old Plan are fully vested.
However, options may be immediately cancelled and forfeited upon
termination for cause.
In the case of a merger, consolidation, dissolution or
liquidation of the company, the board of directors may
accelerate the expiration date of any option granted under the
Old Plan so long as participants receive a reasonable period of
time to exercise any outstanding options prior to the
accelerated expiration date. In the event of certain corporate
transactions, such as a merger or sale of substantially all of
our assets, the Old Plan provides that (i) all stock
holders will receive the same form and amount of consideration
per share of our common stock, or if any
87
holders are given an option as to the form or amount of
consideration to be received, all holders will receive the same
option; (ii) all common stock holders will, after
considering the conversion price then in effect on our preferred
stock, receive the same form and amount of consideration per
share of our preferred stock; and (iii) all holders of then
exercisable rights to acquire common stock will be given an
opportunity to exercise their rights prior to the consummation
of the corporate transaction and participate in the transaction
as a common stock holder or receive consideration in exchange
for such rights.
Restricted Stock
Option PlanConsultants
We adopted the Consultants Plan in July, 1999, to provide for
grants of options to consultants. A total of 525,000 shares
of common stock were reserved for issuance under the Consultants
Plan, subject to adjustment to reflect certain corporate
transactions affecting the number of shares outstanding. As of
May 5, 2007, there are no outstanding options under the
Consultants Plan. We ceased making grants under the Consultants
Plan on March 12, 2002 upon adoption of the 2002 Plan.
In the case of a merger, consolidation, dissolution or
liquidation of the company, the board of directors may
accelerate the expiration date of any option so long as
participants receive a reasonable period of time to exercise any
outstanding options prior to the accelerated expiration date.
The board of directors may also accelerate the dates on which
any option shall be exercisable under the above circumstances or
in any other case in our best interests. In the event of certain
corporate transactions, such as a merger or sale of
substantially all of our assets, the Consultants Plan provides
that (i) all restricted stock holders will receive the same
form and amount of consideration per share of our common stock,
or if any holders are given an option as to the form or amount
of consideration to be received, all holders will receive the
same option; (ii) all common stock holders will, after
considering the conversion price then in effect on our preferred
stock, receive the same form and amount of consideration per
share of our preferred stock; and (iii) all holders of then
exercisable rights to acquire common stock will be given an
opportunity to exercise their rights prior to the consummation
of the corporate transaction and participate in the transaction
as a common stock holder or receive consideration in exchange
for such rights.
Compensation
committee interlocks and insider participation
None of the members of our compensation committee has at any
time been one of our officers or employees. None of our
executive officers currently serves, or in the past year has
served, as a member of the board of directors or compensation
committee, or other committee serving an equivalent function, of
any entity that has one or more executive officers serving on
our board of directors or compensation committee.
Limitation of
liability and indemnification of officers and
directors
Our amended and restated certificate of incorporation provides
that to the fullest extent permitted by Delaware law our
directors will not be liable to the company or its stockholders
for monetary damages for a breach of fiduciary duty as a
director. The duty of care generally requires that, when acting
on behalf of the corporation, directors exercise an informed
business judgment based on all material information reasonably
available to them. Consequently, a
88
director will not be personally liable to us or our stockholders
for monetary damages for breach of fiduciary duty as a director,
except for liability for:
|
|
|
any breach of the directors duty of loyalty to us or our
stockholders;
|
|
|
|
any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
|
|
|
|
any act related to unlawful stock repurchases, redemptions or
other distributions or payment of dividends; or
|
|
|
|
any transaction from which the director derived an improper
personal benefit.
|
If Delaware law is amended to authorize corporate action further
eliminating or limiting the personal liability of a director,
then the liability of our directors will be eliminated or
limited to the fullest extent permitted by Delaware law, as so
amended. These limitations of liability do not generally affect
the availability under Delaware law of equitable remedies such
as injunctive relief, rescission, or other forms of non-monetary
relief. and do not generally affect a directors
responsibilities under any other laws, such as the federal
securities laws or other state or federal laws.
As permitted by Delaware law, our amended and restated bylaws
provide that:
|
|
|
we shall indemnify our directors and officers, and may indemnify
our employees and other agents, to the fullest extent permitted
by the Delaware law and we may advance expenses to our
directors, officers, and other agents in connection with a legal
proceeding, subject to limited exceptions; and
|
|
|
we may purchase and maintain insurance on behalf of our current
or former directors, officers, employees, fiduciaries or agents
against any liability asserted against them and incurred by them
in any such capacity, or arising out of their status as such.
|
At present, there is no pending litigation or proceeding
involving any of our directors, officers, employees or agents in
which indemnification by us is sought, nor are we aware of any
threatened litigation or proceeding that may result in a claim
for indemnification.
89
Certain
relationships and related party transactions
Since the beginning of fiscal 2004, we have engaged in the
following transactions with our directors, executive officers,
and holders of five percent or more of our common stock.
Stock option loan
and transactions relating to our common stock
Pursuant to the terms of Ms. Kirbys employment
agreement with ULTA, upon Ms. Kirbys request, the
company loaned $4,094,340 to Ms. Kirby pursuant to a
secured promissory note, dated June 30, 2006, to allow
Ms. Kirby to exercise previously granted options to
purchase shares of our common stock. This loan was secured by
the shares purchased upon exercise of the options and was with
recourse against Ms. Kirbys other assets. The loan
carried interest at 5.06% per year. Ms. Kirby was required
to pay the outstanding interest with any bonus compensation that
she received while the loan remained outstanding. Ms. Kirby
was able to prepay the loan at anytime, but was required to
repay the loan in full (i) immediately prior to our
becoming an issuer under the Sarbanes-Oxley Act of
2002, (ii) prior to expiration of the time period provided
under the terms of her option agreements and our
stockholders agreements for the repurchase of shares
following her termination of employment; or (iii) after
five years. Ms. Kirby repaid the loan in full on
June 29, 2007.
In December 2006, in connection with the retirement of Charles
R. Weber, our former Chief Financial Officer, we made a payment
of $759,932 to Mr. Weber pursuant to a stock purchase
agreement. This payment was for our net obligation to
Mr. Weber resulting from the following transactions:
(i) our purchase from Mr. Weber, at $5.80 per share,
of 334,680 previously-issued shares of our common stock;
(ii) the exercise by Mr. Weber of 1,214,894
previously-granted stock options, applying proceeds from the
above stock sale toward the exercise price; (iii) our
purchase from Mr. Weber, at $5.80 per share, of 414,894 of
the shares of common stock resulting from the above options
exercise; and (iv) our withholding of $2,486,261, an amount
requested by Mr. Weber, for taxes due upon exercise of his
stock options. After the consummation of this transaction,
Mr. Weber continued to own and hold 800,000 shares of
our common stock, which, pursuant to the stock purchase
agreement, he will be restricted from selling or otherwise
transferring for 180 days following this offering.
On June 21, 2004, we issued 500,000 shares of common
stock to one of our directors, Dennis Eck, pursuant to a
restricted stock agreement under which 100% of the shares were
vested as of May 1, 2007. Mr. Eck did not pay any
consideration for this stock, and we recognized an aggregate
expense of $209,640 for financial statement reporting purposes.
See CompensationNon-Executive director compensation
for fiscal 2006.
On June 21, 2004, we issued an additional
484,848 shares of common stock to Mr. Eck in exchange
for $799,999.
On June 21, 2004, we issued 200,000 shares of common
stock to one of our directors, Bob DiRomualdo, pursuant to a
restricted stock agreement under which 25% of the shares vest
annually beginning February 26, 2005. Mr. DiRomualdo
will be 100% vested with respect to this stock as of
February 26, 2008. Mr. DiRomualdo did not pay any
consideration for this stock, and we recognized an aggregate
expense of $83,856 for financial statement reporting purposes.
See CompensationNon-Executive director compensation
for fiscal 2006.
On June 21, 2004, we issued an additional
424,242 shares of common stock to Mr. DiRomualdo in
exchange for $699,999.
90
Registration
rights agreement
Upon the consummation of this offering, the holders of five
percent or more of our common stock and certain of our
directors, among others, will enter into a Third Amended and
Restated Registration Rights Agreement with us relating to the
shares of common stock they hold. See Description of
capital stockRegistration rights and Shares
eligible for future saleRegistration rights.
Transactions with
vendors
Charles Heilbronn, one of our directors, is Executive Vice
President and Secretary, as well as a director, of Chanel, Inc.
In 2004, 2005 and 2006, Chanel, Inc. sold to ULTA
$3.8 million, $3.9 million and $4.6 million of
fragrance, respectively, on an arms length basis pursuant
to Chanels standard wholesale terms, and is expected to
sell approximately $5.2 million of fragrance to ULTA during
2007.
Mr. Heilbronn is also a
Membre du Conseil de
Surveillance
(a non-executive board of trustees) of Bourjois
SAS (France), the parent company of Bourjois, Ltd. (U.S.). In
2004, 2005 and 2006, Bourjois, Ltd. sold to ULTA
$2.1 million, $2.2 million and $2.6 million of
beauty products, respectively, on an arms length basis
pursuant to Bourjois standard wholesale terms, and is
expected to sell approximately $3.0 million of beauty
products to ULTA during 2007.
Review and
approval of related party transactions
Our current policy regarding the review and approval of
related-party transactions, which is not written, is for such
transactions to be approved by a majority of the members of our
board of directors who are not party to the transaction and do
not have a direct or indirect material economic interest in an
entity that is party to the transaction. With one exception, all
of the transactions set forth above were approved by the board
in accordance with this policy. Only the transactions involving
Chanel, Inc., described above under Transactions with
vendors, were not approved pursuant to this policy because
the board believed the transactions were so clearly
arms-length in nature that doing so was unnecessary.
Upon the consummation of this offering, our audit committee,
pursuant to its amended charter, will review and approve all
related-party transactions. For a discussion of the composition
and responsibilities of our audit committee, see
ManagementBoard of directors committees.
91
Principal
stockholders
The following table presents information concerning the
beneficial ownership of the shares of our common stock as of
May 5, 2007 by:
|
|
|
each person we know to be the beneficial owner of 5% of more of
our outstanding shares of common stock;
|
|
|
each of our NEOs;
|
|
|
each of our directors; and
|
|
|
all of our executive officers and directors as a group.
|
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Unless otherwise indicated below, to
our knowledge, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares
beneficially owned by them, subject to community property laws
where applicable. Shares of our common stock subject to options
that are currently exercisable or exercisable within
60 days of May 5, 2007 are deemed to be outstanding
and to be beneficially owned by the person holding the options
for the purpose of computing the percentage ownership of that
person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
This table lists applicable percentage ownership based on
77,411,747 shares of common stock outstanding as of
May 5, 2007, after giving effect to the conversion of our
outstanding convertible preferred stock into
65,702,530 shares of common stock concurrently with the
closing of this offering. Unless otherwise indicated, the
address for each of the beneficial owners in the table below is
c/o Ulta
Salon, Cosmetics & Fragrance, Inc., 1135 Arbor Drive,
Romeoville, Illinois 60446.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
shares
|
|
Percentage
|
|
|
beneficially
owned
|
|
beneficially
owned
|
|
|
Prior to
|
|
After
|
|
Prior to
|
|
|
After
|
Name
and address of beneficial owner
|
|
offering
|
|
offering
|
|
offering
|
|
|
offering
|
|
|
Five percent
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GRP II, L.P. and affiliated
entities(1)
2121 Avenue of the Stars
31st Floor
Los Angeles, California
90067-5014
Attn: Steven Dietz
|
|
|
20,386,989
|
|
|
|
|
|
26.34
|
%
|
|
|
|
Doublemousse B.V.(2)
Boerhaavelaan 22
2713 HX Zoetermeer
The Netherlands
Attn: Charles Heilbronn
|
|
|
17,451,696
|
|
|
|
|
|
22.54
|
%
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
shares
|
|
Percentage
|
|
|
beneficially
owned
|
|
beneficially
owned
|
|
|
Prior to
|
|
After
|
|
Prior to
|
|
|
After
|
Name
and address of beneficial owner
|
|
offering
|
|
offering
|
|
offering
|
|
|
offering
|
|
|
Five percent stockholders
(continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oak Investment
Partners VII, L.P. and affiliated entities(3)
Oak Management Corporation
Wells Fargo Center
90 South 7th Street
Suite 4550
Minneapolis, Minnesota 55402
Attn: Gerald R. Gallagher
|
|
|
10,039,113
|
|
|
|
|
|
12.97
|
%
|
|
|
|
NEOs and directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyn P. Kirby
|
|
|
4,000,000
|
|
|
|
|
|
5.17
|
%
|
|
|
|
Bruce E. Barkus(4)
|
|
|
396,000
|
|
|
|
|
|
*
|
|
|
|
|
Gregg R. Bodnar
|
|
|
|
|
|
|
|
|
*
|
|
|
|
|
Charles R. Weber(5)
|
|
|
800,000
|
|
|
|
|
|
1.03
|
%
|
|
|
|
Hervé J.F. Defforey(6)
|
|
|
20,511,989
|
|
|
|
|
|
26.50
|
%
|
|
|
|
Robert F. DiRomualdo
|
|
|
942,750
|
|
|
|
|
|
1.22
|
%
|
|
|
|
Dennis K. Eck(7)
|
|
|
1,109,848
|
|
|
|
|
|
1.43
|
%
|
|
|
|
Gerald R. Gallagher(8)
|
|
|
10,039,113
|
|
|
|
|
|
12.97
|
%
|
|
|
|
Terry J. Hanson(9)
|
|
|
1,627,329
|
|
|
|
|
|
2.10
|
%
|
|
|
|
Charles Heilbronn(10)
|
|
|
17,576,696
|
|
|
|
|
|
22.71
|
%
|
|
|
|
Steven E. Lebow(11)
|
|
|
21,798,242
|
|
|
|
|
|
28.16
|
%
|
|
|
|
Yves Sisteron(12)
|
|
|
20,692,868
|
|
|
|
|
|
26.73
|
%
|
|
|
|
All current directors and
executive officers as a group (11 persons)(13)
|
|
|
57,920,857
|
|
|
|
|
|
74.82
|
%
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of
(i) 10,961,224 shares held by GRP II, L.P. (GRP
II), (ii) 4,641,753 shares held by Global Retail
Partners, L.P. (GRP I),
(iii) 1,383,146 shares held by DLJ Diversified
Partners, L.P. (DLJ Diversified);
(iv) 915,022 shares held by GRP Management Services
Corp. (GRPMSC) as escrow agent for GRP II;
(v) 846,586 shares held by GRP II Investors, L.P.
(GRP II Investors); (v) 513,546 shares
held by DLJ Diversified Partners A, L.P. (DLJ
Diversified A); (vi) 319,573 shares held by
Global Retail Partners Funding, Inc. (GRP Funding);
(vii) 311,299 shares held by GRP II Partners, L.P.
(GRP II Partners); (viii) 301,417 shares
held by GRP Partners, L.P. (GRP I Partners);
(ix) 82,249 shares held by GRPMSC as escrow agent for
GRP II Investors; (x) 80,330 shares held by DLJ ESC
II, L.P. (DLJ ESC) and (xi) 30,844 shares
held by GRPMSC as escrow agent for GRP II Partners. Each of GRP
II, GRP II Investors and GRP II Partners may be deemed to share
beneficial ownership of all of its shares held by GRPMSC as
escrow agent (as described above). GRPVC, L.P.
(GRPVC) is the general partner of each of GRP II and
GRP II Partners, and GRPMSC is the general partner of GRPVC.
Merchant Capital, Inc. (Merchant Capital) is the
general partner of GRP II Investors. Global Retail Partners,
Inc. (GRP Inc) and Retail Capital Partners, L.P.
(Retail Capital) are the general partners of
GRP I, and GRP Inc is the general partner of Retail
Capital. GRP Inc is also the general partner of GRP I Partners.
DLJ Diversified Partners, Inc. (DLJ Diversified Inc)
is the general partner of DLJ Diversified A and DLJ Diversified,
and DLJ LBO Plans Management Corporation (DLJLBO) is
the general partner of DLJ ESC. Merchant Capital, GRP Inc, GRP
Funding, DLJLBO and DLJ Diversified Inc (collectively, the
CS Entities) are each wholly-owned subsidiaries of
Credit Suisse First Boston Private Equity, Inc.
(CSFBPE), and CSFBPE is a wholly-owned subsidiary of
Credit Suisse (USA), Inc. (CS USA). Credit Suisse
Holdings (USA), Inc. (CS Holdings) owns all of the
voting stock of CS USA. Credit Suisse, a Swiss bank, owns a
majority of the voting stock, and all of the non-voting stock,
of CS Holdings. Credit Suisses subsidiaries to the extent
that they constitute the Investment Banking division, the
Alternative Investments business within the Asset Management
division and the U.S. private client services business
within the Private Banking division of Credit Suisse
(collectively, the CS Reporting Person) may be
deemed to share indirect beneficial ownership of the shares
beneficially owned by the CS Entities. Therefore, the CS
Reporting Person may be deemed to beneficially own
8,168,600 shares, which is 10.6% of the shares of common
stock outstanding as of May 5, 2007 (after giving effect to
the conversion of ULTAs outstanding convertible preferred
stock into 65,702,530 shares of common stock concurrently
with the closing of this offering). Pursuant to a services
agreement, GRPMSC appoints a majority of the investment
committee members of GRP I (which also controls the investment
decisions of GRP I Partners). Mr. Lebow, Mr. Sisteron
and Mr. Defforey are members of the investment committee of
GRPMSC and, together with the other members, Steven Dietz and
Brian McLoughlin
|
93
|
|
|
|
|
(collectively, the GRP
Principals), may be deemed to possess indirect shared
beneficial ownership of the shares owned by each of the
foregoing entities. However, none of the GRP Principals, acting
alone, has voting or investment power with respect to such
shares and, as a result, each of them disclaims beneficial
ownership of all such shares except to the extent of their
pecuniary interest in such shares.
|
|
|
|
(2)
|
|
Mr. Heilbronn has been granted
a power of attorney and proxy to exercise voting and investment
power with respect to all of the shares shown as beneficially
owned by Doublemousse B.V. Pursuant to this authority,
Mr. Heilbronn makes all voting and investment decisions
with respect to all such shares and may be deemed to
beneficially own all such shares.
|
|
|
|
(3)
|
|
Of the 10,039,113 shares of
common stock shown as beneficially owned by entities affiliated
with Oak Investment Partners VII, L.P., Oak Investment Partners
VII, L.P. holds 9,671,223 shares and 121,938 shares
issuable pursuant to options exercisable at $0.40 per share, and
Oak VII Affiliates Fund, L.P. holds 242,890 shares and
3,062 shares issuable pursuant to options exercisable at
$0.40 per share. Oak Associates VII, LLC is the general partner
of Oak Investment Partners VII, L.P. and Oak VII Affiliates, LLC
is the general partner of Oak VII Affiliates Fund, L.P.
Mr. Gallagher and four other individuals, Bandel L. Carano,
Edward F. Glassmeyer, Fredric W. Harman and Anne H. Lamont, are
the managing members of both Oak Associates VII, LLC and Oak VII
Affiliates, LLC, and as such, may be deemed to possess shared
beneficial ownership of the shares of common stock held by Oak
Investment Partners VII, L.P. and Oak VII Affiliates Fund, L.P.
However, none of the five individuals named above, acting alone,
has voting or investment power with respect to such shares and,
as a result, disclaim beneficial ownership of all such shares
except to the extent of their pecuniary interest in such shares.
|
|
|
|
(4)
|
|
Includes 125,000 shares held
by Elaine M. Barkus and Bruce E. Barkus, as co-trustees of the
Elaine M. Barkus Revocable Trust, and 271,000 shares
issuable pursuant to options exercisable at $2.60 per share,
over all of which Mr. Barkus has shared voting power and
shared investment power.
|
|
|
|
(5)
|
|
Mr. Weber is no longer an
employee of ULTA. His address is Rec Room Inc., 1600 E.
Algonquin Road, Algonquin, Illinois 60102-9669.
|
|
|
|
(6)
|
|
Of the 20,511,989 shares of
common stock shown as beneficially owned by Mr. Defforey,
Mr. Defforey holds directly 125,000 shares issuable
pursuant to options exercisable at $1.65 per share, over which
he has sole voting power and sole investment power. The
remaining 20,386,989 shares are held by the entities
affiliated with GRP II, L.P. listed above in footnote (1). With
the exception of the 125,000 shares held directly by
Mr. Defforey, Mr. Defforey has shared voting power and
shared investment power with respect to all remaining shares of
common stock shown as beneficially owned by him, as indicated in
footnote (1). Mr. Defforey disclaims beneficial ownership
of all such remaining shares of common stock, and this
prospectus shall not be deemed an admission that
Mr. Defforey is a beneficial owner of such shares for
purposes of the Securities Exchange Act of 1934, except to the
extent of his pecuniary interest in such shares.
|
|
|
|
(7)
|
|
Of the 1,109,848 shares of
common stock shown as beneficially owned by Mr. Eck,
Mr. Eck directly holds 928,598 shares and
31,250 shares issuable pursuant to options exercisable at
$1.65 per share, over which he has sole voting power and sole
investment power, and Sarah Louise Eck Thompson and Keith Lester
Eck hold 100,000 and 50,000 shares, respectively. Under the
terms of the Eck Family Trust, Mr. Eck has shared voting
power and shared investment power with respect to the
150,000 shares held by Sarah Louise Eck Thompson and Keith
Lester Eck. Mr. Eck disclaims beneficial ownership of all
such shares held by Sarah Louise Eck Thompson and Keith Lester
Eck, and this prospectus shall not be deemed an admission that
Mr. Eck is a beneficial owner of such shares for purposes
of the Securities Exchange Act of 1934.
|
|
|
|
(8)
|
|
Mr. Gallagher beneficially
owns all 10,039,113 shares of common stock and shares
issuable pursuant to options held by the entities affiliated
with Oak Investment Partners VII, L.P., as set forth above in
footnote (3). Mr. Gallagher shares voting and investment
power with respect to the 9,671,223 shares held by Oak
Investment Partners VII, L.P. and the 242,890 shares held
by Oak VII Affiliates Fund, L.P. with Bandel L. Carano, Edward
F. Glassmeyer, Fredric W. Harman and Anne H. Lamont. However,
none of these five individuals, acting alone, has voting or
investment power with respect to such shares and, as a result,
disclaim beneficial ownership of all such shares except to the
extent of their pecuniary interest in such shares.
|
|
|
|
(9)
|
|
Of the 1,627,329 shares of
common stock shown as beneficially owned by Mr. Hanson,
Mr. Hanson holds 1,227,329 shares directly and Hanson
Family Investments, L.P. holds 400,000 shares.
Mr. Hanson has sole voting power and sole investment power
with respect to all such shares.
|
|
|
|
(10)
|
|
Of the 17,576,696 shares of
common stock shown as beneficially owned by Mr. Heilbronn,
Mr. Heilbronn holds 125,000 shares directly and is
deemed to beneficially own all 17,451,696 shares of common
stock held by Doublemousse B.V. Mr. Heilbronn has sole
voting power and sole investment power with respect to the
125,000 shares he holds directly, and he has been granted a
power of attorney and proxy to exercise voting and investment
power with respect to all of the shares shown as beneficially
owned by Doublemousse B.V. Pursuant to this authority,
Me. Heilbronn makes all voting and investment decisions
with respect to all such shares and may be deemed to
beneficially own all such shares.
|
|
|
|
(11)
|
|
Of the 21,798,242 shares of
common stock shown as beneficially owned by Mr. Lebow,
Mr. Lebow holds 125,000 shares directly, Steven and
Susan Lebow Trust dated
12-16-02
holds 1,025,823 shares, The Michael Harvey Lebow
Irrevocable Trust holds 130,215 shares, and The Matthew
Allan Lebow Irrevocable Trust holds 130,215 shares. The
remaining 20,386,989 shares are held by the entities
affiliated with GRP II, L.P. listed above in footnote (1). With
the exception of the 125,000 shares held directly by
Mr. Lebow, with respect to which he has sole voting power
and sole investment power, Mr. Lebow has shared voting
power and shared investment power with respect to all remaining
shares of common stock shown as beneficially owned by him as
indicated in footnote (1). Mr. Lebow disclaims
beneficial ownership of all such remaining shares of common
stock, and this prospectus shall not be deemed an admission that
Mr. Lebow is a beneficial owner of such shares for purposes
of the Securities Exchange Act of 1934, except to the extent of
his pecuniary interest in such shares.
|
|
|
|
(12)
|
|
Of the 20,692,868 shares of
common stock shown as beneficially owned by Mr. Sisteron,
Mr. Sisteron holds 282,945 shares directly and SEP for
the benefit of Yves Sisteron, Donaldson Lufkin Jenrette
Securities Corporation as custodian holds 22,934 shares.
The remaining 20,386,989 shares are held by the entities
affiliated with GRP II, L.P. listed above in footnote (1). With
the exception of the 305,879 shares held directly by
Mr. Sisteron and by SEP for the benefit of Yves Sisteron,
Donaldson Lufkin Jenrette Securities Corporation as custodian,
over which he has sole voting power and sole investment
|
94
|
|
|
|
|
power, Mr. Sisteron shares
voting power and investment power with respect to all remaining
shares of common stock shown as beneficially owned by him as
indicated in footnote (1). Mr. Sisteron disclaims
beneficial ownership of all such remaining shares, and this
prospectus shall not be deemed an admission that
Mr. Sisteron is a beneficial owner of such shares for
purposes of the Securities Exchange Act of 1934, except to the
extent of his pecuniary interest in such shares.
|
|
|
|
(13)
|
|
Excludes shares beneficially owned
by Mr. Weber because he is not a current executive officer
of ULTA. Counts only once the 20,386,989 shares
beneficially owned by Messrs. Defforey, Lebow and Sisteron,
which are held by the entities affiliated with GRP II, L.P.
listed above in footnote (1).
|
95
Selling
stockholders
The following table presents information concerning the
beneficial ownership of the shares of our common stock as of
[ ],
2007 by each selling stockholder.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares
|
|
|
|
|
|
|
|
|
|
|
|
|
offered if
|
|
|
Number of
shares
|
|
|
|
Percentage
|
|
over-
|
|
|
beneficially
owned
|
|
Number of
|
|
beneficially
owned
|
|
allotment
|
|
|
Prior to
|
|
After
|
|
shares
|
|
Prior to
|
|
After
|
|
option is
|
Name
of beneficial owner
|
|
offering
|
|
offering
|
|
offered
|
|
offering
|
|
offering
|
|
exercised
|
|
|
Appomattox Foundation
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Bank of America Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Bankamerica Ventures
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Bloomquist, Glynn
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
DeGiaimo, Vincent
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Dyvig, Peter
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Eley, Stephen J.
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Fidas Business SA
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Fournier, Jacques
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Fournier, Marie-Pierre
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Goodrich, Hoyt J.
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Goodrich, Timothy
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Goodwin, J. Barton
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Hayes, Douglas and Connie
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Hewitt B. Shaw and R. Steven
Kestner, current
Co-Trustees
U/A Robert G. Markey Trust
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Horton Jr., Theodore
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
JPMorgan Chase Bank, as Trustee
for General Motors Hourly Employees Pension Trust
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
JPMorgan Chase Bank, as Trustee
for General Motors Salaried Employees Pension Trust
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Kully, Thomas R. Revocable Trust
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Lazarus Family Investments, LLC
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Meisenbach, John
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Miller, James
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Ritt, Steve
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares
|
|
|
|
|
|
|
|
|
|
|
|
|
offered if
|
|
|
Number of
shares
|
|
|
|
Percentage
|
|
over-
|
|
|
beneficially
owned
|
|
Number of
|
|
beneficially
owned
|
|
allotment
|
|
|
Prior to
|
|
After
|
|
shares
|
|
Prior to
|
|
After
|
|
option is
|
Name
of beneficial owner
|
|
offering
|
|
offering
|
|
offered
|
|
offering
|
|
offering
|
|
exercised
|
|
|
Roth, Roger Morse
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Remey, Donald P.
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Schultz, Howard
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
SG Cowen
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Smith, Orin
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Swift, Lisa Goodrich
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Woo, Warren
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
|
|
97
Description of
capital stock
The following is a summary of the rights of our common stock and
preferred stock and related provisions of our amended and
restated certificate of incorporation, by-laws and stockholder
rights agreement, as they will be in effect upon the
consummation of this offering. This description is only a
summary. For more detailed information, please see our amended
and restated certificate of incorporation, by-laws and
stockholder rights agreement, which will be filed as exhibits to
the registration statement of which this prospectus is a part.
The descriptions of the common stock and preferred stock reflect
changes to our capital structure that will occur upon the
consummation of this offering.
General
As of May 5, 2007, there were 11,709,217 shares of
common stock, par value $.01 per share, issued and outstanding
and 70,494,831.34 shares of preferred stock issued and
outstanding, of which:
|
|
|
16,768,882 were designated as Series I convertible
preferred stock, par value $.01 per share;
|
|
|
7,420,130 were designated as Series II convertible
preferred stock, par value $.01 per share;
|
|
|
4,792,302 were designated as Series III non-convertible
preferred stock, par value $.01 per share;
|
|
|
19,145,558 were designated as Series IV convertible
preferred stock, par value $.01 per share;
|
|
|
21,447,959.34 were designated as Series V convertible
preferred stock, par value $.01 per share; and
|
|
|
920,000 were designated as
Series V-1
convertible preferred stock, par value $.01 per share.
|
Upon the consummation of this offering, all outstanding shares
of our Series III non-convertible preferred stock will be
redeemed for an aggregate of approximately $4.8 million
(which will be paid using the proceeds from this offering) and
all other outstanding shares of our preferred stock will be
converted on a one-for-one basis into an aggregate of
65,702,530 shares of our common stock pursuant to our
amended and restated certificate of incorporation. Upon the
consummation of this offering, our authorized capital stock will
consist of 400,000,000 shares of common stock, par value
$.01 per share, and 70,000,000 shares of preferred stock,
par value $.01, per share, all of which preferred stock shall be
undesignated. Our board of directors may establish the rights
and preference of the preferred stock from time to time, without
stockholder approval.
Common
stock
Outstanding
shares
As of May 5, 2007, there were 11,709,217 shares of
common stock issued and outstanding, held by 225 holders of
record of our common stock.
Options
As of May 5, 2007, there were outstanding options to
purchase 6,050,401 shares of our common stock, of which
3,255,294 were vested, at a weighted average exercise price for
all outstanding
98
options of $2.34 per share. Substantially all of the shares
issued upon the exercise of such options will be subject to
180-day
lock-up
agreements entered into with the underwriters.
Voting
rights
Subject to any preferential voting rights of any outstanding
preferred stock, each holder of our common stock is entitled to
one vote for each share on all matters submitted to a vote of
the stockholders. Our amended and restated certificate of
incorporation and by-laws do not provide for cumulative voting
rights. Because of this the holders of a majority of the shares
of common stock entitled to vote in any election of directors
can elect all of the directors standing for election, if they
should so choose.
Dividends
Subject to the preferences that may be applicable to any then
outstanding preferred stock, holders of common stock are
entitled to receive ratably those dividends, if any, as may be
declared from time to time by our board of directors out of
legally available funds.
Liquidation
Upon liquidation, dissolution or
winding-up
of the company, the holders of common stock are entitled to
share ratably in all assets available for distributions after
payment in full to creditors and payment of any liquidation
preference, if any, in respect of then outstanding shares of
preferred stock.
Rights and
preferences
Shares of common stock are not convertible into any other class
of capital stock. Holders of shares of common stock are not
entitled to preemptive or subscription rights and there are no
redemption or sinking fund provisions applicable to the common
stock. The rights, preferences, and privileges of the holders of
common stock are subject to, and may be adversely affected by,
the rights of the holders of any shares of any series of
preferred stock which we may designate in the future.
Preferred
stock
Upon the consummation of this offering, our board of directors
will have the authority, without further action by the
stockholders, to issue up to 70,000,000 shares of preferred
stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the
rights, preferences and privileges of the shares of each series
and any qualifications, limitations or restrictions thereon, and
to increase or decrease the number of shares of any such series
(but not below the number of shares of such series outstanding).
The purpose of authorizing our board of directors to issue
preferred stock and determine its rights and preferences is to
eliminate delays associated with a stockholder vote on specific
issuances.
Our board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of the
common stock and could have anti-takeover effects, including
preferred stock or rights to acquire preferred stock in
connection with our stockholder rights agreement discussed
below. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect
of delaying, deferring or preventing a change in control and may
adversely affect the market price
99
of the common stock and the voting and other rights of the
holders of common stock. We have no current plans to issue any
shares of preferred stock.
Registration
rights
Upon the consummation of this offering, the Third Amended and
Restated Registration Rights Agreement with certain of our
stockholders, which is filed as an exhibit to the registration
statement of which this prospectus is a part, will become
effective. Pursuant to this agreement, certain holders of
Conversion Registrable Securities (which include
shares of common stock issued upon the conversion of
Series I, Series II, Series IV, Series V and
Series V-1
convertible preferred stock) may, at any time, subject to
certain terms and conditions, require us to file with the SEC
and cause to be declared effective a long-form registration
statement on
Form S-1
or a short-form registration on
Form S-3
covering the resale of all shares of common stock held by such
persons. Subject to the limitation that we will only be
obligated to undertake an aggregate of three long-form
registrations and three short-form registrations with respect to
the Conversion Registrable Securities (the expenses related to
which we will pay), we will be required to undertake such
registration:
|
|
|
Upon the request of the holders of no less than a majority of
Conversion Registrable Securities in the case of a long-form
registration; provided, that the anticipated aggregate offering
price of the Conversion Registrable Securities covered by such
registration exceeds $20 million net of underwriting
discounts and commissions; or
|
|
|
Upon the request of the holders of no less than 25% of
Conversion Registrable Securities in the case of a short-form
registration; provided, that the anticipated aggregate offering
price of the Conversion Registrable Securities covered by such
registration exceeds $5 million net of underwriting
discounts and commissions.
|
Additionally, whenever we propose to register any of our common
stock or other securities convertible or exchangeable into or
exercisable for common stock, under the Securities Act, the
holders of Registrable Securities (which includes
Conversion Registrable Securities, any shares of common stock
held by persons holding Conversion Registrable Securities, and
shares of common stock held by Richard E. George and Terry J.
Hanson, former executives of ULTA) will be entitled to customary
piggyback registration rights, provided these shares
may be excluded from the registration if they cause the number
of shares in the offering to exceed the number of shares that
the underwriters reasonably believe is compatible with the
success of the offering.
Stockholder
rights agreement
Upon the consummation of this offering, our board of directors
will have adopted a stockholder rights agreement. Pursuant to
the stockholder rights agreement, our board of directors will
declare a dividend distribution of one preferred stock purchase
right for each outstanding share of our common stock to
stockholders of record as of a specified date. The preferred
stock rights will trade with, and not apart from, our common
stock unless certain prescribed triggering events occur. The
stockholder rights agreement will be designed and implemented to
enhance the ability of our board of directors to protect
stockholder interests and to ensure that stockholders receive
fair treatment in the event of any coercive takeover attempt.
The stockholder rights agreement, however, is intended to
discourage takeover attempts opposed by
100
the board of directors, and may affect takeover attempts,
including those that particular stockholders may deem in their
best interests.
Delaware
anti-takeover law and provisions of our amended and restated
certificate of incorporation and by-laws
Delaware
anti-takeover law
We are subject to Section 203 of the Delaware General
Corporation Law. Section 203 generally prohibits a public
Delaware corporation from engaging in a business
combination with an interested stockholder for
a period of three years after the date of the transaction in
which the person became an interested stockholder, unless:
|
|
|
prior to the date of the transaction, the board of directors of
the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder;
|
|
|
the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of
shares outstanding (a) shares owned by persons who are
directors and also officers and (b) shares owned by
employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange
offer; or
|
|
|
on or subsequent to the date of the transaction, the business
combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative
vote of at least
66
2
/
3
%
of the outstanding voting stock which is not owned by the
interested stockholder.
|
Section 203 generally defines a business combination to
include:
|
|
|
any merger or consolidation involving the corporation and the
interested stockholder;
|
|
|
any sale, lease, exchange, mortgage, transfer, pledge or other
disposition involving the interested stockholder of 10% or more
of the assets of the corporation;
|
|
|
subject to exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
|
|
|
any transaction involving the corporation that has the effect of
increasing the proportionate share of stock which is owned by
the interested stockholder; and
|
|
|
the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
|
In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by the
entity or person.
Amended and
Restated Certificate of Incorporation and Amended and Restated
By-Laws
Provisions of our amended and restated certificate of
incorporation and by-laws, which will become effective upon the
consummation of this offering, may delay or discourage
transactions
101
involving an actual or potential change in our control or change
in our management, including transactions in which stockholders
might otherwise receive a premium for their shares, or
transactions that our stockholders might otherwise deem to be in
their best interests. Therefore, these provisions could
adversely affect the price of our common stock. Among other
things, our amended and restated certificate of incorporation
and by-laws:
|
|
|
divide our board of directors into three classes;
|
|
|
do not provide for cumulative voting rights (therefore allowing
the holders of a majority of the shares of common stock entitled
to vote in any election of directors to elect all of the
directors standing for election, if they should so choose);
|
|
|
require that any action to be taken by our stockholders must be
effected at a duly called annual or special meeting of
stockholders and not be taken by written consent;
|
|
|
provide that special meetings of our stockholder may be called
only by the chairman of the board of directors, our chief
executive officer or by the board of directors pursuant to a
resolution adopted by a majority of the total number of
authorized directors; and
|
|
|
provide that the authorized number of directors may be changed
only by resolution of the board of directors.
|
Transfer agent
and registrar
Upon the consummation of this offering, the transfer agent and
registrar for our common stock will be American Stock
Transfer & Trust Company. Its address is 59
Maiden Lane, Plaza Level, New York, New York 10038.
NASDAQ Global
Select Market quotation
We are applying to have our common stock listed on the NASDAQ
Global Select Market under the symbol ULTA.
102
Shares eligible
for future sale
Prior to this offering, there has been no public market for our
common stock, and we cannot predict the effect, if any, that
market sales of shares of our common stock or the availability
of shares of our common stock for sale will have on the market
price of our common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock,
including shares issued upon exercise of outstanding options, in
the public market after this offering could adversely affect
market prices prevailing from time to time and could impair our
ability to raise capital through the sale of our equity
securities.
Upon the completion of this offering, based on the number of
shares outstanding as of May 5, 2007, we will have shares
of common stock outstanding, assuming no exercise of the
underwriters over allotment option and no exercise of
outstanding options. Of the outstanding shares, all of the
shares sold in this offering will be freely tradable, except
that any shares held by our affiliates, as that term is defined
in Rule 144 under the Securities Act, may only be sold in
compliance with the limitations described below.
The remaining 77,411,747 shares of common stock will be
deemed restricted securities as defined under Rule 144.
Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration
under Rule 144, 144(k) or 701 promulgated under the
Securities Act, which rules are summarized below. Subject to the
lock-up
period described below, all of these restricted securities will
be available for sale in the public market beginning
180 days after the date of this prospectus under
Rule 144, subject in some cases to volume limitations,
Rule 144(k) or Rule 701.
Rule 144
In general, under Rule 144 as currently in effect, a
person, or group of persons whose shares are required to be
aggregated, who has beneficially owned shares that are
restricted securities as defined in Rule 144 for at least
one year is entitled to sell, within any three-month period
commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
|
|
|
1% of the then outstanding shares of our common stock, which
will be
approximately shares
immediately after this offering; or
|
|
|
the average weekly trading volume in our common stock on the
NASDAQ Global Select Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect
to such sale.
|
In addition, a person who is not deemed to have been an
affiliate at any time during the three months preceding a sale
and who has beneficially owned the shares proposed to be sold
for at least two years would be entitled to sell these shares
under Rule 144(k) without regard to the requirements
described above. To the extent that shares were acquired from
one of our affiliates, a persons holding period for the
purpose of effecting a sale under Rule 144 would commence
on the date of transfer from the affiliate.
Rule 701
Shares issued in reliance on Rule 701, such as the shares
of common stock acquired upon the exercise of options or
pursuant to other rights granted under the Old Plan and the 2002
Plan,
103
are also restricted, and may be resold, to the extent not
restricted by the terms of the
lock-up
agreements by non-affiliates beginning 90 days after the
date of this prospectus, subject only to the manner of sale
provisions of Rule 144, and by affiliates under
Rule 144, without compliance with its one-year minimum
holding period. Of the 6,050,401 shares issuable upon
exercise of options under the Old Plan and the 2002 Plan as of
May 5, 2007, 5,189,390 shares are subject to a
180-day
lock-up
requirement pursuant to the terms of the 2002 Plan.
Lock-up
agreements
All of our directors and officers and substantially all of our
stockholders and our option holders are obligated, pursuant to
either
(i) lock-up
agreements, (ii) the 2002 Plan, or (iii) in the case
of stockholders who received shares of common stock upon
conversion of our preferred stock, the registration agreement to
which they are a party, not to sell, transfer or dispose of,
directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for
shares of our common stock without, in the case of parties to a
lock-up
agreement, the prior written consent of J.P. Morgan
Securities Inc. and Wachovia Capital Markets, LLC, for a period
of 180 days, subject to a possible extension under certain
circumstances, after the date of this prospectus. The holders of
approximately 99% of our outstanding shares of common stock are
subject to the obligations described above regarding the
180 day
lock-up
period. The
lock-up
agreements are described below under Underwriting;
the equity incentive plans are described above under
Executive compensation-Stock plans; and the
registration agreement is described above under
Description of capital stock-Registration rights.
Options
As of May 5, 2007, options to purchase a total of
6,050,401 shares of our common stock were outstanding. We
intend to file a registration statement on
Form S-8
under the Securities Act to register all shares of our common
stock subject to outstanding options, all shares of our common
stock issued upon exercise of stock options and all shares of
our common stock issuable under our stock option and employee
stock purchase plans. Accordingly, shares of our common stock
issued under these plans will be eligible for sale in the public
markets, subject to vesting restrictions, Rule 144
limitations applicable to affiliates and the
lock-up
agreements described above.
Registration
rights
After the consummation of this offering and the expiration of
the
lock-up
period described above, the holders of 68,411,623 shares of
our common stock will be entitled to certain rights with respect
to the registration of such shares under the Securities Act,
under the terms of a registration agreement between us and the
holders of these securities.
We will bear the registration expenses if these registration
rights are exercised as described above under Description
of capital stock-Registration rights, other than
underwriting discounts and commissions. These registration
rights terminate as to a holders shares when that holder
may sell those shares under Rule 144(k) of the Securities
Act.
104
Material U.S.
federal income tax consequences
to
non-U.S.
holders
The following discussion describes the material
U.S. federal income tax consequences to
non-U.S. holders
(as defined below) of the acquisition, ownership and disposition
of our common stock issued pursuant to this offering. This
discussion is not a complete analysis of all the potential
U.S. federal income tax consequences relating thereto, nor
does it address any tax consequences arising under any state,
local or foreign tax laws or U.S. federal estate or gift
tax laws. This discussion is based on the Internal Revenue Code
of 1986, as amended, Treasury Regulations promulgated
thereunder, judicial decisions, and published rulings and
administrative pronouncements of the Internal Revenue Service,
all as in effect as of the date of this offering. These
authorities may change, possibly retroactively, resulting in
U.S. federal income tax consequences different from those
discussed below. No ruling has been or will be sought from the
IRS with respect to the matters discussed below, and there can
be no assurance that the IRS will not take a contrary position
regarding the tax consequences of the acquisition, ownership or
disposition of our common stock, or that any such contrary
position would not be sustained by a court.
This discussion is limited to
non-U.S. holders
who purchase our common stock issued pursuant to this offering
and who hold our common stock as a capital asset within the
meaning of Section 1221 of the Internal Revenue Code
(generally, property held for investment). This discussion does
not address all U.S. federal income tax considerations that
may be relevant to a particular holder in light of that
holders particular circumstances. This discussion also
does not consider any specific facts or circumstances that may
be relevant to holders subject to special rules under the
U.S. federal income tax laws, including, without
limitation, U.S. expatriates, partnerships and other
pass-through entities, controlled foreign
corporations, passive foreign investment
companies, corporations that accumulate earnings to avoid
U.S. federal income tax, financial institutions, insurance
companies, brokers, dealers or traders in securities,
commodities or currencies, tax-exempt organizations,
tax-qualified retirement plans, persons subject to the
alternative minimum tax, and persons holding our common stock as
part of a hedge, straddle or other risk reduction strategy, or
as part of a conversion transaction or other integrated
investment.
WE RECOMMEND
PROSPECTIVE INVESTORS CONSULT THEIR TAX ADVISORS REGARDING THE
PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF
ACQUIRING, OWNING AND DISPOSING OF OUR COMMON STOCK, AS WELL AS
ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN
TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS.
Definition of
non-U.S.
holder
For purposes of this discussion, a
non-U.S. holder
is any beneficial owner of our common stock that is not a
U.S. person or a partnership for
U.S. federal income tax purposes. A U.S. person is any
of the following:
|
|
|
a citizen or resident of the United States;
|
|
|
a corporation (or other entity treated as a corporation for
U.S. federal income tax purposes) created or organized
under the laws of the United States, any state thereof or the
District of Columbia;
|
|
|
an estate the income of which is subject to U.S. federal
income tax regardless of its source; or
|
105
|
|
|
a trust that (1) is subject to the primary supervision of a
U.S. court and the control of one or more U.S. persons
or (2) has validly elected to be treated as a
U.S. person for U.S. federal income tax purposes.
|
If a partnership (or other entity taxed as a partnership for
U.S. federal income tax purposes) holds our common stock,
the tax treatment of a partner in the partnership generally will
depend on the status of the partner and the activities of the
partnership. Accordingly, partnerships that hold our common
stock and partners in such partnerships are urged to consult
their tax advisors regarding the specific U.S. federal
income tax consequences to them of the ownership and disposition
of our common stock.
Distributions on
our common stock
Payments on our common stock will constitute dividends for
U.S. federal income tax purposes to the extent paid from
our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles. Amounts not
treated as dividends for U.S. federal income tax purposes
will constitute a return of capital and will first be applied
against and reduce a holders adjusted tax basis in the
common stock, but not below zero. Any excess will be treated as
capital gain.
Dividends paid to a
non-U.S. holder
of our common stock that are not effectively connected with such
holders conduct of a U.S. trade or business generally
will be subject to U.S. federal withholding tax at a rate
of 30% of the gross amount of the dividends, or such lower rate
specified by an applicable tax treaty. To receive the benefit of
a reduced treaty rate, a
non-U.S. holder
must furnish to us or our paying agent a valid IRS
Form W-8BEN
(or applicable successor form) certifying such holders
qualification for the reduced rate. This certification must be
provided to us or our paying agent prior to the payment of
dividends and must be updated periodically.
Non-U.S. holders
that do not timely provide us or our paying agent with the
required certification, but which qualify for a reduced treaty
rate, may obtain a refund of any excess amounts withheld by
timely filing an appropriate claim for refund with the IRS.
If a
non-U.S. holder
holds our common stock in connection with the conduct of a trade
or business in the United States, and dividends paid on the
common stock are effectively connected with such holders
U.S. trade or business, the
non-U.S. holder
will be exempt from U.S. federal withholding tax. To claim
the exemption, the
non-U.S. holder
must furnish to us or our paying agent a properly executed IRS
Form W-8ECI
(or applicable successor form).
Any dividends paid on our common stock that are effectively
connected with a
non-U.S. holders
U.S. trade or business (or if required by an applicable tax
treaty, attributable to a permanent establishment maintained by
the
non-U.S. holder
in the United States ) generally will be subject to
U.S. federal income tax on a net income basis in the same
manner as if such holder were a resident of the United States,
unless an applicable tax treaty provides otherwise. A
non-U.S. holder
that is a foreign corporation also may be subject to a branch
profits tax equal to 30% (or such lower rate specified by an
applicable tax treaty) of a portion of its effectively connected
earnings and profits for the taxable year.
Non-U.S. holders
are urged to consult any applicable tax treaties which may
provide different rules.
A
non-U.S. holder
who claims the benefit of an applicable income tax treaty
generally will be required to satisfy applicable certification
and other requirements prior to the distribution date.
Non-U.S. holders
should consult their tax advisors regarding their entitlement to
benefits under a relevant income tax treaty.
106
Gain on
disposition of our common stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax on
any gain realized upon the sale or other disposition of our
common stock unless:
|
|
|
the gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States, or if
required by an applicable tax treaty, attributable to a
permanent establishment maintained by the
non-U.S. holder
in the United States; or
|
|
|
the
non-U.S. holder
is a nonresident alien individual present in the United States
for 183 days or more during the taxable year of the
disposition and certain other requirements are met.
|
Unless an applicable tax treaty provides otherwise, gain
described in the first bullet point above generally will be
subject to U.S. federal income tax on a net income basis in
the same manner as if such holder were a resident of the United
States.
Non-U.S. holders
that are foreign corporations also may be subject to a branch
profits tax equal to 30% (or such lower rate specified by an
applicable tax treaty) of a portion of its effectively connected
earnings and profits for the taxable year.
Non-U.S. holders
are urged to consult any applicable tax treaties which may
provide different rules.
Gain described in the second bullet point above will be subject
to U.S. federal income tax at a flat 30% rate, but may be
offset by U.S. source capital losses.
In addition to the foregoing, any gain to a
non-U.S. holder
upon the sale or disposition of our common stock will be subject
to U.S. federal income tax if our common stock constitutes
a U.S. real property interest by reason of our status as a
U.S. real property holding corporation, or a USRPHC, during
the relevant statutory period. We believe we currently are not
and will not become a USRPHC. However, because the determination
of whether we are a USRPHC depends on the fair market value of
our U.S. real property interests relative to the fair
market value of our other business assets, there can be no
assurance that we will not become a USRPHC in the future. In the
event we do become a USRPHC, as long as our common stock is
regularly traded on an established securities market, our common
stock will be treated as U.S. real property interests only
with respect to a
non-U.S. holder
that actually or constructively holds more than five percent of
our common stock.
Information
reporting and backup withholding
We must report annually to the IRS and to each
non-U.S. holder
the amount of dividends on our common stock paid to such holder
and the amount of any tax withheld with respect to those
dividends. These information reporting requirements apply even
if no withholding was required because the dividends were
effectively connected with the holders conduct of a
U.S. trade or business, or withholding was reduced or
eliminated by an applicable tax treaty. This information also
may be made available under a specific treaty or agreement with
the tax authorities in the country in which the
non-U.S. holder
resides or is established. Backup withholding (currently at a
28% rate) generally will not apply to payments of dividends to a
non-U.S. holder
of our common stock provided the
non-U.S. holder
furnishes to us or our paying agent the required certification
as to its
non-U.S. status
(such as by providing a valid IRS
Form W-8BEN
or
W-8ECI),
or an exemption is otherwise established, unless we or our
paying agent has actual knowledge, or reason to know, that the
holder is a U.S. person that is not an exempt recipient.
Payments of the proceeds from a disposition by a
non-U.S. holder
of our common stock made by or through a foreign office of a
broker generally will not be subject to information reporting
107
or backup withholding. However, information reporting (but not
backup withholding) will apply to those payments if the broker
does not have documentary evidence that the beneficial owner is
a
non-U.S. holder,
an exemption is not otherwise established, and the broker is:
|
|
|
a U.S. person;
|
|
|
a controlled foreign corporation for U.S. federal income
tax purposes;
|
|
|
a foreign person 50% or more of whose gross income is
effectively connected with a U.S. trade or business for a
specified three-year period; or
|
|
|
a foreign partnership if at any time during its tax year
(1) one or more of its partners are U.S. persons who
hold in the aggregate more than 50% of the income or capital
interest in such partnership or (2) it is engaged in the
conduct of a U.S. trade or business.
|
Payment of the proceeds from a
non-U.S. holders
disposition of our common stock made by or through the
U.S. office of a broker generally will be subject to
information reporting and backup withholding unless the
non-U.S. holder
certifies as to its
non-U.S. status
under penalties of perjury (such as by providing a valid IRS
Form W-8BEN
or
W-8ECI)
or otherwise establishes an exemption from information reporting
and backup withholding.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules may be allowed as a
refund or a credit against a
non-U.S. holders
U.S. federal income tax liability, provided the required
information is timely furnished to the IRS.
108
Underwriting
J.P. Morgan Securities Inc. and Wachovia Capital Markets, LLC
are acting as joint book-running managers, and Thomas Weisel
Partners LLC, Cowen and Company, LLC and Piper
Jaffray & Co. are acting as co-managers for this
offering.
We, the selling stockholders and the underwriters named below
have entered into an underwriting agreement covering the common
stock to be sold in this offering. Each underwriter has
severally agreed to purchase, and we and the selling
stockholders have agreed to sell to each underwriter, the number
of shares of common stock set forth opposite its name in the
following table.
|
|
|
|
|
Name
|
|
Number
of shares
|
|
|
J.P. Morgan Securities Inc.
|
|
|
|
Wachovia Capital Markets, LLC
|
|
|
|
Thomas Weisel Partners LLC
|
|
|
|
Cowen and Company, LLC
|
|
|
|
Piper Jaffray & Co.
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
The underwriting agreement provides that if the underwriters
take any of the shares presented in the table above, then they
must take all of the shares. No underwriter is obligated to take
any shares allocated to a defaulting underwriter except under
limited circumstances. The underwriting agreement provides that
the obligations of the underwriters are subject to certain
conditions precedent, including the absence of any material
adverse change in our business and the receipt of certain
certificates, opinions and letters from us, our counsel and our
independent auditors.
The underwriters propose to offer the shares of common stock
directly to the public at the initial public offering price set
forth on the cover page of this prospectus and to certain
dealers at that price less a concession not in excess of
$ per share. Any such dealers may
resell shares to certain other brokers or dealers at a discount
of up to $ per share from the
initial public offering price. After the initial public offering
of the shares, the offering price and other selling terms may be
changed by the underwriters. Sales of shares made outside of the
United States may be made by affiliates of the underwriters. The
underwriters have advised us that they do not intend to confirm
discretionary sales in excess of 5% of the shares of common
stock offered in this offering.
If the underwriters sell more shares than the total number shown
in the table above, the underwriters have the option to buy up
to an additional shares of
common stock from the selling stockholders to cover such sales.
They may exercise this option during the
30-day
period from the date of this prospectus. If any shares are
purchased under this option, the underwriters will purchase
shares in approximately the same proportion as shown in the
table above. If any additional shares of common stock are
purchased, the underwriters will offer the additional shares on
the same terms as those on which the initial shares are being
offered.
At our request, the underwriters have reserved for sale, at the
initial public offering price, up
to shares
offered by this prospectus for sale to some of our directors,
officers, employees, existing stockholders and related persons.
If these persons purchase reserved shares, this will
109
reduce the number of shares available for sale to the general
public. Any reserved shares that are not orally confirmed for
purchase within one day of the pricing of this offering
will be offered by the underwriters to the general public on the
same terms as the other shares offered by this prospectus.
The underwriting fee is equal to the public offering price per
share of common stock less the amount paid by the underwriters
to us per share of common stock. The underwriting fee is
$ per share. The following table
shows the per share and total underwriting discounts and
commissions to be paid to the underwriters assuming both no
exercise and full exercise of the underwriters option to
purchase additional shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid by
ULTA
|
|
Paid by Selling
Stockholders
|
|
|
Without
|
|
With
|
|
Without
|
|
With
|
|
|
over-allotment
|
|
over-allotment
|
|
over-allotment
|
|
over-allotment
|
|
|
exercise
|
|
exercise
|
|
exercise
|
|
exercise
|
|
|
Per share
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
The underwriters have advised us that they may make short sales
of our common stock in connection with this offering, resulting
in the sale by the underwriters of a greater number of shares
than they are required to purchase pursuant to the underwriting
agreement. The short position resulting from those short sales
will be deemed a covered short position to the
extent that it does not exceed the shares subject to the
underwriters overallotment option and will be deemed a
naked short position to the extent that it exceeds
that number. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward
pressure on the trading price of the common stock in the open
market that could adversely affect investors who purchase shares
in this offering. The underwriters may reduce or close out their
covered short position either by exercising the overallotment
option or by purchasing shares in the open market. In
determining which of these alternatives to pursue, the
underwriters will consider the price at which shares are
available for purchase in the open market as compared to the
price at which they may purchase shares through the
overallotment option. Any naked short position will
be closed out by purchasing shares in the open market. Similar
to the other stabilizing transactions described below, open
market purchases made by the underwriters to cover all or a
portion of their short position may have the effect of
preventing or retarding a decline in the market price of our
common stock following this offering. As a result, our common
stock may trade at a price that is higher than the price that
otherwise might prevail in the open market.
The underwriters have advised us that, pursuant to
Regulation M under the Securities Act, they may engage in
transactions, including stabilizing bids or the imposition of
penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a
level above that which might otherwise prevail in the open
market. A stabilizing bid is a bid for or the
purchase of shares of common stock on behalf of the underwriters
for the purpose of fixing or maintaining the price of the common
stock. A penalty bid is an arrangement permitting
the underwriters to claim the selling concession otherwise
accruing to an underwriter or syndicate member in connection
with the offering if the common stock originally sold by that
underwriter or syndicate member is purchased by the underwriters
in the open market pursuant to a stabilizing bid or to cover all
or part of a syndicate short position. The underwriters have
advised us that stabilizing bids and open market purchases may
be
110
effected on the NASDAQ Global Select Market in the over-the
counter market or otherwise and, if commenced, may be
discontinued at any time.
One of more underwriters may facilitate the marketing of this
offering online directly or through one of its affiliates. In
those cases, prospective investors may view offering terms and a
prospectus online and, depending upon the particular
underwriter, place orders online or through their financial
advisor.
We estimate that the total expenses of this offering, including
registration, filing and listing fees, printing fees and legal
and accounting expenses, but excluding the underwriting
discounts and commissions, will be approximately
$ .
We and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act.
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the SEC a registration statement under the Securities Act
relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares
of our common stock, or publicly disclose the intention to make
any offer, sale, pledge, disposition or filing, without the
prior written consent of J.P. Morgan Securities Inc. and
Wachovia Capital Markets, LLC for a period of 180 days
after the date of this prospectus. Notwithstanding the
foregoing, if (1) during the last 17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to us occurs; or (2) prior to
the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
All of our directors and officers and substantially all of our
stockholders are obligated, pursuant to either
(i) lock-up
agreements, (ii) the equity incentive plan under which they
received shares, or (iii) in the case of stockholders who
received common stock upon conversion of our preferred stock,
the registration agreement to which they are a party, for a
period of 180 days after the date of this prospectus,
without, in the case of parties to a
lock-up
agreement, the prior written consent of J.P. Morgan
Securities Inc. and Wachovia Capital Markets, LLC, subject to a
possible extension under certain circumstances, not to
(1) offer, pledge, announce the intention to sell, grant
any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of our common
stock (including, without limitation, common stock that may be
deemed to be beneficially owned by such persons in accordance
with the rules an regulations of the SEC and securities that may
be issued upon exercise of a stock option or warrant) or
(2) enter into any swap or other agreement that transfers,
in whole or in part, any of the economic consequences of
ownership of the common stock, whether any such transaction
described in clause (1) or (2) above is to be settled
by delivery of common stock or such other securities, in cash or
otherwise. Notwithstanding the foregoing, if (1) during the
last 17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our company occurs; or
(2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event. The holders
of approximately
111
99% of our outstanding shares of common stock are subject to the
obligations described above regarding the 180-day
lock-up
period.
We are applying to have our common stock approved for listing on
the NASDAQ Global Select Market under the symbol
ULTA.
Prior to this offering, there has been no public market for our
common stock. We and the underwriters will negotiate the initial
public offering price. In determining the initial public
offering price, we and the underwriters expect to consider a
number of factors in addition to prevailing market conditions,
including:
|
|
|
the information set forth in this prospectus and otherwise
available to the underwriters;
|
|
|
the history of and prospects for our industry;
|
|
|
an assessment of our management;
|
|
|
our present operations;
|
|
|
our historical results of operations;
|
|
|
the trend of our revenues and earnings; and
|
|
|
our earnings prospects.
|
We and the underwriters will consider these and other relevant
factors in relation to the price of similar securities of
generally comparable companies. Neither we nor the underwriters
can assure investors that an active trading market will develop
for the common stock, or that the common stock will trade in the
public market at or above the initial public offering price.
From time to time in the ordinary course of their respective
businesses, certain of the underwriters and their affiliates
perform various financial advisory, investment banking and
commercial banking services for us and our affiliates.
An affiliate of J.P. Morgan Securities Inc. is a lender and
the documentation agent under our credit facility. An affiliate
of Wachovia Capital Markets, LLC is a co-arranger and the
collateral agent under our credit facility. To the extent any of
the proceeds of this offering are applied to repay loans
outstanding under our credit facility, such affiliates will
receive a portion of the amounts so repaid under such facility.
112
Legal
matters
The validity of the common stock offered hereby will be passed
upon for us by Latham & Watkins LLP, Chicago,
Illinois, and for the underwriters by Winston & Strawn
LLP, Chicago, Illinois. Certain legal matters have been passed
upon for the selling stockholders by
[ ].
Latham & Watkins LLP holds 42,889 shares of our
common stock and a partner of Latham & Watkins LLP and
members of his family have an interest, through a living trust
and a trust for the benefit of his children, in
102,567 shares of our common stock.
Experts
The consolidated financial statements of Ulta Salon,
Cosmetics & Fragrance, Inc. at January 28, 2006
and February 3, 2007, and for each of the three years in
the period ended February 3, 2007, appearing in this
Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
Where you can
find more information
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act of 1933 registering the common stock to
be sold in this offering. As permitted by the rules and
regulations of the SEC, this prospectus does not contain all of
the information included in the registration statement and the
exhibits and schedules filed as a part of the registration
statement. For more information concerning us and the common
stock to be sold in this offering, you should refer to the
registration statement and to the exhibits and schedules filed
as part of the registration statement. Statements contained in
this prospectus regarding the contents of any agreement or other
document filed as an exhibit to the registration statement are
not necessarily complete, and in each instance reference is made
to the copy of the agreement filed as an exhibit to the
registration statement each statement being qualified by this
reference.
The registration statement, including the exhibits and schedules
filed as a part of the registration statement, may be inspected
at the public reference room of the SEC at
100 F Street, N.E., Room 1580, Washington, DC
20549 and copies of all or any part thereof may be obtained from
that office upon payment of the prescribed fees. You may call
the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room and you can request copies of the documents upon payment of
a duplicating fee, by writing to the SEC. In addition, the SEC
maintains a website that contains reports, proxy and information
statements and other information regarding registrants,
including us, that file electronically with the SEC which can be
accessed at
http://www.sec.gov.
As a result of the filing of the registration statement, we will
become subject to the information and reporting requirements of
the Securities Exchange Act of 1934, and will file periodic
proxy statements and will make available to our stockholders
annual reports containing audited consolidated financial
information for each year and quarterly reports for the first
three quarters of each year containing unaudited interim
consolidated financial information.
113
Report of
independent registered public accounting firm
The Board of Directors and Stockholders
Ulta Salon, Cosmetics & Fragrance, Inc.
We have audited the accompanying consolidated balance sheets of
Ulta Salon, Cosmetics & Fragrance, Inc. and subsidiary
(the Company) as of January 28, 2006 and February 3,
2007, and the related consolidated statements of income, cash
flows, and stockholders equity for each of the three years
in the period ended February 3, 2007. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Ulta Salon, Cosmetics &
Fragrance, Inc. and subsidiary at January 28, 2006 and
February 3, 2007, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended February 3, 2007, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 2 to the financial statements,
effective January 29, 2006, the Company changed its method
of accounting for share-based compensation upon the adoption of
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment
.
/s/ Ernst & Young
Chicago, Illinois
April 11, 2007
F-2
Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Note Payable
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
Stockholders
|
|
|
|
|
|
|
|
|
Equity
|
|
|
January 28,
|
|
February 3,
|
|
May 5,
|
|
May 5,
|
(Dollars
in thousands)
|
|
2006
|
|
2007
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,839
|
|
$
|
3,645
|
|
$
|
3,161
|
|
|
|
Receivables, net
|
|
|
15,757
|
|
|
18,476
|
|
|
17,137
|
|
|
|
Merchandise inventories
|
|
|
109,374
|
|
|
129,237
|
|
|
152,867
|
|
|
|
Prepaid expenses and other current
assets
|
|
|
14,942
|
|
|
15,276
|
|
|
19,041
|
|
|
|
Deferred income taxes
|
|
|
2,539
|
|
|
5,412
|
|
|
5,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
145,451
|
|
|
172,046
|
|
|
197,900
|
|
|
|
Property and equipment, net
|
|
|
133,003
|
|
|
162,080
|
|
|
174,916
|
|
|
|
Deferred income taxes
|
|
|
3,962
|
|
|
4,125
|
|
|
4,728
|
|
|
|
Other assets
|
|
|
199
|
|
|
346
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
282,615
|
|
$
|
338,597
|
|
$
|
377,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portionnotes payable
|
|
$
|
|
|
$
|
|
|
$
|
28,053
|
|
|
|
Accounts payable
|
|
|
34,435
|
|
|
43,071
|
|
|
50,922
|
|
|
|
Accrued liabilities
|
|
|
26,496
|
|
|
38,604
|
|
|
33,055
|
|
|
|
Accrued income taxes
|
|
|
8,047
|
|
|
2,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
68,978
|
|
|
83,941
|
|
|
112,030
|
|
|
|
Notes payableless current
portion
|
|
|
45,381
|
|
|
50,737
|
|
|
55,038
|
|
|
|
Deferred rent
|
|
|
40,449
|
|
|
50,367
|
|
|
52,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
154,808
|
|
|
185,045
|
|
|
219,701
|
|
|
|
Commitments and contingencies
(Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Series III redeemable
preferred stock
|
|
|
4,792
|
|
|
4,792
|
|
|
4,792
|
|
|
|
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
Note Payable
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
January 28,
|
|
|
February 3,
|
|
|
May 5,
|
|
|
May 5,
|
(Dollars
in thousands)
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
208,475
|
|
|
|
223,059
|
|
|
|
226,803
|
|
|
|
|
Treasury stockpreferred, at
cost
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
|
(1,815
|
)
|
|
|
|
Common stock, $.01 par value,
106,500,000 shares authorized, 7,141,678, 11,723,579, and
12,095,816 shares issued, and 7,140,878, 11,340,480, and
11,709,217 shares outstanding at January 28, 2006,
February 3, 2007, and May 5, 2007 (unaudited),
respectively,
and shares
outstanding pro forma (unaudited)
|
|
|
71
|
|
|
|
117
|
|
|
|
121
|
|
|
|
|
Treasury stockcommon, at cost
|
|
|
|
|
|
|
(2,217
|
)
|
|
|
(2,244
|
)
|
|
|
|
Additional paid-in capital
|
|
|
6,533
|
|
|
|
15,501
|
|
|
|
16,333
|
|
|
|
|
Deferred stock-based compensation
|
|
|
(431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Related party notes receivable
|
|
|
(373
|
)
|
|
|
(4,467
|
)
|
|
|
(4,094
|
)
|
|
|
|
Accumulated deficit
|
|
|
(91,199
|
)
|
|
|
(83,240
|
)
|
|
|
(81,665
|
)
|
|
|
|
Accumulated other comprehensive
income (loss)
|
|
|
(49
|
)
|
|
|
19
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
123,015
|
|
|
|
148,760
|
|
|
|
153,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
282,615
|
|
|
$
|
338,597
|
|
|
$
|
377,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes.
F-4
Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
|
|
Three months
ended
|
|
|
January 29,
|
|
|
January 28,
|
|
February 3,
|
|
April 29,
|
|
May 5,
|
(Dollars
in thousands, except per share data)
|
|
2005
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Net sales
|
|
$
|
491,152
|
|
|
$
|
579,075
|
|
$
|
755,113
|
|
$
|
159,468
|
|
$
|
194,113
|
Cost of sales
|
|
|
346,585
|
|
|
|
404,794
|
|
|
519,929
|
|
|
108,813
|
|
|
134,600
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
144,567
|
|
|
|
174,281
|
|
|
235,184
|
|
|
50,655
|
|
|
59,513
|
Selling, general, and
administrative expenses
|
|
|
121,999
|
|
|
|
140,145
|
|
|
188,000
|
|
|
41,316
|
|
|
47,982
|
Pre-opening expenses
|
|
|
4,072
|
|
|
|
4,712
|
|
|
7,096
|
|
|
826
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
18,496
|
|
|
|
29,424
|
|
|
40,088
|
|
|
8,513
|
|
|
9,875
|
Interest expense
|
|
|
2,835
|
|
|
|
2,951
|
|
|
3,314
|
|
|
742
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
15,661
|
|
|
|
26,473
|
|
|
36,774
|
|
|
7,771
|
|
|
8,879
|
Income tax expense
|
|
|
6,201
|
|
|
|
10,504
|
|
|
14,231
|
|
|
3,071
|
|
|
3,560
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,460
|
|
|
$
|
15,969
|
|
$
|
22,543
|
|
$
|
4,700
|
|
$
|
5,319
|
|
|
|
|
|
|
|
|
|
|
Less preferred stock dividends
|
|
|
11,692
|
|
|
|
12,922
|
|
|
14,584
|
|
|
3,450
|
|
|
3,744
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to
common stockholders
|
|
$
|
(2,232
|
)
|
|
$
|
3,047
|
|
$
|
7,959
|
|
$
|
1,250
|
|
$
|
1,575
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.44
|
)
|
|
$
|
0.47
|
|
$
|
0.87
|
|
$
|
0.18
|
|
$
|
0.14
|
Diluted
|
|
$
|
(0.44
|
)
|
|
$
|
0.21
|
|
$
|
0.29
|
|
$
|
0.06
|
|
$
|
0.07
|
Basic weighted average number of
shares of common stock outstanding
|
|
|
5,032,612
|
|
|
|
6,478,217
|
|
|
9,130,697
|
|
|
6,960,640
|
|
|
11,368,805
|
Diluted weighted average number of
shares of common stock outstanding
|
|
|
5,032,612
|
|
|
|
76,297,969
|
|
|
79,026,350
|
|
|
76,617,578
|
|
|
80,652,941
|
|
|
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
|
|
Three months
ended
|
|
|
January 29,
|
|
January 28,
|
|
February 3,
|
|
April 29,
|
|
May 5,
|
(Dollars
in thousands, except per share data)
|
|
2005
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Pro forma net income available to
common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic weighted average
number of shares of common stock outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted weighted average
number of shares of common stock outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes.
F-6
Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
|
|
|
|
Three months
ended
|
|
|
|
January 29,
|
|
|
January 28,
|
|
|
February 3,
|
|
|
|
April 29,
|
|
|
May 5,
|
|
(Dollars in
thousands)
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,460
|
|
|
$
|
15,969
|
|
|
$
|
22,543
|
|
|
|
$
|
4,700
|
|
|
$
|
5,319
|
|
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,304
|
|
|
|
22,285
|
|
|
|
29,736
|
|
|
|
|
6,048
|
|
|
|
9,840
|
|
Deferred income taxes
|
|
|
961
|
|
|
|
(3,037
|
)
|
|
|
(3,080
|
)
|
|
|
|
|
|
|
|
(822
|
)
|
Non-cash stock compensation charges
|
|
|
634
|
|
|
|
468
|
|
|
|
983
|
|
|
|
|
228
|
|
|
|
289
|
|
Excess tax benefits from
stock-based compensation
|
|
|
|
|
|
|
(213
|
)
|
|
|
(5,360
|
)
|
|
|
|
|
|
|
|
|
|
Loss on disposal of property and
equipment
|
|
|
1,167
|
|
|
|
1,230
|
|
|
|
3,518
|
|
|
|
|
656
|
|
|
|
135
|
|
Change in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,548
|
)
|
|
|
(830
|
)
|
|
|
(2,719
|
)
|
|
|
|
5,272
|
|
|
|
1,338
|
|
Merchandise inventories
|
|
|
(21,514
|
)
|
|
|
(5,134
|
)
|
|
|
(19,863
|
)
|
|
|
|
(9,610
|
)
|
|
|
(23,630
|
)
|
Prepaid expenses and other assets
|
|
|
(3,157
|
)
|
|
|
(2,542
|
)
|
|
|
(449
|
)
|
|
|
|
(1,991
|
)
|
|
|
(3,758
|
)
|
Accounts payable
|
|
|
15,308
|
|
|
|
(5,505
|
)
|
|
|
8,636
|
|
|
|
|
(3,796
|
)
|
|
|
7,851
|
|
Accrued liabilities
|
|
|
10,595
|
|
|
|
7,753
|
|
|
|
11,767
|
|
|
|
|
(9,928
|
)
|
|
|
(12,999
|
)
|
Deferred rent
|
|
|
6,051
|
|
|
|
7,157
|
|
|
|
9,918
|
|
|
|
|
215
|
|
|
|
2,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
29,261
|
|
|
|
37,601
|
|
|
|
55,630
|
|
|
|
|
(8,206
|
)
|
|
|
(14,171
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and
equipment, net
|
|
|
(34,807
|
)
|
|
|
(41,607
|
)
|
|
|
(62,331
|
)
|
|
|
|
(5,304
|
)
|
|
|
(17,757
|
)
|
Receipt of related party notes
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373
|
|
Issuance of related party notes
receivable
|
|
|
|
|
|
|
|
|
|
|
(2,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(34,807
|
)
|
|
|
(41,607
|
)
|
|
|
(64,745
|
)
|
|
|
|
(5,304
|
)
|
|
|
(17,384
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on long-term borrowings
|
|
|
532,002
|
|
|
|
644,817
|
|
|
|
851,468
|
|
|
|
|
184,053
|
|
|
|
239,123
|
|
Payments on long-term borrowings
|
|
|
(528,010
|
)
|
|
|
(641,652
|
)
|
|
|
(846,112
|
)
|
|
|
|
(170,689
|
)
|
|
|
(206,769
|
)
|
Excess tax benefits from
stock-based compensation
|
|
|
|
|
|
|
213
|
|
|
|
5,360
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock
|
|
|
1,801
|
|
|
|
615
|
|
|
|
1,422
|
|
|
|
|
233
|
|
|
|
547
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(2,217
|
)
|
|
|
|
|
|
|
|
(1,830
|
)
|
Principal payments under capital
lease obligations
|
|
|
(421
|
)
|
|
|
(167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of preferred
stock
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
5,372
|
|
|
|
3,841
|
|
|
|
9,921
|
|
|
|
|
13,597
|
|
|
|
31,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
(174
|
)
|
|
|
(165
|
)
|
|
|
806
|
|
|
|
|
87
|
|
|
|
(484
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
3,178
|
|
|
|
3,004
|
|
|
|
2,839
|
|
|
|
|
2,839
|
|
|
|
3,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
3,004
|
|
|
$
|
2,839
|
|
|
$
|
3,645
|
|
|
|
$
|
2,926
|
|
|
$
|
3,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow
information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2,516
|
|
|
$
|
3,218
|
|
|
$
|
3,798
|
|
|
|
$
|
742
|
|
|
$
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
3,277
|
|
|
$
|
9,766
|
|
|
$
|
17,193
|
|
|
|
$
|
11,778
|
|
|
$
|
7,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) / loss on
interest rate swap hedge, net of tax
|
|
$
|
(634
|
)
|
|
$
|
(427
|
)
|
|
$
|
(68
|
)
|
|
|
$
|
(45
|
)
|
|
$
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of related party notes
receivable for exercise of stock options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes.
F-7
Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series I
convertible, voting preferred stock
|
|
Series II
convertible, voting preferred stock
|
|
Series IV
convertible, voting preferred stock
|
|
Series V
convertible, voting preferred stock
|
|
Series V-1
convertible, voting preferred stock
|
|
|
|
|
|
|
$.01
|
|
$.01
|
|
$.01
|
|
$.01
|
|
$.01
|
|
|
|
|
17,207,532
|
|
7,634,207
|
|
19,183,653
|
|
22,500,000
|
|
4,600,000
|
|
Total preferred
stock
|
Par value
authorized shares
|
|
Issued
|
|
|
|
Issued
|
|
|
|
Issued
|
|
|
|
Issued
|
|
|
|
Issued
|
|
|
|
Issued
|
|
|
(Dollars in
thousands, except per share data)
|
|
shares
|
|
Amount
|
|
shares
|
|
Amount
|
|
shares
|
|
Amount
|
|
shares
|
|
Amount
|
|
shares
|
|
Amount
|
|
shares
|
|
Amount
|
|
|
BalanceJanuary 31, 2004
|
|
|
16,769,101
|
|
$
|
31,818
|
|
|
7,634,207
|
|
$
|
74,455
|
|
|
19,183,653
|
|
$
|
34,565
|
|
|
21,447,959
|
|
$
|
41,287
|
|
|
920,000
|
|
$
|
1,721
|
|
|
65,954,920
|
|
$
|
183,846
|
Issuance of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of dividends
|
|
|
|
|
|
3,419
|
|
|
|
|
|
|
|
|
|
|
|
3,673
|
|
|
|
|
|
4,416
|
|
|
|
|
|
184
|
|
|
|
|
|
11,692
|
Unrealized gain on interest rate
swap hedge, net of $414 income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year ended
January 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceJanuary 29, 2005
|
|
|
16,769,101
|
|
|
35,237
|
|
|
7,634,207
|
|
|
74,455
|
|
|
19,183,653
|
|
|
38,238
|
|
|
21,447,959
|
|
|
45,703
|
|
|
920,000
|
|
|
1,905
|
|
|
65,954,920
|
|
|
195,538
|
Issuance of stock
|
|
|
146,130
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,130
|
|
|
15
|
Accretion of dividends
|
|
|
|
|
|
3,788
|
|
|
|
|
|
|
|
|
|
|
|
4,058
|
|
|
|
|
|
4,873
|
|
|
|
|
|
203
|
|
|
|
|
|
12,922
|
Unrealized gain on interest rate
swap hedge, net of $279 income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year ended
January 28, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits from
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceJanuary 28, 2006
|
|
|
16,915,231
|
|
|
39,040
|
|
|
7,634,207
|
|
|
74,455
|
|
|
19,183,653
|
|
|
42,296
|
|
|
21,447,959
|
|
|
50,576
|
|
|
920,000
|
|
|
2,108
|
|
|
66,101,050
|
|
|
208,475
|
Issuance of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of dividends
|
|
|
|
|
|
4,277
|
|
|
|
|
|
|
|
|
|
|
|
4,575
|
|
|
|
|
|
5,503
|
|
|
|
|
|
229
|
|
|
|
|
|
14,584
|
Issuance of related party notes
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate
swap hedge, net of $44 income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year ended
February 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits from
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of deferred
compensation on SFAS 123R adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceFebruary 3, 2007
|
|
|
16,915,231
|
|
$
|
43,317
|
|
|
7,634,207
|
|
$
|
74,455
|
|
|
19,183,653
|
|
$
|
46,871
|
|
|
21,447,959
|
|
$
|
56,079
|
|
|
920,000
|
|
$
|
2,337
|
|
|
66,101,050
|
|
$
|
223,059
|
|
|
See accompanying
notes.
F-8
Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasurypreferred
stock
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
106,500,000
|
|
|
Treasurycommon
stock
|
|
|
Additional
|
|
|
Deferred
|
|
|
party
|
|
|
|
|
|
other
|
|
|
Total
|
|
Par value
authorized shares
|
|
Treasury
|
|
|
|
|
|
Issued
|
|
|
|
|
Treasury
|
|
|
|
|
|
paid-In
|
|
|
stock-based
|
|
|
notes
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
stockholders
|
|
(Dollars in
thousands, except per share data)
|
|
shares
|
|
|
Amount
|
|
|
shares
|
|
Amount
|
|
|
shares
|
|
|
Amount
|
|
|
capital
|
|
|
compensation
|
|
|
receivable
|
|
|
deficit
|
|
|
income
(loss)
|
|
|
equity
|
|
|
|
|
BalanceJanuary 31, 2004
|
|
|
(38,095
|
)
|
|
$
|
(12
|
)
|
|
|
4,102,764
|
|
$
|
41
|
|
|
|
(800
|
)
|
|
$
|
|
|
|
$
|
2,400
|
|
|
$
|
|
|
|
$
|
(373
|
)
|
|
$
|
(92,014
|
)
|
|
$
|
(1,110
|
)
|
|
$
|
92,778
|
|
Issuance of stock
|
|
|
|
|
|
|
|
|
|
|
1,411,626
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
1,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,802
|
|
Accretion of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,692
|
)
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate
swap hedge, net of $414 income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
634
|
|
|
|
634
|
|
Net income for the year ended
January 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,460
|
|
|
|
|
|
|
|
9,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,094
|
|
Stock compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
700,000
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
1,148
|
|
|
|
(1,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425
|
|
|
|
|
|
|
|
BalanceJanuary 29, 2005
|
|
|
(38,095
|
)
|
|
|
(12
|
)
|
|
|
6,214,390
|
|
|
101
|
|
|
|
(800
|
)
|
|
|
|
|
|
|
5,506
|
|
|
|
(730
|
)
|
|
|
(373
|
)
|
|
|
(94,246
|
)
|
|
|
(476
|
)
|
|
|
105,308
|
|
Issuance of stock
|
|
|
|
|
|
|
|
|
|
|
927,288
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
630
|
|
Accretion of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,922
|
)
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate
swap hedge, net of $279 income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427
|
|
|
|
427
|
|
Net income for the year ended
January 28, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,969
|
|
|
|
|
|
|
|
15,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,396
|
|
Excess tax benefits from
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
Stock compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
Amortization of deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299
|
|
|
|
|
|
|
|
BalanceJanuary 28, 2006
|
|
|
(38,095
|
)
|
|
|
(12
|
)
|
|
|
7,141,678
|
|
|
71
|
|
|
|
(800
|
)
|
|
|
|
|
|
|
6,533
|
|
|
|
(431
|
)
|
|
|
(373
|
)
|
|
|
(91,199
|
)
|
|
|
(49
|
)
|
|
|
123,015
|
|
Issuance of stock
|
|
|
|
|
|
|
|
|
|
|
4,581,901
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
3,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,102
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(382,299
|
)
|
|
|
(2,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,217
|
)
|
Accretion of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,584
|
)
|
|
|
|
|
|
|
|
|
Issuance of related party notes
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,094
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,094
|
)
|
Unrealized gain on interest rate
swap hedge, net of $44 income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
68
|
|
Net income for the year ended
February 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,543
|
|
|
|
|
|
|
|
22,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,611
|
|
Excess tax benefits from
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,360
|
|
Reclassification of deferred
compensation on SFAS 123R adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(431
|
)
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
690
|
|
Amortization of deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
BalanceFebruary 3, 2007
|
|
|
(38,095
|
)
|
|
$
|
(12
|
)
|
|
|
11,723,579
|
|
$
|
117
|
|
|
|
(383,099
|
)
|
|
$
|
(2,217
|
)
|
|
$
|
15,501
|
|
|
$
|
|
|
|
$
|
(4,467
|
)
|
|
$
|
(83,240
|
)
|
|
$
|
19
|
|
|
$
|
148,760
|
|
|
|
See accompanying
notes.
F-9
Ulta Salon,
Cosmetics & Fragrance, Inc.
Consolidated statements of
stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series I
convertible, voting, preferred stock
|
|
Series II
convertible, voting, preferred stock
|
|
Series IV
convertible, voting, preferred stock
|
|
Series V
convertible, voting, preferred stock
|
|
Series V-1
convertible, voting, preferred stock
|
|
Total preferred
stock
|
|
Treasurypreferred
stock
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.01
|
|
$0.01
|
|
$0.01
|
|
$0.01
|
|
$0.01
|
|
$0.01
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
17,207,532
|
|
7,634,207
|
|
19,183,653
|
|
22,500,000
|
|
4,600,000
|
|
106,500,000
|
|
Treasurycommon
stock
|
|
|
Additional
|
|
party
|
|
|
|
|
|
other
|
|
|
Total
|
|
Par value
authorized shares
|
|
Issued
|
|
|
|
Issued
|
|
|
|
Issued
|
|
|
|
Issued
|
|
|
|
Issued
|
|
|
|
Issued
|
|
|
|
Issued
|
|
|
|
|
|
Issued
|
|
|
|
Issued
|
|
|
|
|
|
paid-in
|
|
notes
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
stockholders
|
|
(Dollars in
thousands, except per share data)
|
|
shares
|
|
Amount
|
|
shares
|
|
Amount
|
|
shares
|
|
Amount
|
|
shares
|
|
Amount
|
|
shares
|
|
Amount
|
|
shares
|
|
Amount
|
|
shares
|
|
|
Amount
|
|
|
shares
|
|
Amount
|
|
shares
|
|
|
Amount
|
|
|
capital
|
|
receivable
|
|
|
deficit
|
|
|
income
(loss)
|
|
|
equity
|
|
|
|
|
BalanceFebruary 3, 2007
|
|
|
16,915,231
|
|
$
|
43,317
|
|
|
7,634,207
|
|
$
|
74,455
|
|
|
19,183,653
|
|
$
|
46,871
|
|
|
21,447,959
|
|
$
|
56,079
|
|
|
920,000
|
|
$
|
2,337
|
|
|
66,101,050
|
|
$
|
223,059
|
|
|
(38,095
|
)
|
|
|
$(12
|
)
|
|
|
11,723,579
|
|
$
|
117
|
|
|
(383,099
|
)
|
|
$
|
(2,217
|
)
|
|
$
|
15,501
|
|
$
|
(4,467
|
)
|
|
$
|
(83,240
|
)
|
|
$
|
19
|
|
|
$
|
148,760
|
|
(unaudited)
|
Issuance of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
372,237
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
547
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(360,425
|
)
|
|
|
(1,803
|
)
|
|
|
|
|
|
|
|
|
(3,500
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,830
|
)
|
Accretion of dividends
|
|
|
|
|
|
1,088
|
|
|
|
|
|
|
|
|
|
|
|
1,173
|
|
|
|
|
|
1,423
|
|
|
|
|
|
60
|
|
|
|
|
|
3,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,744
|
)
|
|
|
|
|
|
|
|
|
Receipt of related party notes
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
373
|
|
Unrealized loss on interest rate
swap hedge, net of $66 income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
(99
|
)
|
Net income for the period ended
May 5, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,319
|
|
|
|
|
|
|
|
5,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,220
|
|
Stock compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217
|
|
Amortization of deferred stock-
based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
BalanceMay 5, 2007
|
|
|
16,915,231
|
|
$
|
44,405
|
|
|
7,634,207
|
|
$
|
74,455
|
|
|
19,183,653
|
|
$
|
48,044
|
|
|
21,447,959
|
|
$
|
57,502
|
|
|
920,000
|
|
$
|
2,397
|
|
|
66,101,050
|
|
$
|
226,803
|
|
|
(398,520
|
)
|
|
$
|
(1,815
|
)
|
|
|
12,095,816
|
|
$
|
121
|
|
|
(386,599
|
)
|
|
$
|
(2,244
|
)
|
|
$
|
16,333
|
|
$
|
(4,094
|
)
|
|
$
|
(81,665
|
)
|
|
$
|
(80
|
)
|
|
$
|
153,359
|
|
|
|
See accompanying
notes.
F-10
Ulta Salon,
Cosmetics & Fragrance, Inc.
1. Business
and basis of presentation
The accompanying consolidated financial statements of Ulta
Salon, Cosmetics & Fragrance, Inc. (the Company)
include Ulta Salon, Cosmetics & Fragrance, Inc. and
its wholly owned subsidiary, Ulta Internet Holdings, Inc.
(Internet). All intercompany balances and transactions have been
eliminated. The operations of Internet were merged into the
Company during 2006, resulting in its dissolution as a separate
legal entity on November 30, 2006.
The Company was incorporated in the state of Delaware on
January 9, 1990, to operate specialty retail stores selling
cosmetics, fragrance, haircare and skincare products, and
related accessories and services. The stores also feature
full-service salons. As of May 5, 2007, the Company
operated 203 stores in 26 states, as shown in the table
below:
|
|
|
|
|
|
Number of
|
State
|
|
stores
|
|
Arizona
|
|
|
19
|
California
|
|
|
24
|
Colorado
|
|
|
9
|
Delaware
|
|
|
1
|
Florida
|
|
|
9
|
Georgia
|
|
|
11
|
Illinois
|
|
|
26
|
Indiana
|
|
|
4
|
Iowa
|
|
|
1
|
Kansas
|
|
|
1
|
Kentucky
|
|
|
2
|
Maryland
|
|
|
3
|
Michigan
|
|
|
3
|
Minnesota
|
|
|
6
|
Nevada
|
|
|
5
|
New Jersey
|
|
|
9
|
New York
|
|
|
6
|
North Carolina
|
|
|
8
|
Oklahoma
|
|
|
4
|
Oregon
|
|
|
1
|
Pennsylvania
|
|
|
11
|
South Carolina
|
|
|
3
|
Texas
|
|
|
26
|
Virginia
|
|
|
7
|
Washington
|
|
|
3
|
Wisconsin
|
|
|
1
|
|
|
|
|
Total
|
|
|
203
|
Unaudited interim
results
The accompanying consolidated balance sheet as of May 5,
2007, and the consolidated statements of income and cash flows
for the three months ended April 29, 2006 and May 5,
2007, and the consolidated statement of stockholders
equity for the three months ended May 5, 2007, are
unaudited. The unaudited interim consolidated financial
information has been prepared in accordance with
U.S. generally accepted accounting principles for interim
financial information and with the U.S. Securities and
Exchange Commissions Article 10,
Regulation S-X.
The unaudited interim financial information has been prepared on
the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include
only normal recurring adjustments, necessary to fairly state the
Companys consolidated
F-11
financial position as of May 5, 2007 and its results of
operations and cash flows for the three months ended
April 29, 2006 and May 5, 2007. The consolidated
financial data and other information disclosed in these notes to
the financial statements as of May 5, 2007 and for the
three months ended April 29, 2006 and May 5, 2007 are
unaudited. The Companys business is subject to seasonal
fluctuation. Significant portions of the Companys net
sales and net income are realized during the fourth quarter of
the fiscal year due to the holiday selling season. The results
for the three months ended May 5, 2007 are not necessarily
indicative of the results to be expected for the fiscal year
ending February 2, 2008, or for any other future interim
period or for any future year.
Unaudited pro
forma consolidated financial data
The Company has filed a Registration Statement
(Form S-1)
with the United States Securities and Exchange Commission for
its proposed initial public offering of shares of its common
stock.
The unaudited pro forma consolidated financial data reflects
adjustments to our historical financial statements to reflect
the following transactions in conjunction with the
Companys initial public offering:
|
|
|
Automatic conversion of all outstanding shares of our preferred
stock, other than our Series III preferred stock, into an
aggregate of 65,702,530 shares of common stock upon the
consummation of the offering.
|
|
|
|
The redemption of our Series III preferred stock for
approximately $4.8 million concurrently with the closing of
the offering,
|
|
|
|
The sale
of shares
of common stock at an initial public offering price of
$ per share, after deducting
underwriting discounts and commissions and estimated offering
expenses
|
|
|
|
The payment of approximately
$ million of accumulated
dividends in arrears on our preferred stock upon the
consummation of the offering.
|
The unaudited pro forma note payable and stockholders
equity assumes the transactions summarized above had occurred on
May 5, 2007. The unaudited pro forma net income and net
income per share assume the transactions described above
occurred at the beginning of the period for fiscal 2006 and
first quarter fiscal 2007.
|
|
2.
|
Summary of
significant accounting policies
|
Fiscal
year
The Companys fiscal year is the 52 or 53 weeks ending
on the Saturday closest to January 31. The Companys
fiscal years ended January 29, 2005 (fiscal 2004),
January 28, 2006 (fiscal 2005), and February 3, 2007
(fiscal 2006) were 52, 52, and 53 week years,
respectively. The Companys fiscal quarters ended
April 29, 2006 and May 5, 2007 both include
13 weeks.
Reclassifications
Certain reclassifications have been made to the fiscal year 2004
and 2005 financial statements to conform to the fiscal 2006
presentation.
F-12
Use of
estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the accounting period. Actual results could
differ from those estimates.
Cash and cash
equivalents
Cash and cash equivalents include cash on hand and highly liquid
investments with maturities of three months or less from the
date of purchase.
Receivables
Receivables consist principally of amounts receivable from
vendors related to allowances earned but not yet received. These
receivables are computed based on provisions of the vendor
agreements in place and the Companys completed
performance. Our vendors are primarily
U.S.-based
producers of consumer products. The Company does not require
collateral on its receivables and does not accrue interest.
Credit risk with respect to receivables is limited due to the
diversity of vendors comprising the Companys vendor base.
The Company performs ongoing credit evaluations of its vendors
and evaluates the collectibility of its receivables based on the
length of time the receivable is past due and historical
experience. The allowance for receivables totaled $224,000 and
$422,000 as of January 28, 2006 and February 3, 2007,
respectively.
Merchandise
inventories
Merchandise inventories are stated at the lower of cost or
market. Cost is determined using the weighted-average cost
method and includes costs incurred to purchase and distribute
goods. Inventory cost also includes vendor allowances related to
co-op advertising, markdowns, and volume discounts. The Company
maintains reserves for lower of cost or market and shrinkage.
Fair value of
financial instruments
The carrying value of cash and cash equivalents, accounts
receivable, and accounts payable approximates their estimated
fair values due to the short maturities of these instruments.
The estimated fair value of the Companys variable rate
debt approximates its carrying value since the rate of interest
on the variable rate debt is revised frequently based upon
current LIBOR, or the lenders base rate. See Note 8
for the fair value of the Companys interest rate swap
agreement.
Derivative
financial instruments
All of the Companys derivative financial instruments are
designated and qualify as cash flow hedges. Accordingly, the
effective portion of the gain or loss on the derivative
instrument is reported as a component of accumulated other
comprehensive income and reclassified into earnings in the same
period or periods during which the hedged transaction affects
earnings. The remaining gain or loss, the ineffective portion,
on the derivative instrument, if other than inconsequential, is
recognized in current earnings during the period of change.
Derivatives are recorded in the consolidated balance sheets at
fair value.
F-13
Property and
equipment
The Companys property and equipment are stated at cost net
of accumulated depreciation and amortization. Maintenance and
repairs are charged to operating expense as incurred. The
Companys assets are depreciated or amortized using the
straight-line method, over the shorter of their estimated useful
lives or the expected lease term as follows:
|
|
|
|
Equipment and fixtures
|
|
3 to 10 years
|
Leasehold improvements
|
|
10 years
|
Electronic equipment and software
|
|
3 to 5 years
|
|
|
The Company capitalizes costs incurred during the application
development stage in developing or obtaining internal use
software. These costs are amortized over the estimated useful
life of the software.
The Company capitalizes interest related to construction
projects and depreciates that amount over the lives of the
related assets.
The Company periodically evaluates whether changes have occurred
that would require revision of the remaining useful life of
equipment and leasehold improvements or render them not
recoverable. If such circumstances arise, the Company uses an
estimate of the undiscounted sum of expected future operating
cash flows during their holding period to determine whether the
long-lived assets are impaired. If the aggregate undiscounted
cash flows are less than the carrying amount of the assets, the
resulting impairment charges to be recorded are calculated based
on the excess of the carrying value of the assets over the fair
value of such assets, with the fair value determined based on an
estimate of discounted future cash flows.
Customer loyalty
program
The Company maintains several customer loyalty programs. The
Companys national program provides reward point
certificates for free beauty products. Customers earn
purchased-based reward points and redeem the related reward
certificate during specific promotional periods during the year.
The Company is also piloting a loyalty program in several
markets in which customers earn purchased-based points on an
annual basis which can be redeemed at any time. The Company
accrues the anticipated redemptions related to these programs at
the time of the initial purchase based on historical experience.
The accrued liability related to both of the loyalty programs at
January 28, 2006 and February 3, 2007 was $1,293,000
and $2,808,000, respectively. The cost of these programs, which
was $3,108,000, $4,369,000, and $6,660,000 in fiscal 2004, 2005,
and 2006, respectively, is included in cost of sales on the
consolidated statements of income.
Deferred
rent
Many of the Companys operating leases contain
predetermined fixed increases of the minimum rental rate during
the lease. For these leases, the Company recognizes the related
rental expense on a straight-line basis over the expected lease
term, including cancelable option periods where failure to
exercise such options would result in an economic penalty, and
records the difference between the amounts charged to expense
and the rent paid as deferred rent. The lease term commences on
the earlier of the date when the Company becomes legally
obligated for rent payments or the date the Company takes
possession of the leased space.
F-14
As part of many lease agreements, the Company receives
construction allowances from landlords for tenant improvements.
These leasehold improvements made by the Company are capitalized
and amortized over the shorter of their estimated useful lives
or the lease term. The construction allowances are recorded as
deferred rent and amortized on a straight-line basis over the
lease term as a reduction of rent expense.
Revenue
recognition
Net sales include merchandise sales and salon service revenue.
Revenue from merchandise sales at stores is recognized at the
time of sale, net of estimated returns.
E-commerce
sales are recorded upon the shipment of merchandise. Salon
revenue is recognized when services are rendered. Revenues from
gift cards are deferred and recognized when redeemed. Company
coupons and other incentives are recorded as a reduction of net
sales. State sales taxes are presented on a net basis as the
Company considers itself a pass-through conduit for collecting
and remitting state sales tax.
Vendor
allowances
The Company receives allowances from vendors in the normal
course of business including advertising and markdown
allowances, purchase volume discounts and rebates, and
reimbursement for defective merchandise, and certain selling and
display expenses.
Substantially all vendor allowances are recorded as a reduction
of the vendors product cost and are recognized in cost of
sales as the product is sold.
Advertising
Advertising expense consists principally of paper, print, and
distribution costs related to the Companys advertising
circulars. The Company expenses the production and distribution
costs related to its advertising circulars in the period the
related promotional event occurs. As of January 28, 2006
and February 3, 2007, all advertising costs had been
expensed. Total advertising costs, exclusive of incentives from
vendors and
start-up
advertising expense, amounted to $30,108,000, $34,829,000 and
$43,383,000 for fiscal 2004, 2005, and 2006, respectively.
Pre-opening
expenses
Non-capital expenditures incurred prior to the grand opening of
a new store are charged against earnings as incurred.
Cost of
sales
Cost of sales includes the cost of merchandise sold including
all vendor allowances, which are treated as a reduction of
merchandise costs; warehousing and distribution costs including
labor and related benefits, freight, rent, depreciation and
amortization, real estate taxes, utilities, and insurance; store
occupancy costs including rent, depreciation and amortization,
real estate taxes, utilities, repairs and maintenance,
insurance, licenses, and cleaning expenses; salon payroll and
benefits; and shrink and inventory valuation reserves.
Selling, general,
and administrative expenses
Selling, general, and administrative expenses includes payroll,
bonus, and benefit costs for retail and corporate employees;
advertising and marketing costs; occupancy costs related to our
corporate office facilities; public company expense including
Sarbanes-Oxley compliance expenses; stock-based compensation
expense; depreciation and amortization for all assets
F-15
except those related to our retail and warehouse operations
which is included in cost of sales; and legal, finance,
information systems and other corporate overhead costs.
Income
taxes
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities used for financial reporting purposes and the
amounts used for income tax purposes and the amounts reported
were derived using the enacted tax rates in effect for the year
the differences are expected to reverse.
Share-based
compensation
Effective January 29, 2006, the Company adopted the fair
value recognition and measurement provisions of Statement of
Financial Accounting Standards No. 123(R),
Share-Based
Payment
(SFAS 123(R)). Pursuant to SFAS 123(R),
share-based compensation cost is measured at grant date, based
on the fair value of the award, and is recognized as expense
over the requisite service period for awards expected to vest.
As a non-public entity that previously used the minimum value
method for pro forma disclosure purposes under SFAS 123,
the Company was required to adopt the prospective method of
accounting under SFAS 123(R). Under this transitional
method, the Company is required to record compensation expense
in the consolidated statements of income for all awards granted
after the adoption date and to awards modified, repurchased or
cancelled after the adoption date using the fair value
provisions of SFAS 123(R).
Prior to January 29, 2006, the Company accounted for
share-based awards using the intrinsic value method of
accounting in accordance with Accounting Principles Board
Opinion No. 25,
Accounting for Stock issued to Employees
(APB 25). Under the provisions of APB 25, no compensation
expense was recognized when stock options were granted with
exercise prices equal to or greater than market value at the
grant date. Prior period pro forma net income and earnings per
share amounts are not presented in accordance with the
provisions of SFAS 123(R).
During fiscal 2006, the Company recorded $665,000 of share-based
compensation expense pursuant to the provisions of
SFAS 123(R), and recognized $2,807,000 of compensation
expense pursuant to APB 25 (see Note 11).
Self-insurance
The Company is self-insured for certain losses related to
employee health and workers compensation although stop
loss coverage with third-party insurers is maintained to limit
the Companys liability exposure. Liabilities associated
with these losses are estimated in part by considering
historical claims experience, industry factors, severity
factors, and actuarial assumptions. Should a different amount of
liabilities develop compared to what was estimated, reserves may
need to be adjusted accordingly in future periods.
Net income per
common share
Basic net income per common share is computed by dividing income
available to common stockholders by the weighted-average number
of shares of common stock outstanding during the period. Diluted
net income per share includes dilutive common stock equivalents,
using the treasury stock method, and assumes that the
convertible preferred shares outstanding were converted, with
related preferred stock dividend requirements and outstanding
common shares adjusted accordingly, except when the effect would
be antidilutive.
F-16
Comprehensive
income
Comprehensive income is comprised of net income and gains and
losses from derivative instruments designated as cash flow
hedges, net of tax. Total comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
|
|
Three months
ended
|
|
|
|
January 29,
|
|
January 28,
|
|
February 3,
|
|
April 29,
|
|
May 5,
|
|
(Dollars
in thousands)
|
|
2005
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Net income
|
|
$
|
9,460
|
|
$
|
15,969
|
|
$
|
22,543
|
|
$
|
4,700
|
|
$
|
5,319
|
|
Unrealized gain (loss) on interest
rate swap hedge, net of tax
|
|
|
634
|
|
|
427
|
|
|
68
|
|
|
45
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
10,094
|
|
$
|
16,396
|
|
$
|
22,611
|
|
$
|
4,745
|
|
$
|
5,220
|
|
|
|
Recent accounting
pronouncements
In July 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 48,
Accounting for
Uncertainty in Income Taxesan Interpretation of FASB
Statement No. 109
(FIN 48). FIN 48 prescribes
a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return, and
provides guidance on de-recognition, classification, interest
and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The Company adopted the provisions
of FIN 48 on February 4, 2007. The adoption had no
effect on the Companys consolidated financial position or
results of operations.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value in accordance with U.S. GAAP and expands disclosures
about fair value measurements. SFAS 157 is effective for
financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. The Company does not expect the adoption of SFAS 157
to have a material effect on the Companys consolidated
financial position or results of operations.
In September 2006, the Securities and Exchange Commission
released Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements
(SAB 108). SAB 108 provides guidance on how the
effects of the carryover or reversal of prior year financial
statement misstatements should be considered in quantifying a
current year misstatement. The adoption of SAB 108 by the
Company as of February 3, 2007, did not have any impact on
the Companys consolidated financial position or results of
operations.
In February 2007, the FASB issued SFAS 159,
The Fair
Value Option for Financial Assets and Financial Liabilities
,
which permits all entities to choose to measure eligible items
at fair value on specified election dates. The associated
unrealized gains and losses on the items for which the fair
value option has been elected shall be reported in earnings.
SFAS 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. Currently,
the
F-17
Company is not able to estimate the impact SFAS 159 will
have on its consolidated financial statements.
|
|
3.
|
Property and
equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28,
|
|
|
February 3,
|
|
(Dollars
in thousands)
|
|
2006
|
|
|
2007
|
|
|
|
|
Equipment and fixtures
|
|
$
|
88,431
|
|
|
$
|
107,033
|
|
Leasehold improvements
|
|
|
100,447
|
|
|
|
119,750
|
|
Electronic equipment and software
|
|
|
32,059
|
|
|
|
45,701
|
|
Construction-in-progress
|
|
|
6,212
|
|
|
|
7,006
|
|
|
|
|
|
|
|
|
|
|
227,149
|
|
|
|
279,490
|
|
Less accumulated depreciation and
amortization
|
|
|
(94,146
|
)
|
|
|
(117,410
|
)
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
133,003
|
|
|
$
|
162,080
|
|
|
|
For the fiscal years 2004, 2005, and 2006, the Company
capitalized interest of $0, $280,000, and $399,000, respectively.
|
|
4.
|
Commitments and
contingencies
|
Leases
The Company leases stores, distribution facilities, and certain
equipment. Original noncancelable lease terms range from three
to ten years, and store leases generally contain renewal options
for additional years. A number of the Companys store
leases provide for contingent rentals based upon sales.
Contingent rent amounts were insignificant in fiscal 2004, 2005,
and 2006. Total rent expense under operating leases was
$28,443,000, $34,564,000, and $41,135,000 in fiscal 2004, 2005,
and 2006, respectively.
Future minimum lease payments under operating leases as of
February 3, 2007, are as follows:
|
|
|
|
|
Fiscal
year
|
|
Operating
|
(Dollars in
thousands)
|
|
leases
|
|
|
2007
|
|
$
|
53,494
|
2008
|
|
|
58,161
|
2009
|
|
|
56,865
|
2010
|
|
|
51,262
|
2011
|
|
|
45,966
|
2012 and thereafter
|
|
|
155,893
|
|
|
|
|
Total minimum lease payments
|
|
$
|
421,641
|
|
|
Included in the operating lease schedule above is $95,280,000 of
minimum lease payments for stores that will open in fiscal 2007.
F-18
Litigation
The Company is involved from time to time in legal proceedings
and claims arising in the normal conduct of its business.
Although the outcome of any pending legal proceeding or claim
cannot be predicted with certainty, management believes that the
ultimate resolution of such claims would not have a material
effect on the Companys financial position or results of
operations.
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
January 28,
|
|
February 3,
|
(Dollars
in thousands)
|
|
2006
|
|
2007
|
|
|
Accrued payroll, bonus, and
employee benefits
|
|
$
|
7,316
|
|
$
|
13,728
|
Accrued vendor liabilities
|
|
|
4,168
|
|
|
6,110
|
Accrued customer liabilities
|
|
|
5,536
|
|
|
6,921
|
Accrued taxes, other
|
|
|
3,750
|
|
|
4,944
|
Other accrued liabilities
|
|
|
5,726
|
|
|
6,901
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
26,496
|
|
$
|
38,604
|
|
|
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
|
|
|
|
January 29,
|
|
January 28,
|
|
|
February 3,
|
|
(Dollars
in thousands)
|
|
2005
|
|
2006
|
|
|
2007
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,513
|
|
$
|
11,790
|
|
|
$
|
15,165
|
|
State
|
|
|
727
|
|
|
1,562
|
|
|
|
2,102
|
|
|
|
|
|
|
|
Total current
|
|
|
5,240
|
|
|
13,352
|
|
|
|
17,267
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
852
|
|
|
(2,523
|
)
|
|
|
(2,228
|
)
|
State
|
|
|
109
|
|
|
(325
|
)
|
|
|
(808
|
)
|
|
|
|
|
|
|
Total deferred
|
|
|
961
|
|
|
(2,848
|
)
|
|
|
(3,036
|
)
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
6,201
|
|
$
|
10,504
|
|
|
$
|
14,231
|
|
|
|
F-19
A reconciliation of the federal statutory rate to the
Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
|
|
|
January 29,
|
|
January 28,
|
|
February 3,
|
|
|
2005
|
|
2006
|
|
2007
|
|
|
Federal statutory rate
|
|
|
35.0%
|
|
|
35.0%
|
|
|
35.0%
|
State effective rate, net of
federal tax benefit
|
|
|
4.4
|
|
|
4.5
|
|
|
3.4
|
Other
|
|
|
0.2
|
|
|
0.2
|
|
|
0.3
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.6%
|
|
|
39.7%
|
|
|
38.7%
|
|
|
Significant components of the Companys deferred tax assets
and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 28,
|
|
|
February 3,
|
(Dollars
in thousands)
|
|
2006
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
1,078
|
|
|
$
|
1,433
|
Property and equipment
|
|
|
|
|
|
|
633
|
Accrued liabilities
|
|
|
947
|
|
|
|
946
|
Inventory valuation
|
|
|
158
|
|
|
|
86
|
Employee benefits
|
|
|
1,594
|
|
|
|
1,350
|
Reserves not currently deductible
|
|
|
5,676
|
|
|
|
10,360
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
9,453
|
|
|
|
14,808
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
742
|
|
|
|
|
Deferred rent and construction
allowances
|
|
|
1,847
|
|
|
|
5,271
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
2,589
|
|
|
|
5,271
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
6,501
|
|
|
$
|
9,537
|
|
|
At February 3, 2007, the Company had net operating loss
carryforwards (NOLs) for federal and state income tax purposes
of approximately $2,640,000 and $10,700,000, respectively, which
expire between 2007 and 2013. Based on Internal Revenue Code
Section 382 relating to changes in ownership of the
Company, utilization of the federal NOLs is subject to an annual
limitation of $440,000 for federal NOLs created prior to
April 1, 1997.
The Company adopted the provisions of FIN 48 on
February 4, 2007. The adoption had no effect on the
Companys consolidated financial position or results of
operations. The Company does not currently maintain a liability
for unrecognized tax benefits. The Companys policy is to
recognize income tax-related interest and penalties as part of
income tax expense. Income tax-related interest and penalties
recorded in the consolidated financial statements was $0 for all
periods presented. The Company conducts business only in the
United States. Accordingly, the tax years that remain open to
examination by U.S. federal, state, and local tax
jurisdictions is generally three years, or fiscal 2004, 2005,
and 2006.
F-20
The Companys credit facility is with LaSalle Bank National
Association as the administrative agent, Wachovia Capital
Finance Corporation as collateral agent, and JP Morgan Chase
Bank as documentation agent. This facility provides maximum
credit of $100,000,000 and a $50,000,000 accordion option
through May 31, 2010. The credit facility agreement
contains a restrictive financial covenant on tangible net worth.
Substantially all of the Companys assets are pledged as
collateral for outstanding borrowings under the facility.
Outstanding borrowings bear interest at the prime rate or the
Eurodollar rate plus 1.25% up to $50,000,000 and 1.50%
thereafter. The advance rates on owned inventory are 80% (85%
from September 1 to January 31). The interest rate on the
outstanding borrowings as of January 28, 2006 and
February 3, 2007, was 6.146% and 7.025%, respectively. The
Company had approximately $49,045,000 and $48,937,000 of
availability as of January 28, 2006 and February 3,
2007, respectively, excluding the accordion option.
The Company has an ongoing letter of credit that renews annually
in October, the balance of which was $326,000 at
January 28, 2006 and February 3, 2007.
At May 5, 2007, the Company has classified $55,038,000 of
outstanding borrowings under the facility as long-term as this
is the minimum amount that the Company believes will remain
outstanding for an uninterrupted period over the next year.
On December 31, 2001, the Company entered into an interest
rate swap agreement with a notional amount of $25,000,000 that
qualified as a cash flow hedge to obtain a fixed interest rate
on variable rate debt and reduce certain exposures to interest
rate fluctuations. The swap expired on December 29, 2006.
The swap resulted in fixed rate payments at an interest rate of
5.185%.
On January 31, 2007, the Company entered into an interest
rate swap agreement under the original master agreement, with a
notional amount of $25,000,000 and a term of three years with
fixed interest rate payments at an interest rate of 5.11%.
At January 28, 2006 and February 3, 2007, the interest
rate swap had a negative fair value of $80,000 and a positive
fair value of $32,000, respectively. The increase in market
value during fiscal 2004, 2005, and 2006 related to the
effective portion of the cash flow hedges were recorded as an
unrecognized gain (loss) in the other comprehensive income
section of stockholders equity in the consolidated balance
sheets. Amounts related to any ineffectiveness are recorded as
interest expense.
Interest rate differentials paid or received under this
agreement are recognized as adjustments to interest expense. The
Company does not hold or issue interest rate swap agreements for
trading purposes. In the event that a counterparty fails to meet
the terms of the interest rate swap agreement, the
Companys exposure is limited to the interest rate
differential. The Company manages the credit risk of
counterparties by dealing only with institutions that the
Company considers financially sound. The Company considers the
risk of nonperformance to be remote.
F-21
The following series of Preferred Stock were outstanding at
January 28, 2006 and February 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series (Dollars
in thousands, except per share data)
|
Preferred
stock
|
|
I
|
|
II
|
|
III
|
|
IV
|
|
V
|
|
V-1
|
|
|
|
4/01/97,
|
|
|
|
|
|
|
|
12/18/00,
|
|
|
|
|
5/30/97,
|
|
|
|
|
|
|
|
7/10/01,
|
|
12/18/00
|
Issuance
date
|
|
and
2/2/05
|
|
4/1/97
|
|
4/1/97
|
|
7/29/98
|
|
and
2/2/02
|
|
and
7/10/01
|
|
|
Shares issued
|
|
|
16,915,231
|
|
|
7,634,207
|
|
|
4,792,302
|
|
|
19,183,653
|
|
|
17,797,640
|
|
|
4,570,319
|
Gross proceeds
|
|
$
|
16,418
|
|
$
|
|
|
$
|
|
|
$
|
19,757
|
|
$
|
25,495
|
|
$
|
6,855
|
|
|
|
|
|
|
January 28, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
|
|
|
16,915,231
|
|
|
7,634,207
|
|
|
4,792,302
|
|
|
19,145,558
|
|
|
21,447,959
|
|
|
920,000
|
Dividends in arrears
|
|
$
|
23,461
|
|
$
|
|
|
$
|
|
|
$
|
23,136
|
|
$
|
19,819
|
|
$
|
784
|
Liquidation value
|
|
$
|
40,410
|
|
$
|
76,342
|
|
$
|
4,792
|
|
$
|
43,227
|
|
$
|
51,991
|
|
$
|
2,164
|
February 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
|
|
|
16,915,231
|
|
|
7,634,207
|
|
|
4,792,302
|
|
|
19,145,558
|
|
|
21,447,959
|
|
|
920,000
|
Dividends in arrears
|
|
$
|
27,738
|
|
$
|
|
|
$
|
|
|
$
|
27,711
|
|
$
|
25,322
|
|
$
|
1,013
|
Liquidation value
|
|
$
|
44,687
|
|
$
|
76,342
|
|
$
|
4,792
|
|
$
|
47,802
|
|
$
|
57,494
|
|
$
|
2,393
|
|
Restrictions
Agreements entered into as part of the sale of Preferred Stock
contain restrictive covenants, the most restrictive of which
limit the payment of dividends, require approval by the Board of
Directors for significant capital expenditures, restrict the
issuance of debt or additional shares of Preferred Stock, and
the issuance or redemption of Common Stock other than shares
issued to employees of the Company pursuant to the Amended and
Restated Restricted Stock Plan or its Stock Option Plans (see
Note 11).
Cumulative
dividends
Dividends accrue on each share of Series I, Series IV,
Series V, and
Series V-1
Preferred Stock at 10% per annum of the Liquidation Value
thereof from and including the date of issuance. Dividends do
not accrue on shares of Series II Preferred Stock unless
the Companys Board of Directors adopts a resolution
authorizing the accrual of dividends on such shares, in which
case dividends shall accrue on each share at 10% per annum of
the Liquidation Value thereof from the date specified in such
authorizing resolution. All dividends on account of
Series I, Series IV, Series V,
Series V-1,
and, if applicable, Series II Preferred Stock shall accrue
and accumulate whether or not they have been declared and
whether or not there are profits, surpluses, or other funds of
the Company legally available for the payment of dividends. No
dividends shall accrue on, or with respect to, any shares of
Series III Preferred Stock. No dividends shall be paid
unless approved by the Board of Directors.
Voting,
conversion, and liquidation rights
Holders of Series I, Series II, Series IV,
Series V, and
Series V-1
Preferred Stock are entitled to vote on all matters submitted to
the holders of the Common Stock. Holders of Common Stock and
Series I, Series II, Series IV, Series V,
and
Series V-1
Preferred Stock vote together as a single class. On certain
matters, the holders of each class of voting Preferred Stock
have the right to vote as
F-22
a separate class. Each share of Common Stock is entitled to one
vote, and each holder of shares of Series I,
Series II, Series IV, Series V, and
Series V-1
Preferred Stock is entitled to the number of votes equal to the
largest number of full shares of Common Stock into which the
shares of Series I, Series II, Series IV,
Series V, and
Series V-1
Preferred Stock held by such holder could be converted.
Holders of Series I, Series II, Series IV,
Series V, and
Series V-1
Preferred Stock may convert all, or a portion, of their shares
into Common Stock. The number of common shares to be issued upon
conversion is computed by multiplying the number of shares of
Series I or Series II Preferred Stock to be converted
by 1.002, the number of shares of Series IV Preferred Stock
to be converted by 1.05, and the number of shares of
Series V and
Series V-1
Preferred Stock to be converted by 1.50, and dividing the result
by the conversion price then in effect. The conversion price for
Series I and Series II Preferred stock is $1.002. The
conversion price for Series IV Preferred Stock is $1.05.
The conversion Price for Series V and
Series V-1
Preferred Stock is $1.50. The conversion price is subject to
adjustment pursuant to the terms of the agreement.
All Preferred Stock has preference over Common Stock in the
event the Company is liquidated. Distribution to holders of
Preferred Stock upon liquidation would be made in the following
order: (1) Liquidation Value of Series V Preferred
Stock and
Series V-1
Preferred Stock, (2) Liquidation Value of Series I
Preferred Stock and Series IV Preferred Stock,
(3) Liquidation Value of Series II Preferred Stock
(excluding accrued and unpaid dividends), (4) Liquidation
Value of Series III Preferred Stock, and (5) accrued
and unpaid dividends on Series II Preferred Stock.
Redemption
rights
Upon a qualified public offering or sale of the Company, all
Series III Preferred Stock must be redeemed. The Company
has determined that the Series III Preferred Stock should
be presented in the mezzanine section of the balance sheet as
provided by guidance contained in EITF Topic D-98,
Classification and Measurement of Redeemable
Securities
. Under this guidance, classification in the
permanent equity section is not considered appropriate because
the Series III Preferred Stock is redeemable upon majority
vote of the board of directors to sell the Company or authorize
a qualified public offering and such board is controlled by the
preferred security holders.
F-23
The Company has the following shares of common stock with a par
value of $.01 per share authorized, reserved, and outstanding at
February 3, 2007:
|
|
|
|
|
Common stock authorized
|
|
|
106,500,000
|
|
|
|
|
Common stock reserved for:
|
|
|
|
Conversion of Series I
Preferred Stock
|
|
|
17,207,532
|
Conversion of Series II
Preferred Stock
|
|
|
7,634,207
|
Conversion of Series IV
Preferred Stock
|
|
|
19,183,653
|
Conversion of Series V
Preferred Stock
|
|
|
22,500,000
|
Conversion of
Series V-1
Preferred Stock
|
|
|
4,600,000
|
Exercise of options
|
|
|
15,829,955
|
Exercise of consultant options
|
|
|
525,000
|
|
|
|
|
Total common stock reserved
|
|
|
87,480,347
|
|
|
|
|
Total common stock outstanding
|
|
|
11,340,480
|
|
|
Amended and
restated restricted stock option plan
The Company has an Amended and Restated Restricted Stock Option
Plan (the Amended Plan), principally to compensate and provide
an incentive to key employees and members of the Board of
Directors, under which it may grant options to purchase
Preferred Stock and Common Stock. Options generally are granted
with the exercise price equal to the fair value on the date of
grant. Options vest over four years at the rate of 25% per year
from the date of issuance and must be exercised within the
earlier to occur of 14 years from the date of grant or the
maximum period allowed by applicable state law.
2002 equity
incentive plan
In April 2002, the Company adopted the 2002 Equity Incentive
Plan (the 2002 Plan) to attract and retain the best available
personnel for positions of substantial authority and to provide
additional incentive to employees, directors, and consultants to
promote the success of the Companys business. Options
granted on or after April 26, 2002, were granted pursuant
to the 2002 Plan. The 2002 Plan incorporates several important
features that are typically found in agreements adopted by
companies that report their results to the public. First, the
maximum term of an option was reduced from 14 to ten years in
order to comply with various state laws. Second, the 2002 Plan
provided more flexibility in the vesting period of options
offered to grantees. Third, the 2002 Plan allowed for the
offering of incentive stock options to employees in addition to
nonqualified stock options. Unless provided otherwise by the
administrator of the 2002 Plan, options vest over four years at
the rate of 25% per year from the date of grant. Options are
granted with the exercise price equal to the fair value on the
date of grant.
F-24
The Company estimates the grant date fair value of stock options
using a Black-Scholes valuation model using the following
weighted-average assumptions for fiscal 2004, 2005, and 2006 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
Volatility rate
|
|
|
|
|
|
|
|
|
45%
|
Average risk-free interest rate
|
|
|
4.70%
|
|
|
4.30%
|
|
|
4.79%
|
Average expected life (years)
|
|
|
7.0
|
|
|
7.0
|
|
|
5.5
|
Dividend yield
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
An additional assumption included in our Black-Scholes valuation
model is the fair value of the Companys shares, which is
determined by our board of directors based on all known facts
and circumstances, including valuations prepared by a nationally
recognized independent third-party appraisal firm. The expected
volatility is based on the historical volatility of a peer group
of publicly-traded companies. The risk free interest rate is
based on the U.S. Treasury yield curve in effect on the
date of grant for the respective expected life of the option.
The expected life represents the time the options granted are
expected to be outstanding. The Company has elected to use the
shortcut approach in accordance with SAB 107,
Share-Based Payment
, to develop the expected life. The
weighted-average grant date fair value of options granted in
fiscal 2006 was $1.69.
The Company recognizes compensation cost related to the stock
options on a straight-line method over the requisite service
period.
At February 3, 2007, there was approximately $2,200,000 of
total unrecognized compensation cost related to unvested
options. The cost is expected to be recognized over a
weighted-average period of approximately three years.
There were no significant new grants during the three month
periods ended April 29, 2006 or May 5, 2007.
A summary of the status of the Companys stock option
activity under the Amended Plan and 2002 Plan is presented in
the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
options
|
|
|
January 29,
2005
|
|
January 28,
2006
|
|
February 3,
2007
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
|
|
|
|
average
|
|
|
|
|
average
|
|
|
|
|
average
|
|
|
|
|
|
exercise
|
|
|
|
|
exercise
|
|
|
|
|
exercise
|
Options
outstanding
|
|
Shares
|
|
|
price
|
|
Shares
|
|
|
price
|
|
Shares
|
|
|
price
|
|
|
Beginning of year
|
|
|
8,414,743
|
|
|
$
|
0.66
|
|
|
9,765,538
|
|
|
$
|
0.87
|
|
|
9,713,003
|
|
|
$
|
1.02
|
Granted
|
|
|
2,073,029
|
|
|
|
1.65
|
|
|
1,312,815
|
|
|
|
2.10
|
|
|
2,105,000
|
|
|
|
3.93
|
Exercised
|
|
|
(251,500
|
)
|
|
|
0.20
|
|
|
(768,300
|
)
|
|
|
0.48
|
|
|
(4,560,651
|
)
|
|
|
0.68
|
Canceled
|
|
|
(470,734
|
)
|
|
|
0.86
|
|
|
(597,050
|
)
|
|
|
1.48
|
|
|
(735,719
|
)
|
|
|
0.96
|
|
|
|
|
|
|
End of year
|
|
|
9,765,538
|
|
|
$
|
0.87
|
|
|
9,713,003
|
|
|
$
|
1.02
|
|
|
6,521,633
|
|
|
$
|
2.21
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
5,974,305
|
|
|
$
|
0.56
|
|
|
6,410,103
|
|
|
$
|
0.68
|
|
|
3,242,893
|
|
|
$
|
1.47
|
|
|
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
options
|
|
|
January 29,
2005
|
|
January 28,
2006
|
|
February 3,
2007
|
|
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
average
|
|
|
|
|
average
|
|
|
|
average
|
|
|
|
|
exercise
|
|
|
|
|
exercise
|
|
|
|
exercise
|
Options
outstanding
|
|
Shares
|
|
price
|
|
Shares
|
|
|
price
|
|
Shares
|
|
price
|
|
|
Beginning of year
|
|
|
146,130
|
|
$
|
0.10
|
|
|
146,130
|
|
|
$
|
0.10
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
(146,130
|
)
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
146,130
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
146,130
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized $209,000, $169,000, and $25,000 of stock
compensation expense during fiscal 2004, 2005, and 2006,
respectively, for options granted during fiscal years 2001 and
2002 under the Amended Plan. The stock compensation charge
reflected in the consolidated financial statements represents
the difference at the measurement date between the exercise
price and the deemed fair value of the Common Stock underlying
the options. This amount has been fully amortized at
February 3, 2007.
Included in the grants for the year ended February 3, 2007,
are 400,000 performance-based options whose vesting is
contingent upon an initial public offering of the Companys
common stock. The fair value of these grants was estimated on
the date of the grant using the Black-Scholes valuation model as
described above. No compensation cost is recognized for these
options until it is probable the performance measure will be
achieved.
During the year ended February 3, 2007, two former officers
of the Company exercised vested options for 448,644 shares of
common stock, which were immediately repurchased by the Company
for $2,489,000. Compensation expense was recognized for this
amount which represents the excess of the fair value of the
common stock over the exercise price of the options.
Restricted Stock
Option PlanConsultants
During fiscal 1999, the Company established a Restricted Stock
Option PlanConsultants (the Consultant Plan) under which
the Company may grant options to purchase Common Stock to
various consultants who, from time to time, provide critical
services to the Company. Options are granted with the exercise
price equal to the fair value on the date of grant. Options vest
over varying time periods depending on the arrangement with each
consultant and must be exercised within 4 years and
90 days from the date of grant.
F-26
A summary of the status of the Companys stock option
activity under the Consultant Plan as of January 28, 2006
and February 3, 2007, is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
options
|
|
|
January 29,
2005
|
|
January 28,
2006
|
|
February 3,
2007
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
|
|
|
|
average
|
|
|
|
|
average
|
|
|
|
|
average
|
|
|
|
|
|
exercise
|
|
|
|
|
exercise
|
|
|
|
|
exercise
|
Options
outstanding
|
|
Shares
|
|
|
price
|
|
Shares
|
|
|
price
|
|
Shares
|
|
|
price
|
|
|
Beginning of year
|
|
|
318,000
|
|
|
$
|
0.50
|
|
|
85,000
|
|
|
$
|
0.70
|
|
|
21,250
|
|
|
$
|
0.70
|
Exercised
|
|
|
|
|
|
|
|
|
|
(63,750
|
)
|
|
|
0.70
|
|
|
(21,250
|
)
|
|
|
0.70
|
Canceled
|
|
|
(233,000
|
)
|
|
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
85,000
|
|
|
$
|
0.70
|
|
|
21,250
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
42,500
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information related to options
outstanding and options exercisable at February 3, 2007,
under the Amended and 2002 Plans based on ranges of exercise
prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding
|
|
Options
exercisable
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
|
|
Weighted-
|
|
|
|
average
|
|
Weighted-
|
|
|
|
|
remaining
|
|
average
|
|
|
|
remaining
|
|
average
|
Range
of
|
|
Number
|
|
contractual
|
|
exercise
|
|
Number
|
|
contractual
|
|
exercise
|
exercise
prices
|
|
of
options
|
|
life
|
|
price
|
|
of
options
|
|
life
|
|
price
|
|
|
$0.01 - 0.11
|
|
|
230,071
|
|
|
7
|
|
$
|
0.10
|
|
|
230,071
|
|
|
7
|
|
$
|
0.10
|
0.11 - 0.70
|
|
|
859,597
|
|
|
9
|
|
|
0.62
|
|
|
859,597
|
|
|
9
|
|
|
0.62
|
0.71 - 1.65
|
|
|
2,265,150
|
|
|
8
|
|
|
1.55
|
|
|
1,421,771
|
|
|
8
|
|
|
1.50
|
1.65 - 2.60
|
|
|
2,321,815
|
|
|
11
|
|
|
2.35
|
|
|
631,454
|
|
|
11
|
|
|
2.38
|
2.61 - 5.80
|
|
|
845,000
|
|
|
11
|
|
|
5.80
|
|
|
100,000
|
|
|
11
|
|
|
5.80
|
|
|
|
|
|
|
|
|
|
6,521,633
|
|
|
10
|
|
$
|
2.21
|
|
|
3,242,893
|
|
|
9
|
|
$
|
1.47
|
|
|
Amended and
restated restricted stock plan
During 2004, the Company issued 700,000 restricted common shares
with a fair value of $1.65 per share at the date of grant to
certain directors pursuant to the Amended Plan. The restricted
shares cannot be sold or otherwise transferred during the
vesting period, which ranges from three to four years from the
issuance date. The Company retains a reacquisition right in the
event the director ceases to be a member of the Board of
Directors of the Company under
F-27
certain conditions. The awards are expensed on a straight-line
basis over the vesting period. A summary of restricted stock
activity under the plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
average
|
|
|
|
|
grant date
|
|
|
Shares
|
|
fair
value
|
|
|
Nonvested at January 28, 2006
|
|
|
261,000
|
|
$
|
1.65
|
Vested
|
|
|
179,800
|
|
|
1.65
|
|
|
|
|
|
|
Nonvested at February 3, 2007
|
|
|
81,200
|
|
$
|
1.65
|
|
|
The compensation expense recorded was $425,000, $299,000, and
$293,000 in fiscal 2004, 2005, and 2006, respectively. There was
$136,000 of unearned compensation cost related to the restricted
shares granted under the plan at February 3, 2007. The cost
is expected to be recognized over a weighted-average period of
one year.
12. Net
income per common share
The following is a reconciliation of net income and the number
of shares of common stock used in the computation of net income
per basic and diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands,
|
|
Year
ended
|
|
Three
months ended
|
except per common
share
|
|
January 29,
|
|
|
January 28,
|
|
February 3,
|
|
April 29,
|
|
May 5,
|
data)
|
|
2005
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Numerator for diluted net income
per common sharenet income
|
|
$
|
9,460
|
|
|
$
|
15,969
|
|
$
|
22,543
|
|
$
|
4,700
|
|
$
|
5,319
|
Convertible preferred
sharesdividends
|
|
|
11,692
|
|
|
|
12,922
|
|
|
14,584
|
|
|
3,450
|
|
|
3,744
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income per
common share
|
|
$
|
(2,232
|
)
|
|
$
|
3,047
|
|
$
|
7,959
|
|
$
|
1,250
|
|
$
|
1,575
|
|
|
F-28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands,
|
|
Year
ended
|
|
Three
months ended
|
except per common
share
|
|
January 29,
|
|
|
January 28,
|
|
February 3,
|
|
April 29,
|
|
May 5,
|
data)
|
|
2005
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Denominator for basic net income
per share weighted-average common shares
|
|
|
5,032,612
|
|
|
|
6,478,217
|
|
|
9,130,697
|
|
|
6,960,640
|
|
|
11,368,805
|
Dilutive effect of stock options
and nonvested stock
|
|
|
|
|
|
|
3,718,702
|
|
|
3,794,603
|
|
|
3,555,888
|
|
|
3,473,479
|
Dilutive effect of convertible
preferred stock
|
|
|
|
|
|
|
66,101,050
|
|
|
66,101,050
|
|
|
66,101,050
|
|
|
65,810,657
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income
per common share
|
|
|
5,032,612
|
|
|
|
76,297,969
|
|
|
79,026,350
|
|
|
76,617,578
|
|
|
80,652,941
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.44
|
)
|
|
$
|
0.47
|
|
$
|
0.87
|
|
$
|
0.18
|
|
$
|
0.14
|
Diluted
|
|
$
|
(0.44
|
)
|
|
$
|
0.21
|
|
$
|
0.29
|
|
$
|
0.06
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma numerator for basic and
diluted net income available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock into
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma denominator for basic
net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands,
|
|
Year
ended
|
|
Three
months ended
|
except per common
share
|
|
January 29,
|
|
January 28,
|
|
February 3,
|
|
April 29,
|
|
May 5,
|
data)
|
|
2005
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Pro forma diluted weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of Series III
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma denominator for diluted
net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The denominator for diluted net income per common share for
fiscal 2005 and 2006 excludes 1,296,815 and
1,075,000 employee options, respectively, due to their
anti-dilutive effects. Fiscal 2006 also excludes 400,000 of
employee options which vest upon future performance criteria.
The denominator for diluted net income per common share for
fiscal 2004 excludes 3,647,645 employee options and
65,954,920 shares of cumulative preferred shares due to
their anti-dilutive effects.
13. Employee
benefit plan
The Company provides a 401(k) retirement plan covering all
employees who qualify as to age, length of service, and hours
employed. In fiscal 2004, 2005, and 2006, the plan was funded
through employee contributions and a Company match of 40% of the
first 3% of employee contributions. For fiscal years 2004, 2005,
and 2006, the Company match was $250,000, $256,000, and
$300,000, respectively.
14. Related-party
transactions
During fiscal 1997, 1998, and 2001, certain officers of the
Company were issued shares of Series V, IV, and I Preferred
Stock, respectively, in exchange for promissory notes. These
notes bear interest at a rate of 6.85% per annum and are due and
payable at the earlier of 90 days
F-30
after termination of employment or various dates through
November 4, 2007, subject to certain exceptions.
During fiscal 2006, an officer of the Company entered into a
promissory note for $4,094,000 in exchange for exercising
options for 3,000,000 common shares amounting to $1,680,000 and
payment of tax withholding of $2,414,000 by the Company on
behalf of the officer. The note bears interest at a rate of
5.06% per annum and is due at the earlier of an initial public
offering of the Companys common stock or five years from
issuance date.
As of January 28, 2006 and February 3, 2007, the
outstanding amount on these loans was $373,000 and $4,467,000,
respectively. These notes receivable are reflected as a
reduction of equity in the accompanying consolidated statements
of stockholders equity.
|
|
15.
|
Subsequent events
(unaudited)
|
On June 29, 2007, we amended our existing credit agreement with
our bank group. The terms of our credit agreement were modified
to increase the maximum credit from $100 million to $150
million and maintain a $50 million accordion option and extend
the expiration of the agreement, by one additional year, to
May 31, 2011. Outstanding borrowings bear interest at the
prime rate or Eurodollar rate plus 1.00% up to $100 million
and 1.25% thereafter. Debt covenants, collateral, and advance
rates are consistent with the previous agreement.
The related party note receivable of $4,094,000 was paid in full
on June 29, 2007.
In June 2007, we finalized a lease for a second distribution
facility located in Phoenix, Arizona. The lease expires in March
2019. Minimum lease payments, excluding CAM, insurance, and real
estate taxes, are approximately $18.4 million over the
lease term.
In April 2007, we finalized a lease for additional office space
in Romeoville, Illinois. The lease expires in August 2018.
Minimum lease payments, excluding CAM, insurance, and real
estate taxes, are approximately $15.6 million over the
lease term.
F-31
|
|
16.
|
Valuation and
qualifying accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
|
|
|
Balance
|
Description
|
|
beginning
|
|
costs
and
|
|
|
|
|
at
end of
|
(Dollars in
thousands)
|
|
of
period
|
|
expenses
|
|
Deductions
|
|
|
period
|
|
|
Year ended February 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
224
|
|
$
|
338
|
|
$
|
(140
|
)(1)
|
|
$
|
422
|
Shrink reserve
|
|
|
722
|
|
|
2,003
|
|
|
(1,720
|
)
|
|
|
1,005
|
Inventorylower of cost or
market reserve
|
|
|
758
|
|
|
359
|
|
|
(416
|
)
|
|
|
701
|
Year ended January 28, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
55
|
|
|
169
|
|
|
|
|
|
|
224
|
Shrink reserve
|
|
|
829
|
|
|
2,246
|
|
|
(2,353
|
)
|
|
|
722
|
Inventorylower of cost or
market reserve
|
|
|
612
|
|
|
758
|
|
|
(612
|
)
|
|
|
758
|
Year ended January 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
33
|
|
|
65
|
|
|
(43
|
)(1)
|
|
|
55
|
Shrink reserve
|
|
|
2,093
|
|
|
5,215
|
|
|
(6,479
|
)
|
|
|
829
|
Inventorylower of cost or
market reserve
|
|
|
2,013
|
|
|
612
|
|
|
(2,013
|
)
|
|
|
612
|
|
|
|
|
|
(1)
|
|
Represents write-off of
uncollectible accounts.
|
F-32
Through and
including ,
2007 (the 25th day after the date of this prospectus) federal
securities law may require all dealers that effect transactions
in these securities, whether or not participating in this
offering, to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
Part II
Information not
required in prospectus
Item 13. Other
expenses of issuance and distribution
The following table sets forth all costs and expenses, other
than the underwriting discounts and commissions payable by us in
connection with the sale and distribution of the common stock
being registered. All amounts shown are estimates except for the
Securities and Exchange Commission registration fee, the NASD
filing fee and the NASDAQ Global Select Market application fee.
|
|
|
|
|
|
Securities and Exchange Commission
registration fee
|
|
$
|
3,531
|
NASD filing fee
|
|
$
|
12,000
|
NASDAQ Global Select Market
application fee
|
|
$
|
100,000
|
Blue sky qualification fees and
expenses
|
|
|
*
|
Printing and engraving expenses
|
|
|
*
|
Legal fees and expenses
|
|
|
*
|
Accounting fees and expenses
|
|
|
*
|
Transfer agent and registrar fees
|
|
|
*
|
Miscellaneous expenses
|
|
|
*
|
|
|
|
|
Total
|
|
|
*
|
|
|
|
|
|
*
|
|
To be completed by amendment.
|
|
|
Item 14.
|
Indemnification
of directors and officers
|
Section 102 of the Delaware General Corporation Law, or
DGCL, as amended, allows a corporation to limit or eliminate the
personal liability of directors of a corporation to the
corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except where the director
breached the duty of loyalty, failed to act in good faith,
engaged in intentional misconduct or knowingly violated a law,
authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an
improper personal benefit.
Section 145 of the DGCL provides, among other things, that
we may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceedingother than an action
by or in the right of ULTAby reason of the fact that the
person is or was a director, officer, agent, or employee of
ULTA, or is or was serving at our request as a director,
officer, agent or employee of another corporation, partnership,
joint venture, trust or other enterprise against expenses,
including attorneys fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding. The
power to indemnify applies (a) if such person is successful
on the merits or otherwise in defense of any action, suit or
proceeding or (b) if such person acting in good faith and
in a manner he reasonably believed to be in the best interest,
or not opposed to the best interest, of ULTA, and with respect
to any criminal action or proceeding had no reasonable cause to
believe his or her conduct was unlawful. The power to
II-1
indemnify applies to actions brought by or in the right of ULTA
as well but only to the extent of defense expenses, including
attorneys fees but excluding amounts paid in settlement,
actually and reasonably incurred and not to any satisfaction of
judgment or settlement of the claim itself, and with the further
limitation that in such actions no indemnification shall be made
in the event of any adjudication of liability to ULTA, unless
the court believes that in light of all the circumstances
indemnification should apply.
Section 174 of the DGCL provides, among other things, that
a director, who willfully or negligently approves of an unlawful
payment of dividends or an unlawful stock purchase or
redemption, may be held liable for such actions. A director who
was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her
dissent to such actions to be entered in the books containing
minutes of the meetings of the board of directors at the time
such action occurred or immediately after such absent director
receives notice of the unlawful acts.
Our amended and restated certificate of incorporation, attached
as Exhibit 3.1 hereto, provides that we shall indemnify our
directors against liability to the corporation or stockholders
to the fullest extent permissible under the DGCL. Our Amended
and Restated Bylaws, attached as Exhibit 3.2 hereto,
provides that we shall indemnify our directors, officers and
those serving at the request of the corporation to the fullest
extent permissible under the DGCL, including in circumstances in
which indemnification is otherwise discretionary under the DGCL.
We also intend to maintain director and officer liability
insurance, if available on reasonable terms. These
indemnification provisions may be sufficiently broad to permit
indemnification of our officers and directors for liabilities,
including reimbursement of expenses incurred, arising under the
Securities Act of 1933, as amended, which we refer to as the
Securities Act.
The underwriting agreement, a form of which is attached as
Exhibit 1.1 hereto, provides for indemnification by the
underwriters of us and our officers and directors for certain
liabilities, including matters arising under the Securities Act.
Item 15. Recent
sales of unregistered securities
Since May 31, 2004, we have issued unregistered securities
in the transactions described below:
During the period beginning May 31, 2004 through
June 30, 2007, we granted stock options relating to our
common stock to employees, directors and consultants under the
2002 Plan for an aggregate of 4,736,815 shares of common
stock at a weighted average exercise price of $2.95 per share.
During the period beginning May 31, 2004 through June 30,
2007, we issued an aggregate of 5,545,238 shares of common
stock to current and former employees, directors and consultants
of the company upon exercise of vested stock options. The shares
were issued at a weighted average exercise price of $0.69 per
share for an aggregate purchase price of $3,842,500.
On June 21, 2004, we issued 500,000 shares of common
stock to one of our directors, Dennis Eck, pursuant to a
restricted stock agreement under which 100% of the shares were
vested as of May 1, 2007. Mr. Eck did not pay any
consideration for this stock.
On June 21, 2004, we issued an additional
484,848 shares of common stock to Mr. Eck in exchange
for $799,999.
II-2
On June 21, 2004, we issued 200,000 shares of common
stock to one of our directors, Bob DiRomualdo, pursuant to a
restricted stock agreement under which 25% of the shares vest
annually beginning February 26, 2005. Mr. DiRomualdo
will be 100% vested with respect to this stock as of
February 26, 2008. Mr. DiRomualdo did not pay any
consideration for this stock.
On June 21, 2004, we issued an additional
424,242 shares of common stock to Mr. DiRomualdo in
exchange for $699,999.
On November 15, 2005, we issued 47,619 shares of
common stock to a new hire, Michael Lovsin, in connection with
his becoming an employee of the company, in exchange for
$100,000.
On December 3, 2005, we issued 47,619 shares of common
stock to a new hire, Robert Santosuosso, in connection with his
becoming an employee of the company, in exchange for $100,000.
On February 2, 2005, we issued 146,130 shares of
Series I convertible preferred stock to Yves Sisteron upon
the exercise by Mr. Sisteron of an option to purchase such
shares, in exchange for $14,613.
These securities were offered and sold by us in reliance upon
the exemptions provided for in Section 4(2),
Regulation D or Rule 701 promulgated under the
Securities Act relating to sales not involving any public
offering. The sales were made without the use of an underwriter
and the certificates representing the securities sold contain a
restrictive legend that prohibits transfers without registration
or an applicable exemption.
Item 16. Exhibits
and financial statement schedules
(a) Exhibits.
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description of
document
|
|
|
|
1
|
.1*
|
|
Form of Underwriting Agreement.
|
|
3
|
.1
|
|
Amended and Restated Certificate
of Incorporation.
|
|
3
|
.2
|
|
Amended and Restated Bylaws.
|
|
4
|
.1*
|
|
Specimen Common Stock Certificate.
|
|
4
|
.2
|
|
Third Amended and Restated
Registration Rights Agreement between Ulta Salon, Cosmetics
& Fragrance, Inc. and the stockholders party thereto.
|
|
4
|
.3
|
|
Second Amended and Restated
Reclassification and Sale of Shares Agreement, dated as of
December 18, 2000, between Ulta Salon, Cosmetics &
Fragrance, Inc. and the stockholders and warrant holders party
thereto.
|
|
4
|
.3(a)
|
|
Amendment to the Second Amended
and Restated Reclassification and Sale of Shares Agreement,
dated as of May 25, 2001, between Ulta Salon, Cosmetics
& Fragrance, Inc. and the stockholders party thereto.
|
|
4
|
.4
|
|
Stockholder Rights Agreement.
|
|
5
|
.1*
|
|
Opinion of Latham & Watkins
LLP.
|
|
10
|
.1
|
|
Employment Agreement, dated as of
June 23, 2006, between Ulta Salon, Cosmetics &
Fragrance, Inc. and Lyn Kirby.
|
|
10
|
.2
|
|
Secured Promissory Notes, dated as
of June 30, 2006, by Lyn Kirby in favor of Ulta Salon,
Cosmetics & Fragrance, Inc.
|
II-3
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description of
document
|
|
|
|
10
|
.3
|
|
Employment Agreement, dated as of
December 12, 2005, between Ulta Salon, Cosmetics &
Fragrance, Inc. and Bruce Barkus.
|
|
10
|
.3(a)
|
|
Amendment to Employment Agreement,
dated as of June 28, 2006, between Ulta Salon, Cosmetics
& Fragrance, Inc. and Bruce Barkus
|
|
10
|
.4
|
|
Restricted Stock Agreement, dated
as of June 21, 2004 between Ulta Salon, Cosmetics &
Fragrance, Inc. and Dennis Eck.
|
|
10
|
.5
|
|
Restricted Stock Agreement, dated
as of June 21, 2004 between Ulta Salon, Cosmetics &
Fragrance, Inc. and Robert DiRomualdo.
|
|
10
|
.6
|
|
Stock Purchase Agreement, executed
on December 21, 2006, between Ulta Salon, Cosmetics &
Fragrance, Inc. and Charles R. Weber.
|
|
10
|
.7
|
|
Ulta Salon, Cosmetics &
Fragrance, Inc. Second Amended and Restated Restricted Stock
Option Plan.
|
|
10
|
.7(a)
|
|
Amendment to Ulta Salon, Cosmetics
& Fragrance, Inc. Second Amended and Restated Restricted
Stock Option Plan.
|
|
10
|
.8
|
|
Ulta Salon, Cosmetics &
Fragrance, Inc. Second Amended and Restated Restricted Stock
Plan.
|
|
10
|
.9
|
|
Ulta Salon, Cosmetics &
Fragrance, Inc. 2002 Equity Incentive Plan.
|
|
10
|
.10
|
|
Lease Agreement, dated
June 22, 1999, between
ULTA
3
Cosmetics & Salon, Inc. and 1135 Arbor Drive Investors
LLC.
|
|
10
|
.11
|
|
Lease, dated September 11,
2002, between Ulta Salon, Cosmetics & Fragrance, Inc. and
The Prudential Insurance Company of America.
|
|
10
|
.11(a)
|
|
First Amendment to Lease, dated
August 24, 2004, between Ulta Salon, Cosmetics &
Fragrance, Inc. and The Prudential Insurance Company of America.
|
|
10
|
.12
|
|
Lease, dated October 31,
2006, between Ulta Salon, Cosmetics & Fragrance, Inc. and
The Prudential Insurance Company of America.
|
|
10
|
.13
|
|
Office Lease, dated as of
April 17, 2007, between Ulta Salon, Cosmetics &
Fragrance, Inc. and Bolingbrook Investors, LLC.
|
|
10
|
.14*
|
|
Lease, effective as of
June 21, 2007, by and between Southwest Valley Partners,
LLC and Ulta Salon, Cosmetics & Fragrance, Inc.
|
|
10
|
.15
|
|
Third Amendment and Restated Loan
and Security Agreement, dated as of June 29, 2007, by and
among Ulta Salon, Cosmetics & Fragrance, Inc., LaSalle
Bank National Association, Wachovia Capital Finance Corporation
(Central) and JPMorgan Chase Bank, N.A.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP,
independent registered public accounting firm
|
|
23
|
.2*
|
|
Consent of Latham & Watkins
LLP (included in Exhibit 5.1)
|
|
|
|
|
|
*
|
|
To be filed by amendment.
|
|
|
(b)
|
Financial
statement schedules.
|
Schedules have been omitted because the information required to
be set forth therein is not applicable or is shown in the
consolidated financial statements or notes thereto.
II-4
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes to provide
to the underwriters at the closing specified in the underwriting
agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-5
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to the registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, State of
Illinois, on August 17, 2007.
ULTA SALON, COSMETICS & FRAGRANCE, INC.
Gregg R. Bodnar
Chief Financial Officer and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the
following persons in the capacities and on the dates indicated:
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
*
Lynelle
P. Kirby
|
|
President, Chief Executive Officer
and Director (
Principal Executive Officer
)
|
|
August 17, 2007
|
|
|
|
|
|
/s/ Gregg
R. Bodnar
Gregg
R. Bodnar
|
|
Chief Financial Officer and
Assistant Secretary (
Principal Financial and Accounting
Officer
)
|
|
August 17, 2007
|
|
|
|
|
|
*
Hervé
J.F. Defforey
|
|
Director
|
|
August 17, 2007
|
|
|
|
|
|
*
Robert
F. DiRomualdo
|
|
Director
|
|
August 17, 2007
|
|
|
|
|
|
*
Dennis
K. Eck
|
|
Chairman
|
|
August 17, 2007
|
|
|
|
|
|
*
Gerald
R. Gallagher
|
|
Director
|
|
August 17, 2007
|
|
|
|
|
|
*
Terry
J. Hanson
|
|
Director
|
|
August 17, 2007
|
|
|
|
|
|
*
Charles
Heilbronn
|
|
Director
|
|
August 17, 2007
|
II-6
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
*
Steven
E. Lebow
|
|
Director
|
|
August 17, 2007
|
|
|
|
|
|
*
Yves
Sisteron
|
|
Director
|
|
August 17, 2007
|
|
|
|
|
|
|
|
* By:
|
|
/s/ Gregg
R. Bodnar
Gregg
R. Bodnar
Attorney-in-Fact
|
|
|
|
|
II-7
EXHIBIT
INDEX
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description of
document
|
|
|
|
1
|
.1*
|
|
Form of Underwriting Agreement.
|
|
3
|
.1
|
|
Amended and Restated Certificate
of Incorporation.
|
|
3
|
.2
|
|
Amended and Restated Bylaws.
|
|
4
|
.1*
|
|
Specimen Common Stock Certificate.
|
|
4
|
.2
|
|
Third Amended and Restated
Registration Rights Agreement between Ulta Salon, Cosmetics
& Fragrance, Inc. and the stockholders party thereto.
|
|
4
|
.3
|
|
Second Amended and Restated
Reclassification and Sale of Shares Agreement, dated as of
December 18, 2000, between Ulta Salon, Cosmetics &
Fragrance, Inc. and the stockholders and warrant holders party
thereto.
|
|
4
|
.3(a)
|
|
Amendment to the Second Amended
and Restated Reclassification and Sale of Shares Agreement,
dated as of May 25, 2001, between Ulta Salon, Cosmetics
& Fragrance, Inc. and the stockholders party thereto.
|
|
4
|
.4
|
|
Stockholder Rights Agreement.
|
|
5
|
.1*
|
|
Opinion of Latham & Watkins
LLP.
|
|
10
|
.1
|
|
Employment Agreement, dated as of
June 23, 2006, between Ulta Salon, Cosmetics &
Fragrance, Inc. and Lyn Kirby.
|
|
10
|
.2
|
|
Secured Promissory Notes, dated as
of June 30, 2006, by Lyn Kirby in favor of Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
10
|
.3
|
|
Employment Agreement, dated as of
December 12, 2005, between Ulta Salon, Cosmetics &
Fragrance, Inc. and Bruce Barkus.
|
|
10
|
.3(a)
|
|
Amendment to Employment Agreement,
dated as of June 28, 2006, between Ulta Salon, Cosmetics
& Fragrance, Inc. and Bruce Barkus
|
|
10
|
.4
|
|
Restricted Stock Agreement, dated
as of June 21, 2004 between Ulta Salon, Cosmetics &
Fragrance, Inc. and Dennis Eck.
|
|
10
|
.5
|
|
Restricted Stock Agreement, dated
as of June 21, 2004 between Ulta Salon, Cosmetics &
Fragrance, Inc. and Robert DiRomualdo.
|
|
10
|
.6
|
|
Stock Purchase Agreement, executed
on December 21, 2006, between Ulta Salon, Cosmetics &
Fragrance, Inc. and Charles R. Weber.
|
|
10
|
.7
|
|
Ulta Salon, Cosmetics &
Fragrance, Inc. Second Amended and Restated Restricted Stock
Option Plan.
|
|
10
|
.7(a)
|
|
Amendment to Ulta Salon, Cosmetics
& Fragrance, Inc. Second Amended and Restated Restricted
Stock Option Plan.
|
|
10
|
.8
|
|
Ulta Salon, Cosmetics &
Fragrance, Inc. Second Amended and Restated Restricted Stock
Plan.
|
|
10
|
.9
|
|
Ulta Salon, Cosmetics &
Fragrance, Inc. 2002 Equity Incentive Plan.
|
|
10
|
.10
|
|
Lease Agreement, dated
June 22, 1999, between
ULTA
3
Cosmetics & Salon, Inc. and 1135 Arbor Drive Investors
LLC.
|
|
10
|
.11
|
|
Lease, dated September 11,
2002, between Ulta Salon, Cosmetics & Fragrance, Inc. and
The Prudential Insurance Company of America.
|
|
10
|
.11(a)
|
|
First Amendment to Lease, dated
August 24, 2004, between Ulta Salon, Cosmetics &
Fragrance, Inc. and The Prudential Insurance Company of America.
|
|
10
|
.12
|
|
Lease, dated October 31,
2006, between Ulta Salon, Cosmetics & Fragrance, Inc. and
The Prudential Insurance Company of America.
|
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description of
document
|
|
|
|
10
|
.13
|
|
Office Lease, dated as of
April 17, 2007, between Ulta Salon, Cosmetics &
Fragrance, Inc. and Bolingbrook Investors, LLC.
|
|
10
|
.14*
|
|
Lease, effective as of
June 21, 2007, by and between Southwest Valley Partners,
LLC and Ulta Salon, Cosmetics & Fragrance, Inc.
|
|
10
|
.15
|
|
Third Amendment and Restated Loan
and Security Agreement, dated as of June 29, 2007, by and
among Ulta Salon, Cosmetics & Fragrance, Inc., LaSalle
Bank National Association, Wachovia Capital Finance Corporation
(Central) and JPMorgan Chase Bank, N.A.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP,
independent registered public accounting firm
|
|
23
|
.2*
|
|
Consent of Latham & Watkins
LLP (included in Exhibit 5.1)
|
|
|
|
|
|
*
|
|
To be filed by amendment.
|
EXHIBIT 4.3
SECOND AMENDED AND RESTATED
RECLASSIFICATION AND SALE OF SHARES AGREEMENT
THIS SECOND AMENDED AND RESTATED RECLASSIFICATION AND SALE OF SHARES AGREEMENT (the
Agreement
) is made as of December 18, 2000, among Ulta Salon, Cosmetics & Fragrance,
Inc., a Delaware corporation (the
Company
), the shareholders and warrant holders of the
Company set forth on the Schedule of Shareholders attached hereto and made a part hereof (the
shareholders and warrant holders on the Schedule of Shareholders are collectively referred to
herein as the
Current Shareholders
and individually as a
Current Shareholder
)
and the parties set identified on Schedules A and B (the
Purchasers
) and together with
the Current Shareholders, the
Shareholders
and individually a
Shareholder
.
Except as otherwise indicated herein, capitalized terms used herein are defined in
Section
10
hereof.
R
E
C
I
T
A
L
S
A. Prior to the date of this Agreement, the Company has issued the following:
i. Series I Convertible Preferred Stock of the Company, par value $.01 per share (the
Series I Preferred Stock
), pursuant to that certain Reclassification and Sale of Shares
Agreement among the Company and the parties thereto dated as of March 24, 1997 (the
Initial
Reclassification Agreement
);
ii. Series II Convertible Preferred Stock of the Company, par value $.01 per share (the
Series II Preferred Stock
), pursuant to the Initial Reclassification Agreement;
iii. Series III Non-Convertible Preferred Stock of the Company, par value $.01 per share (the
Series III Preferred Stock
), pursuant to the Initial Reclassification Agreement;
iv. Series IV Convertible Preferred Stock of the Company, par value $.01 per share (the
Series IV Preferred Stock
), pursuant to that certain Amended and Restated
Reclassification and Sale of Shares Agreement among the Company and parties thereto dated as of
April 29, 1998 (the
Amended Reclassification Agreement
)
v. Class C Warrants (the
Class C Warrants
) pursuant to the Class C Preferred Stock
and Warrants Purchase Agreement dated January 31, 1992, as amended (the Class C Purchase
Agreement); Class D Warrants (the
Class D Warrants
) pursuant to the Class D Preferred
Stock and Warrants Purchase Agreement dated as of June 26, 1992, as amended (the
Class D
Purchase Agreement
), Class E Warrants (the
Class E Warrants
) pursuant to the Class E
Preferred Stock and Warrants Purchase Agreement dated May 18, 1993, as amended (the
Class E
Purchase Agreement
), Class G Warrants (the
Class G Warrants
) pursuant to the Class G
Preferred Stock and Warrants Purchase Agreement dated March 24, 1995, as amended (the
Class G
Purchase Agreement
), Class H Warrants (
the Class H
Warrants
) pursuant to the Class H Preferred Stock and Warrants Purchase
Agreement dated July 11, 1995, as amended (the
Class H Purchase Agreement
), each as
subsequently adjusted and modified pursuant to the Initial Reclassification Agreement;
Second Amended and Restated Reclassification Agreement
vi. Series II Warrants (the
Series II Warrants
) pursuant to the Initial
Reclassification Agreement;
vii. Warrants to Donaldson, Lufkin & Jenrette Securities, or one or more of its designees
(collectively,
DLJ
) to acquire Common Stock of the Company (the
DLJ Warrants
)
pursuant to the Initial Reclassification Agreement;
viii. $7,731,200 worth of Convertible Bridge Notes (the
Bridge Notes
) purchased by
certain shareholders of the Company and other certain investors in the current fiscal year (
the
Bridge Note Holders
); and
ix. Warrants to the Bridge Note Holders to acquire Series V Preferred Stock or Common Stock
(
Bridge Warrants
) issued pursuant to the Bridge Notes.
The Series I Preferred Stock, the Series II Preferred Stock, the Series III Preferred Stock
and the Series IV Preferred Stock are sometimes collectively referred to herein as the
Existing Preferred Stock
and all holders of the Existing Preferred Stock shall be
collectively referred to herein as the
Existing Preferred Shareholders
. The Class C
Warrants, Class D Warrants, Class E Warrants, Class G Warrants and Class H Warrants are sometimes
collectively referred to herein as the
Old Warrants
and the holders of the Old Warrants
shall be collectively referred to herein as the
Old Warrant Holders
. The Series II
Warrants, the DLJ Warrants, and the Bridge Warrants are sometimes collectively referred to herein
as the
New Warrants
and the holders of the Existing Warrants shall be collectively
referred to herein as the
New Warrant Holders
. The Old Warrants and the New Warrants are
sometimes collectively referred to herein as the
Existing Warrants
and the holders of the
Existing Warrants shall be collectively referred to herein as the
Existing Warrant
Holders
.
B. The Company also (i) has issued shares of Common Stock, par value $.01 per share, of the
Company (the
Common Stock
) to certain individuals pursuant to that certain Senior
Management Agreement dated January 19, 1990 between Richard E. George and the Company, as amended,
and that certain Senior Management Agreement between Terry J. Hanson and the Company, as amended;
and (ii) authorized and reserved for issuance additional shares of Common Stock pursuant to the
Plan and the Stock Option Plans (all issued Common Stock of the Company and all shares of Common
Stock reserved for issuance upon the exercise of options granted pursuant to the Plan and the Stock
Option Plans shall be collectively referred to herein as the
Issued and Reserved Common
Stock
and all holders of Issued and Reserved Common Stock shall be collectively referred to
herein as
Existing Common Shareholders
).
C. Pursuant to the terms hereof, the Shareholders and the Company desire for the Company to
sell to (i) those persons listed on the Schedule of the Initial Purchasers attached hereto as
Schedule A
(such Initial Purchasers are collectively referred to herein as the
Initial
Purchasers
and individually as an
Initial Purchaser
) shares of Series V Convertible
Preferred
Stock of the Company, par value $.01 per share (the
Series V Preferred Stock
) and
shares of Series V-1 Convertible Preferred Stock of the Company, par value $.01 per share (the
Series V-
1 Preferred Stock
) and (ii) to those persons listed on the Schedule of
Subsequent Purchasers attached hereto as
Schedule B
and such additional purchasers as shall
choose to purchase any
Second Amended and Restated Reclassification Agreement
2
portion of the balance of the authorized number of shares of Series V
Preferred Stock and Series V-1 Preferred Stock not sold at the Initial Closing to any Initial
Purchasers (such Subsequent Purchasers are collectively referred to herein as the
Subsequent
Purchasers
and individually as the
Subsequent Purchaser
). Initial Purchasers and
Subsequent Purchasers shall be collectively referred to herein as the
Purchasers
and
individually as a
Purchaser
.
D. Pursuant to the terms hereof, the Shareholders and the Company desire for the Company to
amend and restate the provisions of the Amended Reclassification Agreement to contemplate the
issuance of the Series V Preferred Stock and the Series V-1 Preferred Stock.
NOW THEREFORE, the parties hereto agree that the Reclassification Agreement is amended and
restated in its entirety as follows:
1.
Recitals
. The recitals to this Agreement are hereby incorporated into and made a part
of this Agreement.
2.
Amendment and Restatement of Initial Restated Certificate of Incorporation
. In
preparation for the sale of the Series V Preferred Stock and the Series V-1 Preferred Stock, the
Company and the Current Shareholders hereby authorize and approve the execution and filing of the
Restated Certificate of Incorporation in the form attached hereto as
Exhibit A
with the
Secretary of State of the State of Delaware (the
Restated Certificate
).
3.
Sale and Issuance of the Series IV Preferred Stock
.
A. The Company hereby agrees to issue and sell to the Purchasers up to 16,330,980 shares of
Series V Preferred Stock at a price of $1.50 per share and up to 4,570,319 shares of Series V-1
Preferred Stock at a price of $1.50 per share (except with respect to the shares of Series V
Preferred Stock and Series V-1 Preferred Stock issued to the holders of Bridge Warrants which shall
be issued and sold at a price of $0.01 per share as required by the terms of the Bridge Warrants)
for an aggregate purchase price of up to $30,200,000.00 (subject to increase based upon
accumulation of interest on the convertible Bridge Notes), having the rights, preferences and
benefits set forth in the Restated Certificate. The Series V Preferred Stock and the Series V-1
Preferred Stock is convertible into shares of the Companys Common Stock.
4
Closing
.
A.
Purchase and Sale of the Series V Preferred Stock
. Subject to the terms and
conditions of this Agreement, each Initial Purchaser agrees, severally and not jointly, to purchase
at the Initial Closing and the Company agrees to sell and issue to each Initial Purchaser at the
Initial Closing, that number of shares of the Companys Series V Preferred Stock or Series V-1
Preferred Stock set forth opposite each Initial Purchasers name on
Schedule A
hereto for
the purchase price set forth thereon. The sale of Series V Preferred Stock and Series V-1
Preferred Stock to each Purchaser at the Closing will constitute a separate sale hereunder.
B.
Initial Closing
. Upon the terms and subject to the conditions set forth herein, each
Initial Purchaser agrees to purchase at the Closing the number of shares of Series V Preferred
Stock and Series V-1 Preferred Stock set forth next to such Initial Purchasers name on
Second Amended and Restated Reclassification Agreement
3
the
Schedule of Initial Purchasers at a price per share of $1.50 per share of Series V Preferred Stock
and Series V-1 Preferred Stock as set forth on
Schedule A
hereto. The initial sale of the
Series V Preferred Stock and Series V-1 Preferred Stock shall occur on December 18, 2000 (the
Initial Closing
) at the offices of Latham & Watkins, 233 S. Wacker Drive, Suite 5800,
Chicago, Illinois at 10:00 a.m. on the Initial Closing date, or at such other place or on such
other date as may be mutually agreeable to the Company and a majority in interest of the Initial
Purchasers. At the Initial Closing, subject to the Initial Purchasers deliveries hereunder, the
Company shall deliver to each Initial Purchaser a stock certificate representing the Series V
Preferred Stock that such Initial Purchaser is purchasing at the Initial Closing with each
registered in such Initial Purchasers name, upon payment of the purchaser price hereof by check,
wire transfer, cancellation of indebtedness, or any combination thereof. In consideration for the
issuance of the shares of Series V Preferred Stock and Series V-1 Preferred Stock, each of the
Bridge Note Holders shall release the Company from any and all liabilities, duties or obligations
of the Company due and owning under the Bridge Notes including, without limitation, payment and
performance thereunder.
C.
Subsequent Closings
. Subsequent sales of Series V Preferred Stock and Series V-1
Preferred Stock may occur on or around February 2, 2001 or at the sole discretion of the Company at
a later date which shall be no later than June 1, 2001 (the
Subsequent Closing
, and
together with the Initial Closing, the
Closing
). The Company may sell up to the balance
of the authorized number of shares of Series V Preferred Stock and Series V-1 Preferred Stock not
sold at the Initial Closing to those Subsequent Purchasers who shall be set forth on
Schedule
B
, at a price not less than $1.50 per share (except with respect to the shares of Series V
Preferred Stock and Series V-1 Preferred Stock issued to the holders of Bridge Warrants which shall
be issued and sold at a price of $0.01 per share as required by the terms of the Bridge Warrants,
to the extent such holders of Bridge Warrants exercise their rights thereunder prior to the
Subsequent Closing in accordance with the procedures set forth by Companys Board of Directors).
Upon the terms set forth herein, each Subsequent Purchaser listed on the Schedule of Subsequent
Purchasers as of the Initial Closing Date, hereby agrees to purchase at the Subsequent Closing the
number of shares of Series V Preferred Stock and Series V-1 Preferred Stock set forth next to such
Purchasers name on the Schedule of Subsequent Purchasers at a
price per share of $1.50 per share of Series V Preferred Stock and Series V-1 Preferred Stock
as set forth on
Schedule B
hereto. At the Subsequent Closing, subject to the Subsequent
Purchasers deliveries hereunder, the Company will deliver to each Subsequent Purchaser the stock
certificates representing the Series V Preferred Stock and Series V-1 Preferred Stock purchased at
the Subsequent Closing with each registered in such Subsequent Purchasers name, upon payment of
the purchase price thereof by a cashiers or certified check, or by wire transfer of immediately
available funds to an account designated by the Company in writing, in the amount set forth
opposite such Subsequent Purchasers name on
Schedule B
hereto. Any such Subsequent
Purchaser shall become a party to this Agreement, that certain Registration Agreement (as defined
below) and Voting Agreement (as defined below).
5.
Conditions of Each Purchasers and the Companys Obligations at the Closing
.
Second Amended and Restated Reclassification Agreement
4
A. The obligations of each Purchaser to consummate the transactions described herein at the
Closing is subject to the satisfaction as of the Closing of the following conditions:
i.
Amendment of Certificate of Incorporation
. The Company will have filed the Restated
Certificate with the Secretary of State of the State of Delaware.
ii.
Corporate Approvals
. The Company shall have received resolutions or actions by
written consent of the Board of Directors and, if required, the stockholders of the Company duly
authorizing:
(1) the Restated Certificate;
(2) the amendment and restatement of the Amended Reclassification Agreement to
conform to the terms of this Agreement;
(3) the amendment and restatement of that certain Amended and Restated
Registration Agreement among the Company and the parties thereto dated as of April
29, 1998 (the
Old Registration Agreement
) to conform to the terms of the
Registration Agreement;
(4) the amendment and restatement of that certain Amended and Restated Voting
Agreement among the Company and the parties thereto dated as of April 29, 2000 (the
Old Voting Agreement
) to conform to the terms of the Voting Agreement;
(5) the sale and issuance of the Series V Preferred Stock and Series V-1
Preferred Stock
(6) the reservation for issuance upon conversion of the Series V Preferred
Stock, an aggregate of not less than 21,000,000 shares of Common Stock and the
reservation for issuance upon conversion of the Series V-1 Preferred Stock, an
aggregate of not less than 4,600,000 shares of Common Stock; and
(7) the Company to execute this Agreement, the Registration Agreement, the
Voting Agreement and all certificates, documents and amendments referred to herein.
iii.
Representations and Warranties
. The representations and warranties contained in
Section 9
hereof will be true and correct in all material respects at as of the Closing as
though then made, except to the extent changes caused by the transactions expressly contemplated
herein.
iv.
Blue Sky Clearances
v. . The Company will have timely made all filings under
applicable state securities laws, and will have taken all other action, necessary to
Second Amended and Restated Reclassification Agreement
5
consummate the
issuance of the Series V Preferred Stock and Series V-1 Preferred Stock pursuant to this Agreement
in compliance with such laws.
vi.
No Material Change
. Except as set forth on
Schedule 5A(vi)
or
specifically disclosed herein, since the date of the Companys most recently completed fiscal year,
no change shall have occurred or have been threatened in the business, operations, prospects,
properties or condition (financial or other) of the Company or its Subsidiaries which, in the
reasonable judgment of a majority in interest of the Purchasers, is or may be materially adverse to
the Company and its Subsidiaries, taken as a whole.
vii.
Litigation
viii. There shall be no litigation, proceeding or other action seeking an
injunction or other restraining order, damages or other relief from a court or administrative
agency of competent jurisdiction pending, or threatened which, in the reasonable judgment of a
majority in interest of the Purchasers or the Company, would materially adversely affect the
consummation of, or challenge the validity of, the transactions contemplated in this Agreement and
there shall be no litigation, proceeding or other action pending or threatened against the Company
which is reasonably likely to have a material adverse effect on the business, operations,
prospects, properties, earnings, assets, liabilities or condition (financial or other) of the
Company and its Subsidiaries, taken as a whole (a
Material Adverse Effect
).
ix.
Trading of Securities
. (A) During the seven (7) calendar day period ending on the
date of the Closing, (i) trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or the over-the-counter market shall not have been suspended and minimum
prices shall not have been established on either of such exchanges or such market by such exchange
or
by the Securities and Exchange Commission, (ii) a general banking moratorium shall not have
been declared by Federal, New York or California authorities, and (iii) no changes (or any
condition, event or development involving a prospective change) shall have occurred or be
threatened that, in the reasonable judgment of a majority of the Purchasers, has had or is
reasonably likely to have a material adverse effect upon the prices or trading of securities
generally traded on financial markets in the United States; and (B) the Dow Jones Industrial
Average (the
Dow
) on the business day immediately preceding the date of the Closing shall
not be more than twenty percent (20%) lower than the Dow at the date of this Agreement (the
Opening Dow
) and the Dow on any business day between the date of this Agreement and the
date of the Closing shall not have been more than twenty percent (20%) lower than the Opening Dow.
x.
Approvals
. All governmental and regulatory approvals and clearances and all third
party consents necessary for the consummation of the transactions contemplated under this Agreement
shall have been obtained and shall be in full force and effect, and a majority in interest of the
Purchasers and the Company shall be reasonably satisfied that the consummation of such transactions
does not and will not contravene any applicable provision of the law, statute, regulation, order,
writ, injunction or decree of any court or governmental instrumentality, except to the extent any
contravention or contraventions, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
Second Amended and Restated Reclassification Agreement
6
xi.
Closing Documents
. The Company will have delivered to each Purchaser all of the
following documents:
(1) an Officers Certificate, dated the date of the Closing, stating that the
conditions specified in
Sections 5A
(i) (x), have been fully satisfied;
(2) copies of the resolutions referred to in
Section A(ii)
duly adopted
by the Companys Board of Directors and Shareholders;
(3) copies of the Companys Restated Certificate of Incorporation as filed with
the Secretary of State of the State of Delaware on April 1, 1997, as amended by
Certificates of Amendment filed with the Secretary of State of the State of Delaware
on April 30, 1998 and July 29, 1999 (the
Initial Restated Certificate of
Incorporation
), the Companys Restated Certificate, certified by the Delaware
Secretary of State, and the Companys bylaws, each as in effect at the Closing; and
(4) such other documents relating to the transactions contemplated by this
Agreement as any Purchaser may reasonably request at the Closing.
xii.
Proceedings
. All corporate and other proceedings taken or required to be taken in connection with the
transactions contemplated hereby to be consummated at or prior to the Closing and all documents
incident thereto will be satisfactory in form and substance to each Purchaser at the Closing and
its special counsel.
xiii.
Opinion of Companys Counsel
. Each Purchaser at the Closing will have received from
Latham & Watkins, counsel for the Company, the opinion addressed to each such Purchaser, dated the
date of the Closing and in form and substance similar to Exhibit D attached hereto.
xiv.
Registration Agreement
. The Company and the Shareholders will have entered into a
Second Amended and Restated Registration Agreement in the form and substance substantially similar
to Exhibit B attached hereto (the
Registration Agreement
), and the Registration Agreement
will be in full force and effect as of the Closing.
xv.
Voting Agreement
. The Company and the Shareholders will have entered into a Second
Amended and Restated Voting Agreement in form and substance substantially similar to Exhibit C
attached hereto (the
Voting Agreement
), and the Voting Agreement will be in full force
and effect as of the Closing.
B. The obligations of the Company to consummate the transactions described herein at the
Closing is subject to the satisfaction as of the Closing of the following conditions:
i.
Registration Agreement
. The Purchasers will have entered into a Second Amended and
Restated Registration Agreement in the form and substance substantially similar to
Exhibit
B
attached hereto (the
Registration Agreement
), and the Registration Agreement will
be in full force and effect as of the Closing.
Second Amended and Restated Reclassification Agreement
7
ii.
Voting Agreement
. The Purchasers will have entered into a Second Amended
and Restated Voting Agreement in
form and substance substantially similar to
Exhibit C
attached hereto (the
Voting
Agreement
), and the Voting Agreement will be in full force and effect as of the Closing.
iii.
Approvals
. All governmental and regulatory approvals and clearances and all
third party consents (including, without limitation, Current Shareholder consents and approvals)
necessary for the consummation of the transactions contemplated under this Agreement shall have
been obtained and shall be in full force and effect, and a majority in interest of the Purchasers
and the Company shall be reasonably satisfied that the consummation of such transactions does not
and will not contravene any applicable provision of the law, statute, regulation, order, writ,
injunction or decree of any court or governmental instrumentality, except to the extent any
contravention or contraventions, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
iv.
Funding
. The Company shall have received confirmation that at least $15,000,000
of Series V Preferred Stock and Series V-1 Preferred Stock will be issued at the Initial Closing,
including the shares issued upon conversion of the Bridge Notes.
v.
Representations and Warranties
. The representations and warranties contained in
Section 11C
hereof will be true and correct in all material respects at as of the Closing
as though then made, except to the extent changes caused by the transactions expressly contemplated
herein.
vi.
Reclassification Agreement
. The Purchasers will have entered into this Agreement
and this Agreement will be in full force and effect as of the Closing.
C.
Waiver of Conditions
. Any condition specified in this
Section 5
may be
waived if consented to by each
Purchaser at the Closing;
provided
that no such waiver will be effective against any
Purchaser at the Closing unless it is set forth in a writing executed by such Purchaser.
6
Waivers and Consents by the Shareholders
. As a condition to the Company
consummating the transactions contemplated herein, each of
the Current Shareholders agrees as follows:
i. Each Current Shareholder hereby consents to all of the transactions contemplated in
this Agreement.
ii. Except as specifically provided in this Agreement for persons who are Purchasers,
each Current Shareholder waives any and all rights to purchase shares of Series V Preferred
Stock and Series V-1 Preferred Stock, including any and all rights
Second Amended and Restated Reclassification Agreement
8
relating to the
allocation thereof, arising from Section 7H of the Amended Reclassification Agreement in
connection with the issuance of the Series V Preferred Stock and Series V-1 Preferred Stock,
including, without limitation, any such rights resulting from the issuance of Series V
Preferred Stock and Series V-1 Stock in a Subsequent Closing.
iii. Each Current Shareholder hereby approves (a) this Agreement, (b) the Registration
Agreement, (c) the Voting Agreement and (d) the Restated Certificate.
7
Covenants
.
A.
Financial Statements and Other Information
. The Company will deliver to each
Shareholder who has invested $1,000,000 in equity
securities of the Company and after a Qualified Public Offering, to each Holder of at least 10% of
the Underlying Common Stock:
i. as soon as available but in any event within 30 days after the end of each monthly
accounting period in each fiscal year, unaudited consolidating and consolidated statements
of income and cash flows of the Company and its Subsidiaries for such monthly period, and
consolidating and consolidated balance sheets of the Company and its Subsidiaries as of the
end of such monthly period, and all such statements will be prepared in accordance with
generally accepted accounting principles, consistently applied, subject to the exclusion of
footnote disclosure and normal year-end audit adjustments;
ii. within 90 days after the end of each fiscal year, consolidating and consolidated
statements of income and cash flows of the Company and its Subsidiaries for such fiscal
year, and consolidating and consolidated balance sheets of the Company and its Subsidiaries
as of the end of such fiscal year, all prepared in accordance with generally accepted
accounting principles, consistently applied, and accompanied by (a) with respect to the
consolidated portions of such statements, an opinion containing no exceptions or
qualifications (except for qualifications regarding specified contingent liabilities) of an
independent accounting firm of recognized national standing acceptable to the holders of a
majority of the Underlying Common Stock, (b) a certificate from such accounting firm,
addressed to the Companys board of directors, stating that in the course of its examination
nothing came to its attention that caused it to believe that there was an Event of
Noncompliance in existence or that there was any other default by the Company or any
Subsidiary in the fulfillment of or compliance with any of the terms, covenants, provisions
or conditions of any other material agreement to which the Company or any Subsidiary is a
party or, if such accountants have reason to believe any Event of Noncompliance or other
default by the Company or any Subsidiary exists, a certificate specifying the nature
and period of existence thereof, and (c) a copy of such firms annual management letter
to the board of directors;
iii. the later of (i) ninety (90) days after the beginning of each fiscal year and (ii)
when the Board of Directors approves the annual budget, an annual budget
Second Amended and Restated Reclassification Agreement
9
prepared on a
monthly basis for the Company and its Subsidiaries for such fiscal year (displaying
anticipated statements of income and cash flows and balance sheets);
iv. promptly (but in any event within ten Business Days) after the discovery or receipt
of notice of any Event of Noncompliance, any default under any material agreement to which
it or any of its Subsidiaries is a party or any other material adverse event or circumstance
affecting the Company or any Subsidiary (including the filing of any material litigation
against the Company or any Subsidiary or the existence of any dispute with any Person or
governmental entity which involves a reasonable likelihood of such litigation being
commenced), an Officers Certificate specifying the nature and period of existence thereof
and what actions the Company and its Subsidiaries have taken and propose to take with
respect thereto;
v. within ten days after transmission thereof, copies of all financial statements,
proxy statements, reports and any other general written communications which the Company
sends to its stockholders and copies of all registration statements and all regular, special
or periodic reports which it files, or any of its officers or directors file with respect to
the Company, with the Securities and Exchange Commission or with any securities exchange on
which any of its securities are then listed, and copies of all press releases and other
statements made available generally by the Company to the public concerning material
developments in the Companys businesses; and
vi. with reasonable promptness, such other information and financial data concerning
the Company and its Subsidiaries as any Person entitled to receive information under this
Section 7A
may reasonably request.
To the best of the Companys knowledge after due inquiry, each of the financial statements
referred to in
Section 7A
will be true and correct in all material respects as of the dates
and for the periods stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end audit adjustments (none of which would, alone or in the
aggregate, be materially adverse to the financial condition, operating results, assets, operations
or business prospects of the Company and its Subsidiaries taken as a whole).
Notwithstanding the foregoing, the provisions of
Sections 7A(i)
,
7A(ii) and
7A(iii)
will cease to be effective so long as the Company (a) is subject to the periodic
reporting requirements of the Securities Exchange Act and continues to comply with such
requirements and (b) promptly provides to each Person otherwise entitled to receive information
pursuant to this
Section 7A
all reports and other materials filed by the Company with the
Securities and Exchange Commission pursuant to the periodic reporting requirements of the
Securities Exchange Act; provided that from the date of this Agreement and for so long as any
Series I Preferred Stock, Series II Preferred Stock, Series IV Preferred Stock, Series V Preferred
Stock or Series V-1 Preferred
Stock remains outstanding, the Company will deliver to each Shareholder (so long as such
Shareholder holds any Series I Preferred Stock, Series II Preferred Stock, Series IV Preferred
Stock, Series V Preferred Stock or Series V-1 Preferred Stock) and to each Holder of at least 5% of
outstanding Underlying Common Stock, the information specified in
Subsections 7A(ii)
,
7A(iii)(b)
and
7A(v)
.
Second Amended and Restated Reclassification Agreement
10
Except as otherwise required by law or judicial order or decree or by any governmental agency
or authority, each Person entitled to receive information regarding the Company and its
Subsidiaries under
Section 7A(i)
,
7A(ii)
and
7A(iii)
is subject to the
confidentiality provisions contained in
Section 11E
.
For purposes of this Agreement and the Registration Agreement, the holdings of Series I
Preferred Stock, Series II Preferred Stock, Series IV Preferred Stock, Series V Preferred Stock,
Series V-1 Preferred Stock, Existing Warrants and Underlying Common Stock by Persons who are
Affiliates of each other will be aggregated for purposes of meeting any threshold tests under this
Agreement.
Affiliate
means for the purposes of the preceding sentence, any Person which
controls, is controlled by or is under common control with another Person and Persons which have
received distributions of securities from a partnership holding such securities.
B.
Inspection of Property
. Subject to the obligations of the Shareholders
contained in
Section 11E
, the
Company will permit any representatives designated by any Shareholder (so long as such Shareholder
holds or is deemed to hold any Underlying Common Stock) upon reasonable notice and during normal
business hours and such other times as any such holder may reasonably request, to (i) visit and
inspect any of the properties of the Company and its Subsidiaries, (ii) examine the corporate and
financial records of the Company and its Subsidiaries and make copies thereof or extracts therefrom
and (iii) discuss the affairs, finances and accounts of any such corporations with the directors,
officers, key employees and independent accountants of the Company and its Subsidiaries. The
presentation of an executed copy of this Agreement by any Shareholder to the Companys independent
accountants will constitute the Companys permission to its independent accountants to participate
in discussions with such Persons.
C.
Restrictions
. So long as any Series I Preferred Stock, Series II Preferred
Stock, Series IV Preferred
Stock, Series V Preferred Stock and Series V-1 Preferred Stock remain outstanding, without the
consent of (i) the holders of a majority of the outstanding shares of Series I Preferred Stock
voting together as a single class; (ii) the holders of a majority of the outstanding shares of
Series IV Preferred Stock voting together as a single class and, if applicable, the Series IV
Supplemental Consent Holder; (iii) the holders of a majority of the outstanding shares of Series V
Preferred Stock and Series V-1 Preferred Stock voting together as single class and (iv) the holders
of a majority in voting power of the outstanding shares of all series of Preferred Stock entitled
to vote voting together as a single class, the Company will not:
i. and will not permit any Subsidiary to, directly or indirectly declare or pay any
dividends or make any distributions upon any of its equity securities pursuant to the terms
of the Companys Initial Restated Certificate of Incorporation as amended by the Restated
Certificate (the
New Restated Certificate of Incorporation
), except for dividends
payable in shares of Common Stock issued upon the outstanding shares of Common Stock,
dividends or other distributions paid or declared by a wholly-owned Subsidiary of the
Company to the Company or to another wholly-owned Subsidiary of the Company and dividends
paid on shares of Series I Preferred Stock, Series IV Preferred Stock, Series V Preferred
Stock or Series V-1 Preferred Stock as permitted by the New Restated Certificate of
Incorporation;
Second Amended and Restated Reclassification Agreement
11
ii. directly or indirectly redeem, purchase or otherwise acquire, or permit any
Subsidiary to redeem, purchase or otherwise acquire, any of the Companys or a Subsidiarys
equity securities (including, without limitation, warrants, options and other rights to
acquire equity securities) other than (a) redemptions, purchases or acquisitions by a
Subsidiary of the Company of equity securities held by the Company or a wholly-owned
Subsidiary of the Company, (b) redemptions, purchases or other acquisitions of the Series I
Preferred Stock, Series II Preferred Stock, Series III Preferred Stock, Series IV Preferred
Stock, Series V Preferred Stock, Common Stock or Existing Warrants pursuant to the terms of
Section 8B
of this Agreement, and (c) repurchases of Common Stock or other capital
stock of the Company from employees of the Company and its Subsidiaries upon termination of
employment pursuant to the Plan, the Stock Option Plans and any other stock option, stock
purchase or similar equity incentive plan adopted by the Board of Directors;
iii. and will not permit any Subsidiary to, except as expressly contemplated by this
Agreement, authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of, (a) any notes or debt securities containing equity features
(including, without limitation, any notes or debt securities convertible into or
exchangeable for equity securities, issued in connection with the issuance of equity
securities or containing profit participation features), or (b) any equity securities (or
any securities convertible into or exchangeable for any equity securities) other than equity
securities issued to employees of the Company pursuant to the Plan, the Stock Option Plans
and any other stock option, stock purchase or similar equity incentive plan adopted by the
Board of Directors, shares of Series I Preferred Stock issued with the consent of the
holders of a majority of the outstanding shares of Series I Preferred Stock, shares of
Series II Preferred Stock issued with the consent of the holders of a majority of the
outstanding shares of Series II Preferred Stock, shares of Series IV Preferred Stock issued
with the consent of the holders of a majority of the outstanding shares of Series IV
Preferred Stock, shares of Series V Preferred Stock issued with the consent of the holders
of a majority of the outstanding shares of Series V Preferred Stock and shares of Series V-1
Preferred Stock issued with the consent of the holders of a majority of the outstanding
shares of Series V-1 Preferred Stock;
iv. make, or permit any Subsidiary to make, any loans or advances to, guarantees for
the benefit of, or Investments in, any Person (other than a wholly-owned Subsidiary
established under the laws of a jurisdiction of the United States or any of its territorial
possessions) which is not approved by a majority of the Board of Directors, except for (a)
reasonable advances to employees in the ordinary course of business, and (b) Investments
having a stated maturity no greater than one year from the date the Company makes such
Investment in (1) obligations of the United States government or any agency thereof or
obligations guaranteed by the United States government, (2) certificates of deposit of
commercial banks having combined capital and surplus of at least $50 million if such
Investment is 100% federally insured or (3) commercial paper with a rating of at least
Prime-1 by Moodys Investors Service, Inc., provided that no more than $1,000,000 shall be
invested in any one such issue of commercial paper;
Second Amended and Restated Reclassification Agreement
12
v. create, incur, assume or permit to exist, or permit any Subsidiary to create, incur
assume or suffer to exist, Indebtedness exceeding in the aggregate $50 million outstanding
at any time on a consolidated basis without prior approval by its Board of Directors;
vi. subject to applicable law, merge or consolidate with or into any Person or permit
any Subsidiary to merge or consolidate with or into any Person (other than a wholly-owned
Subsidiary);
vii. transfer, sell, lease or otherwise dispose of, or permit any Subsidiary to sell,
lease or otherwise dispose of, a material portion of the assets of the Company and its
Subsidiaries in any transaction or series of related transactions (other than sales in the
ordinary course of business) or transfer, sell or permanently dispose of a material portion
of its or any Subsidiarys Proprietary Rights, in each case, without prior approval by its
Board of Directors;
viii. liquidate, dissolve or effect a recapitalization or reorganization in any form of
transaction (including, without limitation, any reorganization into partnership form) other
than the transactions contemplated by this Agreement;
ix. acquire, or permit any Subsidiary to acquire, any interest in any business (whether
by a purchase of assets, purchase of stock, merger or otherwise), or enter into any joint
venture without prior approval by its Board of Directors;
x. enter into, or permit any Subsidiary to enter into, the ownership, active management
or operation of any business other than as currently conducted by the Company without prior
approval by its Board of Directors;
xi. become subject to, or permit any of its Subsidiaries to become subject to, any
agreement or instrument which by its terms would (under any circumstances) restrict the
Companys ability to perform the provisions of this Agreement, the Registration Agreement,
the Voting Agreement, the Initial Restated Certificate of Incorporation or the Companys
By-laws, as each are amended as contemplated herein;
xii. notwithstanding anything to the contrary set forth above, without the consent of
the holders of two-thirds (2/3s) of the outstanding shares of any series of Preferred
Stock, make any amendment to the Certificate of Incorporation or the Companys bylaws, or
file any resolution of the Board of Directors with the Secretary of State of Delaware that
would alter or change the powers, preferences or special rights of the shares of such series
so as to affect them adversely in a manner different from any other series of Preferred
Stock;
xiii. enter into, or permit any Subsidiary to enter into, any transaction with any of
its or any Subsidiarys officers, directors, employees or Affiliates, except for normal
employment arrangements and benefit programs on reasonable terms and except
Second Amended and Restated Reclassification Agreement
13
as otherwise
expressly contemplated by this Agreement or as approved by a majority of the disinterested
members of the Board of Directors;
xiv. establish or acquire (a) any Subsidiaries other than wholly-owned Subsidiaries or
(b) any Subsidiaries organized outside of the United States and its territorial possessions
without prior approval by the Companys Board of Directors;
xv. make or agree to make any capital expenditures (including, without limitation,
payments with respect to leases, as determined in accordance with generally accepted
accounting principles consistently applied) exceeding $250,000 without prior approval by its
Board of Directors if such expenditures are substantially inconsistent with the annual
budget approved by the Board of Directors;
xvi. increase or decrease the authorized size of its Board of Directors from 6 members,
or create or permit the existence of a committee of the board of directors having the power
of the Board of Directors in any respect, except for those increases, decreases and
committees approved by a majority of the Board of Directors;
xvii. amend or modify the Plan or the Stock Option Plans as in existence as of the
Closing without the consent of the Board of Directors;
xviii. issue or sell any shares of the capital stock, or rights to acquire shares of
the capital stock, of any Subsidiary to any Person other than the Company or another
Subsidiary without the consent of its Board of Directors;
xix. change its fiscal year.
D.
Affirmative Covenants
. So long as any Series I Preferred Stock,
Series II Preferred Stock, Series IV Preferred
Stock, Series V Preferred Stock, Series V-1 Preferred Stock or Existing Warrants remains
outstanding, the Company will, and will cause each Subsidiary to:
i. at all times cause to be done all things necessary to maintain, preserve and renew
its corporate existence and all material licenses, authorizations and permits necessary to
the conduct of its businesses;
ii. maintain and keep its properties in good repair, working order and condition, and
from time to time make all necessary or desirable repairs, renewals and replacements, so
that its businesses may be properly and advantageously conducted at all times;
iii. pay and discharge when payable all taxes, assessments and governmental charges
imposed upon its properties or upon the income or profits therefrom (in each case before the
same becomes delinquent and before penalties accrue thereon) and all claims for labor,
materials or supplies which if unpaid would by law become a lien upon any of its property
unless and to the extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as
Second Amended and Restated Reclassification Agreement
14
determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its books with respect
thereto;
iv. comply with all other material obligations which it incurs pursuant to any contract
or agreement, whether oral or written, express or implied, as such obligations become due,
unless and to the extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its books with respect
thereto;
v. comply with all applicable laws, rules and regulations of all governmental
authorities, the violation of which would reasonably be expected to have a material adverse
effect upon the financial condition, operating results, assets, operations or business
prospects of the Company and its Subsidiaries taken as a whole;
vi. apply for and continue in force with good and responsible insurance companies
adequate insurance covering risks of such types and in such amounts as are customary for
corporations engaged in similar lines of business;
vii. maintain proper books of record and account which fairly present its financial
condition and results of operations and make provisions on its financial statements for all
such proper reserves as in each case are required in accordance with generally accepted
accounting principles, consistently applied;
viii. reimburse its directors for reasonable expenses incurred in connection with the
performance of their duties, including, without limitation, attendance of meetings;
ix. the Company agrees to continue to use investment proceeds received from each
Shareholder (whether existing or new) that is a licensed Small Business Investment Company
for working capital and general corporate purposes. Such
Shareholder and the Small Business Administration shall have reasonable access to the
Companys books and records for the purpose of confirming such use of the proceeds. So long
as such Shareholder holds any securities of the Company, the Company will comply at all
times with the non-discrimination requirements of 13 C.F.R. Parts 112, 113 and 117. Within
45 days after the end of each fiscal year, and at any other time reasonably requested by
such Shareholder, the Company shall deliver to such Shareholder a written assessment, in
form and substance satisfactory to such Shareholder, of the economic impact of such
Shareholders investment in the Company, specifying (a) the full-time equivalent jobs
created or retained in connection with the investment, and (b) the impact of the investment
on the Companys business, in terms of revenue and profits, and on taxes paid by the Company
and its employee. Upon request, the Company promptly (and in any event within 20 days of
such request) shall furnish to such Shareholder all information (a) reasonably requested by
such Shareholder in order for such Shareholder to comply with the requirements of 13 C.F.R.
Section 107.620 or to prepare and file SBA Form 468, and (b) reasonably requested or
required by
Second Amended and Restated Reclassification Agreement
15
governmental agency asserting jurisdiction over such Shareholder. Any
submission of financial information pursuant to this Subsection shall be under cover of a
certificate executed by the Companys president, chief executive officer, chief financial
officer or treasurer certifying that such information (i) relates to the Company, (ii) to
the best of the Companys knowledge is accurate and (iii) if applicable, has been audited by
the Companys independent auditors.
E.
Current Public Information
. At all times after the Company
has filed a registration statement with the Securities and
Exchange Commission pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company will file all reports required to be filed by it under the Securities Act
and the Securities Exchange Act and the rules and regulations adopted by the Securities and
Exchange Commission thereunder and will take such further action as any holder or holders of
Restricted Securities may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to time) or any similar
rule or regulation hereafter adopted by the Securities and Exchange Commission, (ii) Regulation S
under the Securities Act, as it may be amended from time to time, or (iii) a registration statement
on Form S-2 or S-3 or any similar registration form hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company will deliver to any holder of Restricted Securities
a written statement as to whether it has complied with such requirements.
F.
Reservation of Common Stock
. The Company will at all times reserve
and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of issuance upon the conversion of the Series I
Preferred Stock, the Series II Preferred Stock, Series IV Preferred Stock, Series V Preferred
Stock, Series V-1 Preferred Stock and the exercise of the Existing Warrants, such number of shares
of Common Stock issuable upon the conversion of all outstanding Series I Preferred Stock, Series II
Preferred Stock, Series IV Preferred Stock, Series V Preferred Stock,
Series V-1 Preferred Stock and the exercise of the Existing Warrants. All shares of Common
Stock which are so issuable will, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Company will take all such actions
as may be necessary to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock may be listed (except for official notice of
issuance which will be immediately transmitted by the Company upon issuance).
G.
Proprietary Rights
. The Company will, and will cause each Subsidiary to, possess
and maintain all material
Proprietary Rights necessary to the conduct of their respective businesses and own all right, title
and interest in and to, or have a valid license for, all material Proprietary Rights used by the
Company and each Subsidiary in the conduct of their respective businesses. Neither the Company nor
any Subsidiary will take any action, or fail to take any action, which would result in the
invalidity, abuse, misuse or unenforceability of such Proprietary Rights or which would infringe
upon any rights of other Persons.
H.
Preemptive Rights
.
Second Amended and Restated Reclassification Agreement
16
i. Except for the issuances, exercises and conversions of Series I Preferred Stock,
Series II Preferred Stock, Series III Preferred Stock, Series IV Preferred Stock, Series V
Preferred Stock, Series V-1 Preferred Stock and the Existing Warrants, or pursuant to the
Plan or the Stock Option Plans or any new stock option, stock purchase or similar equity
incentive plan adopted by the Board of Directors, or pursuant to a Qualified Public Offering
registered under the Securities Act, if the Company authorizes the
issuance or sale of any shares of Common Stock or any securities containing options or rights to acquire any shares
of Common Stock (other than as a dividend on the outstanding Common Stock) for cash, the
Company will first offer to sell to each of the holders of Underlying Common Stock a portion
of such stock or securities equal to the quotient determined by
dividing (1) the number of shares of Underlying Common Stock held by such holder by (2) the total number of shares of
Underlying Common Stock. Each holder of Underlying Common Stock will be entitled to
purchase such stock or securities at the most favorable price and on the most favorable
terms as such stock or securities are to be offered to any other Persons. The purchase
price for all stock and securities offered to the holders of the Underlying Common Stock
shall be payable in cash.
ii. In order to exercise its purchase rights hereunder, a holder of Underlying Common
Stock must, within fifteen (15) days after receipt of written notice from the Company
describing in reasonable detail the stock or securities being offered, the purchase price
thereof, the payment terms and such holders percentage allotment, deliver a written notice
to the Company describing its election hereunder. If all of the stock and securities
offered to the holders of Underlying Common Stock is not fully subscribed by such holders,
the remaining stock and securities will be reoffered by the Company to the
Shareholders hereunder upon the terms set forth in this Section, except that such
holders must exercise their purchase rights within five days after receipt of such reoffer.
iii. Upon the expiration of the offering periods described above, the Company will be
entitled to sell such stock or securities which the holders of Underlying Common Stock have
not elected to purchase during the 90 days following such expiration on terms and conditions
no more favorable to the Shareholders thereof than those offered to such holders. Any stock
or securities offered or sold by the Company after such 90-day period must be reoffered to
the holders of Underlying Common Stock pursuant to the terms of this Section.
iv. The rights of any holder of Underlying Common Stock to purchase Common Stock or
securities convertible into Common Stock offered to such holder pursuant to this
Subsection 7H
may be assigned by such holder to any of its Affiliates or, in the
case of the Sponsoring Investors, between or among themselves or to any of their respective
Affiliates.
v. The rights under this Section 7H will terminate upon the effectiveness of a
registration statement filed by the Company with the Securities and Exchange Commission
under the Securities Act with respect to a Qualified Public
Second Amended and Restated Reclassification Agreement
17
Offering; provided that if the
registration statement is withdrawn or abandoned before any shares of Common Stock are sold
thereunder, the provisions of this Section will remain in effect.
I.
Regulatory Compliance Cooperation
.
i. In the event that BankAmerica Ventures (
BAV
) or BankAmerica Capital
Corporation (
BACC
) determines that it has a Regulatory Problem (as defined below),
the Company agrees to take all such actions as are reasonably requested by BAV/BACC in order
(a) to effectuate and facilitate any transfer by BAV/BACC of any securities of the Company
then held by BAV/BACC (or its Affiliates) to any Person designated by them, (b) to permit
BAV/BACC (or any of its Affiliates) to exchange all or any portion of the Series II
Preferred Stock then held by them on a share-for-share basis for shares of a class of
nonvoting preferred stock of the Company, which nonvoting preferred stock will be identical
in all respects to such Series II Preferred Stock, except that such preferred stock will be
nonvoting and will be convertible into Common Stock on such terms as are reasonably
requested by BAV/BACC in light of regulatory considerations then prevailing, and (c) to
continue and preserve the respective allocation of the voting interests with respect to the
Company provided for in the Voting Agreement and with respect to BAV/BACCs ownership of
the Companys Underlying Common Stock. Such actions may include, but will not necessarily
be limited to:
(1) entering into such additional agreements as are requested by BAV/BACC to
permit any person(s) designated by it to exercise any voting power which is
relinquished by it upon any exchange of the Series II Preferred Stock for nonvoting
stock of the Company; and
(2) entering into such additional agreements, adopting such amendments to the
Certificate of Incorporation and bylaws of the Company and taking such additional
actions as are reasonably requested by BAV/BACC in order to effectuate the intent of
the foregoing.
ii. For purposes of this Agreement, a Regulatory Problem means any set of facts or
circumstances wherein it has been asserted by any governmental regulatory agency that
BAV/BACC is not entitled to hold, or exercise any significant right with respect to, the
Series II Preferred Stock or the Common Stock.
8
Transfer Restrictions
.
A. Subject to the restrictions contained in this Section, Restricted Securities are
transferable pursuant to (i) public offerings registered under the Securities Act, (ii) Rule 144 of
the Securities and Exchange Commission (or any similar rule then in force) if such rule is
available and (iii) subject to the conditions specified in Subsection C below, any other legally
available means of transfer.
B.
Rights of First Offer
.
Second Amended and Restated Reclassification Agreement
18
i. Prior to a Qualified Public Offering, each party to this Agreement desiring to
transfer any shares of Common Stock, Series I Preferred Stock, Series II Preferred Stock,
Series III Preferred Stock, Series IV Preferred Stock, Series V Preferred Stock, Series V-1
Preferred Stock or Existing Warrants, whether now owned or later acquired by such party,
shall, prior to making such transfer, deliver to the Company a written notice (the
Notice of Offer
), offering (the
Offer
) to the Company and all other
holders of any series of Preferred Stock then outstanding (the
Offerees
) all of
the shares or warrants proposed to be transferred (the
Securities
) by such party
(the
Offeror
) at the purchase price and on the terms specified therein (which
Notice of Offer shall include all relevant terms of the proposed transfer). The Company
shall immediately thereafter forward the Notice of Offer to the holders of the Preferred
Stock. The Offeror shall also furnish to the Company and the holders of the Preferred Stock
such additional information relating to the Offer as may reasonably be requested by the
Company and the holders of the Preferred Stock. The Company and the holders of the
Preferred Stock shall have the right and option, for a period of thirty (30) days after
delivery of the Notice of Offer by the Offeror to the Company, to accept all or any portion
of the Securities so offered at the purchase price and on the terms stated in the Notice of
Offer. The Company shall have the first right to purchase the offered shares and, if the
Company does not elect to purchase all of the offered shares, it shall immediately notify
the holders of the Preferred Stock of such decision. Each Offeree shall have the right and
option during such thirty (30) day period (x) to accept all or any of its Proportionate
Percentage of the Securities so offered (and which the Company has elected not to purchase
pursuant to the terms hereof) at the purchase price and on the terms stated in the Notice of
Offer and (y) to offer, in any written notice of acceptance, to purchase any Securities not
accepted by the other Offerees, in which case the Securities not accepted by the other
Offerees shall be deemed to have been offered to and accepted by the Offerees which
exercised their option under
this clause (y) pro rata in accordance with their respective Proportionate Percentages
(computed without including the Offerees who have not exercised their option to purchase
Securities under this clause (y)), on the above-described terms and conditions, and if all
of the offered Securities have not been fully subscribed by such Offerees, the remaining
offered Securities will be reoffered to the Offerees who agreed to purchase their entire
entitlement of offered Securities under clause (x) upon the terms set forth in the Notice of
Offer until all such Securities are fully subscribed or until all such Offerees have
subscribed for all such offered Securities which they desire to purchase, except that such
Offerees must exercise their purchase rights within five (5) business days after receipt of
all such reoffers. If any portion of the purchase price offered to be paid by a third party
for the Securities is comprised of noncash consideration, then Offerees electing to purchase
Securities as provided above may, at their option, pay either the same form of noncash
consideration or the fair market value of such noncash consideration in their purchase of
such Securities.
ii. The rights of any Offeree to purchase Securities pursuant to the preceding
paragraph may be assigned by such Offeree to any of its Affiliates or, in the case of the
Sponsoring Investors, between or among themselves or to any of their respective Affiliates.
Second Amended and Restated Reclassification Agreement
19
iii. Transfers of Securities under the terms of this Section 8B shall be made at the
offices of the Company on a mutually satisfactory business day within fifteen (15) days
after the expiration of the applicable time periods. Delivery of certificates or other
instruments evidencing such Securities, duly endorsed for transfer and free and clear of all
liens and encumbrances, shall be made on such date against payment of the purchase price
therefor.
iv. If the Company and the Offerees shall not have accepted to purchase all the
Securities offered for sale pursuant to the Notice of Offer, then the Offeror may transfer
to a third party that number of the Securities not accepted by the Company and the Offerees
at the price and on substantially equivalent terms stated in the original Notice of Offer,
at any time within ninety (90) days after the expiration of the Offer. In the event the
Securities are not transferred by the Offeror on such terms during such 90-day period, the
restrictions of this
Section 8B
shall again become applicable to any transfer of
Securities by the Offeror unless within such 90-day period the Offeror shall deliver to the
Company a Notice of Offer with respect to an Offer of the same Securities at a purchase
price which is less than the purchase price set forth in the previous Offer, in which case
the Offer Period shall be reduced to fifteen (15) days and a new 90-day period shall begin.
Nothing in this
Section 8B
shall preclude any party to this Agreement from engaging
in discussions with any investment banker, potential transferee of Securities or other
person with respect to a possible purchase of Securities from it, so long as the provisions
of this
Section 8B
are complied with prior to the consummation of any transfer to
which this
Section 8B
applies. Notwithstanding the foregoing, any party to this
Agreement may transfer any Securities to any Affiliate, limited partner, or family member of
such party or any trust established for the benefit of the Shareholder or his/her family
members without regard to this
Section 8B
, provided that such Affiliate,
limited partner or family member agrees in writing to be bound by the obligations of such
Shareholder in this Agreement.
C. In connection with the transfer of any Restricted Securities (other than a transfer
described in
Section 8A(i)
and
8A(ii)
above), the holder thereof will deliver
written notice to the Company describing in reasonable detail the transfer or proposed transfer,
together with an opinion of counsel which (to the Companys reasonable satisfaction) is
knowledgeable in securities law matters to the effect that such transfer of Restricted Securities
may be effected without registration of such Restricted Securities under the Securities Act. In
addition, following a Qualified Public Offering, if the holder of the Restricted Securities
delivers to the Company an opinion of counsel that no subsequent transfer of such Restricted
Securities will require registration under the Securities Act, the Company will promptly upon such
contemplated transfer deliver new certificates for such Restricted Securities which do not bear the
legend set forth in
Section 11C
. All prospective transferees of Restricted Securities
shall, prior to the completion of any transfer, confirm to the Company in writing its agreement to
be bound by the obligations contained in this Agreement.
D. The Company shall place, and shall instruct any transfer agent of the Company to place, a
stop-transfer order on the Companys shareholder record books which prohibits the Company, or any
transfer agent of the Company, from registering on the
Second Amended and Restated Reclassification Agreement
20
Companys books (i) any transfer of the
shares of Restricted Securities and (ii) the issuance of shares of Common Stock upon any conversion
of the Series I Preferred Stock or Series II Preferred Stock that, in each case, were originally
granted or sold to Shareholders who are not U.S. Persons (as defined in Rule 902 under the
Securities Act) in reliance on Regulation S unless such transfer or conversion is made in
accordance with the provisions of Regulation S (17 CFR §§ 230.902 230.904) under the Securities
Act or is otherwise exempt from registration under the Securities Act.
E. Purchasers who are not U.S. Persons and to whom shares of Series V Preferred Stock are
issued in reliance on Regulation S may not sell, assign, pledge or otherwise transfer any shares of
Series V Preferred Stock or any securities issued in respect of the Series V Preferred Stock by way
of a stock dividend or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization, during the 12-month period immediately following the
date of issuance of said securities (the
Restricted Period
), except that such Purchasers
may transfer Restricted Securities during the Restricted Period as provided in
Section 8F
below.
F. Notwithstanding the foregoing, each Shareholder who is not a U.S. Person may transfer the
Restricted Securities to other Shareholders who are not U.S. Persons and who are not located in the
United States (as defined in Rule 902 (17 CFR § 230.902 under the Securities Act) if such
transfers are in accordance with the provisions of 13 CFR § 230.904.
G. Notwithstanding anything to the contrary set forth above, no holder of Restricted
Securities may transfer such Restricted Securities to any Person who, in the reasonable
opinion of the Board of Directors of the Company, is a Competitor or who is a shareholder,
director, officer or affiliate of a Competitor.
9
Representations and Warranties of the Company
. As a material inducement to
the Purchasers to enter into this Agreement, the Company hereby
represents and warrants that as of the Closing:
A.
Organization
and Corporate Power
. The Company is a corporation duly organized, validly
existing and in good standing under the
laws of Delaware and is qualified to do business in every jurisdiction in which its ownership of
property or conduct of business requires it to qualify, except where the failure to so qualify
could not reasonably be expected to have a material adverse effect on the financial condition,
operating results, assets, operations or business prospects of the Company. The Company has all
requisite corporate power and authority and all material licenses, permits and authorizations
necessary to own and operate its properties, to carry on its businesses as now conducted and
presently proposed to be conducted and to carry out the transactions contemplated by this
Agreement.
B.
Capital Stock and Related Matters
.
i. As of the Initial Closing and immediately thereafter, the authorized capital stock
of the Company will consist of (a) 101,500,000 shares of Preferred Stock, of which
17,207,532 shares will be designated Series I Preferred Stock, 7,634,213 shares
Second Amended and Restated Reclassification Agreement
21
will be
designated Series II Preferred Stock, 4,792,310 shares will be designated Series III
Preferred Stock, 19,183,653 shares will be designated Series IV Preferred Stock, 21,000,000
shares will be designated Series V Preferred Stock, 4,600,000 shares will be designated
Series V-1 Preferred Stock, of which 16,769,101 shares of Series I Preferred Stock will be
issued and outstanding, 438,392 shares of Series I Preferred Stock have been reserved for
issuance under stock option agreements adopted by the Board of Directors, 7,634,207 shares
of Series II Preferred Stock will be issued and outstanding, and 4,792,300 shares of Series
III Preferred Stock will be issued and outstanding, 19,183,653 shares of Series IV Preferred
Stock will be issued and outstanding, 9,130,554 shares of Series V Preferred Stock will be
issued and outstanding, 3,331,699 shares of Series V-1 Preferred Stock will be issued and
outstanding, and (b) 106,500,000 shares of Common Stock, of which 2,510,442 shares will be
issued and outstanding, 8,980,743 shares will be reserved for issuance under the Plan, the
Stock Option Plans and any new stock option, stock purchase or similar equity incentive plan
adopted by the Board of Directors, 17,207,532 shares will be reserved for issuance upon
conversion of the Series I Preferred Stock, 7,634,213 shares will be reserved for issuance
upon conversion of the Series II Preferred Stock, 19,183,653 shares will be reserved for
issuance upon conversion of the Series IV Preferred Stock, 21,000,000 shares will be
reserved for issuance upon conversion of the Series V Preferred Stock, 4,600,000 shares will
be reserved for issuance upon conversion of the Series V-1 Preferred Stock and 2,034,124
shares will be reserved for issuance upon exercise of the Existing Warrants. As of the
Closing, the Company will
not have outstanding any stock or securities convertible or exchangeable for any shares
of its capital stock or containing any profit participation features, except for the Series
I Preferred Stock, the Series II Preferred Stock, Series IV Preferred Stock, Series V
Preferred Stock, Series V-1 Preferred Stock and the Existing Warrants, nor will it have
outstanding any rights or options to subscribe for or to purchase its capital stock or any
stock or securities convertible into or exchangeable for its capital stock, except as
contemplated in this Agreement or pursuant to the Stock Option Plans. As of the Closing,
the Company will not be subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any warrants, options or
other rights to acquire its capital stock, except as contemplated in this Agreement, the
Plan, the Stock Option Plans and the Initial Restated Certificate of Incorporation, the
Bridge Notes and the Bridge Warrants. As of the Closing, all of the outstanding shares of
the Companys capital stock will be validly issued, fully paid and nonassessable.
ii. There are no statutory or, to the best of the Companys knowledge, contractual
stockholders preemptive rights or rights of refusal with respect to the issuance of the
Series V Preferred Stock and Series V-1 Preferred Stock or the issuance of the Common Stock
upon conversion of the Series V Preferred Stock and the Series V-1 Preferred Stock which
have not been effectively waived. The Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance of any of its capital
stock, and based upon information provided by and representations made by the Shareholders,
the issuance of the Series V Preferred Stock does not require registration under the
Securities Act or any applicable state securities
Second Amended and Restated Reclassification Agreement
22
laws. To the best of the Companys
knowledge, there are no agreements between the Companys stockholders with respect to the
voting or transfer of the Companys capital stock or with respect to any other aspect of the
Companys affairs, except for the Voting Agreement.
C.
Subsidiaries
.
The Company does not own or hold any rights to acquire
any shares of stock or any other
security or interest in any other Person, except for the Companys 100% ownership interest in ULTA
Internet Holdings, Inc., a Delaware corporation, which is a member of ULTA Holdings LLC, a Delaware
limited liability company, which is, in turn, a member of ULTA.com, LLC, a Delaware limited
liability company.
D.
Authorization;
No Breach
. The execution, delivery and performance of this
Agreement, the Registration Agreement, the
Voting Agreement and all other agreements contemplated hereby to which the Company is a party, and
the filing of the Restated Certificate have been duly authorized by the Company. This Agreement,
the Registration Agreement, the Voting Agreement and all other agreements contemplated hereby each
constitutes a valid and binding obligation of the Company, enforceable in accordance with its
terms. The execution and delivery by the Company of this Agreement and all other agreements
contemplated hereby to which the Company is a party, the offering and issuance of the Series V
Preferred Stock and Series V-1 Preferred Stock, the issuance of the Common Stock upon conversion of
the Series V Preferred Stock and Series V-1
Preferred Stock, the filing of the Restated Certificate, and the fulfillment of and compliance
with the respective terms hereof and thereof by the Company, do not and will not (i) conflict with
or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under,
(iii) result in the creation of any lien, security interest, charge or encumbrance upon the
Companys capital stock or assets pursuant to, (iv) give any third party the right to accelerate
any obligation under, (v) result in a violation of, or (vi) require any authorization, consent,
approval, exemption or other action by or notice to any court or administrative or governmental
body pursuant to, the charter or By-laws of the Company, or any law, statute, rule or regulation to
which the Company is subject, or any agreement, instrument, order, judgment or decree to which the
Company is subject.
E.
Litigation,
etc
. There are no actions, suits, proceedings, orders, investigations
or claims pending or, to the
best of the Companys knowledge, threatened against or affecting the Company (or to the best of the
Companys knowledge, pending or threatened against or affecting any of the officers, directors or
employees of the Company with respect to its proposed business activities) at law or in equity, or
before or by any governmental department, commission, board, bureau, agency or instrumentality
which would have a material adverse affect on the Company in the opinion of the Companys Board of
Directors (including, without limitations, any actions, suit, proceedings or investigations with
respect to the transactions contemplated by this Agreement); the Company is not subject to any
arbitration proceedings under collective bargaining agreements or otherwise or, to the best of the
Companys knowledge, any governmental investigations or inquiries (including inquiries as to the
qualification to hold or receive any license or permit); and, to the best of the Companys
knowledge, there is no basis for any of the foregoing. The Company is not subject to any judgment,
order or decree of any court or other governmental agency. The Company has not received any
opinion or memorandum or legal advice from legal counsel to the effect that it is
Second Amended and Restated Reclassification Agreement
23
exposed, from a
legal standpoint, to any liability or disadvantage which may be material to its business.
F.
Brokerage
. There are no claims for brokerage commissions, finders fees
or similar compensation in
connection with the transactions contemplated by this Agreement based on any arrangement or
agreement binding upon the Company. The Company will pay, and hold each Shareholder harmless
against, any liability, loss or expense (including, without limitation, reasonable attorneys fees
and out-of-pocket expenses) arising in connection with any such claim.
G.
Governmental Consent, etc
. No permit, consent, approval or authorization of, or
declaration to or filing with, any
governmental authority, including any Hart-Scott-Rodino Anti-trust Improvements Act of 1976 filing,
is required in connection with the execution, delivery and performance by the Company of this
Agreement or the other agreements contemplated hereby, or the consummation by the Company of any
other transactions contemplated hereby or thereby, except as expressly contemplated herein or in
the exhibits hereto.
H.
Employees
. The Company is not aware that any executive or key employee
of the Company or any significant
group of employees of the Company has any plans to terminate employment with the Company. The
Company has complied in all material respects with all laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other taxes, and the Company is not aware that it has any
material labor relations problems (including any union organization activities, threatened or
actual strikes or work stoppages or material grievances).
I.
Affiliate
Transactions
. Except for employment contracts, stock options or other
arrangements contemplated by this
Agreement, no officer, director or shareholder of the Company or any person related by blood or
marriage to any such person or any entity in which any such person owns any beneficial interest, is
a party to any material agreement, contract, commitment or transaction with the Company or has any
material interest in any material property used by the Company.
J.
Real
Property Holding Corporation Status
. Since its date of incorporation the Company
has not been a United States real property
holding corporation, as defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as
amended, and in Section 1.897-2(b) of the U. S. Treasury Regulations issued thereunder.
K.
Disclosure
. Neither this Agreement nor any of the schedules, attachments, written
statements, documents,
certificates or other items prepared or supplied to any Shareholder by or on behalf of the Company
with respect to the transactions contemplated hereby contain any untrue statement of a material
fact or omit a material fact necessary to make each statement contained herein or therein not
misleading;
provided
that with respect to the financial projections furnished to the
Purchasers by the Company, the Company represents only that such projections were based upon
assumptions reasonably believed by the Company to be
Second Amended and Restated Reclassification Agreement
24
reasonable and fair as of the date the
projections were prepared in the context of current and reasonably foreseeable business conditions.
There is no fact which the Company has not disclosed to the Purchasers in writing and of which any
of its officers, directors or executive employees is aware and which has had or would reasonably be
anticipated to have a material adverse effect upon the existing or expected financial condition,
operating results, assets, customer or supplier relations, employee relations or business prospects
of the Company.
L.
Closing Date
. The representations and warranties of the Company contained
in this
Section 9
and
elsewhere in this Agreement and all information contained in any exhibit, schedule or attachment
hereto or in any writing except the financial projections, delivered by, or on behalf of, the
Company to any Shareholder will be true and correct in all material respects on the date of
each Closing as though then made, except as affected by the transactions expressly contemplated by
this Agreement.
M.
Certificate of Incorporation and Bylaws
. The copies of the Initial Restated Certificate
of Incorporation, as previously amended and the
bylaws of the Company which have been delivered to counsel for the Initial Purchasers prior to the
execution of this Agreement are true and complete and have not been amended or repealed, except for
the filing of the Restated Certificate. The Company is not in violation or breach of any of the
provisions of its Initial Restated Certificate of Incorporation, as previously amended or its
By-laws.
N.
Restrictions Upon Issuance
. The issuance of the Series V Preferred Stock and
Series V-1 Preferred Stock has been duly
authorized and, upon delivery to the Shareholders of certificates therefor against, and if
applicable, payment in accordance with the terms of this Agreement, such stock will have been
validly issued and fully paid and will be non-assessable, have the rights, preferences, and
privileges specified in the Restated Certificate and will be free of preemptive rights, and will be
free and clear of all liens and restrictions, other than the liens that might have been created by
Shareholders and restrictions on transfer imposed by this Agreement and the Securities Act. The
issuance of the Common Stock upon the conversion of the Series V Preferred Stock and Series V-1
Preferred Stock has been duly authorized and have been reserved for issuance upon conversion of the
Series V Preferred Stock and Series V-1 Preferred Stock and, when issued upon conversion of the
Series V Preferred Stock and the Series V-1 Preferred Stock, the Common Stock will have been
validly issued and fully paid and will be non-assessable and will be free of preemptive rights, and
will be free and clear of all liens and restrictions, other than liens that might have been created
by Shareholders and restrictions imposed by this Agreement and the Securities Act.
O.
Compliance with Laws and Other Instruments
. The business and operations of the Company
have been and are being conducted in accordance
with all applicable foreign, federal, state and local laws, rules and regulations and all
applicable orders, injunctions, decrees, writs, judgments, determinations and awards of all courts
and governmental agencies and instrumentalities. Except as set forth in
Schedule 5(A)(vi)
,
the Company is not, nor is it alleged to be, in violation of, or (with or without notice or lapse
of time or both) in default under, or in breach of, any term or provision of its certificate of
incorporation or bylaws or of any indenture, loan or credit agreement, note, deed of trust,
mortgage, security agreement or other agreement, lease, license or other instrument, commitment,
obligation or arrangement to which
Second Amended and Restated Reclassification Agreement
25
the Company is a party or by which any of the Companys
properties, assets or rights is bound or affected. No other party to any material contract,
agreement, lease, license, commitment, instrument or other obligation to which the Company is a
party is (with or without notice or lapse of time or both) in default thereunder or in breach of
any term thereof.
The Company is not subject to any obligation or restriction of any kind or character, nor is
there any event or circumstance relating to the Company which materially and adversely affects in
any way its business, properties, assets or prospects or which prohibits the Company from entering
into this Agreement or would prevent or make burdensome its performance of or compliance with all
or any Section of this Agreement or the Documents or the Restated Certificate or the consummation
of the transactions contemplated hereby or thereby.
P.
Financial Statements
. The Companys audited balance sheet (the
Balance Sheet
) for the
fiscal year ending
January 29, 2000 (the
Balance Sheet Date
) and the statement of income and cash flows for
the fiscal year then ended, together with notes and schedules to such financial statements and the
report of Ernst & Young LLP with respect thereto (i) are in accordance with the books and records
of the Company, (ii) present fairly the financial condition of the Company at the Balance Sheet
Date and other dates therein specified and the results of operations for the period then ended, and
(iii) have been prepared in accordance with the generally accepted accounting principles.
Specifically, but not by way of limitation, the Balance Sheet discloses all of the debts,
liabilities and obligations of any nature (whether accrued, absolute, contingent, liquidated or
otherwise, whether due or to become due) of the Company at the Balance Sheet Date which must be
disclosed on a balance sheet in accordance with generally accepted accounting principles.
The Company maintains its books, records and accounts in accordance with good business
practice and in sufficient detail to reflect accurately and fairly the transactions and
dispositions of its assets, liabilities and equities.
Q.
Absence of Undisclosed Liabilities
. Except for the Bridge Notes and Bridge
Warrants, the Company has no debt, obligation or liability (whether accrued, absolute, contingent,
liquidated or otherwise, whether due or to become due, whether or not known to the Company) arising
out of any transaction entered into at or prior to the Closing, or any act or omission at or prior
to the Closing, or any state of facts existing at or prior to the Closing, including taxes with
respect to or based upon the transactions or events occurring at or prior to the Closing, and
including, without limitation, unfunded past service liabilities under any pension, profit sharing
or similar plan, except (a) to the extent set forth on or reserved against in the Balance Sheet,
and (b) current liabilities incurred and obligations under the Loan Agreement or under agreements
entered into in the usual and ordinary course of business since the Balance Sheet Date, none of
which (individually or in the aggregate) materially affects the business, properties, finances or
prospects of the Company.
R.
Changes
.Except as set forth in
Schedule 5(A)(vi)
, the Company has not since the Balance Sheet
Date:
Second Amended and Restated Reclassification Agreement
26
i. incurred any debts, obligations or liabilities, absolute, accrued, contingent or
otherwise, whether due or to become due, except the obligations under the Bridge Notes and
the Bridge Warrants and current liabilities incurred under the Loan Agreement or in the
usual and ordinary course of business, none of which current liabilities (individually or in
the aggregate) materially affects the business, finances, properties or prospects of the
Company, other than the Employment and Consulting Agreement,
ii. discharged or satisfied any Liens other than those securing, or paid any obligation
or liability other than, current liabilities shown on the Balance Sheet and current
liabilities incurred since the Balance Sheet Date, in each case in the usual and ordinary
course of business,
iii. mortgaged, pledged or subjected to Lien any of its assets, tangible or intangible,
iv. sold, transferred or leased any of its assets (including, without limitation, any
patent, trade secret, trademark, service mark, trade name, copyright, or any applications
with respect thereto) except in the usual and ordinary course of business,
v. cancelled or compromised any debt or claim, or waived or released any right, of
material value,
vi. suffered any physical damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties, business or prospects of the Company,
vii. entered into any material transaction other than in the usual and ordinary course
of business except for this Agreement and the transaction contemplated by this Agreement,
the Bridge Warrants, Bridge Notes, the companys indirect investment of approximately $5
million in Ulta Holdings, LLC and the Employment and Consulting Agreement,
viii. encountered any labor difficulties or labor union organizing activities,
ix. made or granted any wage or salary increase or entered into any employment
agreement (other than in the ordinary course of business),
x. declared, paid or set aside any dividends on or made any other distributions with
respect to, or purchased or redeemed, any of its outstanding capital stock, except for
repurchases of shares from former employees of the Company as permitted by the Loan
Agreement,
xi. suffered or experienced any change in, or affecting, its condition (financial or
otherwise), properties, assets, liabilities, business, operations, results of
operations or prospects other then changes, events or conditions in the usual and
ordinary
Second Amended and Restated Reclassification Agreement
27
course of its business, none of which (either by itself or in conjunction with all
such other changes, events and conditions) has been materially adverse,
xii. made any change in the accounting principles, methods or practices followed by it
or depreciation or amortization policies or rates theretofore adopted,
xiii. made any loans to its employees, officers or directors other than travel advances
made in the ordinary course of business or other loans or advances permitted by the Loan
Agreement,
xiv. disclosed to any person any material trade secrets except for disclosures made to
persons subject to valid and enforceable confidentiality agreements,
xv. suffered or experienced any change in the relationship or course of dealings
between it and any of its suppliers or customers which supply goods or services to the
Company or purchases goods or services from the Company in excess of $500,000 in the
preceding twelve (12) months, which has had or is likely to have an adverse effect on the
results of operations, conditions (financial or other), assets, liabilities, business or
prospects of the Company, or
xvi. entered into any agreement, or otherwise obligated itself, to do any of the
foregoing.
S.
Tax
Returns and Audits
. All required foreign, federal, state, local and other
tax returns, notices and reports
(including, without limitation, income, property, sales, use, franchise, capital stock, excise,
added value, employees income withholding, social security and unemployment tax returns) of the
Company have been accurately prepared and duly and timely filed, and all foreign, federal, state,
local and other taxes required to be paid with respect to the periods covered by such returns have
been paid. The Company is not and has not been delinquent in the payment of any tax, assessment or
governmental charge. The Company has never had any material tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. No tax audit, action, suit, proceeding,
investigation or claim is now pending nor, to the best of the Companys knowledge after reasonable
inquiry, threatened against the Company, and no issue or question has been raised (and is currently
pending) by any taxing authority in connection with any of the Companys tax returns or reports.
The reserves for taxes, assessments and governmental charges reflected on the Balance Sheet
will be substantially sufficient for the payment of all unpaid taxes and governmental charges
payable by the Company with respect to the period ended on the Balance Sheet Date. Since the
Balance Sheet Date, the Company has made adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to its business, properties and operations for
such period.
Second Amended and Restated Reclassification Agreement
28
The Company has withheld or collected from each payment made to each of its employees, the
amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or authorized depositaries.
T.
Employment Benefit Plans ERISA
.
i. Except for the Plan, the Stock Option Plans and the Companys existing bonus plan
and 401(k) plan, the Company does not currently maintain or contribute to and has not
maintained or contributed to (i) any incentive, bonus, commission or deferred compensation
or severance or termination pay plan, agreement or arrangement, whether formal or informal
and whether legally binding or not, (ii) any pension, profit sharing, stock purchase, stock
option, disability, retirement or any other employee benefit plan, agreement or arrangement,
whether formal or informal and whether legally binding or not, (iii) any fringe benefit
plan, agreement or arrangement, whether formal or informal and whether legally binding or
not or (iv) any other employee pension benefit plan as such term is defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended (
ERISA
).
ii. The Company has not engaged in a transaction in connection with which it could be
subject either to a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax
imposed by Section 4975 of the Code.
iii. The Company has not maintained or contributed to or been required to contribute to
a multi-employer plan, as such term is defined in Section 4001(a)(3) of ERISA.
U.
Title to Property and Encumbrances
. The Company has good and marketable title to all
of its properties and assets, including
without limitation the properties and assets reflected in the Balance Sheet and the properties and
assets used in the conduct of its business (except for properties disposed of in the ordinary
course of business since the Balance Sheet Date and except for properties held under valid and
subsisting leases which are in full force and effect and which are not in default), subject to no
Lien, except those which are shown and described on the Balance Sheet or the notes thereto and
except for Permitted Liens. The consummation of the transactions contemplated by this Agreement
will not have any adverse effect on the title to any of the Companys assets.
V.
Condition
of Properties
. All facilities, machinery, equipment, fixtures, vehicles and
other properties owned, leased or
used by the Company are in good operating condition and repair, are reasonably fit and usable for
the purposes for which they are being used, are adequate and sufficient for the Companys business
and conform in all material respects with all applicable ordinances, regulations and laws.
W.
Insurance Coverage
. There is in full force and effect one or more policies of insurance
issued by insurers of
recognized responsibility, insuring the Company and its
Second Amended and Restated Reclassification Agreement
29
properties, business and directors and
officers against such losses and risks, and in such amounts, as are customary in the case of
corporations of established reputation engaged in the same or similar business and similarly
situated. The Company has not been refused any insurance coverage sought or applied for, and the
Company has no reason to believe that it will be unable to renew its existing insurance coverage as
and when the same shall expire upon terms at least as favorable as those presently in effect, other
than possible increases in premiums that do not result from any act or omission of the Company.
The Company is not in default with respect to any provision contained in any insurance policy, and
the Company has not failed to give any notice or present any presently existing claims under any
insurance policy in due and timely fashion.
X.
Licenses
.
The Company possesses from the appropriate agency, commission, board
and governmental body and
authority, whether state, local, federal or foreign, all licenses, permits, authorizations,
approvals, franchises and rights which are necessary for the Company to engage in the business
currently conducted, including without limitation the development, manufacture, use, sale and
marketing of its existing products and services; and all such certificates, licenses, permits,
authorizations and rights have been lawfully and validly issued, are in full force and effect, and
the Company has no reason to believe any of such certificates, licenses, permits, authorizations or
rights will be revoked, cancelled, withdrawn, terminated or suspended.
Y.
Illegal
or Unauthorized Payments; Political Contributions
. Neither the Company, nor any
of its officers, directors, employees, agents or other
representatives of the Company or any other business entity or enterprise with which the Company is
or has been affiliated or associated, has, directly or indirectly, made or authorized any payment,
contribution or gift of money, property, or services, whether or not in contravention of applicable
law, (a) as a kickback or bribe to any person or (b) to any political organization, or the holder
of or any aspirant to any elective or appointive public office except for the personal political
contributions not involving the direct or indirect use of funds of the Company.
10 Definitions. For the purpose of this Agreement, the following terms have the meanings set forth below:
Affiliate
of any particular person or entity means any other person or entity
controlling, controlled by or under common control with such particular person or entity.
Business Day
means any day other than a Saturday, Sunday, legal holiday or other day
on which commercial banks in the State of Illinois are authorized by law or executive order to
close.
Common Stock
shall mean the common stock, par value $.01 per share, of the Company.
Competitor
means any business, firm or enterprise engaged in a business
substantially similar to the business engaged in by the Company as of the date of this Agreement,
including the Companys proposed Level III and Level IV stores (each similar to the Arlington
Heights, Illinois store), except any cosmetic or beauty retailer in the United States which is
Second Amended and Restated Reclassification Agreement
30
publicly traded if the investment of such Person in such retailer does not exceed 5% of the
outstanding equity securities of such company. A business shall be deemed substantially similar to
the Company if it has a similar business strategy and similar product mix to the Company,
provided
,
however
, concepts similar to Garden Botanika, Elizabeth Ardens Red Door
Salon, Sallys Beauty Supply, Walgreens and Drug Emporium in the format each of these are operated
as of the date of this Agreement shall not be deemed to be substantially similar.
Employment and Consulting Agreement
means the Employment and Consulting Agreement
dated as of August 2000 among the Company, ULTA.com, LLC and Terry J. Hanson.
Event of Noncompliance
has the meaning set forth in the Restated Certificate.
Existing Common Shareholders
means the holders of Issued and Reserved Common Stock.
Existing Preferred Shareholders
means all holders of the Existing Preferred Stock.
Existing Preferred Stock
has the meaning set forth in the recitals.
Existing Warrant Holders
has the meaning set forth in the recitals
Existing Warrants
has the meaning set forth in the recitals.
Holder
of at least a certain percentage or number of Series I Preferred Stock,
Series II Preferred Stock, Series III Preferred Stock, Series IV Preferred Stock, Series V
Preferred Stock, Series V-1 Preferred Stock, Existing Warrants, Common Stock or other securities
shall mean any single holder beneficially owning at least such designated percentage or number of
such securities, or each member of a Group (hereinafter defined) if the Group has beneficial
ownership of, in the aggregate, at least such percentage or number of such securities. For
purposes of this definition Group means a group of Persons each member of which is an Affiliate
of each other member of such group.
Indebtedness
shall mean at a particular time, without duplication, (i) indebtedness
for borrowed money or for the deferred purchase price of property or services in respect of which
any Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business) or any commitment by
which any Person assures a creditor against loss, including contingent reimbursement obligations
with respect to letters of credit, (ii) indebtedness guaranteed in any
manner by any Person, including guarantees in the form of an agreement to repurchase or
reimburse, (iii) obligations under capitalized leases required to be so capitalized under generally
accepted accounting principles in respect of which obligations any Person is liable, contingently
or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations any Person
assures a creditor against loss and (iv) any unsatisfied obligation of any Person for withdrawal
liability to a multiemployer plan as such terms are defined under ERISA.
Second Amended and Restated Reclassification Agreement
31
Investment
as applied to any Person means (i) any direct or indirect purchase or
other acquisition by such Person of any notes, obligations, instruments, stock, securities or
ownership interest (including partnership interests and joint venture interests) of any other
Person and (ii) any capital contribution by such Person to any other Person.
Issued and Reserved Common Stock
means all issued Common Stock of the Company and
all shares of Common Stock reserved upon the exercise of options granted pursuant to the Stock
Option Plans.
Lien
means any mortgage, pledge, security interest, encumbrance, lien or charge of
any kind, including, without limitation, any conditional sale or other title retention agreement,
any lease in the nature thereof and the filing of or agreement to give any financing statement
under the Uniform Commercial Code of any jurisdiction and including any lien or charge arising by
statute or other law.
Loan Agreement
means the existing Loan and Security Agreement, dated May 29, 1997,
between the Company and Congress Financial Corporation (Central), as further amended.
New Warrants
means the Series II Warrants, the DLJ Warrants and the Bridge Warrants,
to the extent still existing.
Officers Certificate
means a certificate signed by the Companys chief executive
officer, its chief financial officer, its chief operating officer or its chairman of the board,
stating that (i) the officer signing such certificate has made or has caused to be made such
investigations as are necessary in order to permit him to verify the accuracy of the information
set forth in such certificate and (ii) to the best of such officers knowledge, such certificate
does not misstate any material fact and does not omit to state any material fact necessary to make
the certificate not misleading.
Old Warrants
means the Class C Warrants, the Class D Warrants, the Class E Warrants,
the Class G Warrants, and the Class H Warrants.
Permitted Liens
shall mean (a) Liens for taxes and assessments or governmental
charges or levies not at the time due or in respect of which the validity thereof shall currently
be contested in good faith by appropriate proceedings conducted with due diligence and for the
payment of which the Company has furnished adequate security; (b) Liens in respect of pledges or
deposits under workers compensation laws or similar legislation, carriers, warehousemens,
mechanics, laborers and materialmens and similar Liens, if the obligations secured by such Liens
are not then delinquent or are being contested in good faith by appropriate proceedings
conducted with due diligence and for the payment of which the Company has furnished adequate
security; (c) statutory Liens incidental to the conduct of the business of the Company or any
Subsidiary which were not incurred in connection with the borrowing of money or the obtaining of
advances or credits and which do not in the aggregate materially detract from the value of its
property or materially impair the use thereof in the operation of its business and (d) Liens
Second Amended and Restated Reclassification Agreement
32
permitted under the Loan Agreement and arising in connection the purchase of the assets which are
subject to such Lien.
Person
means any individual, a partnership, a corporation, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization and a governmental entity
or any department, agency or political subdivision thereof.
Plan
means the Ulta Salon Amended and Restated Restricted Stock Plan dated December
1, 1998, as further amended and restated.
Preferred Stock
means the Series I Preferred Stock, the Series II Preferred Stock,
the Series III Preferred Stock, the Series IV Preferred Stock, the Series V Preferred Stock and the
Series V-1 Preferred Stock.
Proportionate Percentage
means, with respect to any holder of shares of Preferred
Stock, a fraction (expressed as a percentage), the numerator of which is the number of shares of
Common Stock into which the shares of Preferred Stock owned by such holders are convertible and the
denominator of which is the total number of shares of Common Stock into which the shares of
Preferred Stock owned by all holders of Preferred Stock are convertible.
Proprietary Rights
means all (i) patents, patent applications, patent disclosures
and improvements thereto, (ii) trademarks, service marks, trade dress, logos, trade names and
corporate names and registrations and applications for registration thereof, (iii) copyrights and
registrations and applications for registration thereof, (iv) computer software, data and
documentation, (v) trade secrets and confidential business information (including ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, design, plans, proposals, technical data,
copyrightable works, financial, marketing plans and customer and supplier lists and information),
(vi) other proprietary rights, and (vii) copies and tangible embodiments thereof (in whatever form
or medium).
Public Offering
means any offering by the Company of its equity securities to the
public, in a firm commitment underwriting, pursuant to an effective registration statement under
the Securities Act of 1933, as then in effect, or any comparable statement under any similar
federal statute then in force.
Purchase Agreements
means the Class A Purchase Agreement, the Class B Purchase
Agreement, the Class C Purchase Agreement, the Class D Purchase Agreement, the
Class E Purchase Agreement, the Class F Purchase Agreement, the Class G Purchase Agreement and
the Class H Purchase Agreement.
Qualified Public Offering
means a Public Offering in which (i) the aggregate cash
proceeds received by the Corporation for the shares sold in such offering is at least $15 million;
(ii) the price per share paid by the public for the shares sold in such offering implies a total
equity valuation of the Company of at least $100 million; (iii) the shares sold in such
Second Amended and Restated Reclassification Agreement
33
offering
are listed on the American Stock Exchange or the New York Stock Exchange or are quoted on the
Nasdaq National Market, (iv) with respect to (and for the benefit of) the Series IV Preferred Stock
only, the implied value of the Underlying Common Stock attributable to such Series IV Preferred
Stock shall be at least $3.15 per share (as such amount may be adjusted to reflect stock splits,
stock dividends and similar occurrences) or such lesser valuation as may be approved by the holders
of seventy-six percent (76%) of the outstanding shares of Series IV Preferred Stock and (v) with
respect to (and for the benefit of) the Series V Preferred Stock and Series V-1 Preferred Stock
only, the implied value of the Underlying Common Stock attributable to such Series V Preferred
Stock and Series V-1 Preferred Stock shall be at least $3.15 per share (as such amount may be
adjusted to reflect stock splits, stock dividends and similar occurrences) or such lesser valuation
as may be approved by the holders of seventy-six percent (76%) of the outstanding shares of Series
V Preferred Stock and Series V-1 Preferred Stock voting together as a single class.
Remaining Arrearages
shall mean, as of the date of conversion of the Series I
Preferred Stock, the Series II Preferred Stock, the Series IV Preferred Stock, the Series V
Preferred Stock or the Series V-1 Preferred Stock in question, all dividends accrued on such Series
I Preferred Stock, Series II Preferred Stock, Series IV Preferred Stock, Series V Preferred Stock
and Series V-1 Preferred Stock, as the case may be, through the date of such conversion less all
dividends declared thereon to the extent such dividends have record dates on or prior to the date
of conversion.
Restricted Securities
means (i) the Series I Preferred Stock, (ii) the Series II
Preferred Stock, (iii) the Series III Preferred Stock, (iv) the Series IV Preferred Stock, (v) the
Series V Preferred Stock, (v) the Series V-1 Preferred Stock, (vi) the Common Stock issued upon
conversion of the Series I Preferred Stock, the Series II Preferred Stock, the Series IV Preferred
Stock, the Series V Preferred Stock and the Series V-1 Preferred Stock and (vii) any securities
issued with respect to the securities referred to in clauses (i) through (vii) above by way of a
stock dividend or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular Restricted Securities, such
securities will cease to be Restricted Securities when they have (a) been effectively registered
under the Securities Act and disposed of in accordance with the registration statement covering
them, or (b) disposed of in a public distribution pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act. Whenever any particular securities cease to be Restricted
Securities under (a) or (b) above, the holder thereof will be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a Securities Act legend of the character
set forth in
Section 11C
.
Schedule of Initial Purchasers
means those Persons listed on the Schedule of Initial
Purchasers attached hereto as
Schedule A
.
Schedule of Subsequent Purchasers
means those Persons listed on the Schedule of
Subsequent Purchasers attached hereto as
Schedule B
.
Schedule of Shareholders
means those Persons listed on the Schedule of Shareholders
attached hereto as
Schedule C
.
Second Amended and Restated Reclassification Agreement
34
Securities Act
means the Securities Act of 1933, as amended, or any similar federal
law then in force.
Securities Exchange Act
means the Securities Exchange Act of 1934, as amended, or
any similar federal law then in force.
Securities and Exchange Commission
means the Securities and Exchange Commission and
any governmental body or agency succeeding to the functions thereof.
Series I Preferred Stock
shall have the meaning set forth in the recitals.
Series II Preferred Stock
shall have the meaning set forth in the recitals.
Series III Preferred Stock
shall have the meaning set forth in the recitals.
Series IV Preferred Stock
shall have the meaning set forth in the recitals.
Series V Preferred Stock
shall have the meaning set forth in the recitals.
Series IV Supplemental Consent Holder
means Oak Investment Partners whose approval
shall be required for the actions described in Sections 7.C.(iii), (vi), (vii) or (viii) hereof;
provided
,
however
, that such approval shall only be required if (a) the shares of
Series IV Preferred Stock held by Global Retail Partners, L.P. or its affiliates, are not being
voted at the direction of either Yves Sisteron or Steve Lebow or such other person as Oak
Investment Partners shall have previously approved; (b) the shares of Series IV Preferred Stock
held by Eloise Investment B.V. are not being voted at the direction of Charles Heilbronn or such
other person as Oak Investment Partners shall have previously approved; and (c) Oak Investment
Partners and its affiliates beneficially owns at least seventy-five percent (75%) of the shares of
the Series V Preferred Stock originally issued to it under this Agreement.
Sponsoring Investors
means all Persons other than the Company that are parties to
that certain letter agreement entitled Commitment to Purchase Preferred Stock, dated March 4,
1997, by and among the Company and certain Shareholders.
Stock Option Plans
means the Ulta Salon, Cosmetics & Fragrance, Inc. Second Amended
and Restated Restricted Stock Option Plan dated December 1, 1998, as further amended and restated
and the Ulta Salon, Cosmetics & Fragrance, Inc. Restricted Stock Option Plan Consultants, dated
July 27, 1999, as further amended and restated.
Subsidiary
means, with respect to any Person, any corporation, partnership,
association or other business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business entity, a majority of
the partnership or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination
thereof.
Second Amended and Restated Reclassification Agreement
35
For purposes hereof, a Person or Persons shall be deemed to have a majority ownership
interest in a partnership, association or other business entity if such Person or Persons shall be
allocated a majority of partnership, association or other business entity gains or losses or shall
be or control the managing director or general partner of such partnership, association or other
business entity.
Underlying Common Stock
means the Common Stock issued or issuable upon conversion of
the Series I Preferred Stock, the Series II Preferred Stock, the Series IV Preferred Stock, the
Series V Preferred Stock, the Series V-1 Preferred Stock and any Common Stock issued or issuable
with respect to the securities referred to above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation or other
reorganization. Any Person who holds Series I Preferred Stock, Series II Preferred Stock, Series
IV Preferred Stock, Series V Preferred Stock or Series V-1 Preferred Stock will be deemed to be the
holder of the Common Stock obtainable upon the conversion of the Series I Preferred Stock, Series
II Preferred Stock, Series IV Preferred Stock, the Series V Preferred Stock, the Series V-1
Preferred Stock in connection with the transfer thereof or otherwise regardless of any restriction
or limitation on the conversion of the Series I Preferred Stock, Series II Preferred Stock, Series
IV Preferred Stock, Series V Preferred Stock or Series V-1 Preferred Stock. As to any particular
shares of Underlying Common Stock, such shares will cease to be Underlying Common Stock when they
have been (a) effectively registered under the Securities Act and disposed of in accordance with
the registration statement covering them or (b) distributed to the public through a broker, dealer
or market maker pursuant to Rule 144 under the Securities Act (or any similar provision then in
force).
11
Miscellaneous
.
A.
Expenses
.
The Company agrees to pay, and hold each Purchaser harmless against
liability for the payment
of, (i) the reasonable fees and expenses of their special counsel arising in connection with the
negotiation and execution of this Agreement and the consummation of the transactions contemplated
by this Agreement which shall be payable at the Closing, and (ii) stamp and other taxes which may
be payable in respect of the execution and delivery of this Agreement or the issuance, delivery or
acquisition of any shares of Series V Preferred Stock and Series V-1 Preferred Stock or any shares
of Common Stock issuable upon conversion of the Series V Preferred Stock and Series V-1 Preferred
Stock, and, (iii) reasonable fees and expenses incurred with respect to the enforcement of the
rights granted under this Agreement and the agreements contemplated hereby, and (iv) the reasonable
fees and expenses incurred by any such Person in
connection with any transaction, claim or event related to this Agreement which such Person
reasonably believes affects its investment in the Company and as to which such Person seeks advice
of counsel.
B.
Remedies
.
Each holder will have all rights and remedies set forth in this
Agreement, the New Restated
Certificate of Incorporation and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such holders have under
any law. Any Person having any rights under any provision of this Agreement will be entitled to
enforce such rights specifically (without posting a
Second Amended and Restated Reclassification Agreement
36
bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all other rights granted by
law.
C.
Purchasers
Investment Representations
. Each of the Purchasers hereby severally represents to the Company the following:
either:
(a)
i. the Purchaser is not a U.S. Person (as defined in Rule 902 (17 CFR §
230.902) under the Securities Act) and is not acquiring the Restricted
Securities purchased hereunder or acquired pursuant hereto for the account
or benefit of any U.S. Person; and
ii. the offer to purchase Restricted Securities was made outside the United
States; and
iii. the purchase of the Restricted Securities by the Purchaser will be made
outside the United States; and
iv. the Purchaser acknowledges that each certificate for Restricted
Securities purchased hereunder will be imprinted with a legend in
substantially the following form:
The securities represented by this certificate were
originally issued to a Shareholder who, at the time of
purchase, was not a U.S. Person (as defined in Rule 902 (17
CFR § 230.902) under the United States Securities Act of
1933, as amended (the
Securities Act
)), in a
transaction outside the United States of America, its
territories and possessions, any state of the United States,
and the District of Columbia (collectively, the United
States) and have not been registered under the Securities
Act of 1933 as amended.
The transfer of the securities represented by this
certificate is subject to the conditions specified in the
Second Amended and Restated Reclassification and Sale of
Shares Agreement dated as of December 18, 2000 between the
issuer (the
Company
) and certain investors, and the
Company reserves the right to refuse the transfer of such
securities until such conditions have been fulfilled with
respect to such transfer. A copy of such conditions will be
furnished by the Company to the holder hereof upon written
request and without charge. In addition, the securities
represented by this certificate may not be offered, sold, or
delivered in the
Second Amended and Restated Reclassification Agreement
37
United States or to any U.S. Person except
in accordance with the provisions of Regulation S (17 CFR §§
230.901 230.904) under the Securities Act of 1933, as
amended, or pursuant to another exemption from registration
under the provisions of the Securities Act.
or:
(b)
i. the Purchaser is acquiring the Restricted Securities purchased hereunder
or acquired pursuant hereto for its own account with the present intention
of holding such securities for purposes of investment, and that it has no
intention of selling such securities in a public distribution in violation
of the federal securities laws or any applicable state securities laws;
provided that nothing contained herein will prevent any Purchaser and
subsequent holders of Restricted Securities from transferring such
securities in compliance with the provisions hereof. Each certificate for
Restricted Securities purchased hereunder will be imprinted with a legend in
substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
transfer of the securities represented by this certificate is
subject to the conditions specified in the Amended and Second
Restated Reclassification and Sale of Shares Agreement, dated
as of December 18, 2000 between the issuer (the
Company
) and certain investors, and the Company
reserves the right to refuse the transfer of such securities
until such conditions have been fulfilled with respect to
such transfer. A copy of such conditions will be furnished
by the Company to the holder hereof upon written request and
without charge.
The Purchaser has the financial ability to bear the economic risk of an
investment in the Restricted Securities, has adequate means of providing for
his, her or its current needs and personal contingencies, has no need for
liquidity in such investment and could afford a complete loss of such
investment.
ii. The Purchaser is either (i) an accredited investor as defined in Rule
501(a) of Regulation D of the Securities Act or (ii) has relied upon a
Shareholder representative or a professional advisor to assist the
Purchaser in evaluating an investment in the Restricted Securities.
Second Amended and Restated Reclassification Agreement
38
iii. The Purchasers overall commitment to investments which are not readily
marketable is not disproportionate to his, her or its net worth and his, her
or its investment in the Company will not cause such overall commitment to
become excessive.
iv. The Purchaser, either individually or in conjunction with the
Shareholders investment advisor, has such knowledge and experience in
financial and business matters that he, she or it is capable of evaluating
the merits and risks of his, her or its investment in the Restricted
Securities.
and:
(c)
i. The Purchaser expressly acknowledges receipt of the financial information
distributed in connection with this offering. The Purchaser acknowledges
and agrees that the Purchaser has read and understood the terms and
conditions set forth in the financial information.
ii. The Purchaser has been given full opportunity to ask questions of and to
receive answers from representatives of the Company concerning the terms and
conditions of the investment and the business of the Company and such other
information as he, she or it desires in order to evaluate an investment in
the Restricted Securities, and all such questions have been answered to the
full satisfaction of the Purchaser.
iii. In making his, her or its decision to acquire the Restricted
Securities, the Purchaser has relied solely upon independent investigations
made by him, her or it. In addition, the Purchaser initially learned of the
investment through a direct communication, and was never presented or
solicited by (i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, (ii) any seminar or meeting whose attendees, including
the Purchaser, had been invited as a result of, subsequent to or pursuant to
any of the foregoing, or (iii) any other form of general solicitation.
iv. The Purchaser understands that the shares of the Restricted Securities
have not been registered under the Securities Act, the securities laws of
any state, and are being issued in reliance upon specific exemptions from
registration thereunder, and the Purchaser agrees that the shares of the
Restricted Securities may not be sold, offered for sale, transferred,
pledged, hypothecated or otherwise disposed of except pursuant to (i) a
registration statement with respect to such securities which is effective
under the Securities Act or under the securities act of any state, (ii) Rule
144 under the Securities Act or (iii) any other exemption from registration
under the Securities Act or under the
Second Amended and Restated Reclassification Agreement
39
securities act of any state relating
to the disposition of securities, provided an opinion of counsel is
furnished, reasonably satisfactory in form and substance to the Company,
that an exemption from the registration requirements of the Securities Act
of such state act is available. The Purchaser understands the legal
consequences of the foregoing to mean that he, she or it may be required to
bear the economic risk of his, her or its investment in the shares of the
Restricted Securities for an indefinite period or time. The Purchaser
understands that any instruments initially representing the shares of the
Restricted Securities shall bear legends restricting the transfer thereof.
The Purchaser agrees not to resell or otherwise dispose of all or any shares
of Restricted Securities acquired by the Purchaser, except as permitted by
law, including, without limitation, any and all applicable provisions of
this Section, the Agreement and any regulations under the Securities Act and
any state law or regulations.
v. The Purchaser understands that no federal or state agency has made any
finding or determination as to the fairness of an investment in, or any
recommendation or endorsement of, the shares of the Restricted Securities.
D.
Additional
Covenants of the Purchasers
. Each Purchaser agrees that it will provide
the Company with such information about itself and
its Affiliates as is necessary to allow the Company to complete and file, if necessary, in a timely
manner after the Closing, a Form BE-13 with the Bureau of Economic Analysis of the U.S. Department
of Commerce. In addition, each Purchaser other than Doublemousse B.V. hereby represents and
warrants to the Company that it is not an Affiliate of nor does it control (as that term is defined
in Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended) Doublemousse B.V.
E.
Confidentiality and Noncompetition
.
i. Each Shareholder hereby agrees to at all times hold in strictest confidence and to
not directly or indirectly use or disclose (except as required by law) any Confidential
Information (as hereinafter defined) of the Company that may have come or may come into such
Shareholders possession or within such Shareholders knowledge as a result of such
Shareholder being a shareholder, director, officer, employee or agent of
the Company; provided that each such Shareholder may disclose Confidential Information
in connection with the sale or transfer of any shares of Series I Preferred Stock, Series II
Preferred Stock, Series III Preferred Stock, Series IV Preferred Stock, Series V Preferred
Stock, Series V-1 Preferred Stock, Underlying Common Stock, Existing Warrants or shares of
Common Stock issuable upon conversion of Existing Warrants, if such Shareholders proposed
transferee agrees in writing to be bound by the provisions of this sentence and such
agreement is reasonably satisfactory to the Company. For purposes of this Section,
Confidential Information
shall mean information, not generally known, and
proprietary to the Company, including without limitation, information embodying or
pertaining to standards, procedures, customers, suppliers, vendors, contractors, pricing,
pricing policies, research, purchasing, products,
Second Amended and Restated Reclassification Agreement
40
accounting, marketing , merchandising,
finance (including any information furnished to such Shareholder pursuant to
Section
7A
hereof), business systems and techniques, store operations, store format and new
store locations. In addition, each Shareholder agrees not to disclose, directly or
indirectly, to any person or entity that any Shareholder is in any way connected, associated
or affiliated with Chanel, Inc., or its subsidiaries, successors or assigns.
ii. Furthermore, until such time as a Qualified Public Offering occurs, each
Shareholder hereby agrees that from the date hereof and continuing for a period of one year
after such Shareholder no longer owns any shares of Series I Preferred Stock, Series II
Preferred Stock, Series III Preferred Stock, Series IV Preferred Stock, Series V Preferred
Stock, Series V-1 Preferred Stock, Underlying Common Stock, Existing Warrants or shares of
Common Stock issuable upon conversion of Existing Warrants, such Shareholder will not, and
will cause its Affiliates not to, purchase equity securities of any corporation, become a
director, officer, agent or employee of a corporation or a member of a partnership, engage
as a sole proprietor in any business, act as a consultant to or provide any form of
financial assistance to, or otherwise engage directly or indirectly in any enterprise which,
in the reasonable opinion of the Company, is a Competitor who competes with the Company
within the United States, Canada or Mexico;
provided
that the restrictions in this
sentence shall not apply to the acquisition of equity securities of a Competitor if such
equity securities are received as consideration in a merger or sale of substantially all of
the assets of a corporation in which such Shareholder owns equity securities, and which was
not a Competitor at the time of such Shareholders initial investment in such corporation,
with or to a corporation that is or subsequently becomes a Competitor, but only to the
extent that any such merger or sale of assets is entered into in good faith and not for the
purpose of avoiding the restrictions hereof. It is understood that the restrictions
contained in the preceding sentence shall not apply to (x) Affiliates of the Shareholders
(i) to the extent that such Affiliates have established a Chinese Wall or similar
appropriate procedure to ensure that the Person or Persons principally responsible for
monitoring such Shareholders investment in the Company are not involved in, or responsible
for, any investment in, or other restricted activities involving, any Competitor or (ii) in
case of any Shareholder that is a professionally managed investment fund and identified on
Schedule 11E
hereto, to the extent that any future investments made by such
Shareholder or its Affiliates are made at the direction of a Person or Persons other than
the Person or Persons principally responsible for monitoring such Shareholders
investment in the Company or (y) the Shareholders which are managed accounts or other
Persons that are specifically identified on
Schedule 11E
hereto;
iii. If, at the time of enforcement of any of the provisions of this
Section
11E
, a court holds that the restrictions stated herein are unreasonable under the
circumstances then existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for the stated
period, scope or area.
Second Amended and Restated Reclassification Agreement
41
F.
Treatment of the Series I Preferred Stock, Series II Preferred Stock, Series IV
Preferred Stock, Series V Preferred Stock and Series V-1
Preferred Stock
. The Company covenants
and agrees that so long as federal income tax laws prohibit a deduction
for distributions made by the Company with respect to preferred stock (i) it will treat all
distributions paid by it on the Series I Preferred Stock, Series II Preferred Stock, Series IV
Preferred Stock, Series V Preferred Stock and Series V-1 Preferred Stock as non-deductible
dividends on all of its tax returns and (ii) it will treat the Series I Preferred Stock, Series II
Preferred Stock, Series IV Preferred Stock, Series V Preferred Stock and Series V-1 Preferred Stock
as preferred stock in all of its financial statements and other reports and will treat all
distributions paid by it on the Series I Preferred Stock, Series II Preferred Stock, Series IV
Preferred Stock, Series V Preferred Stock and Series V-1 Preferred Stock as dividends on preferred
stock in such statements and reports.
G.
Consent
to Amendments/Waivers
. Except as otherwise expressly provided herein, the
provisions of this Agreement may be amended
or waived and the Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if and only if the Company has obtained the written consent of the
holders of a majority in voting power of the outstanding shares of Series I Preferred Stock, Series
II Preferred Stock, Series IV Preferred Stock, Series V Preferred Stock and Series V-1 Preferred
Stock, voting together as a single class, and the written consent of the holders of ninety percent
(90%) of the outstanding shares of any series of Preferred Stock the rights of which would be
adversely affected by such amendment, waiver, action or omission in a manner different from any
other series of Preferred Stock, such series voting together as a separate class;
provided
that if there is no Series I Preferred Stock, Series II Preferred Stock, Series IV Preferred Stock,
Series V Preferred Stock or Series V-1 Preferred Stock outstanding, the provisions of this
Agreement may be amended or waived and the Company may take any action herein prohibited, if and
only if the Company has obtained the written consent of the holders of a majority of the
outstanding shares of Underlying Common Stock. No other course of dealing between the Company and
the holder of any Series I Preferred Stock, Series II Preferred Stock, Series III Preferred Stock,
Series IV Preferred Stock, Series V Preferred Stock or Series V-1 Preferred Stock, or Underlying
Common Stock or any delay in exercising any rights hereunder or under the Restated Certificate will
operate as a waiver of any rights of any such holders. For purposes of this Agreement, shares of
Series V Preferred Stock, Series V-1 Preferred Stock or Underlying Common Stock held by the Company
will not be deemed to be outstanding. If the Company pays any consideration to any holder of
Series I Preferred Stock,
Series II Preferred Stock, Series IV Preferred Stock, Series V Preferred Stock, Series V-1
Preferred Stock or Underlying Common Stock for such holders consent to any amendment, modification
or waiver, the Company shall also pay each other holder granting its consent hereunder equivalent
consideration computed on a pro rata basis.
H.
Survival
of Representations and Warranties
. All representations and warranties contained
herein or made in writing by any party in
connection herewith will survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, regardless of any investigation made by any Shareholder or
on its behalf. All representations and warranties contained in the Initial Classification
Agreement and the Amended Classification Agreement or made in writing by any party in connection
therewith will
Second Amended and Restated Reclassification Agreement
42
survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated hereby.
I.
Successors and Assigns
. Except as otherwise expressly provided herein, all
covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto
will bind the respective successors and assigns of the parties hereto whether so expressed or not.
In addition, and whether or not any express assignment has been made, the provisions of this
Agreement which are for any Shareholders benefit as a Shareholder or holder of Series I Preferred
Stock, Series II Preferred Stock, Series III Preferred Stock, Series IV Preferred Stock, Series V
Preferred Stock,
Series V-1 Preferred Stock, Existing Warrants, Underlying Common Stock or shares of Common
Stock issuable upon conversion of the Existing Warrants are also for the benefit of, and
enforceable by, any Affiliate of such Shareholder which becomes the holder of such Series I
Preferred Stock, Series II Preferred Stock, Series III Preferred Stock, Series IV Preferred Stock,
Series V Preferred Stock, Series V-1 Preferred Stock, Existing Warrants, Underlying Common Stock or
shares of Common Stock issuable upon conversion of Existing Warrants (whether by sale, assignment
or otherwise), and, in addition, any Holder of at least 10% of the Underlying Common Stock at any
time outstanding.
J.
Capital and Surplus
. The Company agrees that the capital of the Company (as such
term is used in Section 154 of the General Corporation Law of Delaware) in respect of the Series V
Preferred Stock issued pursuant to this Agreement will be equal to the aggregate par value of such
shares. The Company further agrees that, except as contemplated herein or in the Restated
Certificate, it will not increase the capital of the Company with respect to any shares of the
Companys capital stock at any time on or after the date of this Agreement.
K.
Severability
. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law, such provision will
be ineffective only to the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
L.
Counterparts
. This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one party, but all such
counterparts taken together will constitute one and the same Agreement.
M.
Descriptive Headings
. The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a Section of this Agreement.
N.
Governing Law
. The laws of the State of Delaware will govern all issues to the
extent they govern the internal affairs of the Company and its stockholders. All other questions
concerning the construction, validity and interpretation of this Agreement and the exhibits and
schedules hereto will be governed by the internal law, and not the law of conflicts, of Illinois.
O.
Notices
. All notices, demands or other communications to given or delivered under
or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have
been
given when delivered personally to the recipient, sent to the recipient by reputable express
courier service (charges prepaid) or mailed to the recipient by certified or
Second Amended and Restated Reclassification Agreement
43
registered mail,
return receipt requested and postage prepaid. Such notices, demands and other communications will
be sent to each Shareholder at the address indicated on the Schedule of Shareholders and to the
Company at the address indicated below:
Ulta Salon, Cosmetics & Fragrance, Inc.
Windham Lakes Business Park
1135 Arbor Drive
Romeoville, Illinois 60446
Attn: Charles R. Weber
or to such other address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party.
P.
Understanding Among the Shareholders
. The determination of each Shareholder to
purchase the Series V Preferred Stock and Series V-1 Preferred Stock pursuant to this Agreement has
been made by such Shareholder independent of any statements or opinions as to the advisability of
such purchase or as to the properties, business, prospects or condition (financial or otherwise) of
the Company which may have been made or given by any other Shareholder or by any agent or employee
of any other Shareholder.
Q.
Contract Right in Lieu of Dividend
. Notwithstanding any provision contained in
this Agreement, if a Shareholder converts any of its shares of Series I Preferred Stock, Series II
Preferred Stock, Series IV Preferred Stock, Series V Preferred Stock or Series V-1 Preferred Stock
purchased hereunder with respect to which there exists any Remaining Arrearages, such Shareholder
shall have a nontransferable and nonassignable right to receive payment from the Company in an
amount equal to the Remaining Arrearages on the shares of Series I Preferred Stock, Series II
Preferred Stock, Series IV Preferred Stock, Series V Preferred Stock and Series V-1 Preferred Stock
so converted, such payment or payments to be made when, as and if the Company would have paid the
accrued and unpaid dividends constituting the Remaining Arrearages had the Series I Preferred
Stock, Series II Preferred Stock, Series IV Preferred Stock, Series V Preferred Stock or Series V-1
Preferred Stock with respect to which such Remaining Arrearages relate not been converted.
R.
Waiver of Conflicts
. Each party to this Agreement acknowledges that Cooley Godward
LLP (
CooleyGodward
) has served as special counsel to Annapolis Ventures LLC and has
negotiated the terms of the Registration Agreement and the Voting Agreement (together, the
Related Agreements
), the Agreement, the Restated Certificate and the Exhibits to the
Agreement and the Related Agreements solely on behalf of Annapolis Ventures LLC. Each Shareholder
hereby acknowledges that (a) they have had an opportunity to obtain independent legal counsel; and
(b) acknowledge that with respect to this Agreement, the Related Agreements,
the Restated Certificate and the Exhibits to the Agreement and the Related Agreements, Cooley
Godward has represented solely Annapolis Ventures LLC, and not any other Shareholder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Second Amended and Restated Reclassification Agreement
44
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above
written.
|
|
|
|
|
|
|
|
|
|
|
ULTA SALON, COSMETICS & FRAGRANCE, INC.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCKHOLDERS:
|
|
|
|
|
|
|
|
|
|
|
|
PHILLIPS-SMITH SPECIALTY RETAIL GROUP I, L.P.
|
|
|
By:
|
|
Phillips-Smith Management Company, L.P.,
its
Managing General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PHILLIPS-SMITH SPECIALTY RETAIL
GROUP II, L.P.
|
|
|
By:
|
|
Phillips-Smith Management Company, L.P.,
its
Managing General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BANKAMERICA CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BANKAMERICA VENTURES F/K/A FIRST
SMALL BUSINESS INVESTMENT COMPANY
OF CALIFORNIA
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Amended and Restated Reclassification Agreement
S-1
|
|
|
|
|
|
|
|
|
|
|
WILLIAM BLAIR CAPITAL PARTNERS III, L.P.
|
|
|
By:
|
|
William Blair Venture Management
Company, L.P., its General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ellen Carnahan, General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPROUT CAPITAL VI, L.P.
|
|
|
By:
|
|
DLJ Capital Corporation, its Managing
General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DLJ VENTURE CAPITAL FUND II, L.P.
|
|
|
By:
|
|
DLJ Fund Associates II, its General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KCB BV, L.P.
|
|
|
By:
|
|
KCB BV, Inc., its General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvey Knell, President
|
|
|
|
|
|
|
Its:
|
|
General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABELSON FAMILY PARTNERSHIP:
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hirschel B. Abelson
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Amended and Restated Reclassification Agreement
S-2
|
|
|
|
|
|
|
THE JEWISH COMMUNAL FUND
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard E. George
|
|
|
|
|
|
|
|
|
|
|
Terry J. Hanson
|
|
|
|
|
|
|
|
|
|
|
Jeffrey H. Brotman
|
|
|
|
|
|
|
|
THE 1991 BROTMAN CHILDRENS TRUST
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
John Meisenbach, Trustee
|
|
|
|
|
|
|
|
|
|
|
John Meisenbach
|
|
|
|
|
|
|
|
|
|
|
Thomas Kully
|
|
|
|
|
|
|
|
DRAKE & CO FOR CITIVENTURE III
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BOOTH & CO. (MUNICIPAL EMPLOYEES
ANNUITY & BENEFIT FUND OF CHICAGO)
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
Second Amended and Restated Reclassification Agreement
S-3
|
|
|
|
|
|
|
|
|
|
|
BOOTH & CO. (Policemans Fund)
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANCELLOR VENTURE CAPITAL I L.P. (F/K/A MAC & CO.)
|
|
|
By:
|
|
Chancellor LGT Venture Partners, L.P., its
general partner
|
|
|
|
|
By:
|
|
Chancellor Venture LGT Partners, Inc., its
general partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOCUS & CO. FOR BAXTER
INTERNATIONALCORP.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DLJ CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DLJ FIRST ESC L.L.C.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOURCAR BV
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Amended and Restated Reclassification Agreement
S-4
|
|
|
|
|
|
|
|
|
MARCH FOUNDATION
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LACOMBLE RETAILING SA
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marie-Pierre Fournier
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacques Fournier
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel Bernard
|
|
|
|
|
|
|
|
|
|
APPOTAMOX FOUNDATION
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAMSE NV
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KME VENTURE II
|
|
|
By:
|
|
SAFAT Ltd., its Investment Manager
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
Second Amended and Restated Reclassification Agreement
S-5
|
|
|
|
|
|
|
|
|
KME VENTURE III, L.P.
|
|
|
By:
|
|
SAFAT, Ltd., it General Partners
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard Schultz
|
|
|
|
|
|
|
|
|
|
|
|
|
Orin C. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Ritt
|
|
|
|
|
|
|
|
|
|
CALCOM PENSION PLAN
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SMITH BARNEY IRA FBO HENRY J. NASELLA
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry J. Nasella
|
|
|
|
|
|
|
|
|
|
LEBOW FAMILY PARTNERSHIP
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Lebow, its General Partner
|
Second Amended and Restated Reclassification Agreement
S-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Lebow, JT Tenant with Susan Lebow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Susan Lebow, JT Tenant with Steven Lebow
|
|
|
|
|
|
|
|
|
|
THE MICHAEL HARVEY LEBOW
IRREVOCABLE TRUST
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven E. Lebow, Trustee
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Susan Morse Lebow, Trustee
|
|
|
|
|
|
|
|
|
|
|
|
THE MATTHEW ALLAN LEBOW
IRREVOCABLE TRUST
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven E. Lebow, Trustee
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Susan Morse Lebow, Trustee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Susan C. Schnabel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Sington
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Dietz
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vince DeGiaimo
|
Second Amended and Restated Reclassification Agreement
S-7
|
|
|
|
|
|
|
|
|
|
|
|
Douglas Hayes, JT Ten with Connie Hayes
|
|
|
|
|
|
|
|
|
|
|
|
|
Connie Hayes, JT Ten with Douglas Hayes
|
|
|
|
|
|
|
|
|
|
MOELIS FAMILY TRUST
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth D. Moelis, Trustee
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julie Moelis, Trustee
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Nolan
|
|
|
|
|
|
|
|
|
|
WOO FAMILY TRUST DTD NOVEMBER 30, 1998
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warren C. Woo, Trustee
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carolyn M. Suda, Trustee
|
|
|
|
|
|
|
|
|
|
|
|
|
John Danhakl
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Galanti
|
|
|
|
|
|
|
|
|
|
SEP FOR THE BENEFIT OF YVES SISTERON
|
|
|
By:
|
|
Donald Lufkin Jenrette
Securities Corporation as Custodian
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
Second Amended and Restated Reclassification Agreement
S-8
|
|
|
|
|
|
|
|
|
|
|
|
Yves Sisteron
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Dyvig
|
|
|
|
|
|
|
|
|
|
|
|
|
Glynn Bloomquist
|
|
|
|
|
|
|
|
|
|
PICTET & CIE
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FEIGIN TRADING CO.
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U-3 PARTNERSHIP
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel N. Stroum, its General Partner
|
|
|
|
|
|
|
|
|
|
JOHN D. AND CATHERINE T. MACARTHUR FOUNDATION
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BCI GROWTH III, L.P.
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teaneck Associates, L.P., Its General
Partner
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
General Partner
|
Second Amended and Restated Reclassification Agreement
S-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James R. Miller
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virginia B. Jontes
|
|
|
|
|
|
|
|
|
|
DOUBLEMOUSSE B.V.
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARABELLA, S.A.
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OAK INVESTMENT PARTNERS VII
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald R. Gallagher, General Partner
Managing Member of Oak Associates VII,
LLC, The General Partner of Oak
Investment Partners VII, Limited
Partnership
|
|
|
|
|
|
|
|
|
|
|
|
OAK VII AFFILIATES, LLC
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald R. Gallagher, General Partner
Managing Member of Oak VII Affiliates,
LLC, The General Partner of Oak VII
Affiliates Fund Limited Partnership
|
|
|
Second Amended and Restated Reclassification Agreement
S-10
|
|
|
|
|
|
|
|
|
SHENNAN FAMILY PARTNERSHIP
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. DONALD DORSEY AND LYDIA DORSEY
REVOCABLE LIVING TRUST DTD AUGUST 5, 1993
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STRATEGIC GLOBAL PARTNERS, LLC
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNET TECHNOLOGY VENTURES, LLC
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Markey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Juanita F. Francis
|
|
|
|
|
|
|
|
|
|
GREENHOUSE CAPITAL PARTNERS
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
Second Amended and Restated Reclassification Agreement
S-11
|
|
|
|
|
|
|
|
|
GLOBAL RETAIL PARTNERS, L.P.
|
|
|
By:
|
|
GLOBAL RETAIL PARTNERS, INC.
General Partner
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DLJ DIVERSIFIED PARTNERS, L.P.
|
|
|
By:
|
|
DLJ DIVERSIFIED PARTNERS, INC.
General Partner
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DLJ DIVERSIFIED PARTNERS-A, L.P.
|
|
|
By:
|
|
DLJ DIVERSIFIED PARTNERS, INC.
General Partner
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GRP PARTNERS, L.P.
|
|
|
By:
|
|
GLOBAL RETAIL PARTNERS, INC.
General Partner
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLOBAL RETAIL PARTNERS FUNDING, INC.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DLJ ESC II L.P.
|
|
|
By:
|
|
DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
Second Amended and Restated Reclassification Agreement
S-12
|
|
|
|
|
|
THE SAMUEL J. AND SANDRA S. PARKER FAMILY TRUST
DTD SEPTEMBER 10, 1982
|
|
|
By:
|
|
|
|
Its:
|
Trustee
|
|
|
|
|
|
|
|
|
|
|
|
WEBER 1997 DYNASTY TRUST
|
|
|
By:
|
|
|
|
|
Patricia L. Fennema, Trustee
|
|
|
|
|
|
|
|
|
|
|
|
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
|
|
|
By:
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
FIDAS BUSINESS S.A.
|
|
|
By:
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven E. Lebow, Individually
|
|
|
|
|
Second Amended and Restated Reclassification Agreement
S-13
|
|
|
|
|
|
CAROL F. THOR REVOCABLE TRUST U/A/D 6/8/90
|
|
|
By:
|
|
|
|
|
Carol F. Thor, Trustee
|
|
|
|
|
|
|
|
JOHN R. KROMER AS TRUSTEE UNDER THE
JOHN R. KROMER
DECLARATION OF TRUST DTD JUNE 11, 1991, AND SUCCESSOR
TRUSTEES
|
|
|
By:
|
|
|
|
|
John R. Kromer, Trustee
|
|
|
|
|
|
|
|
ANNAPOLIS VENTURES LLC
|
|
|
By:
|
Annapolis Operations LLC,
|
|
|
|
its Managing Member
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
Doulgas O. Hickman,
|
|
|
|
Manager/Member
|
|
Second Amended and Restated Reclassification Agreement
S-14
|
|
|
|
|
|
LATHAM & WATKINS
|
|
|
By:
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
GRP II, L.P.,
|
|
|
By:
|
GRPVC, L.P., its General Partner
|
|
|
By: GRP Management Services Corp., its General
|
|
|
Partner
|
|
|
|
|
|
|
|
GRP II PARTNERS, L.P.
|
|
|
By:
|
GRPVC, L.P., its General Partner
|
|
|
By: GRP Management Services Corp., its General
|
|
|
Partner
|
|
Second Amended and Restated Reclassification Agreement
S-15
EXHIBIT A
RESTATED CERTIFICATE
Second Amended and Restated Reclassification Agreement
EXHIBIT B
REGISTRATION AGREEMENT
Second Amended and Restated Reclassification Agreement
S-ii
EXHIBIT C
VOTING AGREEMENT
Second Amended and Restated Reclassification Agreement
S-iii
EXHIBIT D
LATHAM & WATKINS LEGAL OPINION
Second Amended and Restated Reclassification Agreement
S-iv
SCHEDULE 5A(vi)
MATERIAL CHANGES AND DEFAULTS
The Balance Sheet reflects an investment in 1999 of approximately $5 million through ULTA
Internet Holdings, Inc. in Jamin.com, private website involved in the retail perfume sales. That
$5 million investment was converted as of the beginning of the current fiscal year to an investment
in ULTA Holdings, LLC, whereby the Company, ULTA Internet Holdings, Inc., Online Retail Partners,
LLC, ULTA Holdings, LLC and ULTA.com, LLC entered into various transactions for the development and
operation of a retail website for the Company through ULTA Holdings, LLC. In light of the current
market condition of the retail e-commerce segment and the fact that the retail website is not yet
fully operational, the Company cannot be certain that it will not suffer a loss of the entire
investment.
Second Amended and Restated Reclassification Agreement
S-v
SCHEDULE 9Q
UNDISCLOSED LIABILITIES
None
Second Amended and Restated Reclassification Agreement
S-vi
SCHEDULE 11E
PROFESSIONALLY MANAGED INVESTMENT FUNDS
Chancellor Venture Capital, L.P. and its Affiliates
CitVenture Private Participations II Limited and its Affiliates
SHAREHOLDERS WITH MANAGED ACCOUNTS AND OTHER PERSONS
Chicago Municipal Employees Pension Fund
Chicago Police Pension Fund
Baxter Travenol Employee Pension Fund
BankAmerica Capital Corporation
1
BankAmerica Ventures f/k/a First Small Business Investment Company of California
1
DLJ Capital Corporation
2
DLJ First ESC L.L.C.
2
OTHER PERSONS
Doublemousse B.V. and any one or more of its affiliates.
|
|
|
1
|
|
The provisions governing confidentiality and
noncompetition between the Company and BankAmerica are set forth in a separate
letter agreement.
|
|
2
|
|
The exemption for these Shareholders is
conditioned upon their adoption and enforcement of the procedures contemplated
in clause (x)(i) of Section 11E of the Agreement.
|
Second Amended and Restated Reclassification Agreement
S-vii
Schedule A
Schedule of Initial Purchasers
3
Series V-1
|
|
|
|
|
|
|
|
|
Purchaser
|
|
Series V-1 Preferred Stock
|
|
Purchase Price
|
Doublemousse B.V.
|
|
|
1,080,000
|
|
|
$
|
1,620,000.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of
|
|
|
|
|
|
|
Indebtedness for
|
Purchaser
|
|
Series V-1 Preferred Stock
|
|
Bridge Notes
|
Doublemousse B.V.
|
|
|
2,251,699.34
|
|
|
$
|
3,377,549.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal of
Doublemousses
initial Series V-1
principal investment
and conversion of
Bridge Notes:
|
|
|
3,331,699.34
|
|
|
$
|
4,997,549.01
|
|
Series V
|
|
|
|
|
|
|
|
|
Purchaser
|
|
Series V Preferred Stock
|
|
Purchase Price
|
Oak Investment Partners VII,
Limited Partnership
|
|
|
1,755,900
|
|
|
$
|
2,633,850.00
|
|
|
|
|
|
|
|
|
|
|
Oak VII Affiliates Fund, Limited
Partnership
|
|
|
44,100
|
|
|
|
66,150.00
|
|
|
|
|
|
|
|
|
|
|
GRP II, L.P.
|
|
|
2,592,000
|
|
|
|
3,888,000.00
|
|
|
|
|
|
|
|
|
|
|
GRP II Partners, L.P.
|
|
|
288,000
|
|
|
|
432,000.00
|
|
|
|
|
|
|
|
|
|
|
Annapolis Ventures LLC
|
|
|
1,260,000
|
|
|
|
1,890,000.00
|
|
|
|
|
|
|
|
|
|
|
C. Donald Dorsey and Lydia Dorsey
Rev. Living
|
|
|
775
|
|
|
|
1,162.50
|
|
|
|
|
3
|
|
Each holder of Series V Preferred Stock and
Series V-1 Preferred Stock shall receive checks in the amount equal to their
fractional shares.
|
Second Amended and Restated Reclassification Agreement
S-viii
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of
|
|
|
|
|
|
|
Indebtedness for
|
Purchaser
|
|
Series V Preferred Stock
|
|
Bridge Notes
|
Steven and Susan Lebow
|
|
|
20,353.07
|
|
|
$
|
30,529.60
|
|
Henry Nasella
|
|
|
2,261.45
|
|
|
|
3,392.18
|
|
Steven E. Lebow
|
|
|
87,631.26
|
|
|
|
131,446.89
|
|
Lebow Family Partnership
|
|
|
46,359.76
|
|
|
|
69,539.64
|
|
The Matthew Allan Lebow Irrevocable
Trust
|
|
|
10,176.53
|
|
|
|
15,264.80
|
|
The Michael Harvey Lebow Irrevocable
Trust
|
|
|
10,176.53
|
|
|
|
15,264.80
|
|
Susan Schnabel
|
|
|
2,826.81
|
|
|
|
4,240.22
|
|
Oak Investment Partners VII
|
|
|
602,802.15
|
|
|
|
904,203.22
|
|
Oak VII Affiliates, LLC
|
|
|
15,139.57
|
|
|
|
22,709.36
|
|
Global Retail Partners, L.P.
|
|
|
310,373.67
|
|
|
|
465,560.50
|
|
DLJ Diversified Partners, L.P.
|
|
|
92,484.90
|
|
|
|
138,727.35
|
|
DLJ Diversified Partners-A, L.P.
|
|
|
34,247.57
|
|
|
|
51,371.35
|
|
GRP Partners, L.P.
|
|
|
19,886.64
|
|
|
|
29,829.96
|
|
Global Retail Partners Funding, Inc.
|
|
|
21,368.60
|
|
|
|
32,052.90
|
|
DLJ ESC II, L.P.
|
|
|
5,730.66
|
|
|
|
8,595.99
|
|
Kenneth D. & Julie Moelis, Trustees
Moelis Family Trust
|
|
|
2,236.92
|
|
|
|
3355.38
|
|
Drake & Co. For Citiventure III
|
|
|
171,124.27
|
|
|
|
256,686.40
|
|
Chancellor Venture Capital I L.P.
(f/k/a MAC & Co.)
|
|
|
69,903.70
|
|
|
|
104,855.56
|
|
Booth & Co. (f/k/a Booth & Co. (Pol.))
|
|
|
13,980.74
|
|
|
|
20,971.11
|
|
Municipal Employees Annuity and
Benefit Fund of Chicago
|
|
|
22,369.19
|
|
|
|
33,553.78
|
|
Focus & Co.
|
|
|
2,796.15
|
|
|
|
4,194.22
|
|
Second Amended and Restated Reclassification Agreement
S-ix
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of
|
|
|
|
|
|
|
Indebtedness for
|
Purchaser
|
|
Series V Preferred Stock
|
|
Bridge Notes
|
C. Donald Dorsey and Lydia Dorsey
Rev. Living Trust
|
|
|
2,796.15
|
|
|
|
4,194.22
|
|
Robert Markey
|
|
|
18,454.58
|
|
|
|
27,681.87
|
|
Jeffrey Brotman
|
|
|
5,033.07
|
|
|
|
7,549.60
|
|
The 1991 Brotman Childrens Trust
|
|
|
11,184.59
|
|
|
|
16,776.89
|
|
Steven Dietz
|
|
|
6,990.37
|
|
|
|
10,485.56
|
|
Denis Defforey
|
|
|
1,398,074.07
|
|
|
|
2,097,111.11
|
|
Latham & Watkins
|
|
|
34,951.85
|
|
|
|
52,427.78
|
|
Donald L. Schwartz
|
|
|
83,884.44
|
|
|
|
125,826.67
|
|
Samuel J. and Sandra S. Parker Family
Trust (Sept 20)
|
|
|
64,194.00
|
|
|
|
96,291
|
|
|
|
|
|
|
|
|
|
|
Subtotal for Bridge Note Conversion
(including 14.26 fractional shares
which will not be issued but will be
paid by check)
|
|
|
3,189,793.27
|
|
|
$
|
4,784,689.90
|
|
Subtotal for Series V Preferred Stock
Issuance (including conversion of
Bridge Loans and fractional shares)
|
|
|
9,130,568.27
|
|
|
$
|
13,695,852.40
|
|
|
|
|
|
|
|
|
|
|
GRAND TOTAL (For both Series V and
Series V-1 Preferred Stock issuance,
including fractional shares)
|
|
|
12,462,267.61
|
|
|
$
|
18,693,401.41
|
|
Second Amended and Restated Reclassification Agreement
S-x
Schedule B
Schedule of Subsequent Purchasers
|
|
|
|
|
|
|
|
|
Purchaser
|
|
Series V-1 Preferred Stock
|
|
Purchase Price
|
Doublemousse B.V.
|
|
|
920,000
|
|
|
$
|
1,380,000.00
|
|
|
|
|
|
|
|
|
|
|
Purchaser
|
|
Series V Preferred Stock
|
|
|
Purchase Price
|
|
Oak Investment Partners VII,
Limited Partnership
|
|
|
1,495,766
|
|
|
$
|
2,243,649.00
|
|
Oak VII Affiliates Fund, Limited
Partnership
|
|
|
37,566
|
|
|
|
56,349.00
|
|
GRP II, L.P.
|
|
|
2,208,000
|
|
|
|
3,312,000.00
|
|
GRP II Partners, L.P.
|
|
|
245,333
|
|
|
|
367,999.50
|
|
Annapolis Ventures LLC
|
|
|
1,073,333
|
|
|
|
1,609,999.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
$
|
|
|
Second Amended and Restated Reclassification Agreement
S-xi
Schedule of Shareholders
Phillips-Smith Specialty Retail Group I, L.P.
Phillips-Smith Specialty Retail Group II, L.P.
BankAmerica Capital Corporation
BankAmerica Ventures f/k/a First Small Business Investment Company of California
William Blair Capital Partners III, L.P.
Sprout Capital VI, L.P.
DLJ Venture Capital Fund II, L.P.
KCB BV, L.P.
Abelson Family Partnership
The Jewish Communal Fund
Richard E. George
Terry J. Hanson
Jeffrey H. Brotman
1991 Brotman Childrens Trust
John Meisenbach
Thomas Kully
Drake & Co for Citiventure III
Booth & Co.(Municipal Employees Annuity & Benefit Fund of Chicago)
Booth & Co (Pol. Fund)
Chancellor Venture Capital I L.P. (f/k/a MAC & Co.)
Focus & Co. for Baxter International Corp.
DLJ Capital Corporation
DLJ First ESC L.L.C
Fourcar BV
March Foundation
Lacomble Retailing SA
Marie-Pierre Fournier
Jacques Fournier
Daniel Bernard
Appotamox Foundation
Bamse NV
KME Venture II
KME Venture III, L.P.
Howard Schultz
Orin C. Smith
Steven Ritt
Calcom Pension Plan
Henry J. Nasella
Smith Barney f/b/o of IRA of Henry
Lebow Family Partnership:
Steven and Susan Lebow
The Michael Harvey Lebow Irrevocable Trust
The Matthew Allan Lebow Irrevocable Trust
Second Amended and Restated Reclassification Agreement
S-xii
Susan C. Schnabel
James Sington
Steven Dietz
Vincent DeGiaimo
Douglas and Connie Hayes:
Kenneth D. and Julie Moelis, Trustee under Moelis Family Trust
Peter Nolan
Woo Family Trust dtd 11/30/1998
John Danhakl
Richard Galanti
SEP f/b/o Yves Sisteron
Yves Sisteron
Peter Dyvig
Glynn Bloomquist
Pictet & CIE
Feigin Trading Co.
U-3 Partnership
The John D. and Catherine T. MacArthur Foundation
BCI Growth III, L.P.V
James R. Miller
Virginia B. Jontes
Doublemousse B.V.
Arabella, S.A.
Oak Investment Partners VII
Oak VII Affiliates, LLC
Shennan Family Partnership
C. Donald Dorsey and Lydia Dorsey Revocable Living Trust Dated 8/5/93:
Strategic Global Partners, LLC:
Internet Technology Ventures, LLC
Robert Markey
Juanita F. Francis
Greenhouse Capital Partners
Global Retail Partners, L.P.
DLJ Diversified Partners, L.P.
DLJ Diversified Partners-A, L.P.
GRP Partners, L.P.
Global Retail Partners Funding, Inc.
DLJ ESC II L.P.
The Samuel J. and Sandra S. Parker Family
Trust dated September 10, 1982
Weber 1997 Dynasty Trust
Donaldson, Lufkin & Jenrette Securities Corporations
Martha Richner
SG Cowen
Fidas Business S.A.
Erich L. Spangenberg
Second Amended and Restated Reclassification Agreement
S-xiii
Steven Lebow (Individually)
Carol F. ThorRevocable Trust u/a/d 6/8/90
Karen Ferguson
John Kromer, Trustee under the John R. Kromer declaration of trust
dated June 11, 1991, and successor trustees
John Kromer (Individually)
Greg Smolarek
Bob VonderHaar
Annapolis Ventures LLC
Latham and Watkins
Donald Schwartz
GRP II, L.P.
GRP II Partners, L.P.
Denis Defforey
Second Amended and Restated Reclassification Agreement
S-xiv
SECOND AMENDED AND RESTATED
RECLASSIFICATION AND SALE OF SHARES AGREEMENT
OF
ULTA SALON, COSMETICS & FRAGRANCE, INC.
December 18, 2000
Second Amended and Restated Reclassification Agreement
S-xv
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
1
|
|
|
Recitals
|
|
|
3
|
|
2
|
|
|
Amendment and Restatement of Initial Restated Certificate of Incorporation
|
|
|
3
|
|
3
|
|
|
Sale and Issuance of the Series IV Preferred Stock
|
|
|
3
|
|
4
|
|
|
Closing.
|
|
|
3
|
|
5
|
|
|
Conditions of Each Purchasers and the Companys Obligations at the Closing
|
|
|
4
|
|
6
|
|
|
Waivers and Consents by the Shareholders
|
|
|
8
|
|
7
|
|
|
Covenants
|
|
|
9
|
|
|
|
A.
|
|
Financial Statements and Other Information
|
|
|
9
|
|
|
|
B.
|
|
Inspection of Property
|
|
|
11
|
|
|
|
C.
|
|
Restrictions
|
|
|
11
|
|
|
|
D.
|
|
Affirmative Covenants
|
|
|
14
|
|
|
|
E.
|
|
Current Public Information
|
|
|
16
|
|
|
|
F.
|
|
Reservation of Common Stock
|
|
|
16
|
|
|
|
G.
|
|
Proprietary Rights
|
|
|
16
|
|
|
|
H.
|
|
Preemptive Rights
|
|
|
16
|
|
|
|
I.
|
|
Regulatory Compliance Cooperation.
|
|
|
18
|
|
8
|
|
|
Transfer Restrictions.
|
|
|
18
|
|
9
|
|
|
Representations and Warranties of the Company
|
|
|
21
|
|
|
|
A.
|
|
Organization and Corporate Power.
|
|
|
21
|
|
|
|
B.
|
|
Capital Stock and Related Matters.
|
|
|
21
|
|
|
|
C.
|
|
Subsidiaries.
|
|
|
23
|
|
|
|
D.
|
|
Authorization; No Breach.
|
|
|
23
|
|
|
|
E.
|
|
Litigation, etc.
|
|
|
23
|
|
|
|
F.
|
|
Brokerage.
|
|
|
24
|
|
|
|
G.
|
|
Governmental Consent, etc.
|
|
|
24
|
|
|
|
H.
|
|
Employees.
|
|
|
24
|
|
|
|
I.
|
|
Affiliate Transactions.
|
|
|
24
|
|
|
|
J.
|
|
Real Property Holding Corporation Status.
|
|
|
24
|
|
|
|
K.
|
|
Disclosure.
|
|
|
24
|
|
|
|
L.
|
|
Closing Date.
|
|
|
25
|
|
|
|
M.
|
|
Certificate of Incorporation and Bylaws.
|
|
|
25
|
|
|
|
N.
|
|
Restrictions Upon Issuance.
|
|
|
25
|
|
|
|
O.
|
|
Compliance with Laws and Other Instruments.
|
|
|
25
|
|
|
|
P.
|
|
Financial Statements.
|
|
|
26
|
|
|
|
Q.
|
|
Absence of Undisclosed Liabilities.
|
|
|
26
|
|
|
|
R.
|
|
Changes.
|
|
|
26
|
|
|
|
S.
|
|
Tax Returns and Audits.
|
|
|
28
|
|
|
|
T.
|
|
Employment Benefit Plans -- ERISA.
|
|
|
29
|
|
Second Amended and Restated Reclassification Agreement
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
U.
|
|
Title to Property and Encumbrances.
|
|
|
29
|
|
|
|
V.
|
|
Condition of Properties.
|
|
|
29
|
|
|
|
W.
|
|
Insurance Coverage.
|
|
|
29
|
|
|
|
X.
|
|
Licenses.
|
|
|
30
|
|
|
|
Y.
|
|
Illegal or Unauthorized Payments; Political Contributions.
|
|
|
30
|
|
10
|
|
|
Definitions
|
|
|
30
|
|
11
|
|
|
Miscellaneous.
|
|
|
36
|
|
|
|
A.
|
|
Expenses.
|
|
|
36
|
|
|
|
B.
|
|
Remedies.
|
|
|
36
|
|
|
|
C.
|
|
Purchasers Investment Representations.
|
|
|
37
|
|
|
|
D.
|
|
Additional Covenants of the Purchasers.
|
|
|
40
|
|
|
|
E.
|
|
Confidentiality and Noncompetition.
|
|
|
40
|
|
|
|
F.
|
|
Treatment of the Series I Preferred Stock, Series II Preferred Stock, Series IV
|
|
|
|
|
|
|
|
|
Preferred Stock, Series V Preferred Stock and Series V-1 Preferred Stock.
|
|
|
42
|
|
|
|
G.
|
|
Consent to Amendments/Waivers.
|
|
|
42
|
|
|
|
H.
|
|
Survival of Representations and Warranties.
|
|
|
42
|
|
|
|
I.
|
|
Successors and Assigns
|
|
|
43
|
|
|
|
J.
|
|
Capital and Surplus.
|
|
|
43
|
|
|
|
K.
|
|
Severability.
|
|
|
43
|
|
|
|
L.
|
|
Counterparts.
|
|
|
43
|
|
|
|
M.
|
|
Descriptive Headings.
|
|
|
43
|
|
|
|
N.
|
|
Governing Law.
|
|
|
43
|
|
|
|
O.
|
|
Notices.
|
|
|
43
|
|
|
|
P.
|
|
Understanding Among the Shareholders.
|
|
|
44
|
|
|
|
Q.
|
|
Contract Right in Lieu of Dividend.
|
|
|
44
|
|
Second Amended and Restated Reclassification Agreement
ii
EXHIBIT 4.4
Ulta Salon, Cosmetics & Fragrance, Inc.
and
[Name of Rights Agent]
as Rights Agent
Stockholder Rights Agreement
Dated as of ___, ___
TABLE OF CONTENTS
|
|
|
|
|
|
|
Section 1.
|
|
Certain Definitions.
|
|
|
1
|
|
|
|
|
|
|
|
|
Section 2.
|
|
Appointment of Rights Agent.
|
|
|
6
|
|
|
|
|
|
|
|
|
Section 3.
|
|
Issuance of Right Certificates
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
3.1. Rights Evidenced by Share Certificates
|
|
|
6
|
|
|
|
3.2. Summary of Rights
|
|
|
7
|
|
|
|
3.3. New Certificates After Record Date
|
|
|
7
|
|
|
|
|
|
|
|
|
Section 4.
|
|
Form of Right Certificates
|
|
|
8
|
|
|
|
|
|
|
|
|
Section 5.
|
|
Countersignature and Registration
|
|
|
8
|
|
|
|
|
|
|
|
|
Section 6.
|
|
Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates
|
|
|
8
|
|
|
|
|
|
|
|
|
Section 7.
|
|
Exercise of Rights; Purchase Price; Expiration Date of Rights
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
7.1. Exercise of Rights
|
|
|
9
|
|
|
|
7.2. Purchase
|
|
|
10
|
|
|
|
7.3. Payment Procedures
|
|
|
10
|
|
|
|
7.4. Partial Exercise
|
|
|
10
|
|
|
|
7.5. Full Information Concerning Ownership
|
|
|
10
|
|
|
|
|
|
|
|
|
Section 8.
|
|
Cancellation and Destruction of Right Certificates
|
|
|
11
|
|
|
|
|
|
|
|
|
Section 9.
|
|
Reservation and Availability of Capital Stock
|
|
|
11
|
|
|
|
|
|
|
|
|
Section 10.
|
|
Preferred Shares Record Date
|
|
|
12
|
|
|
|
|
|
|
|
|
Section 11.
|
|
Adjustment of Purchase Price, Number of Shares or Number of Rights
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
11.1. Post-Execution Events
|
|
|
12
|
|
|
|
11.2. Dilutive Rights Offering
|
|
|
15
|
|
|
|
11.3. Distributions
|
|
|
16
|
|
|
|
11.4. Current Per Share Market Value
|
|
|
16
|
|
|
|
11.5. Insignificant Changes
|
|
|
18
|
|
|
|
11.6. Shares Other Than Preferred Shares
|
|
|
18
|
|
|
|
11.7. Rights Issued Prior to Adjustment
|
|
|
18
|
|
|
|
11.8. Effect of Adjustments
|
|
|
18
|
|
|
|
11.9. Adjustment in Number of Rights
|
|
|
18
|
|
|
|
11.10. Right Certificates Unchanged
|
|
|
19
|
|
|
|
11.11. Par Value Limitations
|
|
|
19
|
|
|
|
11.12. Deferred Issuance
|
|
|
19
|
|
|
|
11.13. Reduction in Purchase Price
|
|
|
19
|
|
|
|
11.14. Company Not to Diminish Benefits of Rights
|
|
|
20
|
|
|
|
11.15. Adjustment of Rights Associated with Common Shares
|
|
|
20
|
|
i
|
|
|
|
|
|
|
Section 12.
|
|
Certificate of Adjusted Purchase Price or Number of Shares
|
|
|
20
|
|
|
|
|
|
|
|
|
Section 13.
|
|
Consolidation, Merger or Sale or Transfer of Assets or Earning Power
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
13.1. Certain Transactions
|
|
|
20
|
|
|
|
13.2. Principal Party
|
|
|
23
|
|
|
|
13.3. Approved Acquisitions
|
|
|
24
|
|
|
|
|
|
|
|
|
Section 14.
|
|
Fractional Rights and Fractional Shares
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
14.1. Cash in Lieu of Fractional Rights
|
|
|
24
|
|
|
|
14.2. Cash in Lieu of Fractional Preferred Shares
|
|
|
24
|
|
|
|
14.3. Cash in Lieu of Fractional Common Shares
|
|
|
25
|
|
|
|
14.4. Waiver of Right to Receive Fractional Rights or Shares
|
|
|
25
|
|
|
|
|
|
|
|
|
Section 15.
|
|
Rights of Action
|
|
|
25
|
|
|
|
|
|
|
|
|
Section 16.
|
|
Agreement of Right Holders
|
|
|
25
|
|
|
|
|
|
|
|
|
Section 17.
|
|
Right Certificate Holder Not Deemed a Stockholder
|
|
|
26
|
|
|
|
|
|
|
|
|
Section 18.
|
|
Concerning the Rights Agent
|
|
|
26
|
|
|
|
|
|
|
|
|
Section 19.
|
|
Merger or Consolidation or Change of Name of Rights Agent
|
|
|
27
|
|
|
|
|
|
|
|
|
Section 20.
|
|
Duties of Rights Agent
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
20.1. Legal Counsel
|
|
|
27
|
|
|
|
20.2. Certificates as to Facts or Matters
|
|
|
27
|
|
|
|
20.3. Standard of Care
|
|
|
28
|
|
|
|
20.4. Reliance on Agreement and Right Certificates
|
|
|
28
|
|
|
|
20.5. No Responsibility as to Certain Matters
|
|
|
28
|
|
|
|
20.6. Further Assurance by Company
|
|
|
28
|
|
|
|
20.7. Authorized Company Officers
|
|
|
28
|
|
|
|
20.8. Freedom to Trade in Company Securities
|
|
|
29
|
|
|
|
20.9. Reliance on Attorneys and Agents
|
|
|
29
|
|
|
|
20.10. Incomplete Certificate
|
|
|
29
|
|
|
|
20.11. Rights Holders List
|
|
|
29
|
|
|
|
|
|
|
|
|
Section 21.
|
|
Change of Rights Agent
|
|
|
29
|
|
|
|
|
|
|
|
|
Section 22.
|
|
Issuance of New Right Certificates
|
|
|
30
|
|
|
|
|
|
|
|
|
Section 23.
|
|
Redemption
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
23.1. Right to Redeem
|
|
|
31
|
|
|
|
23.2. Redemption Procedures
|
|
|
31
|
|
|
|
23.3. Notice of Certain Events
|
|
|
31
|
|
ii
|
|
|
|
|
|
|
Section 24.
|
|
Notices
|
|
|
32
|
|
|
|
|
|
|
|
|
Section 25.
|
|
Supplements and Amendments
|
|
|
33
|
|
|
|
|
|
|
|
|
Section 26.
|
|
Exchange
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
26.1. Exchange of Common Shares for Rights
|
|
|
33
|
|
|
|
26.2. Exchange Procedures
|
|
|
34
|
|
|
|
26.3. Insufficient Shares
|
|
|
34
|
|
|
|
|
|
|
|
|
Section 27.
|
|
Successors
|
|
|
34
|
|
|
|
|
|
|
|
|
Section 28.
|
|
Benefits of this Agreement
|
|
|
34
|
|
|
|
|
|
|
|
|
Section 29.
|
|
Determination and Actions by the Board of Directors
|
|
|
34
|
|
|
|
|
|
|
|
|
Section 30.
|
|
Severability
|
|
|
35
|
|
|
|
|
|
|
|
|
Section 31.
|
|
Governing Law
|
|
|
35
|
|
|
|
|
|
|
|
|
Section 32.
|
|
Counterparts
|
|
|
35
|
|
|
|
|
|
|
|
|
Section 33.
|
|
Descriptive Heading
|
|
|
35
|
|
iii
STOCKHOLDER RIGHTS AGREEMENT
Stockholder Rights Agreement, dated as of
, ___, between Ulta Salon, Cosmetics &
Fragrance, Inc., a Delaware corporation (the
Company
), and
[Name of Rights Agent]
, a
corporation, as Rights Agent (the
Rights Agent
).
RECITALS
WHEREAS, on
, ___, the Board of Directors of the Company adopted this Agreement,
and has authorized and declared a dividend of one preferred share purchase right (a
Right
) for
each Common Share (as defined in Section 1.6) of the Company outstanding at the close of business
on
, ___(the
Record Date
) and has authorized and directed the issuance of one Right
(subject to adjustment as provided herein) with respect to each Common Share that shall become
outstanding between the Record Date and the earliest of the Distribution Date and the Expiration
Date (as such terms are defined in Sections 3.1 and 7.1), each Right initially representing the
right to purchase one one-thousandth (subject to adjustment) of a share of Series A Junior
Participating Preferred Stock (the
Preferred Shares
) of the Company having the rights, powers and
preferences set forth in Certificate of Designations of Series A Junior Participating Preferred
Stock filed with the Delaware Secretary of State on
, 2007 as Exhibit A to the Amended and
Restated Certificate of Incorporation filed on the same date, upon the terms and subject to the
conditions hereinafter set forth
provided, however,
that Rights may be issued with respect to
Common Shares that shall become outstanding after the Distribution Date and prior to the Expiration
Date in accordance with Section 22.
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth,
the parties hereby agree as follows:
Section 1.
Certain Definitions
. For purposes of this Agreement, the following terms
have the meanings indicated:
1.1.
Acquiring Person
shall mean any Person who or which, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of
[15]%
or more of the Common Shares of
the Company then outstanding but shall not include (i) an Exempt Person or (ii) any Existing
Holder, unless and until such time as such Existing Holder shall become the Beneficial Owner of
(A) a percentage of the Common Shares of the Company then outstanding that is more than the
aggregate percentage of the outstanding Common Shares that such Existing Holder beneficially owns
as of the date hereof plus
[5]%
(such aggregate amount being the
Exempt Ownership Percentage
)
or (B) less than
[15]%
of the Common Shares of the Company then outstanding.
Existing Holder
shall mean any of (x) Doublemousse B.V., together with all of its Affiliates and Associates; (y)
Oak Investment Partners VII, together with all of its Affiliates and Associates; and (z) GRP II,
L.P., together with all of its Affiliates and Associates. Notwithstanding the foregoing, no
Person shall become an Acquiring Person as the result of an acquisition of Common Shares by the
Company which, by reducing the number of Common Shares outstanding, increases the proportionate
number of Common Shares beneficially owned by such Person to
[15]%
(or, in the case of an
Existing Holder, the Exempt Ownership Percentage) or more of the Common
Shares of the Company then outstanding;
provided, however
, that if a Person shall become the
Beneficial Owner of
[15]%
(or, in the case of an Existing Holder, the Exempt Ownership
Percentage) or more of the Common Shares of the Company then outstanding solely by reason of
share purchases by the Company and shall, after such share purchases by the Company, become the
Beneficial Owner of one or more additional Common Shares of the Company (other than pursuant to a
dividend or distribution paid or made by the Company on the outstanding Common Shares in Common
Shares or pursuant to a split or subdivision of the outstanding Common Shares), then such Person
shall be deemed to be an Acquiring Person unless upon becoming the Beneficial Owner of such
additional Common Shares such Person does not beneficially own
[15]%
(or, in the case of an
Existing Holder, the Exempt Ownership Percentage) or more of the Common Shares then outstanding.
Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an Acquiring Person, as defined pursuant to the foregoing
provisions of this
Section 1.1
, has become such inadvertently (including, without
limitation, because (A) such Person was unaware that it beneficially owned a percentage of Common
Shares that would otherwise cause such Person to be an Acquiring Person or (B) such Person was
aware of the extent of its Beneficial Ownership of Common Shares but had no actual knowledge of
the consequences of such Beneficial Ownership under this Agreement), and without any intention of
changing or influencing control of the Company, and such Person divests as promptly as
practicable a sufficient number of Common Shares so that such Person would no longer be an
Acquiring Person, as defined pursuant to the foregoing provisions of this
Section 1.1
,
then such Person shall not be deemed to be or have become an Acquiring Person at any time for
any purposes of this Agreement. For all purposes of this Agreement, any calculation of the
number of Common Shares outstanding at any particular time for purposes of determining the
particular percentage of such outstanding Common Shares of which any Person is the Beneficial
Owner shall include the number of Common Shares not outstanding at the time of such calculation
that such Person has the Right to Acquire (i) within 60 days thereafter, or (ii) at any time
thereafter if such Person acquired such Right to Acquire with the purpose or effect of changing
or influencing the control of the Company. The number of Common Shares not outstanding which are
subject to such Right to Acquire shall be deemed to be outstanding for the purpose of computing
the percentage of outstanding Common Shares owned by such Person but shall not be deemed to be
outstanding for the purpose of computing the percentage of outstanding Common Shares by any other
Person.
1.2.
Affiliate
and
Associate
shall have the respective meanings ascribed to such terms
in Rule 12b-2 of the General Rules and Regulations, under the Exchange Act, as in effect on the
date of this Agreement.
1.3. A Person shall be deemed the
Beneficial Owner
of and shall be deemed to
beneficially
own
or have
Beneficial Ownership
of any securities:
1.3.1. which such Person or any of such Persons Affiliates or Associates, directly or
indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or
shares: (A) voting power which includes the power to vote, or to direct the voting of, such
security, and/or (B) investment power which includes the power to dispose, or to direct the
disposition of such security;
2
1.3.2. which such Person or any of such Persons Affiliates or Associates, directly or
indirectly, has (A) the Right to Acquire;
provided, however
, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, (w) securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Persons Affiliates or Associates
until such tendered securities are accepted for purchase or exchange, (x) securities which such
Person has a Right to Acquire upon the exercise of Rights at any time prior to the time that any
Person becomes an Acquiring Person, (y) securities issuable upon the exercise of Rights from and
after the time that any Person becomes an Acquiring Person if such Rights were acquired by such
Person or any of such Persons Affiliates or Associates prior to the Distribution Date or pursuant
to
Section 3.1
or
Section 22
(
Original Rights
) or pursuant to
Section
11.9
or
Section 11.15
with respect to an adjustment to Original Rights or (z)
securities which such Person or any of such Persons Affiliates or Associates may acquire, does or
do acquire or may be deemed to acquire or may be deemed to have the Right to Acquire, pursuant to
any merger or other acquisition agreement between the Company and such Person (or one or more of
such Persons Affiliates or Associates) if, prior to such Person becoming an Acquiring Person, the
Board of Directors of the Company has approved such agreement and determined that such Person shall
not be or be deemed to be the Beneficial Owner of such securities within the meaning of this
Section 1.3
; or (B) the right to vote pursuant to any agreement, arrangement or
understanding (whether or not in writing),
provided, however
, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security under this
clause (B)
if the
agreement, arrangement or understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and
(2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
1.3.3. which are beneficially owned, directly or indirectly, by any other Person (or any
Affiliate or Associate thereof) and with respect to which such Person or any of such Persons
Affiliates or Associates has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect to a bona fide
public offering of securities), whether or not in writing, for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy or consent as described in the proviso to
Section
1.3(ii)(B)
) or disposing of any securities of the Company.
No Person who is an officer, director or employee of an Exempt Person shall be deemed, solely
by reason of such Persons status or authority as such, to be the Beneficial Owner of, to have
Beneficial Ownership of or to beneficially own any securities that are beneficially owned (as
defined in this
Section 1.3
), including, without limitation, in a fiduciary capacity, by an
Exempt Person or by any other such officer, director or employee of an Exempt Person.
1.4.
Business Day
shall mean any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of New York are authorized or obligated by law or executive
order to close.
1.5.
close of business
on any given date shall mean 5:00 p.m., New York time, on such
date;
provided, however,
that if such date is not a Business Day it shall mean 5:00 p.m., New
York time, on the next succeeding Business Day.
3
1.6.
Common Shares
when used with reference to the Company shall mean the shares of common
stock, par value $.01 per share, of the Company. Common Shares when used with reference to any
Person other than the Company shall mean the capital stock with the greatest voting power, or the
equity securities or other equity interest having power to control or direct the management, of
such other Person or, if such Person is a Subsidiary of another Person, the Person or Persons
which ultimately control such first-mentioned Person, and which has issued and outstanding such
capital stock, equity securities or equity interest.
1.7.
Exchange Act
shall mean the Securities Exchange Act of 1934, as amended, as in effect
on the date of this Agreement.
1.8.
Exempt Person
shall mean the Company, any Subsidiary of the Company, in each case
including, without limitation, the officers and board of directors thereof acting in their
fiduciary capacity, or any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity or trustee holding shares of capital stock of the Company for or pursuant
to the terms of any such plan, or for the purpose of funding other employee benefits for
employees of the Company or any Subsidiary of the Company.
1.9.
Person
shall mean any individual, partnership, joint venture, limited liability
company, firm, corporation, unincorporated association, trust or other entity, and shall include
any successor (by merger or otherwise) of such entity.
1.10.
Right to Acquire
shall mean a legal, equitable or contractual right to acquire
(whether directly or indirectly and whether exercisable immediately, or only after the passage of
time, compliance with regulatory requirements, fulfillment of a condition or otherwise), pursuant
to any agreement, arrangement or understanding, whether or not in writing (excluding customary
agreements entered into in good faith with and between an underwriter and selling group members
in connection with a firm commitment underwriting registered under the Securities Act), or upon
the exercise of any option, warrant or right, through conversion of a security, pursuant to the
power to revoke a trust, discretionary account or similar arrangement, or pursuant to the
automatic termination of a trust, discretionary account or similar arrangement.
1.11.
Shares Acquisition Date
shall mean the first date of public announcement (which, for
purposes of this definition, shall include, without limitation, the filing of a report pursuant
to Section 13(d) of the Exchange Act or pursuant to a comparable successor statute) by the
Company or an Acquiring Person that an Acquiring Person has become such or that discloses
information which reveals the existence of an Acquiring Person or such earlier date as a majority
of the Board of Directors shall become aware of the existence of an Acquiring Person.
1.12.
Subsidiary
of any Person shall mean any partnership, joint venture, limited
liability company, firm, unincorporated association, trust corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interests is owned, of
record or beneficially, directly or indirectly, by such Person.
4
1.13. A
Trigger Event
shall be deemed to have occurred upon any Person becoming an
Acquiring Person.
1.14. The following terms shall have the meanings defined for such terms in the Sections set
forth below:
|
|
|
Term
|
|
Section
|
Acquiring Person
|
|
1.1.
|
Adjustment Shares
|
|
11.1.2
|
Affiliate
|
|
1.2.
|
Agreement
|
|
3.3.
|
Associate
|
|
1.2.
|
Beneficial Owner
|
|
1.3.
|
Beneficial Ownership
|
|
1.3.
|
Beneficially own
|
|
1.3.
|
Business Day
|
|
1.4.
|
close of business
|
|
1.5.
|
Common Shares
|
|
1.6.
|
Common stock equivalent
|
|
11.1.3
|
Company
|
|
Recitals, 3.3.
|
current per share market price
|
|
11.4.
|
Current Value
|
|
11.1.3
|
Distribution Date
|
|
3.1.
|
equivalent preferred stock
|
|
11.2.
|
Exchange Act
|
|
1.7.
|
Exchange Consideration
|
|
26.1.
|
Exempt Ownership Percentage
|
|
1.1.
|
Exempt Person
|
|
1.8.
|
Existing Holder
|
|
1.1.
|
Expiration Date
|
|
7.1.
|
Final Expiration Date
|
|
7.1.
|
Nasdaq
|
|
9
|
NYSE
|
|
9
|
Original Rights
|
|
1.3.
|
Person
|
|
1.9.
|
Preferred Shares
|
|
Recitals
|
Principal Party
|
|
13.2.
|
Purchase Price
|
|
4
|
Record Date
|
|
Recitals
|
Redemption Date
|
|
7.1.
|
Redemption Price
|
|
23.1.
|
Right
|
|
Recitals
|
Right Certificate
|
|
3.1.
|
Rights Agent
|
|
Recitals
|
Right to Acquire
|
|
1.10.
|
5
|
|
|
Term
|
|
Section
|
Security
|
|
11.4.1
|
Shares Acquisition Date
|
|
1.11.
|
Spread
|
|
11.1.3
|
Substitution Period
|
|
11.1.3
|
Summary of Rights
|
|
3.2.
|
Trading Day
|
|
11.4.1
|
Trigger Event
|
|
1.13.
|
Section 2.
Appointment of Rights Agent
. The Company hereby appoints the Rights Agent
to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3,
shall prior to the Distribution Date also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company
may from time to time appoint such co-Rights Agents as it may deem necessary or desirable. In the
event the Company appoints one or more co-Rights Agents, the respective duties of the Rights Agent
and any co-Rights Agent shall be as the Company shall determine. Contemporaneously with such
appointment, if any, the Company shall notify the Rights Agent thereof.
Section 3.
Issuance of Right Certificates
.
3.1.
Rights Evidenced by Share Certificates
. Until the earlier of (i) the tenth day
after the Shares Acquisition Date or (ii) the tenth Business Day after the date of the commencement
of, or first public announcement of, the intent of any Person (other than an Exempt Person) to
commence, a tender or exchange offer the consummation of which would result in any Person (other
than an Exempt Person) becoming the Beneficial Owner of Common Shares aggregating
[15]%
or more of
the then outstanding Common Shares of the Company (the earlier of (i) and (ii) being herein
referred to as the
Distribution Date
), (x) the Rights (unless earlier expired, redeemed or
terminated) will be evidenced (subject to the provisions of Section 3.2) by the certificates for
Common Shares registered in the names of the holders thereof (which certificates for Common Shares
shall also be deemed to be Right Certificates) and not by separate certificates, and (y) the Rights
(and the right to receive certificates therefor) will be transferable only in connection with the
transfer of the underlying Common Shares. The preceding sentence notwithstanding, prior to the
occurrence of a Distribution Date specified as a result of an event described in clause (ii) (or
such later Distribution Date as the Board of Directors of the Company may select pursuant to this
sentence), the Board of Directors may postpone, one or more times, the Distribution Date which
would occur as a result of an event described in clause (ii) beyond the date set forth in such
clause (ii). Nothing herein shall permit such a postponement of a Distribution Date after a Person
becomes an Acquiring Person, except as a result of the operation of the third sentence of Section
1.1. As soon as practicable after the Distribution Date, the Company will prepare and execute, the
Rights Agent will countersign and the Company (or, if requested, the Rights Agent) will send, by
first-class, postage-prepaid mail, to each record holder of Common Shares as of the close of
business on the Distribution Date (other than any Acquiring Person or any Associate or Affiliate of
an Acquiring Person), at the address of such holder shown on the records of the Company, one or
more certificates for Rights, in substantially the form of Exhibit A hereto (a
Right
Certificate
), evidencing one Right
6
(subject to adjustment as provided herein) for each Common Share so held. As of the
Distribution Date, the Rights will be evidenced solely by such Right Certificates.
3.2.
Summary of Rights
. On the Record Date or as soon as practicable thereafter, the
Company will send or cause to be sent a copy of a Summary of Rights to Purchase Preferred Shares,
in substantially the form attached hereto as Exhibit B (the
Summary of Rights
), by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the close of business on the
Record Date at the address of such holder shown on the records of the Company. With respect to
certificates for Common Shares outstanding as of the close of business on the Record Date, until
the Distribution Date (or the earlier Expiration Date), the Rights will be evidenced by such
certificates for Common Shares registered in the names of the holders thereof together with a copy
of the Summary of Rights and the registered holders of the Common Shares shall also be registered
holders of the associated Rights. Until the Distribution Date (or the earlier Expiration Date),
the surrender for transfer of any certificate for Common Shares outstanding at the close of
business on the Record Date, with or without a copy of the Summary of Rights, shall also constitute
the transfer of the Rights associated with the Common Shares represented thereby.
3.3.
New Certificates After Record Date
. Certificates for Common Shares which become
outstanding after the Record Date but prior to the earliest of the Distribution Date or the
Expiration Date, shall have impressed, printed, stamped, written or otherwise affixed onto them the
following legend:
This certificate also evidences and entitles the holder hereof to certain rights as
set forth in an Agreement between Ulta Salon, Cosmetics & Fragrance, Inc. (the
Company
) and
[Name of Rights Agent]
, as Rights Agent, dated as of
,
___, as the same may be amended from time to time (the
Agreement
), the terms of
which are hereby incorporated herein by reference and a copy of which is on file at
the principal executive offices of the Company. Under certain circumstances, as set
forth in the Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. The Company will mail to the
holder of this certificate a copy of the Agreement without charge after receipt of a
written request therefor.
As described in the Agreement, Rights which are owned by,
transferred to or have been owned by Acquiring Persons or Associates or Affiliates
thereof (as defined in the Agreement) shall become null and void and will no longer
be transferable.
With respect to such certificates containing the foregoing legend, until the Distribution Date (or
the earlier Expiration Date), the Rights associated with the Common Shares represented by such
certificates shall be evidenced by such certificates alone, and the surrender for transfer of any
such certificates, except as otherwise provided herein, shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby. In the event that the Company
purchases or acquires any Common Shares after the Record Date but prior to the Distribution Date,
any Rights associated with such Common Shares shall be deemed canceled and retired so that the
Company shall not be entitled to exercise any Rights associated with the Common Shares which are no
longer outstanding.
7
Notwithstanding this Section 3.3, the omission of a legend shall not affect the enforceability
of any part of this Agreement or the rights of any holder of the Rights.
Section 4.
Form of Right Certificates
. The Right Certificates (and the forms of
election to purchase shares, certification and assignment to be printed on the reverse thereof)
shall be substantially the same as Exhibit A hereto and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange or trading system on which the Rights may from
time to time be listed or quoted, or to conform to usage. Subject to the terms and conditions
hereof, the Right Certificates, whenever issued, shall be dated as of the Record Date, and shall
show the date of countersignature by the Rights Agent, and on their face shall entitle the holders
thereof to purchase such number of one-thousandths of a Preferred Share as shall be set forth
therein at the price per one-thousandth of a Preferred Share set forth therein (the
Purchase
Price
), but the number of such one-thousandths of a Preferred Share and the Purchase Price shall
be subject to adjustment as provided herein.
Section 5.
Countersignature and Registration
. The Right Certificates shall be
executed on behalf of the Company by the Chief Executive Officer, the President, the Chief
Financial Officer, the Chief Operating Officer or any Vice President, either manually or by
facsimile signature, and shall have affixed thereto the Companys seal or a facsimile thereof which
shall be attested by the Secretary or any Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be countersigned, either manually or by
facsimile signature, by an authorized signatory of the Rights Agent, but it shall not be necessary
for the same signatory to countersign all of the Right Certificates hereunder. No Right
Certificate shall be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by the Company, such
Right Certificates, nevertheless, may be countersigned by the Rights Agent, and issued and
delivered by the Company with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right Certificate may be
signed on behalf of the Company by any person who, at the actual date of the execution of such
Right Certificate, shall be a proper officer of the Company to sign such Right Certificate,
although at the date of the execution of this Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its
principal office, books for registration and transfer of the Right Certificates issued hereunder.
Such books shall show the names and addresses of the respective holders of the Right Certificates,
the number of Rights evidenced on its face by each of the Right Certificates, the certificate
number of each of the Right Certificates and the date of each of the Right Certificates.
Section 6.
Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates
. Subject to the provisions of Section 11.1.2 and
Section 14, at any time after the close of business on the Distribution Date, and at or prior to
the close of business on the Expiration Date, any Right Certificate or Right
8
Certificates (other than Right Certificates representing Rights that have become void pursuant
to Section 11.1.2 or that have been exchanged pursuant to Section 27) may be transferred, split up
or combined or exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one-thousandths of a Preferred Share as the Right
Certificate or Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up or combine or exchange any Right Certificate shall
make such request in writing delivered to the Rights Agent, and shall surrender, together with any
required form of assignment and certificate duly completed, the Right Certificate or Right
Certificates to be transferred, split up or combined or exchanged at the office of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take
any action whatsoever with respect to the transfer of any such surrendered Right Certificate or
Right Certificates until the registered holder shall have completed and signed the certificate
contained in the form of assignment on the reverse side of such Right Certificate or Right
Certificates and shall have provided such additional evidence of the identity of the Beneficial
Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall countersign and deliver to the person
entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment from the holders of Right Certificates of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any transfer, split up or
combination or exchange of such Right Certificates.
Subject to the provisions of Section 11.1.2, at any time after the Distribution Date and prior
to the Expiration Date, upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and,
at the Companys request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right
Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor
to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
Section 7.
Exercise of Rights; Purchase Price; Expiration Date of Rights
.
7.1.
Exercise of Rights
. Subject to Section 11.1.2 and except as otherwise provided
herein, the registered holder of any Right Certificate may exercise the Rights evidenced thereby in
whole or in part at any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase and certification on the reverse side thereof duly executed,
to the Rights Agent at the office of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price for the total number of one-thousandths of a Preferred
Share (or other securities, cash or other assets) as to which the Rights are exercised, at or prior
to the time (the
Expiration Date
) that is the earliest of (i) the close of business on
(the
Final Expiration Date
), (ii) the time at which the Rights are redeemed as
provided in Section 23 (the
Redemption Date
), (iii) the closing of any merger or other
acquisition transaction involving the Company pursuant to an agreement of the type described in
Section 13.3 at which time the Rights are deemed terminated, or (iv) the time at which the Rights
are exchanged as provided in Section 26.
9
7.2.
Purchase
. The Purchase Price for each one-thousandth of a Preferred Share
pursuant to the exercise of a Right shall be initially $___, shall be subject to adjustment from
time to time as provided in Sections 11, 13 and 26 and shall be payable in lawful money of the
United States of America in accordance with Section 7.3.
7.3.
Payment Procedures
. Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and certification duly executed, accompanied by
payment of the aggregate Purchase Price for the total number of one-thousandths of a Preferred
Share to be purchased and an amount equal to any applicable transfer tax required to be paid by the
holder of such Right Certificate in accordance with Section 9, in cash or by certified or cashiers
check or money order payable to the order of the Company, the Rights Agent shall thereupon promptly
(i)(A) requisition from any transfer agent of the Preferred Shares (or make available, if the
Rights Agent is the transfer agent) certificates for the number of Preferred Shares to be purchased
and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests,
or (B) if the Company shall have elected to deposit the total number of Preferred Shares issuable
upon exercise of the Rights hereunder with a depository agent, requisition from the depositary
agent depositary receipts representing interests in such number of one-thousandths of a Preferred
Share as are to be purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with all such requests, (ii) when appropriate,
requisition from the Company the amount of cash to be paid in lieu of the issuance of fractional
shares in accordance with Section 14 or otherwise in accordance with Section 11.1.3, (iii) promptly
after receipt of such certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Right Certificate, registered in such name or names
as may be designated by such holder and (iv) when appropriate, after receipt, promptly deliver such
cash to or upon the order of the registered holder of such Right Certificate. In the event that
the Company is obligated to issue other securities of the Company, pay cash and/or distribute other
property pursuant to Section 11.1.3, the Company will make all arrangements necessary so that such
other securities, cash and/or other property are available for distribution by the Rights Agent, if
and when appropriate.
7.4.
Partial Exercise
. In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights
equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to
the registered holder of such Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 14.
7.5.
Full Information Concerning Ownership
. Notwithstanding anything in this
Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake
any action with respect to a registered holder of Rights upon the occurrence of any purported
exercise as set forth in this Section 7 unless the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for such exercise shall
have been duly completed and signed by the registered holder thereof and the Company shall have
been provided with such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request.
10
Section 8.
Cancellation and Destruction of Right Certificates
. All Right Certificates
surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if
surrendered to the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it,
and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of
the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation
and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent
shall deliver all canceled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall deliver a certificate
of destruction thereof to the Company.
Section 9.
Reservation and Availability of Capital Stock
. The Company covenants and
agrees that from and after the Distribution Date it will cause to be reserved and kept available
out of its authorized and unissued Preferred Shares (and, following the occurrence of a Trigger
Event, out of its authorized and unissued Common Shares or other securities or out of its shares
held in its treasury) the number of Preferred Shares (and, following the occurrence of a Trigger
Event, Common Shares and/or other securities) that will be sufficient to permit the exercise in
full of all outstanding Rights.
So long as the Preferred Shares (and, following the occurrence of a Trigger Event, Common
Shares and/or other securities) issuable upon the exercise of Rights may be listed on New York
Stock Exchange (
NYSE
) or any other national securities exchange or traded in the over-the-counter
market and quoted on the National Association of Securities Dealers, Inc. Automated Quotation
System (
Nasdaq
) (including the National Market and the Small Cap Market), the Company shall use
its best efforts to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on the NYSE or such other exchange
or quoted on Nasdaq upon official notice of issuance upon such exercise.
The Company covenants and agrees that it will take all such action as may be necessary to
ensure that all Preferred Shares (and, following the occurrence of a Trigger Event, Common Shares
and/or other securities) delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
From and after such time as the Rights become exercisable, the Company shall use its best
efforts, if then necessary to permit the issuance of Preferred Shares upon the exercise of Rights,
to register and qualify such Preferred Shares under the Securities Act and any applicable state
securities or Blue Sky laws (to the extent exemptions therefrom are not available), cause such
registration statement and qualifications to become effective as soon as possible after such filing
and keep such registration and qualifications effective until the earlier of the date as of which
the Rights are no longer exercisable for such securities and the Expiration Date. The Company may
temporarily suspend, for a period of time not to exceed one hundred twenty (120) days, the
exercisability of the Rights in order to prepare and file a registration statement under the
Securities Act and permit it to become effective. Upon any such suspension, the Company shall
issue a public announcement stating that the exercisability of the Rights has
11
been temporarily suspended, as well as a public announcement at such time as the suspension is
no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification in such
jurisdiction shall have been obtained and until a registration statement under the Securities Act
(if required) shall have been declared effective.
The Company further covenants and agrees that it will pay when due and payable any and all
Federal and state transfer taxes and charges which may be payable in respect of the issuance or
delivery of the Right Certificates or of any Preferred Shares (or Common Shares and/or other
securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a person other than, or the issuance or delivery of certificates for the
Preferred Shares (or Common Shares and/or other securities, as the case may be) in a name other
than that of, the registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or deliver any certificates for Preferred Shares (or Common Shares and/or
other securities, as the case may be) in a name other than that of the registered holder upon the
exercise of any Rights until any such tax shall have been paid (any such tax being payable by the
holder of such Right Certificate at the time of surrender) or until it has been established to the
Companys satisfaction that no such tax is due.
Section 10.
Preferred Shares Record Date
. Each person in whose name any certificate
for Preferred Shares (or Common Shares and/or other securities, as the case may be) is issued upon
the exercise of Rights shall for all purposes be deemed to have become the holder of record of the
Preferred Shares (or Common Shares and/or other securities, as the case may be) represented thereby
on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such
Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes)
was made;
provided, however,
that if the date of such surrender and payment is a date upon which
the Preferred Shares (or Common Shares and/or other securities, as the case may be) transfer books
of the Company are closed, such person shall be deemed to have become the record holder of such
shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding
Business Day on which the Preferred Shares (or Common Shares and/or other securities, as the case
may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced
thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Shares for which the Rights shall be exercisable, including, without limitation, the
right to vote or to receive dividends or other distributions, and shall not be entitled to receive
any notice of any proceedings of the Company, except as provided herein.
Section 11.
Adjustment of Purchase Price, Number of Shares or Number of Rights
. The
Purchase Price, the number of Preferred Shares or other securities or property purchasable upon
exercise of each Right and the number of Rights outstanding are subject to adjustment from time to
time as provided in this Section 11.
11.1.
Post-Execution Events
.
11.1.1.
Corporate Dividends, Reclassifications, Etc
. In the event the Company shall
at any time after the date of this Agreement (A) declare and pay a dividend on the Preferred
12
Shares payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
combine the outstanding Preferred Shares into a smaller number of Preferred Shares or (D) issue any
shares of its capital stock in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), except as otherwise provided in this Section 11.1, the
Purchase Price in effect at the time of the record date for such dividend or of the effective date
of such subdivision, combination or reclassification, and the number and kind of shares of capital
stock issuable on such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such date and at a time
when the Preferred Shares transfer books of the Company were open, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision, combination or
reclassification;
provided, however,
that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of capital stock of the
Company issuable upon exercise of one Right. If an event occurs which would require an adjustment
under both Section 11.1.1 and Section 11.1.2, the adjustment provided for in this Section 11.1.1
shall be in addition to, and shall be made prior to, the adjustment required pursuant to, Section
11.1.2.
11.1.2.
Acquiring Person Events; Trigger Events
. Subject to Sections 23.1 and 26, in
the event that a Trigger Event occurs, then, from and after the first occurrence of such event,
each holder of a Right, except as provided below, shall thereafter have a right to receive, upon
exercise thereof at a price per Right equal to the then current Purchase Price multiplied by the
number of one-thousandths of a Preferred Share for which a Right is then exercisable (without
giving effect to this Section 11.1.2), in accordance with the terms of this Agreement and in lieu
of Preferred Shares, such number of Common Shares as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the then number of one-thousandths of a Preferred
Share for which a Right is then exercisable (without giving effect to this Section 11.1.2) and (y)
dividing that product by 50% of the current per share market price of the Common Shares (determined
pursuant to Section 11.4) on the first of the date of the occurrence of, or the date of the first
public announcement of, a Trigger Event (the
Adjustment Shares
);
provided
that the Purchase Price
and the number of Adjustment Shares shall thereafter be subject to further adjustment as
appropriate in accordance with Section 11.6. Notwithstanding the foregoing, upon the occurrence of
a Trigger Event, any Rights that are or were acquired or beneficially owned by (1) any Acquiring
Person or any Associate or Affiliate thereof, (2) a transferee of any Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or
(3) a transferee of any Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding regarding the
transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is
part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of
this Section 11.1.2, and subsequent transferees, shall become void without any further action, and
any holder (whether or not such holder is an Acquiring Person or an Associate or Affiliate of an
Acquiring Person) of such Rights shall thereafter have no right to exercise such Rights under any
provision of this
13
Agreement or otherwise. From and after the Trigger Event, no Right Certificate shall be
issued pursuant to Section 3 or Section 6 that represents Rights that are or have become void
pursuant to the provisions of this paragraph, and any Right Certificate delivered to the Rights
Agent that represents Rights that are or have become void pursuant to the provisions of this
paragraph shall be canceled.
The Company shall use all reasonable efforts to ensure that the provisions of this Section
11.1.2 are complied with, but shall have no liability to any holder of Right Certificates or any
other Person as a result of its failure to make any determinations with respect to any Acquiring
Person or its Affiliates, Associates or transferees hereunder.
From and after the occurrence of an event specified in Section 13.1, any Rights that
theretofore have not been exercised pursuant to this Section 11.1.2 shall thereafter be exercisable
only in accordance with Section 13 and not pursuant to this Section 11.1.2.
11.1.3.
Insufficient Shares
. The Company may at its option substitute for a Common
Share issuable upon the exercise of Rights in accordance with the foregoing Section 11.1.2 a number
of Preferred Shares or fraction thereof such that the current per share market price of one
Preferred Share multiplied by such number or fraction is equal to the current per share market
price of one Common Share. In the event that upon the occurrence of a Trigger Event there shall
not be sufficient Common Shares authorized but unissued, or held by the Company as treasury shares,
to permit the exercise in full of the Rights in accordance with the foregoing Section 11.1.2, the
Company shall take all such action as may be necessary to authorize additional Common Shares for
issuance upon exercise of the Rights,
provided, however,
that if the Company determines that it is
unable to cause the authorization of a sufficient number of additional Common Shares, then, in the
event the Rights become exercisable, the Company, with respect to each Right and to the extent
necessary and permitted by applicable law and any agreements or instruments in effect on the date
hereof to which it is a party, shall: (A) determine the excess of (1) the value of the Adjustment
Shares issuable upon the exercise of a Right (the
Current Value
), over (2) the Purchase Price
(such excess, the
Spread
) and (B) with respect to each Right (other than Rights which have become
void pursuant to Section 11.1.2), make adequate provision to substitute for the Adjustment Shares,
upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3)
Preferred Shares, (4) other equity securities of the Company (including, without limitation,
shares, or fractions of shares, of preferred stock which, by virtue of having dividend, voting and
liquidation rights substantially comparable to those of the Common Shares, the Board of Directors
of the Company has deemed in good faith to have substantially the same value as Common Shares)
(each such share of preferred stock or fractions of shares of preferred stock constituting a
common stock equivalent
)), (5) debt securities of the Company, (6) other assets or (7) any
combination of the foregoing having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the Company based upon the advice
of a nationally recognized investment banking firm selected in good faith by the Board of Directors
of the Company;
provided, however,
that if the Company shall not have made adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days following the occurrence of a
Trigger Event, then the Company shall be obligated to deliver, to the extent necessary and
permitted by applicable law and any agreements or instruments in effect on the date hereof to which
it is a party, upon the surrender for exercise of a
14
Right and without requiring payment of the Purchase Price, Common Shares (to the extent
available) and then, if necessary, such number or fractions of Preferred Shares (to the extent
available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to
the Spread. If the Board of Directors of the Company shall determine in good faith that it is
unlikely that sufficient additional Common Shares could be authorized for issuance upon exercise in
full of the Rights, the thirty (30) day period set forth above may be extended and re-extended to
the extent necessary, but not more than ninety (90) days following the occurrence of a Trigger
Event, in order that the Company may seek stockholder approval for the authorization of such
additional shares (such period as may be extended, the
Substitution Period
). To the extent that
the Company determines that some actions need be taken pursuant to the second and/or third
sentences of this Section 11.1.3, the Company (x) shall provide that such action shall apply
uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek any authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant to such first sentence
and to determine the value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been temporarily suspended as
well as a public announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11.1.3, the value of a Common Share shall be the current per share market price (as
determined pursuant to Section 11.4) on the date of the occurrence of a Trigger Event and the value
of any common stock equivalent shall be deemed to have the same value as the Common Shares on
such date. The Board of Directors of the Company may, but shall not be required to, establish
procedures to allocate the right to receive Common Shares upon the exercise of the Rights among
holders of Rights pursuant to this Section 11.1.3.
11.2.
Dilutive Rights Offering
. In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a
period expiring within forty-five (45) calendar days after such record date) to subscribe for or
purchase Preferred Shares (or securities having the same rights, privileges and preferences as the
Preferred Shares (
equivalent preferred stock
)) or securities convertible into Preferred Shares or
equivalent preferred stock at a price per Preferred Share or per share of equivalent preferred
stock (or having a conversion or exercise price per share, if a security convertible into or
exercisable for Preferred Shares or equivalent preferred stock) less than the current per share
market price of the Preferred Shares (as determined pursuant to Section 11.4) on such record date,
the Purchase Price to be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of Preferred Shares and shares of equivalent preferred stock outstanding
on such record date plus the number of Preferred Shares and shares of equivalent preferred stock
which the aggregate offering price of the total number of Preferred Shares and/or shares of
equivalent preferred stock to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current per share market price and
the denominator of which shall be the number of Preferred Shares and shares of equivalent preferred
stock outstanding on such record date plus the number of additional Preferred Shares and/or shares
of equivalent preferred stock to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible);
provided, however,
that in no
event shall the consideration to be paid upon the exercise of one Right be less than the aggregate
par value of the shares of capital stock of the Company issuable upon exercise of one
15
Right. In case such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as determined in good
faith by the Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of
the Rights. Preferred Shares and shares of equivalent preferred stock owned by or held for the
account of the Company or any Subsidiary of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such rights or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect if such record date
had not been fixed.
11.3.
Distributions
. In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing or surviving
corporation) of evidences of indebtedness, cash, securities or assets (other than a regular
periodic cash dividend at a rate not in excess of 125% of the rate of the last regular periodic
cash dividend theretofore paid or, in case regular periodic cash dividends have not theretofore
been paid, at a rate not in excess of 50% of the average net income per share of the Company for
the four quarters ended immediately prior to the payment of such dividend, or a dividend payable in
Preferred Shares {which dividend, for purposes of this Agreement, shall be subject to the
provisions of Section 11.1.1(A)}) or convertible securities, or subscription rights or warrants
(excluding those referred to in Section 11.2), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the current per share market price of
the Preferred Shares (as determined pursuant to Section 11.4) on such record date, less the fair
market value (as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent) of the portion of the
cash, assets, securities or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares (as determined pursuant to Section 11.4);
provided, however,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of the Company to be
issued upon exercise of one Right. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so made, the Purchase Price
shall again be adjusted to be the Purchase Price which would then be in effect if such record date
had not been fixed.
11.4.
Current Per Share Market Value
.
11.4.1.
General
. For the purpose of any computation hereunder, the
current per share
market price
of any security (a
Security
for the purpose of this Section 11.4.1) on any date
shall be deemed to be the average of the daily closing prices per share of such Security for the
thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately prior to
such date;
provided, however,
that in the event that the current per share market price of the
Security is determined during any period following the announcement by the issuer of such Security
of (i) a dividend or distribution on such Security payable in shares of such Security or securities
convertible into such shares or (ii) any subdivision, combination or reclassification of
16
such Security, and prior to the expiration of thirty (30) Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market price shall be
appropriately adjusted to reflect the current market price per share equivalent of such Security.
The closing price for each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the NYSE or, if the Security is not listed or admitted
to trading on the NYSE, as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by Nasdaq or such other system
then in use, or, if on any such date the Security is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional market maker making a
market in the Security selected by the Board of Directors of the Company. If on any such date no
such market maker is making a market in the Security, the fair value of the Security on such date
as determined in good faith by the Board of Directors of the Company shall be used. The term
Trading Day
shall mean a day on which the principal national securities exchange on which the
Security is listed or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities exchange, a Business Day.
If the Security is not publicly held or not so listed or traded, or if on any such date the
Security is not so quoted and no such market maker is making a market in the Security, current per
share market price shall mean the fair value per share as determined in good faith by the Board of
Directors of the Company or, if at the time of such determination there is an Acquiring Person, by
a nationally recognized investment banking firm selected by the Board of Directors, which shall
have the duty to make such determination in a reasonable and objective manner, whose determination
shall be described in a statement filed with the Rights Agent and shall be conclusive for all
purposes.
11.4.2.
Preferred Shares
. Notwithstanding Section 11.4.1, for the purpose of any
computation hereunder, the current per share market price of the Preferred Shares shall be
determined in the same manner as set forth above in Section 11.4.1 (other than the last sentence
thereof). If the current per share market price of the Preferred Shares cannot be determined in
the manner described in Section 11.4.1, the current per share market price of the Preferred
Shares shall be conclusively deemed to be an amount equal to 1,000 (as such number may be
appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with
respect to the Common Shares occurring after the date of this Agreement) multiplied by the current
per share market price of the Common Shares (as determined pursuant to Section 11.4.1). If neither
the Common Shares nor the Preferred Shares are publicly held or so listed or traded, or if on any
such date neither the Common Shares nor the Preferred Shares are so quoted and no such market maker
is making a market in either the Common Shares or the Preferred Shares, current per share market
price of the Preferred Shares shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, or, if at the time of such determination there is an
Acquiring Person, by a nationally recognized investment banking firm selected by the Board of
Directors of the Company, which shall have the duty to make such determination in a reasonable and
objective manner, which determination shall be described in a
17
statement filed with the Rights Agent and shall be conclusive for all purposes. For purposes
of this Agreement, the current per share market price of one-thousandth of a Preferred Share
shall be equal to the current per share market price of one Preferred Share divided by 1,000.
11.5.
Insignificant Changes
. No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price.
Any adjustments which by reason of this Section 11.5 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest one-thousandth of a Preferred Share or the
nearest one-thousandth of a Common Share or other share or security, as the case may be.
11.6.
Shares Other Than Preferred Shares
. If as a result of an adjustment made
pursuant to Section 11.1, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares, thereafter the
number of such other shares so receivable upon exercise of any Right shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Preferred Shares contained in Sections 11.1, 11.2, 11.3, 11.5, 11.8, 11.9 and
11.13, and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
11.7.
Rights Issued Prior to Adjustment
. All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one-thousandths of a Preferred Share
purchasable from time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
11.8.
Effect of Adjustments
. Unless the Company shall have exercised its election as
provided in Section 11.9, upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11.2 and 11.3, each Right outstanding immediately prior to the making
of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price,
that number of one-thousandths of a Preferred Share (calculated to the nearest one-millionth of a
Preferred Share) obtained by (i) multiplying (x) the number of one-thousandths of a Preferred Share
covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price.
11.9.
Adjustment in Number of Rights
. The Company may elect on or after the date of
any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one-thousandths of a Preferred Share issuable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one-thousandths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights (calculated to the nearest
thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of
the Purchase Price by the Purchase Price in effect immediately after adjustment of
18
the Purchase Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which the Purchase Price
is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at
least ten (10) days later than the date of the public announcement. If Right Certificates have
been issued, upon each adjustment of the number of Rights pursuant to this Section 11.9, the
Company may, as promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to Section 14, the
additional Rights to which such holders shall be entitled as a result of such adjustment, or, at
the option of the Company, shall cause to be distributed to such holders of record in substitution
and replacement for the Right Certificates held by such holders prior to the date of adjustment,
and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the
Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided for herein (and may
bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Right Certificates on the record date specified in the public
announcement.
11.10.
Right Certificates Unchanged
. Irrespective of any adjustment or change in the
Purchase Price or the number of one-thousandths of a Preferred Share issuable upon the exercise of
the Rights, the Right Certificates theretofore and thereafter issued may continue to express the
Purchase Price per share and the number of one-thousandths of a Preferred Share which were
expressed in the initial Right Certificates issued hereunder.
11.11.
Par Value Limitations
. Before taking any action that would cause an adjustment
reducing the Purchase Price below one-thousandth of the then par value, if any, of the Preferred
Shares or other shares of capital stock issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable Preferred Shares or other such
shares at such adjusted Purchase Price.
11.12.
Deferred Issuance
. In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event the issuance to the holder of any
Right exercised after such record date of that number of Preferred Shares and shares of other
capital stock or securities of the Company, if any, issuable upon such exercise over and above the
Preferred Shares and shares of other capital stock or other securities, assets or cash of the
Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to
such adjustment;
provided, however,
that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holders right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
11.13.
Reduction in Purchase Price
. Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to the extent that it
in its sole discretion shall determine to be advisable in order that any consolidation or
subdivision of the Preferred Shares, issuance wholly for cash of any of the Preferred Shares at
19
less than the current market price, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or warrants referred to
hereinabove in this Section 11, hereafter made by the Company to holders of its Preferred Shares
shall not be taxable to such stockholders.
11.14.
Company Not to Diminish Benefits of Rights
. The Company covenants and agrees
that after the earlier of the Shares Acquisition Date or Distribution Date it will not, except as
permitted by Section 23, Section 25 or Section 26, take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably foreseeable that such action will
substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights.
11.15.
Adjustment of Rights Associated with Common Shares
. Notwithstanding anything
contained in this Agreement to the contrary, in the event that the Company shall at any time after
the date hereof and prior to the Distribution Date (i) declare or pay any dividend on the
outstanding Common Shares payable in Common Shares, (ii) effect a subdivision or consolidation of
the outstanding Common Shares (by reclassification or otherwise than by the payment of dividends
payable in Common Shares), or (iii) combine the outstanding Common Shares into a greater or lesser
number of Common Shares, then in any such case, the number of Rights associated with each Common
Share then outstanding, or issued or delivered thereafter but prior to the Distribution Date or in
accordance with Section 22 shall be proportionately adjusted so that the number of Rights
thereafter associated with each Common Share following any such event shall equal the result
obtained by multiplying the number of Rights associated with each Common Share immediately prior to
such event by a fraction, the numerator of which shall be the total number of Common Shares
outstanding immediately prior to the occurrence of the event and the denominator of which shall be
the total number of Common Shares outstanding immediately following the occurrence of such event.
The adjustments provided for in this Section 11.15 shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation is effected.
Section 12.
Certificate of Adjusted Purchase Price or Number of Shares
. Whenever an
adjustment is made as provided in Sections 11 or 13, the Company shall (a) promptly prepare a
certificate setting forth such adjustment, and a brief statement of the facts accounting for such
adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief summary thereof to
each holder of a Right Certificate in accordance with Section 24. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein contained and shall not
be deemed to have knowledge of any such adjustment unless and until it shall have received such
certificate.
Section 13.
Consolidation, Merger or Sale or Transfer of Assets or Earning Power
.
13.1.
Certain Transactions
. In the event that, from and after the first occurrence of
a Trigger Event, directly or indirectly, (A) the Company shall consolidate with, or merge with and
into, any other Person and the Company shall not be the continuing or surviving
20
corporation, (B) any Person shall consolidate with the Company, or merge with and into the
Company and the Company shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Shares shall be changed into or exchanged
for stock or other securities of the Company or any other Person or cash or any other property, or
(C) the Company shall sell, exchange, mortgage or otherwise transfer (or one or more of its
Subsidiaries shall sell, exchange, mortgage or otherwise transfer), in one or more transactions,
assets or earning power aggregating 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or one
or more wholly-owned Subsidiaries of the Company in one or more transactions each of which complies
with Section 11.14), then, and in each such case, proper provision shall be made so that (i) each
holder of a Right (other than Rights which have become void pursuant to Section 11.1.2) shall
thereafter have the right to receive, upon the exercise thereof at a price per Right equal to the
then current Purchase Price multiplied by the number of one-thousandths of a Preferred Share for
which a Right was exercisable immediately prior to the first occurrence of a Trigger Event (as
subsequently adjusted pursuant to Sections 11.1.1, 11.2, 11.3, 11.8, 11.9 and 11.12), in accordance
with the terms of this Agreement and in lieu of Preferred Shares or Common Shares, such number of
validly authorized and issued, fully paid, non-assessable and freely tradable Common Shares of the
Principal Party (as such term is hereinafter defined) not subject to any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the result obtained by (x)
multiplying the then current Purchase Price by the number of one-thousandths of a Preferred Share
for which a Right was exercisable immediately prior to the first occurrence of a Trigger Event (as
subsequently adjusted pursuant to Sections 11.1.1, 11.2, 11.3, 11.8, 11.9 and 11.12) and (y)
dividing that product by 50% of the then current per share market price of the Common Shares of
such Principal Party (determined pursuant to Section 11.4) on the date of consummation of such
consolidation, merger, sale or transfer;
provided,
that the price per Right so payable and the
number of Common Shares of such Principal Party so receivable upon exercise of a Right shall
thereafter be subject to further adjustment as appropriate in accordance with Section 11.6 to
reflect any events covered thereby occurring in respect of the Common Shares of such Principal
Party after the occurrence of such consolidation, merger, sale or transfer; (ii) such Principal
Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger,
sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii)
the term Company shall thereafter be deemed to refer to such Principal Party; and (iv) such
Principal Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of its Common Shares in accordance with Section 9) in connection with such
consummation as may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares thereafter deliverable
upon the exercise of the Rights;
provided
that, upon the subsequent occurrence of any
consolidation, merger, sale or transfer of assets or other extraordinary transaction in respect of
such Principal Party, each holder of a Right shall thereupon be entitled to receive, upon exercise
of a Right and payment of the Purchase Price as provided in this Section 13.1, such cash, shares,
rights, warrants and other property which such holder would have been entitled to receive had such
holder, at the time of such transaction, owned the Common Shares of the Principal Party receivable
upon the exercise of a Right pursuant to this Section 13.1, and such Principal Party shall take
such steps (including, but not limited to, reservation of shares of stock) as may be necessary to
permit the subsequent exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other
21
property. The Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement confirming that the requirements of this Section 13.1 and
Section 13.2 shall promptly be performed in accordance with their terms and that such
consolidation, merger, sale or transfer of assets shall not result in a default by the Principal
Party under this Agreement as the same shall have been assumed by the Principal Party pursuant to
this Section 13.1 and Section 13.2 and providing that, as soon as practicable after executing such
agreement pursuant to this Section 13, the Principal Party, at its own expense, shall
(1) prepare and file a registration statement under the Securities Act, if necessary, with
respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate
form, use its best efforts to cause such registration statement to become effective as soon as
practicable after such filing and use its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date and similarly comply with applicable state securities laws;
(2) use its best efforts, if the Common Shares of the Principal Party shall be listed or
admitted to trading on the NYSE or on another national securities exchange, to list or admit to
trading (or continue the listing of) the Rights and the securities purchasable upon exercise of the
Rights on the NYSE or such securities exchange, or, if the Common Shares of the Principal Party
shall not be listed or admitted to trading on the NYSE or a national securities exchange, to cause
the Rights and the securities receivable upon exercise of the Rights to be authorized for quotation
on Nasdaq or on such other system then in use;
(3) deliver to holders of the Rights historical financial statements for the Principal Party
which comply in all respects with the requirements for registration on Form 10 (or any successor
form) under the Exchange Act; and
(4) obtain waivers of any rights of first refusal or preemptive rights in respect of the
Common Shares of the Principal Party subject to purchase upon exercise of outstanding Rights.
In case the Principal Party has provision in any of its authorized securities or in its
articles or certificate of incorporation or by-laws or other instrument governing its corporate
affairs, which provision would have the effect of (i) causing such Principal Party to issue (other
than to holders of Rights pursuant to this Section 13), in connection with, or as a consequence of,
the consummation of a transaction referred to in this Section 13, Common Shares or common stock
equivalents of such Principal Party at less than the then current market price per share thereof
(determined pursuant to Section 11.4) or securities exercisable for, or convertible into, Common
Shares or common stock equivalents of such Principal Party at less than such then current market
price (other than to holders of Rights pursuant to this Section 13), or (ii) providing for any
special payment, taxes or similar provision in connection with the issuance of the Common Shares of
such Principal Party pursuant to the provision of Section 13, then, in such event, the Company
hereby agrees with each holder of Rights that it shall not consummate any such transaction unless
prior thereto the Company and such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement providing that the provision in
22
question of such Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will have no effect in
connection with, or as a consequence of, the consummation of the proposed transaction.
The Company covenants and agrees that it shall not, at any time after the Trigger Event, enter
into any transaction of the type described in clauses (A) through (C) of this Section 13.1 if (i)
at the time of or immediately after such consolidation, merger, sale, transfer or other transaction
there are any rights, warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights, (ii) prior to, simultaneously with or immediately after such consolidation,
merger, sale, transfer or other transaction, the stockholders of the Person who constitutes, or
would constitute, the Principal Party for purposes of Section 13.2 shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates or Associates or
(iii) the form or nature of organization of the Principal Party would preclude or limit the
exercisability of the Rights. The provisions of this Section 13 shall similarly apply to
successive transactions of the type described in clauses (A) through (C) of this Section 13.1.
13.2.
Principal Party
. Principal Party shall mean:
(i) in the case of any transaction described in clauses (A) or (B) of the first sentence of
Section 13.1: (i) the Person that is the issuer of the securities into which the Common Shares are
converted in such merger or consolidation, or, if there is more than one such issuer, the issuer
the Common Shares of which have the greatest aggregate market value of shares outstanding, or (ii)
if no securities are so issued, (x) the Person that is the other party to the merger, if such
Person survives said merger, or, if there is more than one such Person, the Person the Common
Shares of which have the greatest aggregate market value of shares outstanding or (y) if the Person
that is the other party to the merger does not survive the merger, the Person that does survive the
merger (including the Company if it survives) or (z) the Person resulting from the consolidation;
and
(ii) in the case of any transaction described in clause (C) of the first sentence in Section
13.1, the Person that is the party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions, or, if each Person that is a party to
such transaction or transactions receives the same portion of the assets or earning power so
transferred or if the Person receiving the greatest portion of the assets or earning power cannot
be determined, whichever of such Persons is the issuer of Common Shares having the greatest
aggregate market value of shares outstanding;
provided, however,
that in any such case described in
the foregoing clause (i) or (ii) of this Section 13.2, if the Common Shares of such Person are not
at such time or have not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect Subsidiary of
another Person the Common Shares of which are and have been so registered, the term Principal
Party shall refer to such other Person, or (2) if such Person is a Subsidiary, directly or
indirectly, of more than one Person, the Common Shares of all of which are and have been so
registered, the term Principal Party shall refer to whichever of such Persons is the issuer of
Common Shares having the greatest aggregate market value of shares outstanding, or (3) if such
Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are
not owned, directly or indirectly, by the same Person, the rules set forth in
23
clauses (1) and (2) above shall apply to each of the owners having an interest in the venture
as if the Person owned by the joint venture was a Subsidiary of both or all of such joint
venturers, and the Principal Party in each such case shall bear the obligations set forth in this
Section 13 in the same ratio as its interest in such Person bears to the total of such interests.
13.3.
Approved Acquisitions
. Notwithstanding anything contained herein to the
contrary, upon the consummation of any merger or other acquisition transaction of the type
described in clause (A), (B) or (C) of Section 13.1 involving the Company pursuant to a merger or
other acquisition agreement between the Company and any Person (or one or more of such Persons
Affiliates or Associates) which agreement has been approved by the Board of Directors of the
Company prior to any Person becoming an Acquiring Person, this Agreement and the rights of holders
of Rights hereunder shall be terminated in accordance with Section 7.1.
Section 14.
Fractional Rights and Fractional Shares
.
14.1.
Cash in Lieu of Fractional Rights
. The Company shall not be required to issue
fractions of Rights or to distribute Right Certificates which evidence fractional Rights (except
prior to the Distribution Date in accordance with Section 11.15). In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates with regard to
which such fractional Rights would otherwise be issuable an amount in cash equal to the same
fraction of the current market value of a whole Right. For the purposes of this Section 14.1, the
current market value of a whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been otherwise issuable.
The closing price for any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the NYSE or, if the Rights are not listed or admitted
to trading on the NYSE, as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on which the Rights are
listed or admitted to trading or, if the Rights are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by Nasdaq or such other system
then in use or, if on any such date the Rights are not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market maker making a market in
the Rights selected by the Board of Directors of the Company. If on any such date no such market
maker is making a market in the Rights, the current market value of the Rights on such date shall
be the fair value of the Rights as determined in good faith by the Board of Directors of the
Company, or, if at the time of such determination there is an Acquiring Person, by a nationally
recognized investment banking firm selected by the Board of Directors of the Company, which shall
have the duty to make such determination in a reasonable and objective manner, which determination
shall be described in a statement filed with the Rights Agent and shall be conclusive for all
purposes.
14.2.
Cash in Lieu of Fractional Preferred Shares
. The Company shall not be required
to issue fractions of Preferred Shares (other than fractions which are integral multiples of
one-thousandth of a Preferred Share) upon exercise or exchange of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions which are integral
24
multiples of one-thousandth of a Preferred Share). Interests in fractions of Preferred Shares
in integral multiples of one-thousandth of a Preferred Share may, at the election of the Company,
be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it;
provided,
that such agreement shall provide that the holders of such
depositary receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Shares represented by such depositary receipts. In
lieu of fractional Preferred Shares that are not integral multiples of one-thousandth of a
Preferred Share, the Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised or exchanged as herein provided an amount in cash equal to the same
fraction of the current per share market price of one Preferred Share (as determined in accordance
with Section 14.1) for the Trading Day immediately prior to the date of such exercise or exchange.
14.3.
Cash in Lieu of Fractional Common Shares
. The Company shall not be required to
issue fractions of Common Shares or to distribute certificates which evidence fractional Common
Shares upon the exercise or exchange of Rights. In lieu of such fractional Common Shares, the
Company shall pay to the registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share (as determined in accordance with Section 14.1)
for the Trading Day immediately prior to the date of such exercise or exchange.
14.4.
Waiver of Right to Receive Fractional Rights or Shares
. The holder of a Right
by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise or exchange of a Right, except as permitted by this Section 14.
Section 15.
Rights of Action
. All rights of action in respect of this Agreement,
except the rights of action given to the Rights Agent under Section 18, are vested in the
respective registered holders of the Right Certificates (and, prior to the Distribution Date, the
registered holders of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or
of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common
Shares), may, in his own behalf and for his own benefit, enforce this Agreement, and may institute
and maintain any suit, action or proceeding against the Company to enforce this Agreement, or
otherwise enforce or act in respect of his right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of
this Agreement and shall be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of, the obligations of any Person
(including, without limitation, the Company) subject to this Agreement.
Section 16.
Agreement of Right Holders
. Every holder of a Right by accepting the same
consents and agrees with the Company and the Rights Agent and with every other holder of a Right
that:
25
(a) prior to the Distribution Date, the Rights will be transferable only in connection
with the transfer of the Common Shares;
(b) as of and after the Distribution Date, the Right Certificates are transferable only
on the registry books of the Rights Agent if surrendered at the office of the Rights Agent
designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer
with all required certifications completed; and
(c) the Company and the Rights Agent may deem and treat the Person in whose name the
Right Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right Certificates or the
associated Common Shares certificate made by anyone other than the Company or the Rights
Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17.
Right Certificate Holder Not Deemed a Stockholder
. No holder, as such, of
any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the
holder of the Preferred Shares or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or
in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such,
any of the rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in Section 24), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof.
Section 18.
Concerning the Rights Agent
. The Company agrees to pay to the Rights
Agent reasonable compensation for all services rendered by it hereunder in accordance with a fee
schedule to be mutually agreed upon and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of
the Rights Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and expenses of defending
against any claim of liability arising therefrom, directly or indirectly.
The Rights Agent shall be protected and shall incur no liability for or in respect of any
action taken, suffered or omitted by it in connection with its administration of this Agreement in
reliance upon any Right Certificate or certificate for the Preferred Shares or the Common Shares or
for other securities of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, instruction, direction, consent, certificate, statement, or
other paper or document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons.
26
Section 19.
Merger or Consolidation or Change of Name of Rights Agent
. Any
corporation or limited liability company into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation or limited liability company
resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent
shall be a party, or any corporation or limited liability company succeeding to the corporate trust
or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties hereto,
provided
that such corporation or limited
liability company would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been countersigned but
not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor
Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights Agent or in the
name of the successor Rights Agent; and in all such cases such Right Certificates shall have the
full force provided in the Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and at such time any of the
Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so countersigned; and in case
at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed name; and in all
such cases such Right Certificates shall have the full force provided in the Right Certificates and
in this Agreement.
Section 20.
Duties of Rights Agent
. The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions, by all of which the
Company and the holders of Right Certificates, by their acceptance thereof, shall be bound:
20.1.
Legal Counsel
. The Rights Agent may consult with legal counsel selected by it
(who may be legal counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken or omitted by it
in good faith and in accordance with such opinion.
20.2.
Certificates as to Facts or Matters
. Whenever in the performance of its duties
under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any action hereunder, such
fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by any one of the Chief
Executive Officer, the President, the Chief Financial Officer, the Chief Operating Officer, any
Vice President, the Secretary or any Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
27
20.3.
Standard of Care
. The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
20.4.
Reliance on Agreement and Right Certificates
. The Rights Agent shall not be
liable for or by reason of any of the statements of fact or recitals contained in this Agreement or
in the Right Certificates (except as to its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been made by the Company
only.
20.5.
No Responsibility as to Certain Matters
. The Rights Agent shall not be under
any responsibility in respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition contained in this Agreement
or in any Right Certificate; nor shall it be responsible for any change in the exercisability of
the Rights (including the Rights becoming void pursuant to Section 11.1.2) or any adjustment
required under the provisions of Sections 3, 11, 13, 23 or 27 or responsible for the manner, method
or amount of any such adjustment or the ascertaining of the existence of facts that would require
any such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates
after actual notice of any such change or adjustment); nor shall it by any act hereunder be deemed
to make any representation or warranty as to the authorization or reservation of any Preferred
Shares or other securities to be issued pursuant to this Agreement or any Right Certificate or as
to whether any Preferred Shares will, when so issued, be validly authorized and issued, fully paid
and nonassessable.
20.6.
Further Assurance by Company
. The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required by the Rights
Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.
20.7.
Authorized Company Officers
. The Rights Agent is hereby authorized and directed
to accept instructions with respect to the performance of its duties hereunder from any one of the
Chief Executive Officer, the President, the Chief Financial Officer, the Chief Operating Officer,
any Vice President, the Secretary or any Assistant Secretary of the Company, and to apply to such
officers for advice or instructions in connection with its duties under this Agreement, and it
shall not be liable for any action taken or suffered to be taken by it in good faith in accordance
with instructions of any such officer or for any delay in acting while waiting for these
instructions. Any application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted
by the Rights Agent with respect to its duties or obligations under this Agreement and the date on
and/or after which such action shall be taken or such omission shall be effective. The Rights
Agent shall not be liable to the Company for any action taken by, or omission of, the Rights Agent
in accordance with a proposal included in any such application on or after the date specified
therein (which date shall not be less than three (3) Business Days after the date any such officer
actually receives such application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective
28
date in the case of omission), the Rights Agent shall have received written instructions in
response to such application specifying the action to be taken or omitted.
20.8.
Freedom to Trade in Company Securities
. The Rights Agent and any stockholder,
director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or otherwise act as fully
and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for any other legal entity.
20.9.
Reliance on Attorneys and Agents
. The Rights Agent may execute and exercise any
of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for
any act, omission, default, neglect or misconduct of any such attorneys or agents or for any loss
to the Company resulting from any such act, omission, default, neglect or misconduct,
provided
that
reasonable care was exercised in the selection and continued employment thereof.
20.10.
Incomplete Certificate
. If, with respect to any Rights Certificate surrendered
to the Rights Agent for exercise or transfer, the certificate contained in the form of assignment
or the form of election to purchase set forth on the reverse thereof, as the case may be, has not
been completed to certify the holder is not an Acquiring Person (or an Affiliate or Associate
thereof), the Rights Agent shall not take any further action with respect to such requested
exercise or transfer without first consulting with the Company.
20.11.
Rights Holders List
. At any time and from time to time after the Distribution
Date, upon the request of the Company, the Rights Agent shall promptly deliver to the Company a
list, as of the most recent practicable date (or as of such earlier date as may be specified by the
Company), of the holders of record of Rights.
Section 21.
Change of Rights Agent
. The Rights Agent or any successor Rights Agent
may resign and be discharged from its duties under this Agreement upon thirty (30) days notice in
writing mailed to the Company and to each transfer agent of the Common Shares and/or Preferred
Shares, as applicable, by registered or certified mail. Following the Distribution Date, the
Company shall promptly notify the holders of the Right Certificates by first-class mail of any such
resignation. The Company may remove the Rights Agent or any successor Rights Agent upon thirty
(30) days notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares and/or Preferred Shares, as applicable, by
registered or certified mail, and to the holders of the Right Certificates by first-class mail. If
the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the
resigning, removed, or incapacitated Rights Agent shall remit to the Company, or to any successor
Rights Agent designated by the Company, all books, records, funds, certificates or other documents
or instruments of any kind then in its possession which were acquired by such resigning, removed or
incapacitated Rights Agent in connection with its services as Rights Agent hereunder, and shall
thereafter be discharged from all duties and obligations hereunder. Following notice of such
removal, resignation or incapacity, the
29
Company shall appoint a successor to such Rights Agent. If the Company shall fail to make
such appointment within a period of thirty (30) days after giving notice of such removal or after
it has been notified in writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right
Certificate for inspection by the Company), then the registered holder of any Right Certificate may
apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation
organized and doing business under the laws of the United States or of the State of New York or the
State of Delaware (or any other state of the United States so long as such corporation is
authorized to do business as a banking institution in the State of New York or Delaware) in good
standing, having an office in the State of New York or the State of Delaware, which is authorized
under such laws to exercise stock transfer or corporate trust powers and is subject to supervision
or examination by Federal or state authority and which has at the time of its appointment as Rights
Agent a combined capital and surplus of at least $10 million. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent
shall deliver and transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the
purpose. Not later than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares
and/or Preferred Shares, as applicable, and, following the Distribution Date, mail a notice thereof
in writing to the registered holders of the Right Certificates. Failure to give any notice provided
for in this Section 21, however, or any defect therein, shall not affect the legality or validity
of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
Section 22.
Issuance of New Right Certificates
. Notwithstanding any of the provisions
of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect
any adjustment or change in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or sale of Common
Shares following the Distribution Date and prior to the Expiration Date, the Company shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement, granted or awarded, or upon exercise, conversion or exchange of
securities hereinafter issued by the Company, in each case existing prior to the Distribution Date,
issue Right Certificates representing the appropriate number of Rights in connection with such
issuance or sale;
provided, however,
that (i) no such Right Certificate shall be issued if, and to
the extent that, the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued and (ii) no such Right Certificate shall be issued if, and to the
extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof.
30
Section 23.
Redemption
.
23.1.
Right to Redeem
. The Board of Directors of the Company may, at its option, at
any time prior to a Trigger Event, redeem all but not less than all of the then outstanding Rights
at a redemption price of $0.01 per Right, appropriately adjusted to reflect any stock split, stock
dividend, recapitalization or similar transaction occurring after the date hereof (such redemption
price being hereinafter referred to as the
Redemption Price
), and the Company may, at its option,
pay the Redemption Price in Common Shares (based on the current per share market price,
determined pursuant to Section 11.4, of the Common Shares at the time of redemption), cash or any
other form of consideration deemed appropriate by the Board of Directors. The redemption of the
Rights by the Board of Directors may be made effective at such time, on such basis and subject to
such conditions as the Board of Directors in its sole discretion may establish.
23.2.
Redemption Procedures
. Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights (or at such later time as the Board of Directors
may establish for the effectiveness of such redemption), and without any further action and without
any notice, the right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price for each Right so held. The Company
shall promptly give public notice of such redemption;
provided, however,
that the failure to give,
or any defect in, any such notice shall not affect the validity of such redemption. The Company
shall promptly give, or cause the Rights Agent to give, notice of such redemption to the holders of
the then outstanding Rights by mailing such notice to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives the notice. Each
such notice of redemption shall state the method by which the payment of the Redemption Price will
be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or
purchase for value any Rights at any time in any manner other than that specifically set forth in
this Section 23 or in Section 26, and other than in connection with the purchase, acquisition or
redemption of Common Shares prior to the Distribution Date.
23.3.
Notice of Certain Events
. In case the Company shall propose at any time after
the earlier of the Shares Acquisition Date and the Distribution Date (a) to pay any dividend
payable in stock of any class to the holders of Preferred Shares or to make any other distribution
to the holders of Preferred Shares (other than a regular periodic cash dividend at a rate not in
excess of 125% of the rate of the last regular periodic cash dividend theretofore paid or, in case
regular periodic cash dividends have not theretofore been paid, at a rate not in excess of 50% of
the average net income per share of the Company for the four quarters ended immediately prior to
the payment of such dividends, or a stock dividend on, or a subdivision, combination or
reclassification of the Common Shares), or (b) to offer to the holders of Preferred Shares rights
or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of
any class or any other securities, rights or options, or (c) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision of outstanding
Preferred Shares), or (d) to effect any consolidation or merger into or with, or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect
31
any sale or other transfer), in one or more transactions, of 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person (other
than pursuant to a merger or other acquisition agreement of the type described in Section
1.3(ii)(A)(z)), or (e) to effect the liquidation, dissolution or winding up of the Company, or (f)
to declare or pay any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise
than by payment of dividends in Common Shares), then, in each such case, the Company shall give to
the Rights Agent and to each holder of a Right Certificate, in accordance with Section 24, a notice
of such proposed action, which shall specify the record date for the purposes of such stock
dividend, distribution of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and
the date of participation therein by the holders of the Preferred Shares and/or Common Shares, if
any such date is to be fixed, and such notice shall be so given in the case of any action covered
by clause (a) or (b) above at least ten (10) days prior to the record date for determining holders
of the Preferred Shares for purposes of such action, and in the case of any such other action, at
least ten (10) days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Preferred Shares and/or Common Shares, whichever shall
be the earlier.
In case any event set forth in Section 11.1.2 or Section 13 shall occur, then, in any such
case, (i) the Company shall as soon as practicable thereafter give to the Rights Agent and to each
holder of a Right Certificate, in accordance with Section 24, a notice of the occurrence of such
event, which notice shall describe the event and the consequences of the event to holders of Rights
under Section 11.1.2 and Section 13, and (ii) all references in this Section 23 to Preferred Shares
shall be deemed thereafter to refer to Common Shares and/or, if appropriate, other securities.
Notwithstanding anything in this Agreement to the contrary, prior to the Distribution Date a
filing by the Company with the Securities and Exchange Commission shall constitute sufficient
notice to the holders of securities of the Company, including the Rights, for purposes of this
Agreement and no other notice need be given.
Section 24.
Notices
. Notices or demands authorized by this Agreement to be given or
made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:
Ulta Salon, Cosmetics & Fragrance, Inc.
Windham Lakes Business Park
1135 Arbor Drive
Romeoville, Illinois 60446
Attention: Secretary
Subject to the provisions of Section 21 and Section 23, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the
Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as follows:
32
|
|
|
|
|
|
|
[Rights Agent]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attention: Shareholder Services Division
|
Notices or demands authorized by this Agreement to be given or made by the Company or the Rights
Agent to the holder of any Right Certificate (or, prior to the Distribution Date, to the holder of
any certificate representing Common Shares) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.
Section 25.
Supplements and Amendments
. For so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the Rights Agent shall, if the
Company so directs, supplement or amend any provision of this Agreement in any respect without the
approval of any holders of Rights or Common Shares. From and after the time that the Rights are no
longer redeemable, the Company may, and the Rights Agent shall, if the Company so directs, from
time to time supplement or amend this Agreement without the approval of any holders of Rights (i)
to cure any ambiguity or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein or (ii) to make any other changes or
provisions in regard to matters or questions arising hereunder which the Company may deem necessary
or desirable, including but not limited to extending the Final Expiration Date;
provided, however,
that no such supplement or amendment shall adversely affect the interests of the holders of Rights
as such (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), and
no such supplement or amendment may cause the Rights again to become redeemable or cause this
Agreement again to become amendable other than in accordance with this sentence;
provided further,
that the right of the Board of Directors to extend the Distribution Date shall not require any
amendment or supplement hereunder. Upon the delivery of a certificate from an appropriate officer
of the Company which states that the proposed supplement or amendment is in compliance with the
terms of this Section 25, the Rights Agent shall execute such supplement or amendment.
Section 26.
Exchange
.
26.1.
Exchange of Common Shares for Rights
. The Board of Directors of the Company
may, at its option, at any time after the occurrence of a Trigger Event, exchange Common Shares for
all or part of the then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 11.1.2) by exchanging at an exchange ratio
of that number of Common Shares having an aggregate value equal to the Spread (with such value
being based on the current per share market price {as determined pursuant to Section 11.4} on the
date of the occurrence of a Trigger Event) per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof (such amount per Right
being hereinafter referred to as the
Exchange Consideration
). Notwithstanding the foregoing, the
Board of Directors shall not be empowered to effect such exchange at any time after any Acquiring
Person shall have become the Beneficial Owner of 50% or more of the Common Shares then outstanding.
From and after the occurrence of an event specified in Section 13.1, any Rights that theretofore
have not been exchanged pursuant to this Section 26.1 shall thereafter be exercisable only in
accordance with Section 13
33
and may not be exchanged pursuant to this Section 26.1. The exchange of the Rights by the
Board of Directors may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish.
26.2.
Exchange Procedures
. Immediately upon the action of the Board of Directors of
the Company ordering the exchange for any Rights pursuant to Section 26.1 and without any further
action and without any notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive the Exchange Consideration. The Company
shall promptly give public notice of any such exchange;
provided, however,
that the failure to
give, or any defect in, such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of such Rights at their
last addresses as they appear upon the registry books of the Rights Agent. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange shall state the method by which the exchange of the Common
Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based on the number of
Rights (other than the Rights that have become void pursuant to the provisions of Section 11.1.2)
held by each holder of Rights.
26.3.
Insufficient Shares
. The Company may at its option substitute, and, in the
event that there shall not be sufficient Common Shares issued but not outstanding or authorized but
unissued to permit an exchange of Rights for Common Shares as contemplated in accordance with this
Section 26, the Company shall substitute to the extent of such insufficiency, for each Common Share
that would otherwise be issuable upon exchange of a Right, a number of Preferred Shares or fraction
thereof (or equivalent preferred stock, as such term is defined in Section 11.2) such that the
current per share market price (determined pursuant to Section 11.4) of one Preferred Share (or
equivalent preferred share) multiplied by such number or fraction is equal to the current per share
market price of one Common Share (determined pursuant to Section 11.4) as of the date of such
exchange.
Section 27.
Successors
. All the covenants and provisions of this Agreement by or for
the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 28.
Benefits of this Agreement
. Nothing in this Agreement shall be construed
to give to any Person or corporation other than the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any
legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares).
Section 29.
Determination and Actions by the Board of Directors
. The Board of
Directors of the Company shall have the exclusive power and authority to administer this Agreement
and to exercise the rights and powers specifically granted to the Board of Directors of the Company
or to the Company, or as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
34
administration of this Agreement (including, without limitation, a determination to redeem or
not redeem the Rights or amend this Agreement). All such actions, calculations, interpretations
and determinations (including, for purposes of clause (y) below, all omissions with respect to the
foregoing) that are done or made by the Board of Directors of the Company in good faith shall (x)
be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights, as
such, and all other parties, and (y) not subject the Board of Directors to any liability to the
holders of the Rights.
Section 30.
Severability
. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
Section 31.
Governing Law
. This Agreement and each Right Certificate issued hereunder
shall be deemed to be a contract made under the internal laws of the State of Delaware and for all
purposes shall be governed by and construed in accordance with the laws of such State applicable to
contracts to be made and performed entirely within such State.
Section 32.
Counterparts
. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to be an original, and
all such counterparts shall together constitute but one and the same instrument.
Section 33.
Descriptive Heading
. Descriptive headings of the several Sections of this
Agreement are inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
[Signature Page Follows]
35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of
the day and year first above written.
|
|
|
|
|
|
Ulta Salon, Cosmetics & Fragrance, Inc.
|
|
|
By
|
|
|
|
|
Name:
|
|
|
|
|
Title:
|
|
|
|
|
[NAME OF RIGHTS AGENT]
|
|
|
By
|
|
|
|
|
Name:
|
|
|
|
|
Title:
|
|
|
|
A-1
EXHIBIT A
Form of Right Certificate
|
|
|
|
|
|
Certificate No. R-
|
|
Rights
|
NOT EXERCISABLE AFTER
OR EARLIER IF NOTICE OF REDEMPTION OR
EXCHANGE IS GIVEN OR IF THE COMPANY IS MERGED OR ACQUIRED PURSUANT TO AN AGREEMENT
OF THE TYPE DESCRIBED IN SECTION 1.3(ii)(A)(z) OF THE AGREEMENT. THE RIGHTS ARE
SUBJECT TO REDEMPTION AT $0.01 PER RIGHT, AND TO EXCHANGE ON THE TERMS SET FORTH IN
THE AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION 11.1.2 OF THE
AGREEMENT), RIGHTS BENEFICIALLY OWNED BY OR TRANSFERRED TO AN ACQUIRING PERSON (AS
DEFINED IN THE AGREEMENT), OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS WILL BECOME NULL
AND VOID AND WILL NO LONGER BE TRANSFERABLE
.
Right Certificate
ULTA SALON, COSMETICS & FRAGRANCE, INC.
This certifies that
, or registered assigns, is the registered owner of the
number of Rights set forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Stockholder Rights Agreement, dated as of
, ___, as
the same may be amended from time to time (the
Agreement
), between Ulta Salon, Cosmetics and
Fragrance, Inc., a Delaware corporation (the
Company
), and
[Name of Rights Agent]
, a
corporation, as Rights Agent (the
Rights Agent
), to purchase from the Company at
any time after the Distribution Date and prior to 5:00 P.M. (New York time) on
, at
the offices of the Rights Agent, or its successors as Rights Agent, designated for such purpose,
one-thousandth of a fully paid, nonassessable share of Series A Junior Participating Preferred
Stock, par value $0.01 per share (the
Preferred Shares
), of the Company, at a purchase price of
$
per one-thousandth of a Preferred Share, subject to adjustment (the
Purchase Price
), upon
presentation and surrender of this Right Certificate with the Form of Election to Purchase and
certification duly executed. The number of Rights evidenced by this Right Certificate (and the
number of one-thousandths of a Preferred Share which may be purchased upon exercise thereof) set
forth above, and the Purchase Price set forth above, are the number and Purchase Price as of
, ___based on the Preferred Shares as constituted at such date. Capitalized terms used
in this Right Certificate without definition shall have the meanings ascribed to them in the
Agreement. As provided in the Agreement, the Purchase Price and the number of Preferred Shares
which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are
subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and conditions of the
Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and
made a part hereof and to which Agreement reference is hereby made for a full
B-1
description of the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the
Agreement are on file at the principal offices of the Company and the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon surrender at the
offices of the Rights Agent designated for such purpose, may be exchanged for another Right
Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one-thousandths of a Preferred Share as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates for the number of
whole Rights not exercised.
Subject to the provisions of the Agreement, the Board of Directors may, at its option, (i)
redeem the Rights evidenced by this Right Certificate at a redemption price of $0.01 per Right or
(ii) exchange Common Shares for the Rights evidenced by this Certificate, in whole or in part.
No fractional Preferred Shares will be issued upon the exercise of any Right or Rights
evidenced hereby (other than fractions of Preferred Shares which are integral multiples of
one-thousandth of a Preferred Share, which may, at the election of the Company, be evidenced by
depository receipts), but in lieu thereof a cash payment will be made, as provided in the
Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends
or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the
Company which may at any time be issuable on the exercise hereof, nor shall anything contained in
the Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting stockholders (except
as provided in the Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in
the Agreement.
If any term, provision, covenant or restriction of the Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of the Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
This Right Certificate shall not be valid or binding for any purpose until it shall have been
countersigned by the Rights Agent.
B-2
WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.
Dated as of
.
|
|
|
|
|
|
|
|
|
Attest:
|
|
Ulta Salon, Cosmetics & Fragrance, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
By
|
|
|
|
By
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
Countersigned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[NAME OF RIGHTS AGENT]
, as Rights Agent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized Signature
|
|
|
|
|
|
|
B-3
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Right Certificate.)
|
|
|
|
|
|
|
FOR VALUE RECEIVED
|
|
|
|
|
|
|
|
|
|
|
|
hereby sells, assigns and transfers unto
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Please print name and address
of transferee)
Rights evidenced by this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
Attorney, to transfer the within Right
Certificate on the books of the within-named Company, with full power of substitution.
Dated:
|
|
|
|
|
|
|
|
Signature
|
|
|
|
Signature Guaranteed:
|
|
|
|
|
|
|
|
|
Signatures must be guaranteed by an eligible guarantor institution as defined in Rule
17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended.
B-4
The undersigned hereby certifies that:
(1) the Rights evidenced by this Right Certificate are not beneficially owned by and are not
being assigned to an Acquiring Person or an Affiliate or an Associate thereof; and
(2) after due inquiry and to the best knowledge of the undersigned, the undersigned did not
acquire the Rights evidenced by this Right Certificate from any person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate thereof.
Dated:
B-5
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Right Certificate.)
To: Ulta Salon, Cosmetics & Fragrance, Inc.
The undersigned hereby irrevocably elects to exercise
Rights represented by
this Right Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights
(or such other securities or property of the Company or of any other Person which may be issuable
upon the exercise of the Rights) and requests that certificates for such shares be issued in the
name of:
|
|
|
(Please print name and address)
|
|
|
|
|
|
|
|
|
If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new
Right Certificate for the balance remaining of such Rights shall be registered in the name of and
delivered to:
Please insert social security
or other identifying number
|
|
|
(Please print name and address)
|
|
|
|
|
|
|
|
|
Dated:
|
|
|
|
|
|
|
|
Signature
|
|
|
|
Signature Guaranteed:
|
|
|
|
|
|
|
|
|
Signatures must be guaranteed by an eligible guarantor institution as defined in Rule
17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended.
B-6
The undersigned hereby certifies that:
(1) the Rights evidenced by this Right Certificate are not beneficially owned by and are not
being assigned to an Acquiring Person or an Affiliate or an Associate thereof; and
(2) after due inquiry and to the best knowledge of the undersigned, the undersigned did not
acquire the Rights evidenced by this Right Certificate from any person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate thereof.
Dated:
NOTICE
The signature in the foregoing Form of Assignment and Form of Election to Purchase must
conform to the name as written upon the face of this Right Certificate in every particular, without
alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of Assignment or Form of Election
to Purchase is not completed, the Company will deem the beneficial owner of the Rights evidenced by
this Right Certificate to be an Acquiring Person or an Affiliate or Associate hereof and such
Assignment or Election to Purchase will not be honored.
B-7
EXHIBIT B
As described in the Stockholder Rights Agreement, Rights which are
held by or have been held by an Acquiring Person or Associates
or Affiliates thereof (as defined in the Stockholder Rights Agreement) and certain
transferees thereof shall become null and void and will no longer be transferable
.
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On
, ___the Board of Directors of Ulta Salon, Cosmetics & Fragrance, Inc. (the
Company
) declared a dividend of one preferred share purchase right (a Right) for each share of
common stock, $.01 par value (the
Common Shares
), of the Company outstanding at the close of
business on
, ___(the
Record Date
). As long as the Rights are attached to the Common
Shares, the Company will issue one Right (subject to adjustment) with each new Common Share so that
all such shares will have attached Rights. When exercisable, each Right will entitle the
registered holder to purchase from the Company one-thousandth of a share of Series A Junior
Participating Preferred Stock (the
Preferred Shares
) at a price of $
per one-thousandth of a
Preferred Share, subject to adjustment (the
Purchase Price
). The description and terms of the
Rights are set forth in a Stockholder Rights Agreement, dated as of
, ___, as the same
may be amended from time to time (the
Agreement
), between the Company and
[Name of Rights Agent]
,
as Rights Agent (the
Rights Agent
).
Until the earlier to occur of (i) ten (10) days following a public announcement that a person
or group of affiliated or associated persons, other than [Doublemousse B.V., together with all of
its affiliates, Oak Investment Partners VII, together with all of its affiliates, and GRP II, L.P.,
together with all of its affiliates]
1
, has acquired or obtained the right to acquire
beneficial ownership of
[15]%
or more of the Common Shares (an
Acquiring Person
) or (ii) ten (10)
Business Days (or such later date as may be determined by action of the Board of Directors prior to
such time as any person or group of affiliated persons becomes an Acquiring Person) following the
commencement or announcement of an intention to make a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or group of
[15]%
or
more of the Common Shares (the earlier of (i) and (ii) being called the
Distribution Date
), the
Rights will be evidenced, with respect to any of the Common Share certificates outstanding as of
the Record Date, by such Common Share certificate together with a copy of this Summary of Rights.
The Agreement provides that until the Distribution Date (or earlier redemption exchange,
termination, or expiration of the Rights), the Rights will be transferred with and only with the
Common Shares. Until the Distribution Date (or earlier redemption or expiration of the Rights),
new Common Share certificates issued after the close of business on the Record Date upon transfer
or new issuance of the Common Shares will contain a notation incorporating the
|
|
|
1
|
|
Revise as appropriate to reflect Existing
Holders and/or Exempt Persons, if any, at the time the Stockholder Rights
Agreement is adopted.
|
C-1
Agreement by reference. Until the Distribution Date (or earlier redemption, exchange,
termination or expiration of the Rights), the surrender for transfer of any certificates for Common
Shares, with or without such notation or a copy of this Summary of Rights, will also constitute the
transfer of the Rights associated with the Common Shares represented by such certificate. As soon
as practicable following the Distribution Date, separate certificates evidencing the Rights (
Right
Certificates
) will be mailed to holders of record of the Common Shares as of the close of business
on the Distribution Date and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will expire on
, subject to the Companys right to extend such date (the
Final Expiration Date
),
unless earlier redeemed or exchanged by the Company or terminated.
Each Preferred Share purchasable upon exercise of the Rights will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of $1.00 per share but will be
entitled to an aggregate dividend of 1,000 times the dividend, if any, declared per Common Share.
In the event of liquidation, dissolution or winding up of the Company, the holders of the Preferred
Shares will be entitled to a minimum preferential liquidation payment of $1,000 per share (plus any
accrued but unpaid dividends) but will be entitled to an aggregate payment of 1,000 times any
payment made per Common Share. Each Preferred Share will have 1,000 votes and will vote together
with the Common Shares. Finally, in the event of any merger, consolidation or other transaction in
which Common Shares are exchanged, each Preferred Share will be entitled to receive 1,000 times the
amount received per Common Share. Preferred Shares will not be redeemable. These rights are
protected by customary antidilution provisions. Because of the nature of the Preferred Shares
dividend, liquidation and voting rights, the value of one-thousandth of a Preferred Share
purchasable upon exercise of each Right should approximate the value of one Common Share.
The Purchase Price payable, and the number of Preferred Shares or other securities or property
issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification
of the Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares or convertible securities at less than
the current market price of the Preferred Shares or (iii) upon the distribution to holders of the
Preferred Shares of evidences of indebtedness, cash, securities or assets (excluding regular
periodic cash dividends at a rate not in excess of 125% of the rate of the last regular periodic
cash dividend theretofore paid or, in case regular periodic cash dividends have not theretofore
been paid, at a rate not in excess of 50% of the average net income per share of the Company for
the four quarters ended immediately prior to the payment of such dividend, or dividends payable in
Preferred Shares (which dividends will be subject to the adjustment described in clause (i) above))
or of subscription rights or warrants (other than those referred to above).
In the event that a Person becomes an Acquiring Person or if the Company were the surviving
corporation in a merger with an Acquiring Person or any affiliate or associate of an Acquiring
Person and the Common Shares were not changed or exchanged, each holder of a Right, other than
Rights that are or were acquired or beneficially owned by the Acquiring Person
C-2
(which Rights will thereafter be void), will thereafter have the right to receive upon
exercise that number of Common Shares having a market value of two times the then current Purchase
Price of the Right. In the event that, after a person has become an Acquiring Person, the Company
were acquired in a merger or other business combination transaction or more than 50% of its assets
or earning power were sold, proper provision shall be made so that each holder of a Right shall
thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price
of the Right, that number of shares of common stock of the acquiring company which at the time of
such transaction would have a market value of two times the then current Purchase Price of the
Right.
At any time after a Person becomes an Acquiring Person and prior to the earlier of one of the
events described in the last sentence of the previous paragraph or the acquisition by such
Acquiring Person of 50% or more of the outstanding Common Shares, the Board of Directors may cause
the Company to exchange the Rights (other than Rights owned by an Acquiring Person which will have
become void), in whole or in part, for Common Shares at an exchange rate per Right of the number of
Common Shares having an aggregate value equal to the difference between the value of the Common
Shares issuable upon the exercise of a Right and the Purchase Price of a Right (subject to
adjustment).
No adjustment in the Purchase Price will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price. No fractional Preferred Shares or Common Shares
will be issued (other than fractions of Preferred Shares which are integral multiples of
one-thousandth of a Preferred Share, which may, at the election of the Company, be evidenced by
depository receipts), and in lieu thereof, a payment in cash will be made based on the market price
of the Preferred Shares or Common Shares on the last trading date prior to the date of exercise.
The Rights may be redeemed in whole, but not in part, at a price of $0.01 per Right (the
Redemption Price
) by the Board of Directors at any time prior to the time that an Acquiring
Person has become such. The redemption of the Rights may be made effective at such time, on such
basis and with such conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder
of the Company beyond those as an existing stockholder, including, without limitation, the right to
vote or to receive dividends.
Any of the provisions of the Agreement may be amended by the Board of Directors of the Company
for so long as the Rights are then redeemable, and after the Rights are no longer redeemable, the
Company may amend or supplement the Agreement in any manner that does not adversely affect the
interests of the holders of the Rights (other than an Acquiring Person or an affiliate or associate
of an Acquiring Person).
A copy of the Agreement is available free of charge from the Company. This summary
description of the Rights does not purport to be complete and is qualified in its entirety by
reference to the Agreement, which is incorporated herein by reference.
C-3
INDEX OF DEFINED TERMS
|
|
|
|
|
|
|
Page
|
Acquiring Person
|
|
|
1
|
|
Adjustment Shares
|
|
|
13
|
|
Affiliate
|
|
|
2
|
|
Agreement
|
|
|
7
|
|
Associate
|
|
|
2
|
|
Beneficial Owner
|
|
|
2
|
|
Beneficial Ownership
|
|
|
2
|
|
beneficially own
|
|
|
2
|
|
Business Day
|
|
|
4
|
|
close of business
|
|
|
4
|
|
Common Shares
|
|
|
4
|
|
common stock equivalent
|
|
|
15
|
|
Company
|
|
|
1,7
|
|
Current Value
|
|
|
14
|
|
Distribution Date
|
|
|
6
|
|
equivalent preferred stock
|
|
|
15
|
|
Exchange Act
|
|
|
4
|
|
Exchange Consideration
|
|
|
34
|
|
Exempt Ownership Percentage
|
|
|
1
|
|
Exempt Person
|
|
|
4
|
|
Existing Holder
|
|
|
1
|
|
Expiration Date
|
|
|
10
|
|
Final Expiration Date
|
|
|
10
|
|
Nasdaq
|
|
|
11
|
|
NYSE
|
|
|
11
|
|
Original Rights
|
|
|
3
|
|
Person
|
|
|
4
|
|
Preferred Shares
|
|
|
1
|
|
Principal Party
|
|
|
23
|
|
Purchase Price
|
|
|
8
|
|
Record Date
|
|
|
1
|
|
Redemption Date
|
|
|
10
|
|
Redemption Price
|
|
|
31
|
|
Right
|
|
|
1
|
|
Right Certificate
|
|
|
7
|
|
Right to Acquire
|
|
|
4
|
|
Rights Agent
|
|
|
1
|
|
Security
|
|
|
17
|
|
Shares Acquisition Date
|
|
|
4
|
|
Spread
|
|
|
14
|
|
Subsidiary
|
|
|
5
|
|
Substitution Period
|
|
|
15
|
|
Summary of Rights
|
|
|
7
|
|
1
|
|
|
|
|
|
|
Page
|
Trading Day
|
|
|
17
|
|
Trigger Event
|
|
|
5
|
|
2
EXHIBIT 10.10
OFFICE/SHOWROOM/WAREHOUSE LEASE
BASIC DEFINITIONS AND LEASE PROVISIONS
(Office/Showroom/Warehouse Net Lease)
A. The following list sets out certain defined terms and certain financial and other information
pertaining to the Lease:
1. Date of Lease: June 22, 1999
2. Landlord: 1135 Arbor Drive Investors LLC
Landlords address: c/o Allegis Realty Investors, LLC
12001 North Central Expressway #650
Dallas, TX 75243-3735
Contact: Asset Management
Telephone: 972/458-3300
Facsimile: 972/490-9440
3. Tenant: ULTA3 Cosmetics & Salon, Inc.
Tenants address: 1135 Arbor Drive, Romeoville, Illinois 60446
Contact: Matt Strall
Telephone: 630/226-0020
Facsimile: 630/226-8367
4. Tenants trade name: N/A
5. Premises: Landlords property and building improvements located in the Village of
Romeoville, Will County, Illinois which property is described or shown on
Exhibit A
,
attached to the Lease. The building improvements will contain approximately 291,335 (170,117
square feet of area in the Existing Space as depicted on
Exhibit A
and 121,218 rentable
square feet of area in the New Space also as depicted on
Exhibit A
) square feet in
rentable area (measured by calculating lengths and widths to the exterior of outside walls and to
the center of interior walls, without deduction for any columns or projections necessary to the
building), having an address of 1135 Arbor Drive and being described or shown on
Exhibit
B
, attached to the Lease. With regard to
Exhibit B
, the parties agree that the
exhibit is attached solely for the purpose of locating the Premises and that no representation,
warranty, or covenant is to be implied by any other information shown on the exhibit. Should a
party desire to measure the square footage of the building improvements, it must do so prior to the
Commencement Date. If such measurement reflects a different number, then, subject to the other
partys verification of the number, the parties agree to make adjustments based on such
measurement. In the event of a dispute regarding the method of calculation, the parties agree
that the standards for measurement set by the Building Owners and Managers Association (
BOMA
)
shall govern and control. If no measurement is made prior to the Commencement Date, then the
parties to the Lease will be deemed to have accepted the number contained herein as the square
footage of rentable area of the Premises throughout the Lease Term, subject to adjustment only for
any subsequent additions or deletions of space. As of the Date of Lease, Tenant is presently
leasing the Existing Space from Landlord pursuant to a Net Lease Agreement dated July 12, 1995
between Tenant and Landlords predecessor in interest, Opus North Corporation (the
Existing
Lease
). Notwithstanding the fact that the Existing Space shall be subject to the terms and
conditions of the Lease, the Existing Space shall be subject to the terms and conditions of the
Existing Lease until the Commencement Date.
6. Commencement Date: October 1, 1999, provided that if the First Phase Work (as defined in
Exhibit E
below) is not substantially completed on or before October 1, 1999 due to
delays caused by Landlord, the Commencement Date shall be the date when the First Phase Work is
substantially completed.
7. Expiration Date: April 30, 2010, provided that if the Commencement Date is later than
October 1, 1999, the Expiration Date shall be the day prior to the day which is ten (10) years and
seven (7) months after the Commencement Date.
8. Lease Term: Commencing on the Commencement Date and continuing for 127 months after the
Commencement Date.
9. Base Rental: The amounts set forth in the Schedule below (
Carry-Over Rent
) plus
Construction Rent (as defined in
Exhibit E
below):
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Period
|
|
Carry-Over Rent
|
|
Monthly Carry-
|
From
|
|
To
|
|
(Annual)
|
|
Over Rent
|
10/1/99
|
|
|
9/30/00
|
|
|
$
|
680,000
|
|
|
$
|
56,666.67
|
|
10/1/00
|
|
|
9/30/01
|
|
|
$
|
680,000
|
|
|
$
|
56,666.67
|
|
10/1/01
|
|
|
9/30/02
|
|
|
$
|
680,000
|
|
|
$
|
56,666.67
|
|
10/1/02
|
|
|
9/30/03
|
|
|
$
|
740,208
|
|
|
$
|
61,684.00
|
|
10/1/03
|
|
|
9/30/04
|
|
|
$
|
765,000
|
|
|
$
|
63,750.00
|
|
10/1/04
|
|
|
9/30/05
|
|
|
$
|
765,000
|
|
|
$
|
63,750.00
|
|
10/1/05
|
|
|
9/30/06
|
|
|
$
|
783,063
|
|
|
$
|
65,255.25
|
|
10/1/06
|
|
|
9/30/07
|
|
|
$
|
790,500
|
|
|
$
|
65,875.00
|
|
10/1/07
|
|
|
9/30/08
|
|
|
$
|
790,500
|
|
|
$
|
65,875.00
|
|
10/1/08
|
|
|
9/30/09
|
|
|
$
|
808,563
|
|
|
$
|
67,380.25
|
|
10/1/09
|
|
|
4/30/10
|
|
|
$476,000 (for a partial year)
|
|
$
|
68,000.00
|
|
10. Security Deposit: See
Section 4.2
of the Lease.
11. Permitted Use: Office, showroom, packaging and warehouse uses only and related
purposes. Tenant acknowledges that the above specification of a Permitted Use means
2
only that Landlord has no objection to the specified use and does not include any
representation or warranty by Landlord that such specified use complies with applicable laws and/or
requires special governmental permits.
12. Rent or rental: All amounts due from Tenant to Landlord under the provisions of this
Lease, except Default Interest (as defined in
Section 4.5
of the Lease), are deemed to be
rent or rental.
13. Brokers: Nicolson Porter & List Inc.
B. If any conflict exists between any Basic Lease Information and the Lease, then the Lease shall
control.
3
IN WITNESS WHEREOF, Landlord and Tenant have entered into and executed this Lease on the Date
of the Lease written above.
|
|
|
|
|
|
|
|
|
LANDLORD:
|
|
|
|
TENANT:
|
|
|
|
|
|
|
|
|
|
1135 ARBOR DRIVE INVESTORS LLC a Delaware
limited liability company
|
|
|
|
ULTA3 COSMETICS & SALON, INC.
|
|
|
|
|
|
|
|
|
|
By:
|
|
ALLEGIS REALTY INVESTORS LLC, A
|
|
|
|
By:
|
|
/s/ Greg Smolarek
|
|
|
|
|
|
|
|
|
|
|
|
Massachusetts limited liability
company, Its Manager
|
|
|
|
Printed Name: Greg Smolarek
Its: Sr VP Systems and Logistics
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Joseph E. Gaukler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph E. Gaukler
|
|
|
|
|
|
|
|
|
Its: Senior Vice President
|
|
|
|
|
|
|
4
LEASE AGREEMENT
(Office/Showroom/Warehouse Net Lease)
This
LEASE AGREEMENT
(the
Lease
) is entered into as of the Date of the Lease, between
AETNA
LIFE INSURANCE COMPANY
(
Landlord
) and
ULTA3 COSMETICS & SALON, INC.
(
Tenant
).
ARTICLE 1
BASIC DEFINITIONS AND LEASE PROVISIONS
1.1 The definitions and basic provisions set forth in the Basic Definitions and Lease
Provisions executed by Landlord and Tenant, and attached hereto, are incorporated herein by
reference for all purposes.
ARTICLE 2
LEASE GRANT
2.1 Subject to the terms and conditions of this Lease, Landlord leases to Tenant, and Tenant
leases from Landlord, the Premises for the Lease Term.
ARTICLE 3
DELIVERY OF THE PREMISES; LEASE TERM
3.1 The Lease Term shall be for the period of time specified in the Basic Definitions and
Lease Provisions, beginning on the Commencement Date, as such date may be adjusted herein, and
expiring on the Expiration Date. This Lease shall not be affected by any failure to deliver
possession of the New Space to Tenant on the Commencement Date and Tenant shall have no claim for
damages against Landlord as a result thereof, all of which claims are hereby waived and released by
Tenant.
3.2 If Tenant takes possession of the New Space prior to the Commencement Date for any reason,
then such possession shall be subject to all the terms and conditions of this Lease and Tenant
shall pay Base Rental and other rent to Landlord on a per diem basis for each day of occupancy
prior to the Commencement Date (using the estimated rate payable for Construction Rent for the
first month of the Lease Term). Tenant shall not, however, be obligated to pay Base Rental and
other rent to Landlord prior to the Commencement Date if such early occupancy is only for the
purpose of fixturing the New Space.
3.3 By taking possession of the Premises, it shall be conclusive evidence that Tenant has
inspected the Premises (and has sufficient knowledge and expertise to make such inspection or has
caused the Premises to be inspected on its behalf by one or more persons with such knowledge and
expertise), that Tenant has accepted the Premises as being in good and satisfactory condition,
suitable for the purposes herein intended and that the same comply fully with Landlords covenants
and obligations under this Lease with respect to the construction of the Work (as defined in
Exhibit E
below), except for any punchlist items agreed to in writing by Landlord and
Tenant and the performance of the Second Phase Work (as defined in
Exhibit E
below).
Tenant acknowledges and agrees that Landlord has made no representation or warranty, express or
implied, as to the habitability, suitability, quality, condition or fitness of
the Premises, and Tenant waives, to the extent permitted by applicable law, any defects in the
Premises and any claims arising therefrom, save and except those arising from any construction or
repair obligations of Landlord expressly provided for in this Lease.
3.4 Following delivery of the Second Phase Work to Tenant, Landlord shall prepare a
Commencement Date Letter in the form attached hereto as
Exhibit F
setting forth the
Commencement Date, Expiration Date, Base Rental (and specifically delineating Construction Rent)
and confirming Tenants acceptance of the Premises and the Second Phase Work and that Landlord has
performed all of its obligations with respect to delivery of the Premises, except as to any
punchlist items previously specified in writing and related to the Second Phase Work. Tenant shall
execute and deliver the Commencement Date Letter to Landlord within ten (10) days after delivery by
Landlord.
ARTICLE 4
RENT
4.1 Tenant promises and agrees to pay Landlord at Landlords address set forth in this Lease,
or such other address as Landlord may provide to Tenant, the Base Rental and all other rent charged
under this Lease without deduction or set off, for each month of the entire Lease Term. Monthly
installments of Base Rental, as may be adjusted in accordance with the provisions of the Lease,
shall be due and payable, in advance, without notice or demand on or before the first day of each
calendar month during the Lease Term. The Base Rental for any fractional month at the beginning or
end of the Lease Term shall be prorated.
4.2 The Security Deposit in the estimated amount of $288,113 (3 months worth of Base Rental
[estimated including Construction Rent attributable to the Second Phase Work]) shall be paid to
Landlord contemporaneously with the execution of this Lease. If the actual amount of 3 months
worth of Base Rental (as finally determined after the final computation of Construction Rent)
varies from $288,113, the parties shall make an adjusting payment between them if the Security
Deposit is cash, or the Tenant shall provide Landlord with a substitute Letter of Credit (as
defined below) in the proper amount and upon receipt of such substitute Letter of Credit, Landlord
shall return to Tenant the Letter of Credit it then holds. Landlord shall hold the Security
Deposit without liability for interest and as security for the performance by Tenant of Tenants
covenants and obligations under this Lease, it being expressly understood that such deposit shall
not be considered an advance payment of rental or a measure of Landlords damages in case of
default by Tenant. Upon the occurrence of any Event of Default by Tenant, Landlord may, from time
to time, without prejudice to any other remedy, use the Security Deposit to the extent necessary to
make good any arrearage of rent and any other damage, injury, expense or liability caused to
Landlord by such Event of Default. Following any such application of the Security Deposit, Tenant
shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to
its original amount. If Tenant is not then in default of this Lease, any remaining balance of the
Security Deposit shall be returned by Landlord to Tenant upon termination of this Lease. If
Landlord transfers its interest in the Premises during the Lease Term, Landlord may assign the
Security Deposit to the transferee and thereafter shall have no further liability for the return of
the Security Deposit.
2
At Tenants election, the Security Deposit may be in the form of cash or an unconditional and
irrevocable letter of credit (the
Letter of Credit
), which Letter of Credit shall (a) be in the
amount as described above, (b) be in form and substance satisfactory to Landlord, (c) name Landlord
as its beneficiary, (d) expressly allow Landlord to draw upon it at any time or from time to time
by delivering to the issuer written notice that either an Event of Default then exists or Landlord
has not been timely provided a substitute Letter of Credit as described in the next grammatical
sentence, and (e) be drawn on an FDIC-insured financial institution satisfactory to Landlord. If
Landlord is not provided with a substitute Letter of Credit complying with all of the requirements
hereof at least ten (10) days before the stated expiration date of the existing Letter of Credit,
then Landlord shall have the right to draw under such Letter of Credit then held by Landlord and
hold such funds as a Security Deposit in accordance with the terms of this
Section 4.2.
Upon receipt of a paid invoice from Tenant evidencing Tenants payment to the issuing bank of
the fee for the Letter of Credit, Landlord shall reimburse Tenant annually for such fee in an
amount not to exceed 2% of the amount of the Letter of Credit on an annual basis and Tenant shall
be responsible for any fee above such 2% amount. Landlord may, at its sole and absolute
discretion, authorize Tenant to reduce the amount of the Letter of Credit beginning October 1, 2004
through the expiration of the Lease Term to an amount equal to two months worth of Base Rental
payable as of October 1, 2004.
4.3 All amounts due from Tenant to Landlord under this Lease (including Base Rental) is herein
collectively referred to as
rent
. Tenant hereby acknowledges that late payment to Landlord of
rent due hereunder will cause Landlord to incur costs and inconvenience not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. If any rent due from
Tenant is not received by Landlord or Landlords designated agent within ten (10) days after its
due date, then Tenant shall pay to Landlord as a late charge ten percent (10%) of such overdue
amount, plus any reasonable attorneys fees incurred by Landlord by reason of Tenants failure to
pay rent when due hereunder. The parties hereby agree that such late charges represent a fair and
reasonable estimate of the cost that Landlord will incur by reason of Tenants late payment.
Landlords acceptance of such late charges shall not constitute a waiver of Tenants default with
respect to such overdue amount or estop Landlord from exercising any of the other rights and
remedies granted hereunder.
4.4 All payments required of Tenant under this Lease shall bear interest, beginning on the day
after the due date until paid at the lesser of eighteen percent (18%) per annum or the maximum
lawful rate (
Default Interest
). In no event, however, shall the charges permitted under this
paragraph or elsewhere in this Lease, to the extent the same are considered to be interest under
applicable law, exceed the maximum lawful rate of interest.
4.5 No payment by Tenant or receipt by Landlord of a lesser amount than the rent due under
this Lease shall be deemed to be other than on account of the earliest rent due hereunder, nor
shall any endorsement or statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlords right to recover the balance of such rent or to pursue any other remedy
provided in this Lease or at law or in equity.
3
ARTICLE 5
SERVICES
5.1 Tenant shall contract with providers of water, gas, electricity, sewer and telephone
utility services (collectively,
Utilities
) to the Premises. Tenant shall pay for the Utilities
used in operating all facilities serving the Premises, including, without limitation, the cost of
separate meters, connections and security deposits.
5.2 Landlord shall not be liable for any loss, injury or damage to property caused by or
resulting from any variation, interruption, or failure of Utilities due to any cause whatsoever, or
from failure to make any repairs or perform any maintenance. No temporary interruption or failure
of such services incident to the making of repairs, alterations, improvements, or due to accident,
strike, or conditions or other events shall be deemed an eviction of Tenant or relieve Tenant from
any of its obligations hereunder. In no event shall Landlord be liable to Tenant for any damage to
the Premises or for any loss, damage or injury to any property therein or thereon occasioned by
bursting, rupture, leakage or overflow of any plumbing or other pipes (including, without
limitation, water, steam, and/or refrigerant lines), sprinklers, tanks, drains, drinking fountains
or washstands, or other similar cause in, above, upon or about the Premises.
ARTICLE 6
USE
6.1 Tenant shall use the Premises only for the Permitted Use. Tenant will not occupy or use
the Premises, or permit any portion of the Premises to be occupied or used, for any business or
purpose other than the Permitted Use or for any use or purpose which is unlawful or deemed to be
disreputable in any manner, or dangerous to life, limb or property, or extrahazardous on account of
fire, nor permit anything to be done which will in any way invalidate any insurance coverage on the
Premises. Tenant will conduct its business and control its agents, employees and invitees in such a
manner as not to create any nuisance. Tenant will not commit waste and will maintain the Premises
in a clean, healthful and safe condition and will comply in all material respects with all laws,
ordinances, orders, rules and regulations (state, federal, municipal, insurance and other agencies
or bodies having any jurisdiction thereof) with reference to the use, condition or occupancy of the
Premises, including, without limitation, all environmental, health and safety laws and the
Americans with Disabilities Act. Tenant will secure at its own expense all permits and licenses
required for the transaction of business from the Premises in accordance with the Permitted Use.
Tenant will not display or sell merchandise outside the exterior walls and doorways of the enclosed
building improvements located on the Premises and may not use such outside areas for storage.
Tenant will not use any apparatus which might make undue vibrations in the building improvements
located on the Premises.
6.2 Tenant will, and will cause all its employees, agents, contractors and invitees to, comply
fully with all rules and regulations of the Premises adopted by Landlord from time to time. A copy
of the rules and regulations for the Premises, existing on the Date of this Lease, are attached
hereto as
Exhibit D
. Landlord shall at all times have the right to change such rules and
regulations or to promulgate other rules and regulations in such reasonable manner as may be deemed
advisable for the safety, care, or cleanliness of the Premises, and for the preservation of
4
good order therein, all of which rules and regulations, changes and amendments will be
forwarded to Tenant in writing and shall be carried out and observed by Tenant.
ARTICLE 7
SIGNAGE
7.1 Tenant shall have the right to install signs upon the exterior of the Premises only when
first approved in writing by Landlord in Landlords sole discretion and subject also to any
applicable governmental laws, ordinances, regulations and other requirements. Should Landlord agree
in writing to consent to signage, Tenant agrees to maintain same in good condition and repair at
all times. Tenant shall remove all of its signs no later than the Expiration Date. In the event
Tenant fails to remove all its signs by the Expiration Date, Landlord shall be authorized to remove
the signs on Tenants behalf and Tenant shall reimburse the cost of such removal to Landlord, at
Tenants sole expense, and Tenant hereby agrees to indemnify and hold Landlord harmless from and
against any and all costs, expenses, claims and other liabilities of any type arising out of such
sign removal. Tenant shall repair all damage to the Premises or other improvements caused by the
installation or removal of Tenants signs. The provisions of this
Article 7
shall survive
the expiration or termination of this Lease.
7.2 Tenant may erect signs on the exterior or interior of the Premises or on the landscaped
area adjacent thereto, and may erect satellite dishes or other communications equipment on the roof
of the Building, provided that such signs, satellite dishes or other communications equipment (a)
do not cause any structural damage or other damage to the Building; (b) do not violate applicable
governmental laws, ordinances, rules or regulations; (c) do not violate any existing restrictions
affecting the Premises; and (d) are compatible with the architecture of the Premises and the
landscaped area adjacent thereto. Tenant shall repair any damage to the Premises caused by any
installation or removal performed pursuant to the terms of this
Section 7.2
.
ARTICLE 8
ABSOLUTE TRIPLE NET
Notwithstanding anything to the contrary, it is the intent and purpose of this Lease that it
shall be an absolute triple net lease and that, in addition to payment of Base Rental, Tenant shall
be responsible for payment of all operating expenses incurred with respect to the Premises,
including, but not limited to those for taxes (as described in
Article 23
below),
insurance, repairs and maintenance and upkeep.
ARTICLE 9
ALTERATIONS
9.1 Any leasehold improvements to the Premises contemplated to be made prior to the
Commencement Date shall be performed in accordance with the provisions of
Exhibit E
.
9.2 Other than (i) any leasehold improvements to be made under
Section 9.1
above, or
(ii) any interior alteration, addition or improvement which does not impact the heating, air
conditioning, ventilation, electrical, plumbing, utility or mechanical systems of any improvements
located in the Premises nor impact the structural components of the Premises,
5
including but not limited to the foundation, bearing walls, structural steel, footings and
roofs and the cost of which, in any instance, does not exceed $10,000, Tenant shall not make, or
allow to be made, any alterations, additions or improvements to the Premises without the prior
written approval of Landlord. All alterations, additions or improvements installed on the Premises
by either party, including, without limitation, fixtures, but excluding readily movable trade
fixtures and equipment, shall become the property of Landlord at the expiration of the Lease Term,
unless Landlord requests their removal in accordance with
Article 20
below.
9.3 Prior to commencing any construction work on the Premises, Tenant must furnish to Landlord
adequate plans and specifications for the written approval of Landlord. Once approved, Tenant shall
not modify the plans and specifications without, again, obtaining the written approval of Landlord.
Landlords approval of the plans and specifications shall not be deemed to be a representation by
Landlord that such plans and specifications comply with applicable insurance requirements, building
codes, ordinances, laws or regulations.
9.4 All construction work shall be performed only by Landlord or by contractors and
subcontractors approved in writing by Landlord. If Landlord does not perform the construction work,
then Tenant shall cause all of its contractors and subcontractors to procure and maintain insurance
coverage against such risks and in such amounts as Landlord may reasonably require and with such
companies as Landlord may reasonably approve. Landlord may also require Tenant to furnish a payment
and performance bond, reasonably satisfactory to Landlord in an amount covering the cost of the
construction work. Tenant agrees to indemnify Landlord and hold Landlord harmless against any loss,
liability or damage resulting from any such construction work performed by Tenant or on Tenants
behalf.
9.5 All construction work by, or on behalf of, Tenant must be performed in a good and
workmanlike manner in accordance with the approved plans and specifications, lien-free, and in
compliance with all governmental laws and requirements. Tenant shall only utilize new materials in
the construction work.
9.6 Other than as to the Work, Tenant shall not permit any mechanics liens to be filed
against the Premises for any work performed, materials furnished, or obligation incurred by or at
the request of Tenant. If such a lien is filed, then Tenant shall, within ten (10) days after
Landlord has delivered notice of the filing to Tenant, either pay the amount of the lien or
diligently contest such lien, in which event, Tenant shall deliver to Landlord a bond or other
security reasonably satisfactory to Landlord. If Tenant fails to timely take either such action,
then Landlord may, at its election, pay the lien claim without inquiry as to the validity thereof,
and any amounts so paid, plus Landlords expenses and an administrative fee equal to fifteen
percent (15%) of the amount paid, shall be paid by Tenant to Landlord as additional rental within
ten (10) days after Landlord has delivered to Tenant an invoice therefor. No work which Landlord
permits Tenant to perform in the Premises shall be deemed to be for the immediate use or benefit of
Landlord so that no mechanics or other lien shall be allowed against the estate of Landlord by
reason of its consent to such work.
6
ARTICLE 10
REPAIRS
10.1 Except as otherwise provided in this
Article 10
, Tenant, at its sole cost and
expense, throughout the Lease Term, shall take good care of, and keep in good order, condition and
repair (including, without limitation, interior repainting and refurnishing, as needed) all parts
of the Premises, and shall make and perform all routine maintenance thereof and all necessary
repairs thereto. When used in this Article,
repairs
shall include all necessary replacements,
alterations, additions and betterments, interior and exterior, structural and non-structural,
ordinary and extraordinary, foreseen and unforeseen, of every nature, kind and description,
including, without limitation, any repairs, replacements, alterations, additions and betterments
required by any governmental law, ordinance or regulation now or hereafter enacted relating to the
Premises. Such repairs and replacements will be made in a good and workmanlike manner with
materials of equal or better quality to the original work, and under the supervision and with the
approval of Landlord. Tenant shall enter into a service contract with a contractor approved by
Landlord, providing for the service and regular maintenance (with service calls no less frequent
than once each calendar quarter and otherwise meeting the specifications set forth in
Exhibit
M
) of the heating, venting and air conditioning system throughout the Lease Term.
10.2 If Tenant shall fail to maintain or repair the Premises, and such failure continue for a
period of ten (10) days after written notice from Landlord, then Landlord shall have the right, but
not the obligation, to cause such repairs to be made and the costs therefor plus an administrative
fee equal to fifteen percent (15 %) of the costs shall be payable by Tenant to Landlord as
additional rental on the date of the next installment of Base Rental due under the Lease.
Notwithstanding the foregoing to the contrary, if an emergency exists, Landlord shall have the
right, but not the obligation, to make such repairs without prior notice to Tenant if reasonable
under the circumstances. Again, Tenant shall pay to Landlord the cost thereof and administrative
fee as additional rental due on the date of the next installment of Base Rental.
10.3 Except as expressly provided elsewhere in this Lease, Landlord shall not be required to
furnish any services or to make any repairs or alterations in, on or about the Premises or any
improvements hereafter erected on the Premises. Tenant hereby assumes the full and sole
responsibility for the condition, operation, repair, replacement, maintenance and management of the
Premises and all improvements thereon, and Tenant hereby waives any rights created by any law now
or hereafter in force to make repairs to the Premises or improvements thereon at Landlords
expense.
10.4 Tenant, in executing this Lease, acknowledges that the parties have specifically
negotiated and Tenant has specifically agreed to perform the repair obligations under this Lease.
Without limiting the foregoing, Tenant acknowledges that the Base Rental has been determined, in
part, upon Tenants agreement to maintain and make all the repairs to the Premises required during
the Lease Term. Tenant acknowledges that the benefit of the repairs performed by Tenant may inure
to the benefit of Landlord after the expiration of the Lease Term and that Tenant, as a
sophisticated commercial tenant, understands the full undertaking of such obligations.
10.5 Notwithstanding the foregoing, for a period of one (1) year from the date of substantial
completion of (i) the First Phase Work and (ii) the Second Phase Work, as the case
7
may be, Landlord guarantees the First Phase Work and Second Phase Work against, and Landlord
shall, at its sole cost and expense, repair or replace any defective item occasioned during said
one-year period by, (a) defective workmanship and/or materials, and (b) failure of such components
of the Work to comply substantially with the Plans and Specifications (as defined in
Exhibit
E
). Except as expressly provided herein, performance of such applicable one-year guaranty
shall be Landlords sole and exclusive obligation with respect to defective workmanship and/or
materials or such other failures as aforesaid, and Tenants rights to enforce such applicable
one-year guaranty shall be Tenants sole and exclusive remedy against other Landlord with respect
to such defective workmanship and/or materials or such failures, in limitation of any contract,
warranty or other rights, whether express or implied, that Tenant may otherwise have under
applicable law. From and after the expiration of such applicable one-year guaranty, Landlord agrees
to cooperate with Tenant in the enforcement by Tenant, at Tenants sole cost and expense, of any
express warranties or guaranties of workmanship or materials given by contractors, subcontractors
or materialmen that guarantee or warrant against defective workmanship or materials for a period of
time in excess of such applicable one-year period and to cooperate with Tenant in the enforcement
by Tenant, at Tenants sole cost and expense, of any service contracts that provide service, repair
or maintenance to any item incorporated in the New Space for a period of time in excess of such
applicable one-year period. Further, Landlord shall assign to Tenant all warranties in connection
with the Work which are given by manufacturers, contractors, subcontractors and sub-subcontractors.
Such warranties shall be consistent with those then generally available from other high quality,
reputable commercial contractors in the greater Chicago, Illinois vicinity.
Anything in this Lease to the contrary notwithstanding, and in addition to the one-year
warranty set forth above, Landlord, to the full extent of applicable Illinois law, guarantees the
Work against any latent defects in workmanship or materials in the construction thereof (which
shall include, without limitation, latent defects in the structural elements or the facade of the
New Space); provided, however, that the parties acknowledge and agree that with respect to any such
latent defects, the provisions of 735 ILCS 5/13-214, as the same may be amended, modified and
interpreted from time to time, shall govern and control the foregoing warranty. Anything in this
Lease to the contrary notwithstanding, Tenant has not waived, and does not hereby waive, any rights
it may have under common law with respect to any latent defects with respect to the construction of
the Work.
Anything in this
Section 10.5
or elsewhere in this Lease to the contrary
notwithstanding, in the event that at any time during the Lease Term Tenant incurs reasonable costs
and expenses for the repair or replacement of the roof of the Existing Space or of the roof of the
New Space, respectively, which costs and expenses, in each case (a) are not paid or reimbursed
under the roof manufacturers warranty (Tenant being obligated to use all commercially reasonable
efforts to obtain such payment or reimbursement), (b) are not caused by fire or other casualty, and
(c) are not caused by any act or neglect of Tenant, or any of its employees, agents, invitees,
contractors, subcontractors or sub-subcontractors (other than Landlord and Landlords contractors,
subcontractors or sub-subcontractors), then Landlord shall reimburse Tenant for such costs and
expenses in accordance with this grammatical paragraph. In the event that such costs and expenses
are incurred prior to January 31, 2001 (with respect to the roof of the Existing Space), or prior
to September 30, 2004 (with respect to the roof of the New Space), then Landlord shall reimburse
Tenant for all of such costs and expenses. In the event that such costs and expenses are
8
incurred after January 31, 2001 (with respect to the roof of the Existing Space), or after
September 30, 2004 (with respect to the roof of the New Space), in both instances, including,
without limitation, any Renewal Terms (as defined in
Exhibit J
below), then Landlord
shall reimburse Tenant for such costs and expenses, to the extent (if at all) that the same exceed
the difference between (y) Fifty Thousand and 00/100ths Dollars ($50,000.00), which $50,000.00
deductible amount shall apply separately with respect to each of the Existing Space roof and the
New Space roof, and (z) any such costs or expenses theretofore incurred by Tenant and not
previously reimbursed by Landlord hereunder. Landlords reimbursement hereunder shall be made
within thirty (30) days after Tenants presentation to Landlord of reasonable documentation
evidencing the costs and expenses incurred by Tenant and the satisfaction of the other conditions
set forth above.
10.6 (a) Anything in this Lease to the contrary notwithstanding, if, during the last eighteen
(18) months of the then-current Lease Term, Tenant is required to make any repair or replacement
pursuant to
Section 10.1
hereof, which repair or replacement under generally accepted
accounting principles is not fully chargeable to a current account in the year in which the
expenditure is incurred and, therefore, must be capitalized, the cost of such repair or replacement
shall be shared between Landlord and Tenant as provided in this
Section 10.6
. Any such
repair or replacement is hereinafter referred to as an
Eligible Repair or Replacement
and that
portion of the cost of such Eligible Repair or Replacement in excess of $5,000.00 is hereinafter
referred to as the
Eligible Cost
. Tenant shall pay, in the first instance, the entire cost of an
Eligible Repair or Replacement, and Landlord shall reimburse Tenant, in accordance with this
Section 10.6
, for that portion of the Eligible Cost which equals the difference between (i)
the amount of the Eligible Cost, and (ii) the product of (A) the Eligible Cost, and (B) a fraction,
the numerator of which is the number of months from the commencement of the subject Eligible Repair
or Replacement through the end of the then current term, and the denominator of which is the useful
life, expressed in months, of the subject Eligible Repair or Replacement assigned to it for federal
income tax purposes (pursuant to Section 168 of the Internal Revenue Code of 1986, as amended, and
the rules and regulations from time to time promulgated thereunder). Such amount to be reimbursed
by Landlord, as calculated in accordance with the preceding sentence, is hereinafter referred to as
the
Tenant Reimbursement
. In the event Tenant thereafter exercises its option with respect to a
Renewal Term, then the amount of the Tenant Reimbursement shall be recalculated to reflect the
number of months from the commencement of the subject Eligible Repair or Replacement through the
end of the applicable Renewal Term (
Recalculated Reimbursement
). In the event that, because of
Tenants exercise of its option for a Renewal Term, Tenant shall have been reimbursed hereunder for
amounts in excess of the Recalculated Reimbursement, then Tenant shall pay the entire amount of
such excess to Landlord within sixty (60) days after Tenants exercise with respect to such Renewal
Term.
(b) In the event that at any time during the last six (6) months of the then-current Lease
Term, Tenant intends to undertake an Eligible Repair or Replacement, Tenant shall give written
notice thereof to Landlord, which notice shall include a summary of the nature and cost of such
Eligible Repair or Replacement. Landlord shall be required to consider such repair or replacement
in good faith and, within twenty (20) days after such notice (or such lesser time as stated in such
notice, in the event of an emergency), either approve or disapprove the expenditure or propose a
reasonable alternative thereto. In the event that Landlord fails to respond to Tenant
9
with an approval, disapproval or an alternative proposal within such twenty (20) day (or
shorter) period, such Eligible Repair or Replacement shall be deemed disapproved. In the event that
within such twenty (20) day (or shorter) period, Landlord either disapproves or proposes an
alternative to the proposed repair or replacement and Tenant determines that such disapproval or
alternative proposal is not reasonable, Tenant may undertake the proposed repair or replacement at
its sole expense, without waiving its right to contest the reasonableness of Landlords position
hereunder.
(c) For purposes of this
Section 10.6
, Landlords reasonableness in disapproving or
proposing an alternative to a proposed repair or replacement shall be determined in light of a
reasonably prudent owner of similar commercial real estate in the same general vicinity of the
Premises.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1
Restriction on Transfer.
Tenant shall not sublet the Premises, or any portion thereof,
nor assign, mortgage, pledge, transfer or otherwise encumber or dispose of this Lease, or any
interest therein, or in any manner assign, mortgage, pledge, transfer or otherwise encumber or
dispose of its interest or estate in the Premises, or any portion thereof, without obtaining
Landlords prior written consent in each and every instance, which consent shall not be
unreasonably withheld or delayed, provided the following conditions are complied with:
(a) Any assignment of this Lease shall transfer to the assignee all of Tenants right, title
and interest in this Lease and all of Tenants estate or interest in the Premises.
(b) At the time of any assignment or subletting, and at the time when Tenant requests
Landlords written consent thereto, this Lease must be in full force and effect, without any Event
of Default.
(c) In the case of an assignment, any such assignee shall assume, by written, recordable
instrument, in form and content reasonably satisfactory to Landlord, the due performance of all of
Tenants obligations under this Lease, including any accrued obligations at the time of the
effective date of the assignment, and such assumption agreement shall state that the same is made
by the assignee for the express benefit of Landlord as a third party beneficiary thereof. A copy of
the assignment and assumption agreement, both in form and content reasonably satisfactory to
Landlord, fully executed and acknowledged by assignee, together with a certified copy of a properly
executed corporate resolution (if the assignee be a corporation) authorizing the execution and
delivery of such assumption agreement, shall be sent to Landlord ten (10) days prior to the
effective date of such assignment.
(d) In the case of a subletting, a copy of any sublease fully executed and acknowledged by
Tenant and the sublessee shall be mailed to Landlord ten (10) days prior to the effective date of
such subletting, which sublease shall be in form and content reasonably acceptable to Landlord.
(e) Such assignment or subletting shall be subject to all the provisions, terms, covenants and
conditions of this Lease and Tenant-assignor (and the guarantor or guarantors of
10
this Lease, if any) and the assignee or assignees shall continue to be and remain liable under
this Lease, as it may be amended from time to time without notice to any assignor of Tenants
interest or to any guarantor.
(f) Each sublease permitted under this
Section 11.1
shall contain provisions to the
effect that (i) such sublease is only for actual use and occupancy by the sublessee; (ii) such
sublease is subject and subordinate to all of the terms, covenants and conditions of this Lease and
to all of the rights of Landlord thereunder; and (iii) in the event this Lease shall terminate
before the expiration of such sublease, the sublessee thereunder will, at Landlords option, attorn
to Landlord and waive any rights the sublessee may have to terminate the sublease or to surrender
possession thereunder, as a result of the termination of this Lease. A sublease need not be for all
of the Premises.
(g) Tenant agrees to pay on behalf of Landlord any and all costs of Landlord, including
reasonable attorneys fees paid or payable to outside counsel, occasioned by such assignment or
subletting; provided, however, that such attorneys fees shall not exceed $5,000.00 in each
instance.
Anything in this
Section 11.1
or
Section 11.3
hereof to the contrary
notwithstanding, Tenant may sublet or assign its interest in this Lease, without Landlords
consent, if such subletting or assignment is to an affiliate of Tenant and if such subletting or
assignment does not release Tenant (or guarantor, if any) from any of its obligations under this
Lease. An
affiliate
for purposes of this
Section 11.1
and
Section 11.3
hereof
shall mean (i) a wholly-owned subsidiary of Tenant, (ii) Tenants parent, (iii) an entity
succeeding to all or a substantial part of the business of Tenant, (iv) an entity resulting from a
merger or consolidation with Tenant, or (v) an entity which directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control with, Tenant. The
term
control
(including, without limitation, the terms controlling, controlled by and under
common control with shall mean the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of an entity, whether through the ownership of voting
securities, by contract or otherwise).
11.2
Restriction From Further Assignment.
Notwithstanding anything contained in this Lease to
the contrary and notwithstanding any consent by Landlord to any sublease of the Premises, or any
portion thereof, or to any assignment of this Lease or of Tenants interest or estate in the
Premises, no sublessee shall assign its sublease nor further sublease the Premises, or any portion
thereof, and no assignee shall further assign its interest in this Lease or its interest or estate
in the Premises, or any portion thereof, nor sublease the Premises, or any portion thereof, without
Landlords prior written consent in each and every instance which consent shall not be unreasonably
withheld or unduly delayed. No such assignment or subleasing shall relieve Tenant from any of
Tenants obligations in this Lease contained.
11.3
Landlords Termination Rights.
Should Tenant desire to assign this Lease, or its interest
or estate in the Premises, or sublet the Premises, or any portion thereof, it shall give written
notice of its intention to do so to Landlord sixty (60) days or more before the effective date of
such proposed assignment or subletting and, unless such assignment or subletting is to an affiliate
of Tenant in accordance with
Section 11.1
hereof, Landlord may, at any time within
11
thirty (30) days after the receipt of such notice from Tenant, cancel this Lease by giving
Tenant written notice of its intention to do so, in which event such cancellation shall become
effective upon the date specified by Landlord, but not less than thirty (30) nor more than ninety
(90) days after its receipt by Tenant, with the same force and effect as if said cancellation date
were the Expiration Date, or the expiration date of any extension or renewal thereof. In the event
of any such termination by Landlord, Tenant shall not be obligated to pay Landlords costs pursuant
to
Section 11.1(g)
hereof. Landlord may enter into a direct lease with the proposed
sublessee of assignee or with any other persons as Landlord may desire without obligation or
liability to Tenant, its assignees, sublessees or their respective successors, assigns, agents or
brokers.
11.4
Tenants Failure to Comply.
Tenants failure to comply with all of the foregoing
provisions and conditions of this
Article 11
shall (whether or not Landlords consent is
required under this Article), at Landlords option, render any purported assignment or subletting
null and void and of no force and effect.
11.5
Sharing of Excess Rent.
If Landlord consents to Tenant assigning its interest under this
Lease or subletting all or any portion of the Premises, Tenant shall pay to Landlord (in addition
to rent and all other amounts payable by Tenant under this Lease) 50% of the rents and other
considerations payable by such assignee or subtenant in excess of the rent otherwise payable by
Tenant from time to time under this Lease, and net of Tenants direct out-of-pocket expenses in
connection with such assignment or subletting. For the purposes of this computation, the additional
amount payable by Tenant shall be determined by application of the rental rate per square foot for
the Premises or any portion thereof sublet. Said additional amount shall be paid to Landlord
immediately upon receipt by Tenant of such rent or other considerations from the assignee or
subtenant.
ARTICLE 12
INSURANCE; WAIVERS; SUBROGATION; INDEMNITY
12.1 Tenant shall at its expense procure and maintain throughout the Lease Term the following
insurance policies: (i) commercial general liability insurance in amounts of not less than
$5,000,000 per occurrence, combined single limit, or such other amounts as Landlord may from time
to time reasonably require, insuring Tenant, Landlord and Landlords agents against all liability
for injury to or death of a person or persons or damage to property arising from the use and
occupancy of the Premises, (ii) contractual liability insurance coverage sufficient to cover
Tenants indemnity obligations hereunder, (iii) casualty insurance, including all risks and fire
and extended coverage insurance covering loss by fire, and other hazards, including, but not
limited to, windstorm, hail, explosion, vandalism, riot and civil commotion, damage from vehicles,
smoke, water, and flood, if the Premises are in a designated flood or flood insurance area, and
earthquake, if the Premises are in an earthquake prone area, and such other similar or dissimilar
hazards customarily insured against in the vicinity of the Premises and covering the full
replacement cost of the Premises and Tenants leasehold improvements, personal property and other
property (including the property of others), located in or on the Premises, (iv) workmans
compensation insurance, containing a waiver of subrogation endorsement reasonably acceptable to
Landlord, (v) comprehensive automobile liability insurance, insuring Tenant, Landlord and
Landlords agents, (vi) business interruption insurance, and (vii) such other insurance and in such
amounts as Landlord may reasonably require from time to time. The term
12
full replacement cost
, as used above, shall mean the cost of replacing the improvements
without deduction for depreciation or wear and tear, and it shall include a reasonable sum for
architectural, engineering, legal, administrative and supervisory fees connected with any
restoration. In the event there is a sprinkler system and/or a boiler or pressure pipes on the
Premises, then Tenant shall also procure sprinkler leakage insurance and/or boiler and pressure
vessel insurance at Tenants expense. Tenants insurance shall provide primary coverage to Landlord
when any policy issued to Landlord provides duplicate or similar coverage, and in such
circumstance, Landlords policy will be excess over Tenants policy. Tenant shall furnish
certificates of insurance and such other evidence satisfactory to Landlord of the maintenance of
all insurance coverages required hereunder prior to the Commencement Date, and Tenant shall obtain
a written obligation on the part of each insurance company to notify Landlord at least thirty (30)
days before cancellation or a material change of any such insurance. All such insurance policies
shall name Landlord as additional insured or loss payee, as applicable, and otherwise shall be in
form, and issued by companies, reasonably satisfactory to Landlord and with deductibles reasonably
satisfactory to Landlord. Tenants failure to maintain any insurance hereunder shall constitute an
Event of Default without any written notice required of Landlord and, in such event, Landlord shall
have the right, but not the obligation, to purchase any insurance that has lapsed. Should Landlord
elect to purchase insurance on behalf of Tenant, then Tenant shall reimburse to Landlord the cost
of such insurance and an administrative fee of fifteen percent (15%) of the amount of the premium
within ten (10) days of the date of the notice from Landlord seeking the reimbursement. The policy
limits of any insurance required to be carried by Tenant shall not limit the liability of Tenant
under this Lease.
12.2 Landlord shall not be liable to Tenant or those claiming by, through, or under Tenant for
any injury to or death of any person or persons or the damage to or theft, destruction, loss, or
loss of use of any property or inconvenience (a
Loss
) caused by casualty, theft, fire, third
parties, or any other matter (including Losses arising through repair or alteration of any part of
the Premises, or failure to make repairs, or from any other cause), except the negligence or
misconduct of Landlord or its employees and agents. Notwithstanding the foregoing to the contrary,
Landlord and Tenant waive any claim each might have against the other for any damage to or theft,
destruction, loss, or loss of use of any property, to the extent the same is covered under any
insurance policy that covers the Premises, Landlords or Tenants fixtures, personal property,
leasehold improvements, or business, or, in the case of Tenants waiver, is required to be insured
against under the terms of this Lease, and, to the extent allowed by law, regardless that the
negligence or fault of the other party caused such loss. This waiver shall not apply to the portion
of any damage which is not reimbursed by the damaged partys insurance by reason of the deductible
in such partys insurance coverage, or apply to any coinsurance penalty which Landlord or Tenant
might sustain. Each party shall cause its insurance carrier to endorse all applicable policies
waiving the carriers rights of recovery under subrogation or otherwise against the other party.
12.3 Subject to the waiver provisions of
Section 12.2
above, Tenant shall defend,
indemnify, and hold harmless Landlord and its employees and agents from and against all claims,
demands, liabilities, causes of action, suits, judgments, and expenses (including attorneys fees)
for any Loss arising from an occurrence on the Premises or caused by or resulting from the
condition of the Premises, or from the acts or omissions of Tenant or Tenants
13
employees, agents, contractors or invitees, or from Tenants failure to perform any of its
obligations under this Lease.
12.4 Tenant shall not use, and shall not permit any subtenant, licensee, concessionaire,
employee, agent or invitee (hereinafter collectively
Tenants Representatives
) to use, any
portion of the Premises for the placement, storage, manufacture, disposal or handling of any
hazardous materials (hereinafter defined) unless Tenant complies with all applicable environmental
laws (federal, state or local), including, but not limited to those for obtaining proper permits.
In the event Tenant or Tenants Representatives desire to use or place hazardous materials on the
Premises it shall notify Landlord in writing thirty (30) days prior to such proposed use or
placement, and provide the names of the hazardous materials, procedures to insure compliance with
the applicable environmental law and such other information as Landlord may reasonably request.
In the event Tenant or Tenants Representatives places, releases or discovers any hazardous
materials on the Premises in violation of applicable environmental laws, Tenant shall immediately
notify Landlord of such fact in writing within twenty-four (24) hours of the placement, release or
discovery. Tenant shall not attempt any removal, abatement or remediation of those hazardous
materials on the Premises in violation of applicable environmental laws, without obtaining the
additional written consent of Landlord, which consent may be specifically conditioned on Landlords
right to approve the scope, timing and techniques of any such work and the appointment of all
contractors, engineers, inspectors and consultants in connection with any such work. Tenant shall
be responsible for the cost of any removal, abatement and remediation work of any hazardous
materials placed, stored, manufactured, disposed of or handled by Tenant or Tenants
Representatives on the Premises and for the cost of any removal, abatement or remediation of any
hazardous materials which might be disturbed or released as a result of any remodeling or
construction in the Premises by Tenant or Tenants Representatives. Such costs shall include,
without limitation, the cost of any supervision by Landlord, its employees or agents, in connection
with such work. Tenant shall comply with all environmental laws in connection with any such
removal.
Tenant shall indemnify Landlord, its shareholders, directors, officers, employees and agents
and hold them harmless, from and against any loss, damage (including, without limitation, a loss in
value of the Premises or damages due to restrictions on marketing contaminated space), cost,
liability or expense (including reasonable attorneys fees and expenses and court costs) arising
out of the placement, storage, use, manufacture, disposal, handling, removal, abatement or
remediation of any hazardous materials by Tenant or Tenants Representatives on the Premises, or
any removal, abatement or remediation of any hazardous materials required hereunder to be performed
or paid for by Tenant, with respect to any portion of the Premises, or arising out of any breach by
Tenant of its obligations under this paragraph.
The term
hazardous materials
as used herein shall mean (i) any hazardous waste as defined
by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), as amended
from time to time, and regulations promulgated thereunder; (ii) any hazardous substance as
defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. Section 9601, et seq.), as amended from time to time, and regulations promulgated
thereunder; (iii) asbestos or polychlorinated biphenyls;
14
(iv) any substance the presence of which on the Premises is prohibited or regulated by any
federal, state or local law, regulation, code or rule; and (v) any other substance which requires
special handling or notification of any federal, state or local governmental entity in its
collection, storage, treatment, or disposal.
12.5 The indemnification provisions contained in this
Article 12
shall survive the
termination of this Lease.
ARTICLE 13
FIRE AND CASUALTY
13.1 Tenant covenants and agrees that in case of damage to or destruction of the Premises by
fire or otherwise, Tenant at its sole cost and expense, shall promptly restore, repair, replace and
rebuild the same (
Restoration
) as nearly as possible to the condition that the same were in
immediately prior to such damage or destruction with such changes or alterations as may be
reasonably acceptable to Tenant or required by law, except that Tenant shall not be obligated to
rebuild any of the Flammable Storage Room, Mezzanine or Elevator (all as defined in
Exhibit
E
attached hereto and collectively referred to herein as
Tenants Construction Items
).
Tenant shall forthwith give Landlord written notice of such damage or destruction upon the
occurrence thereof and specify in such notice, in reasonable detail, the extent thereof. The
Restoration shall be carried on and completed in accordance with the provisions and conditions of
this Lease. All insurance proceeds shall be held by Landlord and Tenant as co-trustee. If the
insurance monies in the hands of Landlord and Tenant as co-trustees shall be deemed to be
insufficient by Landlord to pay the entire costs of the Restoration, Tenant, at its election, shall
either pay any deficiency to Landlord promptly upon demand or provide other reasonable security to
the Landlord for the deficiency and pay Landlord the portions of the deficiency from time to time
as expended by Landlord and invoiced to Tenant.
13.2 All insurance monies recovered by Landlord or Tenant shall be held by Landlord and Tenant
as co-trustees on account of such damage or destruction and shall be applied to the payment of the
costs of the Restoration and shall be paid out from time to time as the restoration progresses, in
accordance with requirements reasonably imposed by Landlord or any mortgagee of record. Tenant
shall furnish Landlord at the time of any such payment with lien releases and evidence reasonably
satisfactory to Landlord that there are no unpaid bills in respect to any work, labor, services or
materials performed, furnished or supplied in connection with such Restoration.
13.3 No destruction of or damage to the Premises, or any portion thereof, by fire, casualty or
otherwise shall permit Tenant to surrender this Lease or shall relieve Tenant from its liability to
pay to Landlord the Base Rental and additional rent payable under this Lease or from any of its
other obligations under this Lease, and Tenant waives any rights now or hereafter conferred upon
Tenant by present or future law or otherwise to quit or surrender this Lease or the Premises, or
any portion thereof, to Landlord or to any suspension, diminution, abatement or reduction of rent
on account of any such damage or destruction.
13.4 In the event the damage or destruction occurs during the last nine (9) months of the
Lease Term, then, notwithstanding the provisions of
Sections 13.1
and
13.2
above,
Tenant
15
shall not be obligated to complete such Restoration so long as Tenant assigns to Landlord all
insurance proceeds necessary (including the amount of any deductibles and any other amounts
necessary) for Landlord to complete such Restoration, except that Tenant may retain any proceeds
attributable to the Tenants Construction Items.
ARTICLE 14
CONDEMNATION
14.1 If all of the Premises should be taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent domain or by private purchase in
lieu thereof, this Lease shall terminate and the rent shall be abated during the unexpired portion
of the Lease Term, effective on the date physical possession is taken by the condemning authority,
and Tenant shall have no claim against Landlord for the value of any unexpired Lease Term.
14.2 In the event a portion but not all of the Premises shall be taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by right of eminent
domain, by private sale in lieu thereof and the partial taking or condemnation shall render the
Premises unsuitable for continued operation, then Landlord shall have the option, in its sole
discretion, of terminating this Lease or, at Landlords sole risk and expense, restoring and
reconstructing the Premises to the extent necessary to make the same reasonably tenantable. Should
Landlord not elect to terminate this Lease, then Landlord shall restore the Premises and this Lease
shall continue in full force and effect with the rent payable during the unexpired portion of this
Lease being adjusted to such an extent as may be fair and reasonable under the circumstances, and
Tenant shall have no claim against Landlord for the value of any interrupted portion of this Lease.
14.3 Landlord shall be entitled to receive all of the compensation awarded upon a condemnation
(or the proceeds of a private sale in lieu thereof) of all or any part of the Premises, including
any award for the value of any unexpired Lease Term, and Tenant hereby assigns to Landlord and
expressly waives all claim to any such compensation, except that Tenant shall be entitled to any
proceeds attributable to the Tenants Construction Items. However, Tenant reserves for itself any
separate award made for relocation cost or loss of any of Tenants trade fixtures, provided no such
award shall diminish the amount that would otherwise be awarded to Landlord.
ARTICLE 15
SUBORDINATION, ATTORNMENT, ESTOPPEL
15.1 This Lease shall be subordinate to any deed of trust, mortgage, or other security
instrument (a
Mortgage
), or any ground lease, master lease, or primary lease (a
Primary Lease
),
that now or hereafter covers all or any part of the Premises (the mortgagee under any Mortgage or
the lessor under any Primary Lease is referred to herein as
Landlords Mortgagee
), including any
modifications, renewals or extensions of such Mortgage or Primary Lease. Notwithstanding the
foregoing, Tenant agrees that any such Landlords Mortgagee shall have the right at any time to
subordinate such Mortgage or Primary Lease to this Lease on such terms and subject to such
conditions as Landlords Mortgagee may reasonably deem appropriate
16
in its discretion. Tenant agrees upon demand to execute such further instruments subordinating
this Lease or attorning to the Landlords Mortgagee as Landlord may reasonably request. In the
event that Tenant should fail to execute any subordination or other agreement required by this
Section, promptly as requested, Tenant hereby irrevocably constitutes Landlord as its attorney in
fact to execute such instrument in Tenants name, place and stead, it being agreed that such power
is one coupled with an interest.
15.2 Tenant shall attorn to any party succeeding to Landlords interest in the Premises,
whether by purchase, foreclosure, deed in lieu of foreclosure, power of sale, termination of lease,
or otherwise, upon such partys request, and shall execute such agreements confirming such
attornment as such party may reasonably request.
15.3 Tenant shall not seek to enforce any remedy it may have for any default on the part of
the Landlord without first giving written notice by certified mail, return receipt requested,
specifying the default in reasonable detail, to any Landlords Mortgagee whose address has been
given to Tenant, and affording such Landlords Mortgagee a reasonable opportunity to perform
Landlords obligations hereunder.
15.4 Tenant agrees that, within ten (10) days of written request by Landlord, it will execute
and deliver to such persons as Landlord shall request a statement in recordable form certifying
that this Lease is unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as so modified), stating the dates to which rent and
other charges payable under this Lease have been paid, stating that Landlord is not in default
hereunder (or if Tenant alleges a default stating the nature of such alleged default) and further
stating such other matters as Landlord shall reasonably require.
ARTICLE 16
EVENTS OF DEFAULT
16.1 The following shall be deemed to be Events of Default by Tenant under this Lease:
(a) Tenant shall fail to pay any installment of Base Rental or any other rent or monetary sum
when due under the provisions of this Lease, but in the case of the first two (2) such failures in
any twelve (12) consecutive months, an Event of Default shall not be deemed to have occurred until
this failure continues for five (5) days after written notice from Landlord.
(b) Tenant shall fail to comply with any term, provision or covenant of this Lease, other than
the payment of a monetary sum, and such failure shall not be cured within ten (10) days after
written notice thereof to Tenant; provided that, if any such default cannot reasonably be remedied
by Tenant within ten (10) days after such written notice, then Tenant shall have such additional
time that shall be reasonably necessary to remedy such default (but in no event longer than ninety
(90) days) so long as during such time Tenant is continuously and diligently pursuing the remedy
necessary to cure such default.
(c) Tenant or any guarantor of Tenants obligations under this Lease shall become insolvent,
or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of
creditors.
17
(d) Tenant or any guarantor of Tenants obligations under this Lease shall file a petition
under any state or federal bankruptcy or other insolvency statutes or Tenant or any guarantor of
Tenants obligations under this Lease shall be adjudged bankrupt or insolvent in proceeding filed
against Tenant or guarantor thereunder and such adjudication shall not be vacated or set aside
within ninety (90) days.
(e) A receiver or trustee shall be appointed for all or substantially all of the assets of
Tenant or any guarantor of the obligations of Tenant under this Lease and such receivership shall
not be terminated or stayed within forty-five (45) days.
(f) Tenant shall desert or vacate any substantial portion of the Premises; provided that,
Tenant vacating the Premises shall not constitute an Event of Default if, prior to vacating the
Premises, Tenant has made arrangements reasonably satisfactory to Landlord to (i) insure that
Tenants insurance for the Premises will not be voided or canceled with respect to the Premises as
a result of such vacancy, (ii) insure that the Premises are secured and not subject to vandalism,
and (iii) insure that the Premises will be properly maintained after such vacation. During such
vacation, Tenant shall inspect the Premises at least once each month and report monthly in writing
to Landlord on the condition of the Premises.
ARTICLE 17
REMEDIES
17.1 Upon the occurrence of an Event of Default, Landlord shall have the option to pursue any
one or more of the following remedies without any notice or demand whatsoever, except if required
by applicable law:
(a) Terminate this Lease in which event Tenant shall immediately surrender the Premises to
Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which
it may have for possession or damages, enter upon and take possession and expel or remove Tenant
and any other person who may be occupying said Premises or any part thereof without being liable
for prosecution or any claim for damages therefor, and Tenant agrees to pay to Landlord, as
hereinafter set forth in
Section 17.2
, on demand the amount of all loss and damage which
Landlord may suffer by reason of such termination, whether through inability to relet the Premises
on satisfactory terms or otherwise.
(b) Terminate Tenants right to possession of the Premises, but not this Lease, in which event
Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord
may, without prejudice to any other remedy which it may have for possession or damages, enter upon
and take possession of the Premises and expel or remove Tenant and any other person who may be
occupying the Premises or any part thereof without being liable for prosecution or any claim for
damages therefor and Tenant agrees to pay to Landlord, as hereinafter set forth in
Section
17.2
, on demand the amount of all loss and damage which Landlord may suffer by reason of such
termination, whether through inability to relet the Premises on satisfactory terms or otherwise.
(c) Enter upon the Premises, without terminating this Lease or Tenants right to possession
and without being liable for prosecution or any claim for damages therefor, and do
18
whatever Tenant is obligated to do under the provisions of this Lease, and Tenant agrees to
reimburse Landlord on demand for any expenses which Landlord may incur in thus effecting compliance
with Tenants obligations under this Lease, plus an administrative fee equal to fifteen percent
(15%) of any expenses incurred by Landlord, and Tenant further agrees that Landlord shall not be
liable for any damages resulting to the Tenant for such action.
(d) Not to re-enter the Premises or terminate this Lease, but to allow Tenant to remain in
possession of the Premises, and bring suit against Tenant to collect the monthly rents and other
charges provided in this Lease as they accrue. Landlord shall have a right to allow such
deficiencies of monthly rents and other charges provided in this Lease to accumulate and to bring
an action on several or all of the accrued deficiencies at one time. Any such suit shall not
prejudice in any way the right of Landlord to bring a similar action for any subsequent deficiency
or deficiencies.
Tenant agrees that any re-entry into the Premises under the provisions of subsection (a) or
(b) of this Section shall not be deemed a termination of this Lease or an acceptance of the
surrender thereof, unless Landlord shall have notified Tenant in writing that it has so elected to
terminate this Lease. Tenant also agrees that any notice pursuant to an action for forcible
detainer or eviction shall not be deemed to be a termination of this Lease unless Landlord shall
have also notified Tenant in writing that it has so elected to terminate this Lease. Any election
of the remedy provided in subsection (b) of this Section shall not preclude the subsequent election
by Landlord of the remedy under subsection (a) of this Section.
Should Landlord elect to re-enter the Premises under the provisions of subsection (a) or (b),
Landlord shall make commercially reasonable efforts to relet the Premises. Nothing herein, however,
shall prohibit Landlord from using its business judgment in respect to the releasing of the
Premises. In this regard, Landlord shall not be required to relet the Premises for a rental rate
less than the fair market rental rate for the Premises.
17.2 Should Landlord at any time terminate this Lease or Tenants right to possession for an
Event of Default, Landlord shall recover from Tenant, and Tenant shall be liable and pay to
Landlord, as damages a sum equal to the following:
(i) the unpaid monthly rents and other charges provided in this Lease and which accrued
prior to the date of termination;
(ii) an amount equal to the following:
(A) Until Landlord is able, through reasonable efforts, to relet the Premises
under terms satisfactory to Landlord, in its sole discretion, Tenant shall pay to
Landlord on or before the first day of each calendar month, the monthly rentals and
other charges provided in this Lease. If and after the Premises have been relet by
Landlord, Tenant shall pay to Landlord on the twentieth (20th) day of each calendar
month the difference between the monthly rentals and other charges provided in this
Lease for such calendar month and that actually collected by Landlord for such
month. If it is necessary for Landlord to bring suit in order to collect any
deficiency, Landlord shall have a right to allow such deficiencies to
19
accumulate and to bring an action on several or all of the accrued deficiencies
at one time. Any such suit shall not prejudice in any way the right of Landlord to
bring a similar action for any subsequent deficiency or deficiencies. Any amount
collected by Landlord from subsequent tenants for any calendar month in excess of
the monthly rentals and other charges provided in this Lease, shall be credited to
Tenant, first, in reduction of Tenants liability for any calendar month for which
the amount collected by Landlord will be less than the monthly rentals and other
charges provided in this Lease and, then, against Tenants liability for any other
damages of Landlord hereunder, and Tenant shall have no right to any excess other
than the above-described credits; and
(B) When Landlord desires, Landlord may demand a final settlement, in which
event, Landlord shall have a right to, and Tenant hereby agrees to pay, the
difference between (1) the total monthly rents and other charges provided in this
Lease for the remainder of the Lease Term, and (2) the fair rental value of the
Premises for such period (determined as of the time of the final settlement) such
difference discounted to present value using the prime rate published in
The
Wall Street Journal
for the region in which the Premises is located on the date
of the final settlement; and
(iii) all other damages which Landlord may demonstrate it incurred, including, without
limitation, any and all costs of retaking the Premises, costs of maintaining and preserving
the Premises after such retaking, and costs of reletting the Premises, such as costs to
repair or remodel the Premises and to pay leasing commissions.
If Landlord elects to exercise the remedy prescribed in
Section 17.2(ii)(A)
above,
this election shall not prejudice Landlords right at any time thereafter to cancel said election
in favor of the remedy prescribed in
Section 17.2(ii)(B)
above.
As used in this
Article 17
, the phrase the monthly rentals and other charges provided
in this Lease shall mean the monthly amount of Base Rental plus one twelfth (1/12th) the annual
amount of Operating Expenses. If Landlord demands a final settlement, then Landlord shall have the
right to estimate Operating Expenses for the remainder of the Lease Tenn.
Any past due monthly rents and other charges provided in this Lease shall bear interest at the
Default Interest Rate.
17.3
Intentionally omitted.
17.4 Should Landlord re-enter and take possession of the Premises, Landlord may, to the extent
permitted by law, with respect to any and all furniture, fixtures, equipment and other personal
property located on the Premises, exercise one or more of the following rights: (i) sell the
personal property pursuant to any lien retained by Landlord; (ii) remove the personal property from
the Premises (without the necessity of obtaining a distress warrant, writ of sequestration or other
legal process) and place same in storage and, in such event, Tenant shall be liable to Landlord for
costs incurred by Landlord in connection with such removal and storage and shall indemnify and hold
Landlord harmless from all loss, damage, cost, expense and
20
liability in connection with such removal and storage; or (iii) dispose of any of the personal
property. Should Landlord elect to dispose of any of the personal property, whether or not such
personal property was first placed in storage, Landlord shall give Tenant written notice at
Tenants last known address advising Tenant that Landlord will dispose of the personal property
unless Tenant retrieves same within five (5) days from the date of the notice and pays to Landlord
any costs incurred for storage and/or removal. Landlord shall also have the right to relinquish
possession of all or any portion of such personal property to any person claiming to be entitled to
possession thereof who presents to Landlord a copy of any instrument represented to Landlord by
such person to grant such person the right to take possession of such personal property, without
the necessity on the part of Landlord to inquire into the authenticity of the copy of the
instrument or of Tenants or Tenants predecessors signature thereon and without the necessity of
Landlords making any nature of investigation or inquiry as to the validity of the factual or legal
basis upon which such person purports to act; and Tenant agrees to indemnify and hold Landlord
harmless from all cost, expense, loss, damage and liability incident to Landlords relinquishment
of possession of all or any portion of such furniture, fixtures, equipment of other personal
property to the person. The rights of Landlord herein stated shall be in addition to any and all
other rights which Landlord has or may hereafter have a law or in equity, and Tenant stipulates and
agrees that the rights herein granted Landlord are commercially reasonable. Tenant knowingly and
irrevocably waives any claims it may have against Landlord arising from Landlords removal and
storage of Tenants personal property in accordance with the provisions of this paragraph.
17.5 No re-entry or taking possession of the Premises by Landlord shall be construed as an
election on its part to terminate this Lease, unless a written notice of such intention shall be
given to Tenant. Notwithstanding any such re-entry or taking possession of the Premises, Landlord
may at any time thereafter elect to terminate this Lease by reason of the Event of Default. Pursuit
of any of the remedies set forth in this
Article 17
shall not preclude pursuit of any of
the other remedies in this
Article 17
or any others provided in this Lease or any other
remedies provided by law or in equity. The specific remedies to which Landlord may resort under
this Lease are cumulative and are not intended to be exclusive of any other remedies to which
Landlord may be lawfully entitled in case of an Event of Default under this Lease. In addition to
any other remedies provided in this Lease, Landlord shall be entitled to seek injunctive relief to
restrain any violation or threatened violation of the covenants, conditions or provisions of this
lease or to compel specific performance. The pursuit of any remedy provided in this Lease shall not
constitute a forfeiture or waiver of any rent due to Landlord under this Lease or of any damages
accruing to Landlord by reason of the violation of any of the terms, provisions and covenants
contained in this Lease. Landlords acceptance of rent following an Event of Default hereunder
shall not be construed as Landlords waiver of such Event of Default unless such waiver is
expressly stated in writing signed by Landlord. No waiver by Landlord of any violation or breach of
the terms, provisions, and covenants of this Lease shall be deemed or construed to constitute a
waiver of any other violation or breach of any of the terms, provisions, and covenants of this
Lease. No consent by Landlord to any act of Tenant under this Lease shall be deemed to waive or
render unnecessary consent to any subsequent or similar act. Forbearance by Landlord to enforce one
or more of the remedies herein provided upon an Event of Default shall not be deemed or construed
to constitute a waiver of any other violation or Event of Default.
21
17.6 Landlord and Tenant hereby irrevocably waive, to the extent permitted by law, any right
to trial by jury in any lawsuit, action, proceeding, or counterclaim brought by either party hereto
against the other on any matter arising out of or connected with this Lease, the acts or omissions
of Landlord or Tenant in connection with this Lease, or Tenants occupancy and use of the Premises.
17.7 Tenant shall not for any reason withhold or reduce Tenants required payments of rent and
other charges provided in this Lease, it being agreed that the obligations of Landlord under this
Lease are independent of Tenants obligations except as may be otherwise expressly provided. The
immediately preceding sentence shall not be deemed to deny Tenant the pursuit of all rights granted
it under this Lease or at law; however, at the direction of Landlord, Tenants claims in this
regard shall be litigated in proceedings different from any litigation involving rent claims or
other claims by Landlord against Tenant (i.e., each party may proceed to a separate judgment
without consideration, counterclaim or offset as to the claims asserted by the other party);
provided that, Tenant may override such direction of Landlord and litigate rent claims in the same
proceedings as claims made by Landlord against Tenant so long as Tenant timely escrows all rent
payments it believes it is not obligated to make to Landlord under this Lease with the subject
court during the pendency of such proceeding.
17.8 In the event of any default described in
Section 16.1(d)
of this Lease, any
assumption and assignment must conform with the requirements of the Bankruptcy Code which provides,
in part, that the Landlord must be provided with adequate assurance of the following: (i) that the
proposed assignee has sources to pay monthly rents and any other charges due under this Lease; (ii)
that the financial condition and operating performance of any proposed assignee and its guarantors,
if any, shall be similar to the financial condition and operating performance of Tenant and its
guarantors, if any, as of the date of execution of this Lease; and (iii) that any assumption or
assignment is subject to all of the provisions of this Lease (including, but not limited to,
restrictions as to use) and will not breach any such provision contained in any other lease,
financing agreement or other agreement relating to the Premises.
(a) In order to provide Landlord with the assurance contemplated by the Bankruptcy Code,
Tenant must fulfill the following obligations, in addition to any other reasonable obligations that
Landlord may require, before any assumption of this Lease is effective: (i) all defaults under
subsection (a) of
Section 16.1
of this Lease must be cured within ten (10) days after the
date of assumption; (ii) all other defaults under
Section 16.
1 of this Lease other than
under subsection (d) of
Section 16.1
must be cured within ten (10) days after the date of
assumption; (iii) all actual monetary losses incurred by Landlord (including, but not limited to,
reasonable attorneys fees) must be paid to Landlord within ten (10) days after the date of
assumption; and (iv) Landlord must receive within ten (10) days after the date of assumption an
additional Security Deposit in the amount of six (6) months Base Rental (using the Base Rental in
effect for the first full month immediately following the assumption) and an advance prepayment of
Base Rental in the amount of three (3) months Base Rental (using the Base Rental in effect for the
first full month immediately following the assumption), both sums to be held by Landlord in
accordance with the other provisions of this Lease, including, without limitation,
Section
4.2
, and deemed to be rent under this Lease for the purposes of the Bankruptcy Code as amended
and from time to time in effect.
22
(b) In the event this Lease is assumed in accordance with the requirements of the Bankruptcy
Code and this Lease, and is subsequently assigned, then, in addition to any other reasonable
obligations that Landlord may require and in order to provide Landlord with the assurances
contemplated by the Bankruptcy Code, Landlord shall be provided with the following: (i) a financial
statement of the proposed assignee prepared in accordance with generally accepted accounting
principles consistently applied, though on a cash basis, which reveals a net worth in an amount
sufficient, in Landlords reasonable judgment, to assure the future performance by the proposed
assignee of Tenants obligations under this Lease; or (ii) a written guaranty by one or more
guarantors with financial ability sufficient to assure the future performance of Tenants
obligations under this lease, such guaranty to be in form and content satisfactory to Landlord and
to cover the performance of all of Tenants obligations under this Lease.
17.9 The liability of Tenant to Landlord for any default by Tenant under the terms of this
Lease shall be limited to Landlords actual direct, but not consequential nor punitive damages
therefor, except that any claims by Landlord against Tenant under
Article 12
above
or
Article 20
below
shall not be subject to such limitation and in such instances,
Landlord may pursue consequential and/or punitive damages against Tenant.
ARTICLE 18
LANDLORDS DEFAULT
18.1 Landlord shall be in default under this Lease if Landlord has not begun and pursued with
reasonable diligence the cure of any failure of Landlord to meet its obligations under this Lease
within thirty (30) days of the receipt by Landlord of written notice from Tenant of the alleged
failure to perform. Tenant hereby waives any right to terminate or rescind this Lease as a result
of Landlords default as to any covenant or agreement contained in this Lease or as a result of the
breach of any promise or inducement hereof, whether in this Lease or elsewhere and Tenant hereby
agrees that Tenants sole remedies for default hereunder and for breach of any promise or
inducement shall be limited to a suit for damages and/or injunctive relief. In addition, Tenant
hereby covenants that, prior to the exercise of any such remedies, it will give the mortgagees
holding mortgages on the project notice and a reasonable time to cure any default by Landlord.
18.2 The liability of Landlord to Tenant for any default by Landlord under the terms of this
Lease shall be limited to Tenants actual direct, but not consequential nor punitive, damages
therefor. Tenant agrees to look solely to the estate and interest of Landlord in the Premises for
the collection of any judgment or other judicial process requiring the payment of money by Landlord
in the event of a default or breach by Landlord with respect to this Lease, and no other assets of
Landlord shall be subject to levy of execution or other procedures for the satisfaction of Tenants
rights. This section shall not be deemed to limit or deny any remedies which Tenant may have in the
event of default by Landlord hereunder which do not involve the personal liability of Landlord.
23
ARTICLE 19
LANDLORDS CONTRACTUAL LIEN
19.1 Landlord shall have, at all times, a valid security interest in and upon the present and
future receivables of Tenant and all goods, wares, equipment, fixtures, furniture, improvements and
other personal property of Tenant presently or which may hereafter be situated on the Premises, and
all proceeds therefrom, and such property shall not be removed therefrom without the consent of
Landlord until all arrearage in rent as well as any and all other sums of money then due to
Landlord hereunder shall first have been paid and discharged and all the covenants, agreements and
conditions hereof have been fully complied with and performed by Tenant. This contractual lien is
in addition to any and all other liens and rights of Landlord to bring a suit for distraint of
Tenants personal property or otherwise and is given to secure payment of all rent and other sums
of money becoming due under the Lease from Tenant and to secure payment of any damages or loss
which Landlord may suffer by reason of the breach by Tenant of any covenant, agreement or condition
contained herein and shall survive any termination of this Lease by reason of a default of Tenant.
Upon the occurrence of any Event of Default by Tenant, Landlord may, in addition to any other
remedies provided herein, enter upon the Premises and take possession of any and all goods, wares,
equipment, fixtures, furniture, improvements and other personal property of Tenant situated on the
Premises, without liability for trespass or conversion, store same (on or off the Premises or
Project) and sell the same at public or private sale, with or without having such property at the
sale, after giving Tenant reasonable notice of the time and place of any public sale or of the time
after which any private sale is to be made, at which sale the Landlord or its assigns may purchase
unless otherwise prohibited by law. Without intending to exclude any other manner of giving Tenant
reasonable notice, the requirement of reasonable notice shall be met if such notice is given in the
manner prescribed in this Lease at least five (5) days before the time of sale unless otherwise
required by law. The proceeds from any such disposition, less any and all expenses connected with
the taking of possession, holding and selling of the property (including reasonable attorneys fees
and other expenses), shall be applied as a credit against the indebtedness secured by the security
interest granted in this section. Any surplus shall be paid to Tenant or as otherwise required by
law; and the Tenant shall pay any deficiencies forthwith. Upon request by Landlord, Tenant agrees
to execute and deliver to Landlord within ten (10) days of such request a financing statement in
form sufficient to perfect the security interest of Landlord in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial Code in force in the State of
Illinois. Landlord may also file a copy of this Lease to perfect its interest in the personal
property of Tenant described above.
ARTICLE 20
SURRENDER OF PREMISES; HOLDING OVER
20.1 No act by Landlord shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender of the Premises shall be valid unless the same is made in writing
and signed by Landlord. At the expiration or termination of this Lease, Tenant shall deliver to
Landlord the Premises broom-clean and with all improvements located thereon in good repair and
condition, reasonable wear and tear and condemnation and fire or other casualty damage not caused
by Tenant excepted, and shall deliver to Landlord all keys to the Premises. Provided that Tenant
has performed all of its obligations hereunder, Tenant may remove all
24
unattached trade fixtures, furniture, and personal property placed in the Premises by Tenant
(but Tenant shall not remove any such item which was paid for, in whole or in part, by Landlord).
Additionally, Tenant shall remove such alterations, additions, improvements, trade fixtures,
equipment, wiring, and furniture as Landlord may request, including without limitation, the
Tenants Construction Items and the office area to be constructed as part of the Work in the
Existing Space. Tenant shall repair all damage caused by such removal. All items not so removed
shall be deemed to have been abandoned by Tenant and may be appropriated, sold, stored, destroyed,
or otherwise disposed of by Landlord at any time, thereafter, without notice to Tenant and without
any obligation to account for such items. If Landlord incurs any cost in the storage or removal of
any such items, Tenant shall pay to Landlord on demand any and all such charges. The provisions of
this paragraph shall survive the expiration or termination of this Lease.
20.2 If Tenant, or any party under Tenant claiming rights to this Lease, fails to vacate the
Premises at the end of the Lease Term, then such possession shall be an unlawful detainer (Landlord
reserving the right to seek an eviction or removal), no tenancy shall be created, and Tenant shall
pay each day during any holdover period a daily Base Rental equal to the greater of (a) one
thirtieth (1/30th) of two hundred percent (200%) of the monthly Base Rental payable during the last
month of the Lease Term, or (b) the prevailing rental rate for similar space in the Premises, plus,
Tenant shall pay any additional rental due under the other provisions of this Lease during any such
holdover period. In addition to payment of rent, Tenant shall pay to Landlord all other damages to
which Landlord may be entitled as a result of Tenants holding over.
ARTICLE 21
RIGHT OF ACCESS
21.1 Landlord or Landlords representatives shall have the right to enter into and upon the
Premises at any and all reasonable times upon prior reasonable notice to Tenant except in the event
of an emergency (i) to inspect, clean or make repairs or alterations or additions to the Premises
as Landlord may deem necessary (but without any obligation to do so, except as expressly provided
elsewhere in this Lease), or (ii) to show the Premises to prospective tenants, purchasers or
lenders; and Tenant shall not be entitled to any abatement or reduction of rent by reason thereof,
nor shall any such entry be deemed to be an actual or constructive eviction, provided that in
exercising its rights under this
Article 21
, to the extent commercially reasonable under
the circumstances, Landlord shall minimize interference with Tenants operations from the Premises.
ARTICLE 22
MISCELLANEOUS
22.1
Attorneys Fees.
In case it should be necessary or proper for one party to bring an
action under this Lease against the other, then the party which does not prevail agrees in each and
any such case to pay to the party which prevails its reasonable attorneys fees.
22.2
Personal Property Taxes.
Tenant shall be liable for all taxes levied or assessed against
personal property, furniture, or fixtures placed by Tenant in the Premises. If any taxes for
25
which Tenant is liable are levied or assessed against Landlord or Landlords property and
Landlord elects to pay the same, or if the assessed value of Landlords property is increased by
inclusion of such personal property, furniture or fixtures and Landlord elects to pay the taxes
based on such increase, then Tenant shall pay to Landlord, upon demand, that part of such taxes for
which Tenant is primarily liable hereunder.
22.3
Name.
Tenant shall not, without the written consent of Landlord, use the name of the
Premises for any purpose other than as the address of the business to be conducted by Tenant in the
Premises. In no event shall Tenant acquire any rights in or to such name and Landlord reserves the
right from time to time and at any time to change the name of the Premises.
22.4
Financial Statements.
Prior to the execution of this Lease, Tenant has delivered
financial statements to Landlord, prepared by a certified public accountant and certified to be
true and correct in all material aspects. Tenant further agrees to deliver to Landlord its most
current financial statements at the time, from time to time, within ten (10) days of Landlords
written request, but in no event shall Tenant be obligated to deliver such financial statements to
Landlord more often than once every twelve (12) calendar months except when an Event of Default
exists. Each such financial statement certified to be true and correct in all material aspects by
an authorized person on behalf of Tenant.
22.5
Brokerage.
Landlord and Tenant each warrant to the other that it has not dealt with any
broker or agent in connection with the negotiation or execution of this Lease, other than the
person(s) listed in the Basic Definitions and Lease Provisions of this Lease (the
Broker(s)
).
Except for any Broker(s) who shall be compensated in accordance with the provisions of a separate
agreement, Landlord and Tenant each agree to indemnify the other against all costs, expenses,
attorneys fees, and other liability for commissions or other compensation claimed by any other
broker or agent claiming the same by, through, or under the indemnifying party.
22.6
Quiet Enjoyment.
Provided Tenant has performed all of the terms and conditions of this
Lease to be performed by Tenant, Tenant shall peaceably and quietly hold and enjoy the Premises for
the Term, without hindrance from Landlord or any party claiming by, through, or under Landlord,
subject to the terms and conditions of this Lease.
22.7
Force Majeure.
Whenever a period of time is herein prescribed for action to be taken by
either party hereto, such party shall not be liable or responsible for, and there shall be excluded
from the computation for any such period of time, delays due to strikes, riots, acts of God,
shortages of labor or materials, war, governmental laws, regulations, or restrictions, or any other
causes of any kind whatsoever which are beyond the control of such party. The foregoing shall not
excuse, however, the timely payment of rent by Tenant under the provisions of this Lease.
22.8
Notices.
All notices and other communications given by one party to the other under the
provisions of this Lease shall be in writing, addressed to the party at the address provided in the
Basic Definitions and Lease Provisions, and shall be by one of the following: (i) mailed by first
class, United States Mail, postage prepaid, certified, with return receipt requested, (ii) hand
delivered by courier to the intended address, or (iii) sent by prepaid telegram, cable, facsimile
transmission, or telex followed by a confirmatory letter. Notice sent by certified mail
26
shall be effective three (3) days after being deposited in the United States Mail; all other
notices shall be effective upon delivery to the address of the addressee. The parties hereto may
change their addresses by giving notice thereof to the other in conformity with this provision.
22.9
Joint and Several Liability.
If there is more than one Tenant, then the obligations
hereunder imposed upon Tenant shall be joint and several. If there is a guarantor of Tenants
obligations hereunder, then the obligations hereunder imposed upon Tenant shall be the joint and
several obligations of Tenant and such guarantor, and Landlord need not first proceed against
Tenant before proceeding against such guarantor nor shall any such guarantor be released from its
guaranty for any reason whatsoever.
22.10
Severability.
If any clause or provision of this Lease is illegal, invalid, or
unenforceable under present or future laws, then the remainder of this Lease shall not be affected
thereby and in lieu of such clause or provision, there shall be added as a part of this Lease a
clause of provision as similar in terms to such illegal, invalid, or unenforceable clause or
provision as may be possible and be legal, valid, and enforceable.
22.11
Amendments; Construction and Binding Effect.
This Lease may not be amended except by
instrument in writing signed by Landlord and Tenant. No provision of this Lease shall be deemed to
have been waived by Landlord unless such waiver is in writing signed by Landlord, and no custom or
practice which may evolve between the parties in the administration of the terms thereof shall
waive or diminish the right of Landlord to insist upon the performance by Tenant in strict
accordance with the terms hereof. The terms and conditions contained in this Lease shall inure to
the benefit of and be binding upon the parties hereto, and upon their respective successors in
interest and legal representatives, except as otherwise herein expressly provided. This Lease is
for the sole benefit of Landlord and Tenant, and, other than Landlords Mortgagee or a successor
thereto, no third party shall be deemed a beneficiary hereof.
22.12
Captions.
The captions contained in this Lease are for convenience of reference only,
and do not limit or enlarge the terms and conditions of this Lease.
22.13
Intentionally Omitted.
22.14
Time of Essence.
Except as otherwise expressly provided in this Lease, time is of the
essence.
22.15
Governing Law; Venue.
The laws of the state in which the Premises is located shall
govern the interpretation, validity, performance and enforcement of this Lease. Venue for any
action under this Lease shall be the county in which rentals are due.
22.16
Authority.
If Tenant is a corporation or partnership, the person executing this Lease on
behalf of Tenant hereby represents and warrants that (i) he is duly authorized and empowered to
execute this Lease on behalf of Tenant, (ii) Tenant has full right and authority to enter into this
Lease, and (iii) upon full execution, this Lease constitutes a valid and binding obligation of
Tenant.
22.17
Approval.
Any approval of Landlord required under the provisions of this Lease must be
in writing or it shall not be deemed to be effective and, if not in writing, then in the
27
making of proof thereof, Landlord shall be presumed not to have given its approval. Unless
specified to the contrary herein, Landlords consent to any action of Tenant described herein shall
not be unreasonably withheld.
22.18
No Merger.
There shall be no merger of the leasehold estate hereby created with the fee
estate in the Premises or any part thereof if the same person acquires or holds, directly or
indirectly, this Lease or any interest in this Lease and the fee estate in the Premises or any
interest in such fee estate.
22.19
No Partnership.
Nothing in this Lease shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and agent or of
partnership or of joint venture between the parties hereto, it being understood and agreed that
neither the method of computation of rent, nor any other provision contained herein, nor any acts
of the parties hereto, shall be deemed to create any relationship between the parties hereto other
than the relationship of landlord and tenant.
22.20
No Offer.
The submission of this Lease by Landlord to Tenant for examination shall not
be construed as an offer to lease or a reservation of an option to lease. Further, it is the
intention of the parties that Landlord shall not be bound and Tenant shall not have any rights
under this Lease unless and until Landlord executes a copy of this Lease and delivers it to Tenant.
22.21
Exhibits.
All exhibits and attachments attached hereto are incorporated herein by this
reference.
[Check all boxes which apply. Boxes not checked are of exhibits that do not apply.]
|
|
|
Exhibit A Legal Description
|
|
þ
|
Exhibit B Outline of Premises
|
|
þ
|
Exhibit C Operating Expense
Reimbursement
|
|
o
|
Exhibit D Premises Rules and Regulations
|
|
þ
|
Exhibit E Work Letter
|
|
þ
|
Exhibit F Commencement Date Letter
|
|
þ
|
Exhibit G Financing Statement
|
|
o
|
Exhibit H Parking
|
|
o
|
Exhibit I Signage
|
|
o
|
Exhibit J Renewal Option
|
|
þ
|
Exhibit K Right of First Refusal
|
|
o
|
Exhibit L Guaranty of Lease
|
|
o
|
Exhibit M HVAC Maintenance
Specifications
|
|
þ
|
22.22
Entire Agreement.
This Lease, including all exhibits attached hereto, constitutes the
entire agreement between Landlord and Tenant regarding the subject matter hereof and supersedes all
oral statements and prior writings relating thereto. Except for those set forth in this Lease, no
representations, warranties, or agreements have been made by Landlord, Landlords agent or Tenant,
anyone of the foregoing to the other with respect to this Lease or the obligations to Landlord or
Tenant in connection therewith.
28
ARTICLE 23
PAYMENT OF TAXES
23.1
Payment of Impositions.
Tenant covenants and agrees to pay during the Lease Term before
any fine, penalty, interest or cost may be added thereto for the nonpayment thereof, all real
estate taxes, special assessments, water rates and charges, sewer rates and charges, including any
sum or sums payable for present or future sewer or water capacity, charges for public utilities,
street lighting, excise levies, licenses, permits, inspection fees, other governmental charges, and
all other charges or burdens of whatsoever kind and nature (including costs, fees, and expenses of
complying with all encumbrances affecting the Premises) incurred in the use, occupancy, ownership,
operation, leasing or possession of the Premises, without particularizing by any known name or by
whatever name hereafter called, and whether any of the foregoing be general or special, ordinary or
extraordinary, foreseen or unforeseen (all of which are sometimes herein referred to as
Impositions
), which at any time during the Lease Term may have been or may be assessed, levied,
confirmed, imposed upon, or become a lien on the Premises, or any portion thereof, or any
appurtenance thereto, rents or income therefrom, and such easements or rights as may now or
hereafter be appurtenant or appertain to the use of the Premises. Tenant shall pay all special (or
similar) assessments for public improvements or benefits which, during the Lease Term shall be
laid, assessed, levied or imposed upon or become payable or become a lien upon the Premises, or any
portion thereof; provided, however, that if by law any special assessment is payable (without
default) or, at the option of Landlord, may be paid (without default) in installments (whether or
not interest shall accrue on the unpaid balance of such special assessment), Tenant may pay the
same, together with any interest accrued on the unpaid balance of such special assessment in
installments as the same respectively become payable and before any fine, penalty, interest or cost
may be added thereto for the nonpayment of any such installment and the interest thereon. Landlord
shall pay all installments of special assessments (including interest accrued on the unpaid
balance) which are payable prior to the Commencement Date (with respect to the New Space only;
Tenant acknowledging that it is already so obligated with respect to the Existing Space under the
Existing Lease) and after the termination date of the Lease Term (with respect to the entire
Premises). Tenant shall pay all Impositions whether heretofore or hereafter levied or assessed upon
the Demised Premises, or any portion thereof, which are due and payable during the Lease Term.
Landlord shall pay all Impositions which are payable prior to the Commencement Date (with respect
to the New Space only; Tenant acknowledging that it is already so obligated with respect to the
Existing Space under the Existing Lease) and after the expiration date of the Lease Term (with
respect to the entire Premises). Notwithstanding any other provision of this
Section 23.1
to the contrary, in no event shall Tenant be obligated to pay Impositions with respect to the last
calendar year of the Lease Term, unless such Impositions comes due during the Lease Term, it being
hereby acknowledged and agreed by Landlord and Tenant that Tenant is obligated to pay Impositions
coming due during the first year of the Lease Term hereof, even though such Impositions relate to
the year prior to the Commencement Date. However, Impositions payable during the first and last
calendar years of the term of this Lease shall not be prorated. The terms of this
Section
23.1
do not alter the terms of the Existing Lease as to the Existing Space.
23.2
Tenants Right to Contest Impositions.
Tenant shall have the right at its own expense to
contest the amount or validity, in whole or in part, of any Imposition by appropriate proceedings
diligently conducted in good faith, but only after payment of such Imposition, unless
29
such payment, or a payment thereof under protest, would operate as a bar to such contest or
interfere materially with the prosecution thereof. In this latter event, notwithstanding the
provisions of
Section 23.1
hereof, Tenant may postpone or defer payment of such Imposition
if (a) neither the Premises nor any portion thereof would, by reason of such postponement or
deferment, be in danger of being forfeited or lost, and (b) Tenant shall have deposited with
Landlord cash or other security reasonably acceptable to Landlord in the amount of the Imposition
so contested and unpaid, together with all interest and penalties which may accrue in Landlords
reasonable judgment in connection therewith, and all charges that may or might be assessed against
or become a charge on the Premises, or any portion thereof, during the pendency of such
proceedings. If, during the continuance of such proceedings, Landlord shall, from time to time,
reasonably deem the amount deposited, as aforesaid, insufficient, Tenant shall, within five (5)
business days prior written notice from Landlord, make additional deposits of such additional sums
of money or such other security as Landlord may reasonably request in such written notice. Upon
failure of Tenant to make such additional deposits, the amount theretofore deposited may be applied
by Landlord to the payment, removal and discharge of such Imposition, and the interest, fines and
penalties in connection therewith, and any costs, fees (including reasonable attorneys fees) and
other liability (including costs incurred by Landlord) accruing in any such proceedings. Upon the
termination of any such proceedings, Tenant shall pay the amount of such Imposition or part
thereof, if any, as finally determined in such proceedings, the payment of which may have been
deferred during the prosecution of such proceedings, together with any costs, fees, including
reasonable attorneys fees, interest, penalties, fines and other liability in connection therewith,
and upon such payment Landlord shall return all amounts or other security deposited with it with
respect to the contest of such Imposition, as aforesaid, or, at the written direction of Tenant,
Landlord shall make such payment out of the funds on deposit with Landlord and the balance, if any,
shall be returned to Tenant. Tenant shall be entitled to the refund of any Imposition, penalty,
fine and interest thereon received by Landlord which have been paid by Tenant or which have been
paid by Landlord but for which Landlord has been previously reimbursed in full by Tenant. Landlord
shall not be required to join in any proceedings referred to in this
Section 23.2
unless
the provisions of any law, rule or regulation at the time in effect shall require that such
proceedings be brought by or in the name of Landlord, in which event Landlord shall join in such
proceedings or permit the same to be brought in Landlords name upon compliance with such
conditions as Landlord may reasonably require. Landlord shall not ultimately be subject to any
liability for the payment of any fees, including reasonable attorneys fees, costs and expenses in
connection with such proceedings. Tenant agrees to pay all such fees (including reasonable
attorneys fees), costs and expenses or, on demand, to make reimbursement to Landlord for such
payment. During the time when any certificate of deposit is on deposit with Landlord, and prior to
the time when the same is returned to Tenant or applied against the payment, removal or discharge
of Impositions, as above provided, Tenant shall be entitled to receive all interest paid thereon,
if any. Cash deposits shall not bear interest.
Landlord shall use its commercially reasonable efforts either (a) to cause all real estate tax
bills and all real estate tax assessment notices to be sent directly to Tenant, or (b) to provide
copies of all such bills and notices to Tenant in reasonably sufficient time for Tenant to contest
the same if it so chooses.
30
23.3
Levies and Other Taxes.
If, at any time during the Lease Term, any method of taxation
shall be such that there shall be levied, assessed or imposed on Landlord, or on the Basic Rental
or other rent, or on the Premises or on the value of the Premises, or any portion thereof, a
capital levy, sales or use tax, gross receipts tax or other tax on the rents received therefrom, or
a franchise tax, or an assessment, levy or charge measured by or based in whole or in part upon
such rents or value, Tenant covenants to pay and discharge the same, it being the intention of the
parties hereto that the rent to be paid hereunder shall be paid to Landlord absolutely net without
deduction or charge of any nature whatsoever foreseeable or unforeseeable, ordinary or
extraordinary, or of any nature, kind or description, except as in this Lease otherwise expressly
provided. Nothing in this Lease contained shall require Tenant to pay any municipal, state or
federal net income or excess profits taxes assessed against Landlord, or any municipal, state or
federal capital levy, estate, succession, inheritance or transfer taxes of Landlord, or corporation
franchise taxes imposed upon any owner of the fee of the Premises.
23.4
Evidence of Payment.
Tenant covenants to furnish Landlord, within thirty (30) days after
the date upon which any Imposition or other tax, assessment, levy or charge is payable by Tenant,
official receipts of the appropriate taxing authority, or other appropriate proof satisfactory to
Landlord, evidencing the payment of the same. The certificate, advice or bill of the appropriate
official designated by law to make or issue the same or to receive payment of any Imposition or
other tax, assessment, levy or charge may be relied upon by Landlord as sufficient evidence that
such Imposition or other tax, assessment, levy or charge is due and unpaid at the time of the
making or issuance of such certificate, advice or bill.
23.5
Escrow for Taxes and Assessments.
At Landlords written demand after any monetary Event
of Default and for as long as such Event of Default is uncured, Tenant shall pay to Landlord the
known or estimated yearly Impositions payable with respect to the Premises in monthly payments
equal to one-twelfth of the known or estimated yearly Impositions next payable with respect to the
Premises. From time to time Landlord may re-estimate the amount of the Impositions, and in such
event Landlord shall notify Tenant, in writing, of such re-estimate and fix future monthly
installments for the remaining period prior to the next tax and assessment due date in an amount
sufficient to pay the re-estimated amount over the balance of such period after giving credit for
payments made by Tenant on the previous estimate. If the total monthly payments made by Tenant
pursuant to this
Section 23.5
shall exceed the amount of payments necessary for said
Impositions, such excess shall be credited on subsequent monthly payments of the same nature; but
if the total of such monthly payments so made under this Section shall be insufficient to pay such
Impositions when due, then Tenant shall pay to Landlord such amount as may be necessary to make up
the deficiency. Payment by Tenant of Impositions under this Section shall be considered as
performance of such obligation under the provisions of
Section 23.1
hereof.
23.6
Landlords Right to Contest Impositions.
In addition to the right of Tenant under
Section 23.2
to contest the amount or validity of Impositions, Landlord shall also have the
right, but not the obligation, to contest the amount or validity, in whole or in part, of any
Impositions not contested by Tenant, by appropriate proceedings conducted in the name of Landlord
or in the name of Landlord and Tenant. If Landlord elects to contest the amount or validity, in
whole or in part, of any Impositions, such contests by Landlord shall be at Landlords expense;
provided, however, that if the amounts payable by Tenant for Impositions are reduced
31
(or if a proposed increase in such amounts is avoided or reduced) by reason of Landlords
contest of Impositions, Tenant shall reimburse Landlord for costs incurred by Landlord in
contesting Impositions, but such reimbursements shall not be in excess of the amount saved by
Tenant by reason of Landlords actions in contesting such Impositions.
ARTICLE 24
TERMINATION OF EXISTING LEASE
Notwithstanding anything contained in the Existing Lease to the contrary, upon the
Commencement Date, Landlord and Tenant hereby agree to terminate the Existing Lease (except
Section 20.6
therein) and mutually release each other from all claims, liabilities,
obligations and responsibilities arising thereunder, which termination and release shall be
effective from and after the Commencement Date of this Lease; provided, however, that Tenants
obligations to pay all Basic Rent, Additional Rent and any other rent (as defined in the Existing
Lease and due and payable or accruing under the Existing Lease) up to and including the
Commencement Date shall survive the termination of the Existing Lease and shall become present
liabilities and obligations under this Lease. Nothing set forth in this Lease shall act as a
termination of, or limit in any way, Tenants rights under
Section 20.6
of the Existing
Lease.
ARTICLE 25
RIGHT OF NOTICE OF SALE
In the event that, at any time during Lease Term, Landlord intends to sell the Premises,
contemporaneously with Landlords public announcement of such intended sale, Landlord shall notify
Tenant, in writing, of such intention.
32
EXECUTED
to be effective on the day and date first written above.
|
|
|
|
|
|
LANDLORD:
1135 ARBOR DRIVE INVESTORS LLC
, a
Delaware limited liability company
|
|
|
|
|
|
|
|
By:
|
ALLEGIS REALTY INVESTORS LLC, a
|
|
|
|
Massachusetts limited liability company Its
Manager
|
|
|
|
|
|
|
|
By:
|
/s/ Joseph E. Gaukler
|
|
|
|
Joseph E. Gaukler
|
|
|
Its:
|
Senior Vice President
|
|
|
|
|
|
|
|
|
TENANT:
ULTA3 COSMETICS & SALON, INC.
|
|
|
By:
|
/s/ Greg Smolarek
|
|
|
Printed Name: Greg Smolarek
|
|
|
Its: Sr VP Systems and Logistics
|
|
|
EXHIBIT A
LEGAL DESCRIPTION
Lot 2 in Windham Lakes resubdivision number 10, part of the north half of Section 29, Township 37
North, Range 10 East of the Third Principal Meridian in Will County, Illinois, per Document Number
R95-057606.
EXHIBIT D
RULES AND REGULATIONS
This Exhibit is attached to and made a part of the Lease by and between Aetna Life Insurance
Company (Landlord) and ULTA3 Cosmetics & Salon, Inc. (Tenant).
A. The following rules and regulations shall apply to the Premises:
1. Sidewalks and other similar outside areas shall not be obstructed by Tenant or used by
Tenant for purposes other than ingress and egress to and from its Premises. No rubbish, litter,
trash, or material of any nature shall be placed, emptied, or thrown in those areas. At no time
shall Tenant permit Tenants employees to loiter in outside areas in or about the Premises.
2. Plumbing, fixtures and appliances shall be used only for the purposes for which designed,
and no sweepings, rubbish, rags or other unsuitable material shall be thrown or deposited therein.
Damage resulting to any such fixtures or appliances from misuse by Tenant or its agents, employees
or invitees, shall be paid by Tenant.
3. No signs, advertisements or notices shall be painted or affixed on or to any windows or
doors or exterior parts of the Premises without the prior written consent of Landlord.
4. Intentionally omitted.
5. Tenant assumes all risks of and shall be liable for all damage to articles moved and injury
to persons resulting from such activity. If any equipment, property and personnel are damaged or
injured as a result of acts in connection with this activity, then Tenant shall be solely liable
for any and all damage or loss resulting therefrom.
6. Intentionally omitted.
7. No birds or animals (except seeing-eye dogs) shall be brought into or kept in, on or about
the Premises. No portion of the Premises shall at any time be used or occupied as sleeping or
lodging quarters or for any immoral or illegal purposes or for any purpose which would tend to
injure the reputation of the Premises or impair the value of the Premises.
8. Tenant shall not commit waste and shall keep the Premises neat and clean. All trash and
debris must be placed in receptacles provided therefor.
9. Tenant shall not make or permit any improper, objectionable or unpleasant noises or odors
to emanate from the Premises to adjacent property or otherwise interfere in any way with other
persons on adjacent property, shall not solicit business or distribute, or cause to be distributed,
in any outside portion of the Premises any handbills, promotional materials or other advertising,
and shall not conduct or permit any other activities in the Premises that might constitute a
nuisance.
10. No machinery of any kind (other than normal office/showroom/warehouse equipment) shall be
operated by Tenant on its Premises without Landlords prior written reasonable consent.
11. Intentionally omitted.
12. Landlord will not be responsible for lost or stolen personal property, money or jewelry
from the Premises regardless of whether such loss occurs when the area is locked against entry or
not.
13. Intentionally omitted.
14. Tenant will refer to Landlord for Landlords supervision, approval and control all
contractors, contractor representatives, and installation technicians rendering any service to
Tenant, before performance of any contractual service. Such supervisory action by Landlord shall
not render Landlord responsible for any work performed for Tenant. This provision shall apply to
all work performed in the Premises, including, without limitation, the installation of telephones,
computer wiring, cabling, electrical devices, attachments and installations of any nature. Tenant
shall be solely responsible for complying with all applicable laws, codes and ordinances pursuant
to which such work shall be performed.
15. Landlord may from time to time (without any obligation to do so or liability for not doing
so) adopt appropriate systems and procedures for the security or safety of the Premises, its
occupants, entry and use, or its contents and Tenant, its employees, contractors, agents and
invitees shall comply therewith.
16. At no time shall Tenant permit or shall Tenants agents, employees, contractors, guests,
or invitees smoke in any common area of the Premises, unless such common area has been declared a
designated smoking area.
17. Tenant accepts any and all liability for damages and injuries to persons and property
resulting from the serving and sales of alcoholic beverages from the Premises. Nothing contained
herein shall be construed as the consent of Landlord to permit the serving or sale of alcoholic
beverages on the Premises.
B. The Landlord reserves the right to rescind any of these rules and make such other and
further rules and regulations as in the judgment of Landlord shall from time to time be needed for
the safety, protection, care and cleanliness of the Premises, the operation thereof, the
preservation of good order therein, and the protection and comfort of its tenants, their agents,
employees and invitees, which rules when made and notice thereof given to Tenant shall be binding
upon it in like manner as if originally herein prescribed.
EXHIBIT E
WORK LETTER
This Exhibit is attached to made a part of the Lease by and between Aetna Life Insurance
Company (
Landlord
) and ULTA3 Cosmetics & Salon, Inc. (
Tenant
).
A.
Definitions
. Each term used in this Work Letter shall have the meaning hereinafter
set forth:
1.
Architect
shall mean Kwasek Architects, Inc.
2.
Construction Costs
shall mean all costs incurred in the construction of the Work
in accordance with the Plans and Specifications, as modified from time to time in accordance with
the provisions of this Work Letter. Such costs shall include all hard costs and soft costs to
complete the Work including, but not limited to, infrastructure costs, impact fees, site
preparation costs; architectural and engineering fees; legal fees; testing; labor and materials to
construct the Work and related infrastructure and improvements; permit fees, sales taxes and fees
payable to contractors; project landscaping, including related design fees and permits; water, gas
and electrical hookup fees and related miscellaneous costs; any builders risk insurance maintained
by Landlord prior to Tenant maintaining builders risk insurance; property tax assessed during
construction period (beginning upon acquisition and ending on substantial completion); reasonable
general and administrative and employer out-of-pocket expenses incurred in managing the
pre-construction and construction process; brokerage commissions; Landlords average cost of
coverage for liability insurance attributable to the New Space during the period ending on
substantial completion; services for verification of compliance with city ordinances and other
laws; and imputed interest at 9.00 percent per year on actual cost expenditures (imputed interest
accrues on actual cost as and when incurred up to substantial completion).
3.
Contractor
shall mean Krusinski Construction Company.
4.
Plans and Specifications
shall mean the final plans and specifications for the
construction of the Work, which Plans and Specifications are described on
Exhibit E-1
attached hereto.
5.
Tenant Delay
shall mean any delay in the construction of the First Phase Work
caused by Tenant for any reason whatsoever. In the event of a Tenant Delay, the Commencement Date
shall be accelerated one (1) day for every day of Tenant Delay.
6.
Work
shall mean the construction of all leasehold improvements in the Premises in
accordance with the Plans and Specifications, which leasehold improvements shall consist of both
the First Phase Work (which is all of the Work except for the expansion of the office in the
Premises) and the Second Phase Work (which is only the expansion of the office in the Premises).
7.
Construction Rent
means (i) for the first six (6) months of the Lease Term, 5.5%
of the Construction Costs for the First Phase Work, (ii) for the second six (6) months
of the first (1st) Lease Year of the Lease Term, 5.5% of the Construction Costs for both the
First Phase Work and the Second Phase Work, (iii) for the second (2nd) Lease Year, an amount equal
to 103% of 11% of the Construction Costs for all of the Work, and (iv) for every twelve (12) month
period of the Lease Term thereafter (except that with respect to the last seven (7) months of the
Lease Term, Construction Rent will be prorated accordingly), an amount equal to 103% of the
Construction Rent for the prior twelve (12) month period. Construction Rent for the first twelve
(12) month period shall be determined in accordance with
Paragraph E
below. Prior to the
date Landlord has determined actual Construction Rent in accordance with
Paragraph E
below,
Tenant shall pay Construction Rent based upon the estimates set forth in the Budget described
below.
8.
Budget
Attached to this Exhibit as
Exhibit E-2
is a proforma budget
(the
Budget
) of Construction Costs to perform the Work, showing the line item categories to be
included in Construction Costs, and a calculation of Construction Rent based upon the Budget.
Tenant acknowledges that the Budget is an estimate and that Construction Costs may vary from the
amounts set forth in the Budget.
B.
Construction of Work
. Landlord shall cause the Work to be constructed substantially
in accordance with the Plans and Specifications. Tenant acknowledges that Landlord is presently
performing the First Phase Work and that Landlord shall construct the Second Phase Work pursuant to
a schedule which will enable the Landlord to substantially complete the Second Phase Work, subject
to unavoidable delays (as defined below), on or before April 1, 2000. Tenant shall cooperate at all
stages to promote the efficient and expeditious completion of the Work. Either the Landlord or the
Contractor, as appropriate, shall apply for a building permit, and the Contractor shall commence
construction of the subject phase of the Work immediately upon receipt of the permit and proceed
with all due diligence until substantial completion. Each phase of the Work shall be deemed to be
substantially complete upon (i) Landlords obtaining a certificate of occupancy or its equivalent
from the appropriate governmental authority and (ii) such phase of the Work is sufficiently
complete in accordance with the Plans and Specifications so that Tenant may occupy the Premises, or
the new office space, as the case may be, subject to any punchlist items.
1.
Unavoidable Delays
. Tenant and Landlord acknowledge that there may be unavoidable
delays in the construction of the Work. The term
unavoidable delays
shall mean events beyond the
control of Landlord or the Contractor, including, without limitation, acts of God, war, civil
commotion, strikes, fire, flood, earthquake or other casualty, governmental regulation or
restriction and adverse weather conditions or continued possession by prior tenants or occupants.
2.
Changes
. If Tenant requests a change, alteration or addition to the Plans and
Specifications, Tenant shall submit same in writing to Landlord and to the Architect. If Landlord
approves such change, Landlord shall obtain from the Contractor and provide Tenant with an estimate
of the cost of such change. Tenant shall notify Landlord within five (5) business days if Tenant
elects to proceed with the change, in which event, Landlord shall incorporate the change into the
Plans and Specifications (any approved change is referred to herein as a
Change Order
). The
incremental greater cost of implementing such Change Order shall not be included in the
Construction Costs but instead shall be paid directly by Tenant to Landlord within thirty
2
(30) days after Landlord invoices Tenant for the Change Order. If Landlord disapproves of such
change, it shall immediately notify Tenant in writing specifying the reasons for such disapproval
and the construction shall proceed in accordance with the Plans and Specifications. Any delay in
construction time (determined in accordance with the next sentence) caused by such changes (whether
approved or not) shall constitute a Tenant Delay. The Architect, in his sole discretion, shall
determine whether such change necessitates a delay in construction and the length of such delay.
3.
Governmental Regulations
. Tenant shall be solely responsible for causing the design
and construction of the Work to conform to any and all requirements of applicable building,
plumbing, electrical and fire codes and the requirements of any authority having jurisdiction over
the Work, as such codes and requirements may from time to time be amended or supplemented.
4.
Entry by Tenant
. During the course of construction of the First Phase Work, Tenant
may enter the New Space for purposes of inspecting the First Phase Work, installing trade fixtures,
erecting signs, stocking merchandise and such other work as may be necessary or desirable to
prepare to occupy and conduct its business from the New Space, provided that (i) Tenant assumes the
risk of injury to person and damage to its property, (ii) any entry shall be subject to the
provisions of the Lease, except that the Lease Term shall not commence and rent shall not be due,
and (iii) Tenant shall not unreasonably interfere with the construction of the Work on the
Premises. Tenant shall also provide evidence of insurance prior to any such entry. If such entry
shall interfere with the construction of the First Phase Work, then Tenant shall immediately leave
upon the request of Landlord.
C.
Delivery of the Premises
. Subject to unavoidable delays, the First Phase Work is
estimated to be substantially completed for delivery of the Premises to Tenant by the Commencement
Date. If an unavoidable delay will prevent the substantial completion of the First Phase Work prior
to the scheduled Commencement Date, then Landlord will notify Tenant in writing. Upon substantial
completion of the First Phase Work, Landlord will notify Tenant in writing and afford Tenant an
opportunity to inspect the Premises prior to delivery. At the inspection, Landlord and Tenant will
prepare and agree upon a punchlist of any items that remain to be completed.
If the First Phase Work is substantially completed to permit delivery of the Premises prior to
the Commencement Date, Landlord shall notify Tenant in writing and, should Tenant elects to take
occupancy early, then Tenant may inspect the Premises and prepare, with Landlord, a punchlist prior
to delivery.
D.
Limitation
. This Exhibit shall not be deemed applicable to any additional space
added to the original Premises or, in the event of a renewal of the Lease Term, to the original
Premises, itself, during the renewal term, unless expressly so provided in the Lease or any
amendment thereto.
E.
Determination of Construction Rent
. Base Rental shall be equal to the sum of
Carry-Over Rent (as defined in the Basic Definitions and Lease Provisions) plus Construction Rent.
Landlord shall calculate Construction Rent after Landlord has closed out the First Phase
3
Work and Second Phase Work and finally determined the applicable Construction Costs.
Thereafter, Tenant shall pay Landlord Construction Rent based on the actual Construction Costs.
Upon each such calculation, Landlord shall give notice to Tenant of the difference, if any, between
actual Construction Rent and estimated Construction Rent (including reasonable back-up
documentation evidencing the difference), and if actual Construction Rent is (i) higher than
estimated Construction Rent, including any overruns to the Budget, Tenant shall pay any shortfall
to Landlord within ten (10) days after demand, and (ii) less than estimated Construction Rent,
Landlord shall promptly credit such overage against Base Rental next due and owing.
F.
Other Construction Items
. At the same time as performing the First Phase Work,
Landlord shall construct, at Tenants sole cost and expense and in addition to the Work, a
flammable storage room (the
Flammable Storage Room
) in the Premises, which Flammable Storage Room
is depicted on the Plans and Specifications. Tenant may, by providing written notice to Landlord on
or prior to February 1, 2000, elect to cause Landlord to construct, at Tenants sole cost and
expense, any or all of a mezzanine in the Premises which will tolerate a 150-pound floor load (the
Mezzanine
) and an elevator to serve the Mezzanine (the
Elevator
). The Plans and Specifications
also depict the Mezzanine and the Elevator. With respect to any of the improvements described above
in this paragraph, Tenant shall reimburse Landlord from time to time for all of Landlords costs
and expenses is causing such improvement to be performed within thirty (30) days after receiving an
invoice from Landlord for the same. If Tenant fails to provide such written notice to Landlord on
or prior to February 1, 2000, Tenant shall be deemed to have waived its right to require Landlord
to construct the Mezzanine or the Elevator.
G.
Property Insurance On The Work
. Tenant shall purchase and maintain in force all
risk property or builders risk insurance for the construction of the Work. Such insurance shall be
written in an amount at least equal to the initial Contract Sum of $3,600,000 as well as any
subsequent modifications of that sum, of which Tenant will be advised by Landlord. The insurance
shall apply on a replacement cost basis. If the insurance obtained is builders risk insurance,
coverage shall be written on a completed value form. The insurance shall name as insureds Landlord;
Contractor, Krusinski Construction Company, and all subcontractors and sub-subcontractors
performing any portion of the Work as additional insureds to the extent of their interests. The
insurance policy shall contain a provision that the insurance will not be canceled or allowed to
expire without at least thirty (30) days prior written notice being given to Landlord and
Contractor. The insurance shall cover the entire Work at the project site at 1135 Arbor Drive,
Romeoville, Illinois; portions of the Work located away from the site but intended for use at the
site; and also portions of the Work in transit. The policy shall include as insured property
scaffolding, false work, and temporary buildings located at the site. The policy shall cover the
cost of removing debris, including demolition as may be legally necessary by the operation of any
law, ordinance or regulation. This property insurance shall be written to cover all risks of
physical loss excepts those specifically excluded in the policy and shall insure at least the
perils of fire, lightning, explosion, wind storm or hail, smoke, aircraft or vehicles, riot or
civil commotion, theft, vandalism, malicious mischief, and collapse. The policy shall have a
deductible not to exceed $5,000. Pursuant to the terms of its construction contract with Landlord,
Contractor is responsible for payments of any deductible amount. Landlord and Tenant waive all
rights against each other and against the Contractor, subcontractor, sub-subcontractors for
recovery for damages caused by fire or other perils to the extent covered by the property insurance
purchased pursuant to the requirements of this paragraph. Prior to the commencement
4
of any Work, Tenant shall furnish a certificate of insurance evidencing compliance with the
aforementioned terms. At the request of either the Landlord or the Contractor, Tenant will furnish
a complete copy of the property insurance policy being provided hereunder.
5
EXHIBIT El
PLANS & SPECIFICATIONS
Original Facility Design & Construction by OPUS Architects & Engineers
Plans Dated 8/30/95 Issued for Construction/Permit
Expansion of Facility Design by Julius Kwasek
Site Plan Submitted for Permit dated 3/10/99
EXHIBIT E-2
CONSTRUCTION BUDGET
Updated: 5/17/99
Warehouse Office & Expansion to be paid for by Landlord
Flammables Room, Office Expansion Mezzanine & Elevator to be paid for by Tenant
|
|
|
|
|
|
|
|
|
Description
|
|
Cost
|
|
|
|
|
|
Warehouse Expansion
|
|
$
|
3,116,059
|
|
|
|
|
|
HVAC
|
|
|
83,500
|
|
|
|
|
|
Fire Alarm Allowance
|
|
|
30,000
|
|
|
|
|
|
Contingency
|
|
|
50,000
|
|
|
|
|
|
Office Expansion
|
|
|
363,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
3,642,689
|
|
|
|
|
|
Architect Bases Building
|
|
|
56,750
|
|
|
|
|
|
Architect Office Expansion
|
|
|
21,000
|
|
|
|
|
|
Civil Engineering (Includes Topology)
|
|
|
11,198
|
|
|
|
|
|
Soil Borings
|
|
|
2,750
|
|
|
|
|
|
Surveys (3)
|
|
|
5,000
|
|
|
|
|
|
Legal (Lease Related)
|
|
|
15,000
|
|
|
|
|
|
Construction Interest
|
|
|
78,348
|
|
|
|
|
|
Construction Supervision Visits
|
|
|
8,000
|
|
|
|
|
|
Commission
|
|
|
220,000
|
|
|
|
|
|
Development Fee Management Firm
|
|
|
109,281
|
|
|
|
|
|
Development Fee Landlord
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
652,327
|
|
|
|
|
|
Total
|
|
$
|
4,295,016
|
|
|
By Landlord
|
Flammables Storage Room
|
|
|
253,724
|
|
|
|
|
|
Office Expansion Mezzanine & Elevator
|
|
|
205,012
|
|
|
|
|
|
Total
|
|
$
|
458,736
|
|
|
By Tenant
|
Grand Total
|
|
$
|
4,753,752
|
|
|
|
|
|
EXHIBIT E-2
ULTA3 EXPANSION RENTAL STREAM CALCULATION
|
|
|
|
|
Updated:
|
|
5/27/99 17:15
|
|
|
|
|
|
|
|
Expansion:
|
|
Assumes 10 year 7 month lease term for 121,218 SF (including 6,612 SF additional office)
|
|
|
|
|
|
Term:
|
|
10/1/99-4/30/10
|
|
|
|
|
|
|
|
Building Expansion w/ Soft Costs
|
|
$3,931,886
|
|
|
Costs Capped at 11% with 3% annual escalations
|
|
$432,507.42 1st year
|
|
|
|
|
|
Office Expansion
|
|
|
|
|
Complete April 1, 2000
|
|
$363,130
|
|
|
Costs Capped at 11% with 3% annual escalations
|
|
$39,944.30 1st year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Building Expansion
|
|
Office Expansion
|
|
Total Expansion
|
|
|
|
|
|
|
121,218 SF
|
|
6,612 SF
|
|
Rent
|
Lease Period
|
|
Annual Rent
|
|
Rent/SF
|
|
Annual Rent
|
|
Rent/SF
|
|
Annual Rent
|
|
Rent/SF
|
From
|
|
To
|
|
(Payable Monthly)
|
|
Annualized
|
|
(Payable Monthly)
|
|
Annualized
|
|
(Payable Monthly)
|
|
Annualized
|
10/1/99
|
|
|
3/31/00
|
|
|
$
|
216,253.71
|
|
|
$
|
3.57
|
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
216,253.71
|
|
|
$
|
3.57
|
|
4/1/00
|
|
|
9/30/00
|
|
|
$
|
216,253.71
|
|
|
$
|
3.57
|
|
|
$
|
19,972.15
|
|
|
$
|
6.04
|
|
|
$
|
236,225.86
|
|
|
$
|
3.90
|
|
10/1/00
|
|
|
9/30/01
|
|
|
$
|
445,482.65
|
|
|
$
|
3.68
|
|
|
$
|
40,543.46
|
|
|
$
|
6.13
|
|
|
$
|
486,026.11
|
|
|
$
|
4.01
|
|
10/1/01
|
|
|
9/30/02
|
|
|
$
|
458,847.13
|
|
|
$
|
3.79
|
|
|
$
|
41,759.77
|
|
|
$
|
6.32
|
|
|
$
|
500,606.90
|
|
|
$
|
4.13
|
|
10/1/02
|
|
|
9/30/03
|
|
|
$
|
472,612.54
|
|
|
$
|
3.90
|
|
|
$
|
43,012.56
|
|
|
$
|
6.51
|
|
|
$
|
515,625.10
|
|
|
$
|
4.25
|
|
10/1/03
|
|
|
9/30/04
|
|
|
$
|
486,790.92
|
|
|
$
|
4.02
|
|
|
$
|
44,302.94
|
|
|
$
|
6.70
|
|
|
$
|
531,093.86
|
|
|
$
|
4.38
|
|
10/1/04
|
|
|
9/30/05
|
|
|
$
|
501,394.64
|
|
|
$
|
4.14
|
|
|
$
|
45,632.03
|
|
|
$
|
6.90
|
|
|
$
|
547,026.67
|
|
|
$
|
4.51
|
|
10/1/05
|
|
|
9/30/06
|
|
|
$
|
516,436.48
|
|
|
$
|
4.26
|
|
|
$
|
47,000.99
|
|
|
$
|
7.11
|
|
|
$
|
563,437.47
|
|
|
$
|
4.65
|
|
10/1/06
|
|
|
9/30/07
|
|
|
$
|
531,929.58
|
|
|
$
|
4.39
|
|
|
$
|
48,411.02
|
|
|
$
|
7.32
|
|
|
$
|
580,340.60
|
|
|
$
|
4.79
|
|
10/1/07
|
|
|
9/30/08
|
|
|
$
|
547,887.46
|
|
|
$
|
4.52
|
|
|
$
|
49,863.35
|
|
|
$
|
7.54
|
|
|
$
|
597,750.81
|
|
|
$
|
4.93
|
|
10/1/08
|
|
|
9/30/09
|
|
|
$
|
564,324.09
|
|
|
$
|
4.66
|
|
|
$
|
51,359.25
|
|
|
$
|
7.77
|
|
|
$
|
615,683.34
|
|
|
$
|
5.08
|
|
10/1/09
|
|
|
4/30/10
|
|
|
$
|
339,064.72
|
|
|
$
|
4.80
|
|
|
$
|
30,858.35
|
|
|
$
|
8.00
|
|
|
$
|
369,923.07
|
|
|
$
|
5.23
|
|
EXHIBIT E-2
ULTA3 COMBINED RENTAL STREAM CALCULATION
|
|
|
|
|
Updated:
|
|
5/27/99 17:15
|
|
|
|
|
|
|
|
Expansion:
|
|
Assumes 10 year 7 month lease term for 121,218 SF (including 6,612 SF additional office)
|
|
|
|
|
|
Term:
|
|
10/1/99-4/30/10
|
|
|
Building Expansion w/ Soft Costs
|
|
$3,931,886
|
|
|
Costs Capped at 11% with 3% annual escalations
|
|
$432,507.42 1st year
|
|
|
|
|
|
Office Expansion
|
|
|
|
|
Complete April 1, 2000
|
|
$363,130
|
|
|
Costs Capped at 11% with 3% annual escalations
|
|
$39,944.30 1st year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing Building
|
|
Expansion
|
|
Total Combined Rent
|
|
|
|
|
|
|
170,000 SF
|
|
121,218 SF
|
|
291,218 SF
|
Lease Period
|
|
Annual Rent
|
|
Rent/SF
|
|
Annual Rent
|
|
Rent/SF
|
|
Annual Rent
|
|
Rent/SF
|
From
|
|
To
|
|
(Payable Monthly)
|
|
Annualized
|
|
(Payable Monthly)
|
|
Annualized
|
|
(Payable Monthly)
|
|
Annualized
|
10/1/99
|
|
|
3/31/00
|
|
|
$
|
340,000.00
|
|
|
$
|
4.00
|
|
|
$
|
216,253.71
|
|
|
$
|
3.57
|
|
|
$
|
556,253.71
|
|
|
$
|
3.82
|
|
4/1/00
|
|
|
9/30/00
|
|
|
$
|
340,000.00
|
|
|
$
|
4.00
|
|
|
$
|
236,225.86
|
|
|
$
|
3.90
|
|
|
$
|
576,225.86
|
|
|
$
|
3.96
|
|
10/1/00
|
|
|
9/30/01
|
|
|
$
|
680,000.00
|
|
|
$
|
4.00
|
|
|
$
|
486,026.11
|
|
|
$
|
4.01
|
|
|
$
|
1,166,026.11
|
|
|
$
|
4.00
|
|
10/1/01
|
|
|
9/30/02
|
|
|
$
|
680,000.00
|
|
|
$
|
4.00
|
|
|
$
|
500,606.90
|
|
|
$
|
4.13
|
|
|
$
|
1,180,606.90
|
|
|
$
|
4.05
|
|
10/1/02
|
|
|
9/30/03
|
|
|
$
|
739,500.00
|
|
|
$
|
4.35
|
|
|
$
|
515,625.10
|
|
|
$
|
4.25
|
|
|
$
|
1,255,125.10
|
|
|
$
|
4.31
|
|
10/1/03
|
|
|
9/30/04
|
|
|
$
|
765,000.00
|
|
|
$
|
4.50
|
|
|
$
|
531,093.86
|
|
|
$
|
4.38
|
|
|
$
|
1,296,093.86
|
|
|
$
|
4.45
|
|
10/1/04
|
|
|
9/30/05
|
|
|
$
|
765,000.00
|
|
|
$
|
4.50
|
|
|
$
|
547,026.67
|
|
|
$
|
4.51
|
|
|
$
|
1,312,026.67
|
|
|
$
|
4.51
|
|
10/1/05
|
|
|
9/30/06
|
|
|
$
|
783,700.00
|
|
|
$
|
4.61
|
|
|
$
|
563,437.47
|
|
|
$
|
4.65
|
|
|
$
|
1,347,137.47
|
|
|
$
|
4.63
|
|
10/1/06
|
|
|
9/30/07
|
|
|
$
|
790,500.00
|
|
|
$
|
4.65
|
|
|
$
|
580,340.60
|
|
|
$
|
4.79
|
|
|
$
|
1,370,840.60
|
|
|
$
|
4.71
|
|
10/1/07
|
|
|
9/30/08
|
|
|
$
|
790,500.00
|
|
|
$
|
4.65
|
|
|
$
|
597,750.81
|
|
|
$
|
4.93
|
|
|
$
|
1,388,250.81
|
|
|
$
|
4.77
|
|
10/1/08
|
|
|
9/30/09
|
|
|
$
|
809,200.00
|
|
|
$
|
4.76
|
|
|
$
|
615,683.34
|
|
|
$
|
5.08
|
|
|
$
|
1,424,883.34
|
|
|
$
|
4.89
|
|
10/1/09
|
|
|
4/30/10
|
|
|
$
|
476,000.00
|
|
|
$
|
4.80
|
|
|
$
|
369,923.07
|
|
|
$
|
5.23
|
|
|
$
|
845,923.07
|
|
|
$
|
4.98
|
|
EXHIBIT F
COMMENCEMENT DATE LETTER
This Exhibit is attached to and made a part of the Lease by and between Aetna Life Insurance
Company (Landlord) and ULTA3 Cosmetics & Salon, Inc. (Tenant).
1. The Lease Term commenced on [October 1, 1999].
2. The Lease Term will expire on [April 30, 2010], unless renewed or extended.
3. Tenant acknowledges that the Work has been completed in accordance with the Plans and
Specifications and accepts such Work, subject to any punch list items being completed.
4. Tenant, further, acknowledges that all obligations of Landlord to Tenant in connection with
the Work and all other conditions precedent to the commencement of the Lease Term have occurred and
that the Lease is in full force and effect.
5. There are no existing defenses or offsets which, as of the date hereof, Tenant has against
the enforcement of the Lease by Landlord.
6. Base Rental for the Lease Term is as follows:
[INSERT SCHEDULE BASED ON FINAL CONSTRUCTION RENT CALCULATIONS]
EXECUTED on the day of , 2000.
|
|
|
|
|
|
|
LANDLORD:
|
|
|
|
|
|
|
|
AETNA LIFE INSURANCE COMPANY
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
Printed Name:
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
ATTEST:
|
|
TENANT:
|
|
|
|
|
|
|
|
ULTA3 COSMETICS & SALON, INC.
|
|
|
|
|
|
(Title)
|
|
By:
|
/s/ Greg Smolarek
|
|
|
|
|
|
|
Printed Name: Greg Smolarek
|
|
|
Title: SR VP Systems and Logistics
|
EXHIBIT J
RENEWAL OPTION
This Exhibit is attached to and made a part of the Lease by and between Aetna Life Insurance
Company (Landlord) and ULTA3 Cosmetics & Salon, Inc. (Tenant).
1. Tenant, but not any assignee or sublessee of Tenant, is hereby granted two (2) options of
five (5) years each to renew this Lease (each a
Renewal Term
and collectively, the
Renewal
Terms
). Provided Tenant is not in default at the time of exercise of the option or, again on
commencement of the Renewal Term at issue, Tenant may exercise each option upon written notice to
Landlord given no earlier than fifteen (15) months and no later than twelve (12) months before the
expiration of the then current term. If Tenant fails to exercise the option within the time frame
set forth in the preceding sentence, then Tenant shall be deemed to have elected not to exercise
the option and this renewal option and all other unexercised renewal options contained herein shall
be deemed to have terminated; time being of the essence in the exercise of such option. Each
Renewal Term will be on the same terms and conditions as those contained in the Lease except as
follows:
(a) there shall be no further rights to renew after the exercise of the last of the renewal
option(s) granted in this Exhibit;
(b) any tenant improvement allowances, rental concessions or the like granted by Landlord to
Tenant in the initial Lease Term shall not be applicable in such Renewal Term; and
(c) the rental for such Renewal Term shall be the greater of (i) the fair market rental rate
(the
Fair Market Rent
) for the Premises based on the then-prevailing market rental rate for
properties of equivalent quality, size, utility and location, taking into account a lease for a
lease term of that of the Renewal Term and with a tenant of the credit standing of Tenant (as Fair
Market Rent shall be determined below in this
Exhibit J
), or (ii) the Base Rental in
effect at the expiration of the initial Lease Term or first Renewal Term, as the case may be.
2. Landlord shall notify Tenant of its determination of the Fair Market Rent for the subject
Renewal Term, and Tenant shall advise Landlord of any objection within 10 days of receipt of
Landlords notice. Failure to respond within the 10-day period shall constitute Tenants acceptance
of such Fair Market Rent. If Tenant objects, Landlord and Tenant shall commence negotiations to
attempt to agree upon the Fair Market Rent within 30 days of Landlords receipt of Tenants notice.
If the parties cannot agree, each acting in good faith but without any obligation to agree, then
the Lease Term shall not be extended and shall terminate on its scheduled termination date and
Tenant shall have no further right hereunder or any remedy by reason of the parties failure to
agree unless Tenant or Landlord invokes the arbitration procedure provided below to determine the
Fair Market Rent.
3. Arbitration to determine the Fair Market Rent shall be in accordance with the Real Estate
Valuation Arbitration Rules of the American Arbitration Association. Unless otherwise required by
state law, arbitration shall be conducted in the metropolitan area where the Premises is located by
a single arbitrator unaffiliated with either party. Either party may elect to
arbitrate by sending written notice to the other party and the Regional Office of the American
Arbitration Association within 5 days after the 30-day negotiating period provided in
Paragraph
2
, invoking the binding arbitration provisions of this Paragraph. Landlord and Tenant shall
each submit to the arbitrator their respective proposal of Fair Market Rent. The arbitrator must
choose between the Landlords proposal and the Tenants proposal and may not compromise between the
two or select some other amount. Notwithstanding any other provision herein, the Fair Market Rent
determined by the arbitrator shall not be less than, and the arbitrator shall have no authority to
determine a Fair Market Rent less than, the Base Rental in effect as of the scheduled expiration of
the initial Lease Term or First Renewal Term, as the case may be. The cost of the arbitration shall
be paid by Landlord if the Fair Market Rent is that proposed by Landlord and by Tenant if the Fair
Market Rent is that proposed by Tenant; and shall be borne equally otherwise. If the arbitrator has
not determined the Fair Market Rent as of the end of the Lease Term, or first Renewal Term, as the
case may be, Tenant shall pay 105 percent of the Base Rental in effect under the Lease as of the
end of the Lease Term or first Renewal Term, as the case may be, until the Fair Market Rent is
determined as provided herein. Upon such determination, Landlord and Tenant shall make the
appropriate adjustments to the payments between them.
4. The parties consent to the jurisdiction of any appropriate court to enforce the arbitration
provisions of this
Exhibit J
and to enter judgment upon the decision of the arbitrator.
5. If the Lease is extended for a Renewal Term, then Landlord shall prepare and Tenant shall
execute an amendment to the Lease confirming the extension of the Lease Term and the other
provisions applicable thereto.
6. If Tenant exercises its right to extend the term of the Lease for a Renewal Term pursuant
to this
Exhibit J
, the term
Lease Term
as used in the Lease, shall be construed to
include, when practicable, the Extension Term.
2
EXHIBIT M
HVAC MAINTENANCE SPECIFICATIONS
Tenant shall enter into a service contract with a contractor reasonably approved by Landlord,
providing for the service and regular maintenance (with service calls no less frequent than once
each calendar quarter and otherwise meeting the specifications set for in this
Exhibit M
)
of the
hot
water heating, venting and air conditioning system throughout the Lease Term.
The service contract must include all services suggested by the equipment manufacturer in its
operations/maintenance manual and must become effective within thirty (30) days of the date Tenant
takes possession of the Premises. Tenant shall provide Landlord with an executed copy of the
aforementioned service contract within ten (10) days of execution.
Maintenance Specifications to be contained in service contract:
1. Service calls no less frequent than once per calender quarter.
2. Detail of services to be performed and the frequency of each service (i.e., once per
calendar year, once per calendar quarter, etc.).
EXHIBIT 10.13
OFFICE LEASE
between
BOLINGBROOK INVESTORS, LLC,
an Illinois limited liability company
Landlord
and
ULTA SALON, COSMETICS & FRAGRANCE, INC.,
a Delaware corporation
Tenant
Dated as of April 17, 2007
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
1.
|
|
CERTAIN PROVISIONS AND DEFINITIONS
|
|
|
1
|
|
2.
|
|
GRANT AND ACCEPTANCE OF LEASE
|
|
|
4
|
|
3.
|
|
RENT
|
|
|
4
|
|
4.
|
|
BASE RENT
|
|
|
4
|
|
5.
|
|
ADDITIONAL RENT
|
|
|
5
|
|
6.
|
|
USE OF PREMISES
|
|
|
9
|
|
7.
|
|
DELIVERY OF POSSESSION; TENANT IMPROVEMENTS
|
|
|
10
|
|
8.
|
|
SERVICES
|
|
|
11
|
|
9.
|
|
CONDITION AND CARE OF PREMISES
|
|
|
18
|
|
10.
|
|
SURRENDER OF PREMISES
|
|
|
24
|
|
11.
|
|
HOLDING OVER
|
|
|
25
|
|
12.
|
|
RULES AND REGULATIONS
|
|
|
26
|
|
13.
|
|
RIGHTS RESERVED TO LANDLORD
|
|
|
26
|
|
14.
|
|
ALTERATIONS
|
|
|
30
|
|
15.
|
|
ASSIGNMENT AND SUBLETTING
|
|
|
32
|
|
16.
|
|
WAIVER OF CERTAIN CLAIMS, INDEMNITY BY TENANT
|
|
|
36
|
|
17.
|
|
DAMAGE OR DESTRUCTION BY CASUALTY
|
|
|
38
|
|
18.
|
|
EMINENT DOMAIN
|
|
|
40
|
|
19.
|
|
DEFAULT; LANDLORDS RIGHTS AND REMEDIES
|
|
|
41
|
|
20.
|
|
RIGHTS OF MORTGAGEES AND GROUND LESSORS
|
|
|
45
|
|
21.
|
|
FURNITURE
|
|
|
48
|
|
22.
|
|
INSURANCE AND SUBROGATION
|
|
|
48
|
|
23.
|
|
NONWAIVER
|
|
|
50
|
|
i
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
24.
|
|
ESTOPPEL CERTIFICATE
|
|
|
50
|
|
25.
|
|
TENANT CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP AUTHORITY
|
|
|
51
|
|
26.
|
|
REAL ESTATE BROKERS
|
|
|
51
|
|
27.
|
|
NOTICES
|
|
|
52
|
|
28.
|
|
MISCELLANEOUS
|
|
|
52
|
|
29.
|
|
RIGHT OF FIRST REFUSAL
|
|
|
57
|
|
30.
|
|
RENEWAL OPTIONS
|
|
|
60
|
|
31.
|
|
SIGNAGE
|
|
|
61
|
|
32.
|
|
LANDLORD
|
|
|
63
|
|
33.
|
|
TITLE AND COVENANT AGAINST LIENS
|
|
|
63
|
|
34.
|
|
COVENANT OF QUIET ENJOYMENT
|
|
|
63
|
|
35.
|
|
EXCULPATORY PROVISIONS
|
|
|
63
|
|
36.
|
|
PARKING
|
|
|
64
|
|
37.
|
|
CERTAIN COMMON AREAS
|
|
|
64
|
|
EXHIBITS
|
|
|
|
|
|
|
A
|
|
Floor Plan of Building
|
|
|
A-1
|
|
Site Plan of Project
|
|
|
B
|
|
Workletter
|
|
|
C
|
|
Other Definitions
|
|
|
D
|
|
Rules and Regulations
|
|
|
E
|
|
Furniture Inventory List
|
|
|
F
|
|
Form of Lease Estoppel Certificate
|
|
|
G
|
|
Form of Memorandum Confirming Term
|
|
|
H
|
|
HVAC Specifications
|
|
|
I
|
|
Cleaning Specifications
|
|
|
J
|
|
Form of Subordination, Non-Disturbance and Attornment Agreement
|
|
|
K
|
|
Form of Landlords Waiver and Consent
|
|
|
L
|
|
Tenant Exterior Building Signage
|
|
|
M
|
|
Tenant Lobby Signage
|
|
|
N
|
|
Landlords Work
|
ii
OFFICE LEASE
|
|
|
DATED AS OF:
|
|
April 17, 2007
|
|
|
|
BETWEEN:
|
|
BOLINGBROOK INVESTORS, LLC
|
|
|
an Illinois limited liability company (
Landlord
)
|
(Address)
|
|
c/o BPG Properties, Ltd.
|
|
|
200 South Michigan Avenue, Suite 210
|
|
|
Chicago, Illinois 60604
|
AND:
|
|
ULTA SALON, COSMETICS & FRAGRANCE, INC.
|
|
|
a Delaware corporation (
Tenant
)
|
(Address)
|
|
Windham Lakes Business Park
|
|
|
1275 Windham Drive
|
|
|
Romeoville, IL 60446
|
|
|
Attn: Sr. Vice President of Real Estate
|
|
|
Tele. No.: (630) 226-0020
|
|
|
Taxpayer ID No.: 36-3685240
|
Landlord and Tenant hereby covenant and agree as follows:
1.
CERTAIN PROVISIONS AND DEFINITIONS
. The following provisions and definitions are an
integral part of this Office Lease (herein, this Lease):
(a)
Abatement
: Subject to Section 4(b), Base Rent and Additional Rent shall be
abated with respect to the Phase I Premises (as defined below) for the first Lease Year of
the Initial Term; Base Rent and Additional Rent shall be abated with respect to the Phase II
Premises (as defined below) for the second Lease Year of the Initial Term; and Base Rent and
Additional Rent shall be abated with respect to the Phase III Premises (as defined below)
for the third Lease Year of the Initial Term.
(b)
Base Rent
: The amounts payable with respect to the Premises for the time periods
indicated, including application of the Abatement, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Base
|
|
|
Annual Base
|
|
Annual Base
|
|
Annual Base
|
|
|
|
|
|
|
|
|
|
Rent Per
|
|
|
Rent for
|
|
Rent for
|
|
Rent for
|
|
|
|
|
|
|
|
|
|
Square Foot
|
|
|
Phase I
|
|
Phase II
|
|
Phase III
|
|
|
|
|
|
Total
|
|
of Rentable
|
Lease Year
|
|
Premises
|
|
Premises
|
|
Premises
|
|
Total Annual
|
|
Monthly
|
|
Area of the
|
Initial Term
|
|
(39,355 s.f.)
|
|
(24,806 s.f.)
|
|
(18,307 s.f.)
|
|
Base Rent
|
|
Base Rent
|
|
Premises
|
1
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
17.50
|
|
2
|
|
$
|
708,390.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
708,390.00
|
|
|
$
|
59,032.50
|
|
|
$
|
18.00
|
|
3
|
|
$
|
728,067.50
|
|
|
$
|
458,911.00
|
|
|
$
|
0.00
|
|
|
$
|
1,186,978.50
|
|
|
$
|
98,914.88
|
|
|
$
|
18.50
|
|
4
|
|
$
|
747,745.00
|
|
|
$
|
471,314.00
|
|
|
$
|
347,833.00
|
|
|
$
|
1,566,892.00
|
|
|
$
|
130,574.33
|
|
|
$
|
19.00
|
|
5
|
|
$
|
767,422.50
|
|
|
$
|
483,717.00
|
|
|
$
|
356,986.50
|
|
|
$
|
1,608,126.00
|
|
|
$
|
134,010.50
|
|
|
$
|
19.50
|
|
6
|
|
$
|
787,100.00
|
|
|
$
|
496,120.00
|
|
|
$
|
366,140.00
|
|
|
$
|
1,649,360.00
|
|
|
$
|
137,446.67
|
|
|
$
|
20.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Base
|
|
|
Annual Base
|
|
Annual Base
|
|
Annual Base
|
|
|
|
|
|
|
|
|
|
Rent Per
|
|
|
Rent for
|
|
Rent for
|
|
Rent for
|
|
|
|
|
|
|
|
|
|
Square Foot
|
|
|
Phase I
|
|
Phase II
|
|
Phase III
|
|
|
|
|
|
Total
|
|
of Rentable
|
Lease Year
|
|
Premises
|
|
Premises
|
|
Premises
|
|
Total Annual
|
|
Monthly
|
|
Area of the
|
Initial Term
|
|
(39,355 s.f.)
|
|
(24,806 s.f.)
|
|
(18,307 s.f.)
|
|
Base Rent
|
|
Base Rent
|
|
Premises
|
7
|
|
$
|
806,777.50
|
|
|
$
|
508,523.00
|
|
|
$
|
375,293.50
|
|
|
$
|
1,690,594.00
|
|
|
$
|
140,882.83
|
|
|
$
|
20.50
|
|
8
|
|
$
|
826,455.00
|
|
|
$
|
520,926.00
|
|
|
$
|
384,447.00
|
|
|
$
|
1,731,828.00
|
|
|
$
|
144,319.00
|
|
|
$
|
21.00
|
|
9
|
|
$
|
846,132.50
|
|
|
$
|
533,329.00
|
|
|
$
|
393,600.50
|
|
|
$
|
1,773,062.00
|
|
|
$
|
147,755.17
|
|
|
$
|
21.50
|
|
10
|
|
$
|
865,810.00
|
|
|
$
|
545,732.00
|
|
|
$
|
402,754.00
|
|
|
$
|
1,814,296.00
|
|
|
$
|
151,191.33
|
|
|
$
|
22.00
|
|
11
|
|
$
|
885,487.50
|
|
|
$
|
558,135.00
|
|
|
$
|
411,907.50
|
|
|
$
|
1,855,530.00
|
|
|
$
|
154,627.50
|
|
|
$
|
22.50
|
|
Renewal Terms
. As determined pursuant to Section 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
Base Year
: 2008
(d)
Broker
: Colliers Bennett & Kahnweiler, Inc.
(e)
Building
: The building located at 1000 Remington Boulevard, Bolingbrook,
Illinois.
(f)
Commencement Date
: The earlier to occur of (i) the date on which Tenant occupies
the Premises for the operation of its business, and (ii) September 1, 2007, which
Commencement Date and other matters shall then be confirmed by the parties by entering into
a Memorandum Confirming Term in the form of Exhibit G attached to this Lease.
(g)
Common Areas
: Those areas of the Building and Land intended for the common,
non-exclusive use of Building tenants, including, without limitation, parking areas,
driveways, sidewalks, loading areas, access roads, corridors, landscaping and planted areas,
and the following areas which are shown on the Floor Plan of Building attached as Exhibit A
to this Lease: the Building cafeteria (the Cafeteria), the Building auditorium (the
Auditorium) and the Building conference room (the Conference Room). The Common Areas
also include a receiving dock area with a minimum of two truck berths (the Receiving
Dock), to which Tenant shall at all times have access through a code compliant corridor.
(h)
Expiration Date
: The date of the day immediately preceding the eleventh
(11
th
) anniversary of the Commencement Date, unless this Lease and the Term is
earlier terminated or renewed as provided in this Lease.
(i)
Initial Term
: The period of eleven (11) Lease Years (the
Initial Term
),
beginning on the Commencement Date, and ending on the Expiration Date, (the Initial Term)
as provided in this lease.
(j)
Land
: The parcel(s) of real estate on which the Building and the Project are
located.
(k)
Lease Year
: The first Lease Year shall commence on the Commencement Date and
shall continue for a period of twelve (12) consecutive calendar months from and after the
Commencement Date, except that if the Commencement Date
shall be other than the first day of a calendar month, the first Lease Year shall
expire at the close of business on the last day of the month in which occurs the first
anniversary of
2
the Commencement Date. Each Lease Year after the first Lease Year shall be a
successive period of twelve (12) calendar months.
(l)
Premises
: The area indicated on
Exhibit A
on the first and second floors of
Section A of the Building, deemed, for purposes of this Lease, to consist of 82,468 square
feet of Rentable Area, comprised of 39,355 square feet of Rentable Area on the first floor
of the Building (the
Phase I Premises
; 24,806 square feet of Rentable Area (the
Phase II
Premises
), comprised of 4,806 square feet of Rentable Area on the first floor of the
Building (the
First Floor Conference Areas
) and 20,000 square feet of Rentable Area on the
second floor of the Building; provided, however that the Phase II Premises shall not
constitute a part of the Premises until the date of the first (1
st
) day of the
second Lease Year (the Phase II Commencement Date), and 18,307 square feet of Rentable
Area on the second floor of the Building (the
Phase III Premises
); provided, however that
the Phase III Premises shall not constitute a part of the Premises until the date of the
first (1
st
) day of the third Lease Year (the Phase III Commencement Date).
(m)
Project
: The Land and the Building, together with any other improvements located
on the Land, all equipment, fixtures, machinery, systems, apparatus and personal property of
Landlord located at or used in connection with the Land or the Building from time to time.
(n)
Tenant Alterations
: Any alteration, improvements or additions (including
decorations) to the Premises performed or to be performed by or on behalf of Tenant,
including, without limitation, the Tenants Work.
(o)
Tenants Proportionate Share
: The percentage determined as described in
Exhibit
C
. Without limitation of the foregoing, as the date hereof, Tenants Proportionate Share is
acknowledged, initially, to be 7.18%, to be increased to 11.71% as of the Phase II
Commencement Date, and to be further increased to 15.05% as of the Phase III Commencement
Date.
(p)
Tenants Work
: Any work to be performed by or on behalf of Tenant to ready the
Premises for initial occupancy by Tenant, as more particularly described in Section 7(b)
hereof and in the Workletter.
(q)
Term
: The initial Term and any renewal of the Initial Term specifically provided
herein unless earlier terminated as provided in this Lease.
(r)
Use
: Tenant shall have the right to use the Premises for any of the following
purposes: (i) general office use; (ii) conference and meeting room use; (iii) the giving or
receiving of any type of classes which are related to the operation of an Ulta retail store
or Ultas general business operation or otherwise related to training for Ulta personnel,
and which use for classes is in compliance with all Laws; (iv) the creation and/or display
of a mock ULTA retail store, provided that such mock store is not visible from the Common
Areas or the exterior of the Building; (v) the storage of any inventory
or other product of Tenant not for sale to the public; and (vi) such other uses as may
be
3
necessary or incidental to any of the foregoing (including, without limitation, a
kitchenette, lunchroom and vending machines).
(s)
Workletter
: The Workletter attached hereto as
Exhibit B
.
See Exhibit C and the Workletter for other definitions of terms used herein.
2.
GRANT AND ACCEPTANCE OF LEASE
. Landlord hereby leases the Premises to Tenant, and
Tenant hereby accepts and leases the Premises from Landlord to have and to hold during the Term,
subject to the terms and conditions of this Lease, together with the non-exclusive right to use the
Common Areas in accordance with the terms of this Lease. The Premises shall initially be comprised
of the Phase I Premises. As of the Phase II Commencement Date, the Premises shall include the
Phase I Premises and the Phase II Premises. As of the Phase III Commencement Date, the Premises
shall include the Phase I Premises, the Phase II Premises and the Phase III Premises. Landlord
represents that it is the fee owner of the Project.
3.
RENT
. Base Rent, Additional Rent, Additional Rent Estimate and all other amounts
becoming due from Tenant to Landlord hereunder (collectively
Rent
) shall be paid in lawful money
of the United States to Landlord at the following address: Colliers Turley Martin Tucker, Attn:
1000 Remington, 4678 World Parkway Circle, St. Louis, MO 63134, or such other address as Landlord
shall designate in writing to Tenant from time to time, without any demand and without any
reduction, abatement, counterclaim, deduction or set-off whatsoever, except as expressly provided
herein, at the times and in the manner hereinafter provided. Unpaid Rent shall bear interest at
the Default Rate from the date due until paid; provided, however, that the first time in any 12
month period that Tenant fails to pay Rent when due, no interest shall be charged unless such
failure continues for ten (10) days after written notice thereof from Landlord. The payment of
Rent hereunder is independent of each and every other covenant and agreement contained in this
lease. Rent shall be prorated for any partial months during the Term.
4.
BASE RENT
.
(a)
Monthly Base Rent
. Subject to the Abatement, Tenant shall pay Base Rent to
Landlord in equal monthly installments (herein called
Monthly Base Rent
) as set forth in Section
1(b), in advance on the Commencement Date, and on or before the first day of each and every
calendar month during the Term.
(b)
Rent Abatement
. Notwithstanding anything herein to the contrary, Monthly Base
Rent and Tenants obligation to pay the Tax Adjustment (as hereinafter defined) and the Expense
Adjustment (as hereinafter defined) shall abate with respect to the Phase I Premises for the first
Lease Year of the Initial Term, shall abate with respect to the Phase II Premises for the first
twelve (12) months of the demise of the Phase II Premises beginning on the
Phase II Commencement Date, and shall abate with respect to the Phase III for the first twelve
(12) months of the demise of the Phase III Premises beginning on the Phase III Commencement Date
(the
Abatement Period
) (each full or partial month within the Abatement Period, as applicable, an
Abatement Month
, and all of such full or partial months, the
Abatement Months
); provided,
however, (i) Tenant shall remain responsible for all other obligations of
4
Tenant hereunder during
each of the aforedescribed Abatement Months; (ii) such abatement shall not apply for any Abatement
Month during which Tenant, at any time, is in default under this Lease beyond any applicable cure
period; and (iii) Tenant shall be responsible for the cost of all electricity consumed in the
Premises during the Abatement Period in accordance with Section 8(b).
5.
ADDITIONAL RENT
. In addition to paying the Base Rent (but subject to the Abatement),
Tenant shall also pay as additional rent the amounts (collectively
Additional Rent
) determined to
be Tax Adjustment and Expense Adjustment in accordance with this Section 5:
(a)
Computation of Additional Rent
. Subject to the Abatement, Tenant shall pay
as Additional Rent for each Calculation Year (as defined in Exhibit C) the following
amounts:
(i) Tenants Proportionate Share of the amount by which the Taxes (as defined
in Exhibit C) for such Calculation Year exceed the Taxes for the Base Year (the
Tax
Adjustment
); plus
(ii) Tenants Proportionate Share of the amount by which Expenses (as defined
in Exhibit C) for such Calculation Year exceed the Expenses for the Base Year (the
Expense Adjustment
).
Notwithstanding anything to the contrary contained in this Lease, in calculating the Expense
Adjustment for any Calculation Year, the Controllable Expenses component of Expenses for said
Calculation Year shall not exceed the Controllable Expenses component of Expenses for the Base
Year by more than five percent (5%), on a cumulative, compounded basis. As used herein,
Controllable Expenses means Expenses other than the costs of insurance, costs of utilities, union
wages and benefits, management fees and any other Expenses which are outside the reasonable control
of Landlord.
(b)
Payments of Additional Rent; Additional Rent Estimate; Projections
.
Beginning on January 1, 2009, and throughout the Term thereafter, and subject to the
Abatement, Tenant shall pay Additional Rent to Landlord in the manner hereinafter provided.
The aggregate of payments required to be made by Tenant on account of Additional Rent for
any Calculation Year until actual Additional Rent is determined is herein called Additional
Rent Estimate.
(i) Landlord may, at any time and from time to time prior to the first
Calculation Date and during the Term, deliver to Tenant a written notice or notices
(Projection Notice) setting forth:
(A) Landlords reasonable estimates, forecasts or projections
(collectively, the
Projections
) of any or all of Taxes and Expenses for
such Calculation Year, and
(B) Tenants Additional Rent Estimate (setting forth the Expense
Adjustment component and Tax Adjustment component
5
separately) based upon the
Projections, being the Tenants Proportionate Share of the Projections.
(ii) On or before the first (1st) day of the next calendar month which is at
least thirty (30) days after Landlords service of a Projection Notice, and on or
before the first day of each month thereafter, Tenant shall pay to Landlord
one-twelfth (1/12) of the Additional Rent Estimate shown in the Projection Notice.
On or before the first (1st) day of the next calendar month which is at least thirty
(30) days after Landlords service of a Projection Notice, to bring Tenants
payments of Additional Rent Estimate current, Tenant shall also pay Landlord the
amount set forth in the Projection Notice, which shall equal the Additional Rent
Estimate shown in the Projection Notice less (A) any previous payments on account of
Additional Rent Estimate made for such Calculation Year, and (B) total monthly
installments on account of Additional Rent Estimate not yet due and payable for the
remainder of such Calculation Year. Until such time as Landlord furnishes a
Projection Notice for a Calculation Year, Tenant shall pay to Landlord a monthly
installment of Additional Rent Estimate on the first day of each month equal to the
latest monthly installment of Additional Rent Estimate.
(c)
Readjustments
.
(i) Following the end of each Calculation Year and after Landlord shall have
determined the amount of Expenses to be used in calculating the Expense Adjustment
for such Calculation Year, Landlord shall deliver to Tenant a statement in
reasonable detail setting forth the Expenses for the applicable Calculation Year and
the calculation of Tenants Expense Adjustment for such Calculation Year
(
Landlords Expense Statement
). Landlord shall endeavor to deliver Landlords
Expense Statement by May 1 of each year. Landlords Expense Statement shall also
set forth the Expenses for the Base Year. If the actual Expense Adjustment owed for
such Calculation Year exceeds the Expense Adjustment component of the Additional
Rent Estimate paid by Tenant during such Calculation Year, then Tenant shall, within
thirty (30)
days after receipt of Landlords Expense Statement, pay to Landlord an
amount equal to the excess of the actual Expense Adjustment over the Expense
Adjustment component of the Additional Rent Estimate paid by Tenant during such
Calculation Year. If the Expense Adjustment component of the Additional Rent
Estimate paid by Tenant during such Calculation Year exceeds the Expense Adjustment
owed for such Calculation Year, then, provided that Tenant is not then in Default
under this Lease, Landlord shall credit such excess to Additional Rent next coming
due and payable after the date of Landlords Expense Statement, until such excess
has been exhausted (provided further, that if Tenant is then in Default, then
Landlord
may first offset such excess against any rental or other damages due and owing
from Tenant resulting from any such existing Default of Tenant under this Lease).
If this Lease shall expire or be terminated prior to full application of such
excess, Landlord shall pay to Tenant, within thirty (30) days after expiration or
termination of this Lease (or, with respect to any such excess attributable to the
Calculation Year in which this Lease terminates or expires, then within thirty (30)
6
days after delivery of the Landlords Expense Statement applicable thereto), the
balance thereof not theretofore applied against Additional Rent and not reasonably
required for payment of Rent for the Calculation Year in which the Lease expires,
subject to Tenants obligations under Section 5(e) hereof, provided Tenant is not
then in Default under this Lease (and if Tenant is then in Default, then Landlord
may first offset such excess against any rental or other damages due and owing from
Tenant resulting from any such existing default of Tenant under this Lease).
(ii) Following the end of each Calculation Year and after Landlord shall have
determined the actual amount of Taxes to be used in calculating the Tax Adjustment
for such Calculation Year, Landlord shall deliver to Tenant a statement in
reasonable detail (including copies of relevant tax bills) setting forth the Taxes
for the applicable Calculation Year and the calculation of Tenants Tax Adjustment
for such Calculation Year (
Landlords Tax Statement
). Landlords Tax Statement
shall also set forth the Taxes for the Base Year. If the actual Tax Adjustment owed
for such Calculation Year exceeds the Tax Adjustment component of the Additional
Rent Estimate paid by Tenant during such Calculation Year, then Tenant shall, within
thirty (30) days after the date of Landlords Tax Statement, pay to Landlord an
amount equal to the excess of the actual Tax Adjustment over the Tax Adjustment
component of the Additional Rent Estimate paid by Tenant during such Calculation
Year. If the Tax Adjustment component of the Additional Rent Estimate paid by
Tenant during such Calculation Year exceeds the Tax Adjustment owed for such
Calculation Year, then, provided that Tenant is not then in Default under this
Lease, Landlord shall immediately credit such excess to Additional Rent next coming
due and payable after the date of Landlords Tax Statement, until such excess has
been exhausted (provided further, that if Tenant is then in Default, then Landlord
may first offset such excess against any rental or other damages due and owing from
Tenant resulting from any such existing Default of Tenant under this Lease). If
this Lease shall expire or be terminated prior to full application of such excess,
Landlord shall pay to Tenant, within thirty (30) days after expiration or
termination of this Lease (or, with respect to any such excess attributable to the
Calculation Year in which this Lease terminates or expires, then within thirty (30)
days after delivery of the Landlords Tax Statement applicable thereto), the balance
thereof not theretofore applied against Rent and not reasonably required for payment
of Rent for the Calculation Year in which the Lease expires, subject to Tenants
obligations under Section 5(e) hereof, provided Tenant is not then in Default under
this Lease (and if Tenant is then in Default, then Landlord may first offset such
excess against any rental or other damages due and owing from Tenant resulting from
any such existing Default of Tenant under this Lease).
(d)
Books and Records
. Landlord shall maintain books and records showing Taxes
and Expenses actually incurred by Landlord in accordance with sound accounting and
management practices (subject to adjustments thereto expressly contemplated by this lease,
such as in the case of a so-called gross-up in variable Expenses under Section 11(b) of
Exhibit C
hereto, and subject to other modifications thereto adopted by Landlord at
7
the
Building). Landlord shall maintain such books and records as to a given Calculation Year
for at least two calendar years after said Calculation Year. Tenant and its representative
(which representative shall be an independent third party public accountant licensed to do
business in the State of Illinois and reasonably acceptable to Landlord) shall have the
right, at Tenants expense, to audit and/or otherwise examine such books and records
relative to Taxes and Expenses upon reasonable prior notice and during normal business
hours, at an office located within the continental United States, at any time within one
hundred eighty (180) days following Tenants receipt of Landlords Expense Statement (as it
relates to an examination of Expenses) or Landlords Tax Statement (as it relates to an
examination of Taxes) provided for in Section 5(c). Unless Tenant shall take written
exception to any item of Taxes or Expenses, specifying in detail the reasons for such
exception as to a particular item within one hundred eighty (180) days after Tenants
receipt of Landlords Expense Statement or Landlords Tax Statement (as the case may be),
Landlords Expense Statement and Landlords Tax Statement, as applicable, shall be
considered as final and accepted by Tenant. If and to the extent that Tenant engages a
representative (as described above in this Section 5(d)) to audit and/or inspect Landlords
records pursuant to this Section 5(d), then prior to such audit and/or inspection Tenant
shall cause such representative to execute and deliver to Landlord a commercially reasonable
form of confidentiality agreement relative to maintaining the confidentiality of all
information obtained in the course of any such audit and/or inspection. Tenant shall not
retain its representatives on a contingent fee basis. All information received and/or
reviewed by Tenant or any representative retained by Tenant to conduct such review is
confidential information of Landlord and will not be disclosed by Tenant (or its agents or
auditors) to any third parties, including other tenants in the Building, and Tenant shall
require its agents, attorneys and accountants to enter into a confidentiality agreement with
Landlord agreeing to the aforesaid confidentiality requirements. Notwithstanding anything
to the contrary contained herein, Tenant may disclose confidential information as required
by deposition, interrogatory, request for documents, subpoena or similar legal process or as
otherwise required to pursue or defend against any claims or legal proceedings. Any breach
by Tenant of such confidentiality requirements shall constitute a Default by Tenant under
this lease and shall immediately afford Landlord all rights and remedies described in
Section 19 hereof; provided, however, that if no material damage or loss has been, or is
likely to be, suffered by Landlord as a result of such breach by Tenant, and if the breach
in question could be remedied by Tenant so as to avoid any such material damage or loss,
then such breach shall not constitute a Default and Landlord shall give Tenant written
notice of such breach and a reasonable period of time under the circumstances to cure such
default before such breach is deemed a Default.
In the event any such audit conducted by Tenants representatives (herein, a Tenant Audit)
determines that either (1) Landlords Expense Statement overstated Tenants Additional Rent
attributable to such items from the actual amount so required hereunder for any
Calculation Year by an amount in excess of four percent (4%), or (2) Landlords Tax Statement
overstated Tenants Additional Rent attributable to such items from the actual amount so required
hereunder for any Calculation Year by an amount in excess of four percent (4%), then Landlord shall
be responsible for the payment of all reasonable out-of-pocket audit fees incurred by Tenant under
this Section 5(d) relative to the audit of such Landlords Expense Statement or
8
Landlords Tax
Statement (as the case may be), which payment shall be due within thirty (30) days after Tenants
demand therefor. In the event any such Tenant Audit does not result in such a determination or
final resolution that Landlords Expense Statement or Landlords Tax Statement, as the case may be,
overstated Tenants Additional Rent attributable to such items for such Calculation Year by more
than four percent (4%), then Tenant shall be responsible for all fees incurred by Tenant in
connection with the Tenant Audit. Notwithstanding any exception made by Tenant and/or its
representatives, Tenant shall pay Landlord the full amount of its Additional Rent Estimate and its
Additional Rent as determined by Landlord, subject to readjustment at such time as any such
exception may be resolved in favor of Tenant (i.e., either through mutual agreement of the parties,
or based on a final court order in Tenants favor).
(e)
Proration and Survival
. With respect to any Calculation Year which does
not fall entirely within the Term, Tenant shall be obligated to pay as Additional Rent for
such Calculation Year only a pro rata share of Additional Rent as hereinabove determined,
based upon the number of days of the Term falling within the Calculation Year. Following
expiration or termination of this lease, Tenant shall pay any Additional Rent due to
Landlord pursuant to and in accordance with Section 5(c) within thirty (30) days after
Tenants receipt of Landlords Expense Statement or Landlords Tax Statement (as the case
may be). Without limiting other obligations of Landlord or Tenant which survive the
expiration or termination of this Lease, the obligations of Landlord or Tenant (as the case
may be) to pay or rebate Additional Rent as provided for in this Section 5 shall survive the
expiration or earlier termination of this Lease. No interest or penalties shall accrue on
any amounts which Landlord is obligated to credit or pay to Tenant by reason of this Section
5, unless Landlord does not pay amounts which are required to be paid to Tenant under this
Section 5 (i.e., as opposed to being credited against Rent) as and when due hereunder, which
failure continues for thirty (30) days after Tenants demand therefor, in which case such
amounts so due Tenant shall, from and after such 30-day period and through the date of
payment thereof to Tenant, accrue interest at the annual Default Rate hereunder.
(f)
No Decrease in Base Rent
. In no event shall any adjustment of Additional
Rent result in a decrease of the Base Rent payable hereunder.
(g)
No Representation or Warranty
. Tenant acknowledges that neither Landlord,
nor any of its respective agents or employees, has made or does hereby make any
representation or warranty whatsoever to Tenant as to the amount of Taxes, Expenses, Tax
Adjustment or Expense Adjustment or any component thereof which may become payable during
the Term.
6.
USE OF PREMISES
.
(a)
Use
. Tenant shall use and occupy the Premises as set forth in Section 1(q) hereof
only and for no other use or purpose. Tenant shall comply with all rules and regulations described
in
Exhibit D
attached hereto, and with all reasonable modifications and additions thereto made and
adopted by Landlord from time to time for the Building as described in Section 12. The following
shall apply to Landlords rules and regulations described in Exhibit D and any other rules,
regulations, directives, controls, procedures, measures, orders or other
9
requirements promulgated
by Landlord and governing the Project and which are described in any other provision of this Lease
and the Exhibits attached to this Lease, including the Workletter (all of the foregoing, including
any modifications and additions thereto, Rules and Regulations): (i) Landlord shall not
discriminate against Tenant in the enforcement of Rules and Regulations, (ii) the Rules and
Regulations shall not be enforceable against Tenant until Tenant has been given reasonable prior
written notice of such Rules and Regulations; and (iii) the Rules and Regulations shall not
materially and adversely affect Tenants rights under this Lease.
(b)
Compliance with Requirements
. Tenant shall comply with all applicable Laws
(hereinafter defined) now or hereafter in force, and with all applicable insurance underwriters
regulations and other requirements, respecting all matters of occupancy, condition or maintenance
of the Premises, whether any of the foregoing shall be directed to Tenant or Landlord and whether
imposed on the owner or occupant of the Premises. Notwithstanding the foregoing, Tenant shall have
no obligation to perform any alterations to the Premises required by applicable Laws unless such
requirement is triggered by Tenants particular use of the Premises or the particular nature of
Tenants business operation as distinguished from general office use. Tenant shall not make or
permit any use of the Premises or the Building, or do or permit to be done anything in or upon the
Premises or the Building, or bring or keep anything in the Premises or the Building, which directly
or indirectly is forbidden by any of the foregoing or which may be dangerous to persons or
property, or which may invalidate or increase the rate of insurance on the Building (and Landlord
shall give Tenant notice if Landlord becomes aware of any use within the Premises which may
invalidate or increase the rate of insurance), its appurtenances, contents or operations, or which
would tend to create or continue a nuisance or which is contrary to or prohibited by the terms and
conditions of this lease. Landlord shall comply with all applicable Laws and insurance regulations
and requirements pertaining to its ownership and operation of the Project.
7.
DELIVERY OF POSSESSION; TENANT IMPROVEMENTS
.
(a)
Delivery of Possession
. Landlord shall use good faith efforts to deliver
possession of the Premises to Tenant promptly following the full execution of this Lease and
Tenants delivery of any security deposit required under this Lease for Tenant to commence and
proceed with the Tenants Work (as defined in Section 7(b) below) therein. If Landlord shall be
unable, due to a fire or other casualty, or for any other reason beyond Landlords reasonable
control, to deliver possession of the Premises to Tenant at such time, Landlord shall not be liable
or responsible for any claims, damages, or liabilities in connection therewith or by reason
thereof, and such failure shall not affect the validity of this lease or otherwise affect the
obligations of Tenant hereunder or the expiration date of the Initial Term hereof; provided,
however, in such event, Landlord shall continue to use commercially reasonable efforts to
deliver possession of the Premises as soon thereafter as reasonably practicable. Tenants use
and occupancy of the Premises, and any work performed by or on behalf of Tenant prior to the
Commencement Date, shall be subject to, and in compliance with, all the terms and conditions of
this lease, except the obligation to pay Base Rent, Tax Adjustment and the Expense Adjustment.
(b)
Tenants Work
. Tenant shall, at its sole cost and expense (subject to application
of the Allowance, as described in the Workletter), perform such work as may be necessary or
desired by Tenant to improve the Premises for initial occupancy, all subject to and
10
in accordance
with the provisions of this lease, including, without limitation, the provisions of the Workletter
attached hereto as
Exhibit B
. All work referred to in this subparagraph, which work is constructed
on or before the one (1) year anniversary of the Commencement Date as to the Phase I Premises, the
one (1) year anniversary of the Phase II Commencement Date as to the Phase II Premises, and the one
(1) year anniversary of the Phase III Commencement Date as to the Phase III Premises (or which work
is identified by Tenant, in the Plans submitted from time to time under the Workletter, as being
part of such Tenants Work, but which items are not completed as of such one (1) year
anniversaries, respectively, for reasons outside of Tenants reasonable control, and are instead
completed as soon thereafter as reasonably practicable), is hereinafter collectively referred to
herein (and in the Workletter) as
Tenants Work
. Tenants Work shall be performed only in
accordance with the terms and conditions hereof, including the terms and conditions set forth in
the Workletter.
(c)
Memorandum Confirming Term
. Within ten (10) business days following Landlords
request therefor, which request shall be made by notice to Tenant given at any time following
Landlords determination of the actual Commencement Date hereunder, Landlord and Tenant shall
enter into a
Memorandum Confirming Term
in the form of
Exhibit G
attached hereto.
8.
SERVICES
.
(a)
General Description of Services
. So long as this lease is in full force and
effect and Tenant is not in Default, Landlord shall furnish the following services (the cost of
which may be included in Expenses):
(i) Air conditioning and heat consistent with the specifications and levels set forth
in
Exhibit H
attached hereto, Monday through Friday from 8:00 A.M. to 6:00 P.M. and
Saturdays from 8:00 A.M. to 1:00 P.M., Sundays and Holidays excepted. The aforementioned
specifications and levels of heating and air conditioning are based upon an occupancy
density of not more than one person per one hundred square feet of floor area, and subject
to adjustments pursuant to mandatory and voluntary compliance by Landlord with Laws and
guidelines relating to energy use.
(ii) Domestic water in common with other tenants for drinking, lavatory and toilet
purposes drawn through fixtures installed by Landlord within the core of the Building, and
cold water to the core on the floor where the Premises is located for use by Tenant in any
internal kitchen areas at the Premises, and warm water in common
with other tenants for lavatory purposes from the same regular Building supply and
fixtures.
(iii) Janitor and cleaning service in and about the Premises and the Lobby and interior
Common Areas within the Building as set forth in
Exhibit I
attached hereto, five (5) days a
week, except weekends and Holidays. Tenant shall not provide or use any other janitor or
cleaning service; provided, however, that Tenant shall have the right, at Tenants sole cost
and expense, to contract directly with Landlords janitor or cleaning service for additional
cleaning services within the Premises.
11
(iv) Landlord shall initially cause to be provided an automobile patrol security
service for the Building during evening hours. Landlord shall at all times provide manned
security for the Project.
(v) Landlord agrees that, within approximately ninety (90) days following the
Commencement Date, the exterior doors of the Building and, at Landlords option, the
entrance ways to other Common Areas, shall be equipped with a card key access system for
Tenants use, subject to the Rules and Regulations set forth on
Exhibit D
attached hereto.
The system is a GE secure perfect/Interlogix program and uses GE multi-card readers.
Landlord makes no representations or warranties (and hereby expressly disclaims any
representations and warranties, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE AND ANY WARRANTY OF MERCHANTABILITY) regarding the suitability of any key
card access system for Tenants particular purposes. In no event shall Landlord be
responsible or liable to Tenant or its employees for any unauthorized entry upon the
Premises or for any failure of the access system to prevent such entry. Until such card key
access system has been installed and available to Tenant, Tenant shall be provided with keys
for access to and from the Building and the Premises. Tenant may, at its option, install a
card key access system to the Premises which is compatible with the Building system. If
such system is not compatible with the Building system, Tenant shall provide Landlord with a
hard key override to Tenants system, at Tenants cost.
(vi) Landlord shall cause the Building parking areas to be illuminated from dusk to
dawn on a daily basis. Landlord shall cause the interior Common Areas to be illuminated in
accordance with all applicable Laws.
(vii) Landlord shall have no obligation to maintain the plants in the atrium within the
Premises. Tenant may, at its election, maintain said plants at its own cost or remove said
plants.
(b)
Electricity
. Except as hereinafter provided, electricity shall not be furnished
by Landlord, but shall be furnished by the electric utility company serving the area. Tenant shall
receive such service direct from such utility company at Tenants cost, and shall permit Landlords
wire and conduits, to the extent available, suitable and safely capable, to be used for such
purposes. Unless the cost of electricity consumed in the Premises is at any time separately
metered as hereinbelow provided, Tenant shall pay to Landlord an annual amount for
the cost of Tenants consumption of electricity for overhead lighting and outlets. Such
amount shall initially equal $1.00 per square foot of the Rentable Area of the Premises, and shall
be paid in equal monthly installments on the first day of each month during the Term (so long as
the Premises are not separately metered for electricity). Landlord shall have the right from time
to time to increase such annual amount (and the monthly installments) to reflect increases in
Landlords cost of electricity from and after the date of this lease. Notwithstanding anything
contained in this Section 8(b) to the contrary, at Landlords sole discretion, Landlord, at
Landlords cost, may install an electrical submeter in the Premises, and, in such event, Tenant
shall make all necessary arrangements with the utility company for paying for electric current
furnished by it to Tenant, and Tenant shall pay for all charges for electric current consumed on
12
the Premises during Tenants occupancy thereof. Tenant shall make no alterations or additions to
the electric equipment or systems in the Premises or the Building without the prior written consent
of Landlord in each instance. Tenant shall not install in the Premises any equipment which
requires electrical current of more than 6 watts per square foot of Rentable Area in the Premises,
and Tenant shall ascertain from Landlord the maximum amount of load or demand for or use of
electrical current which can be accommodated or permitted in the Premises, taking into account the
capacity of the electric feeders, risers, conduits, wiring and other facilities and equipment, the
Building and Premises and the needs of other tenants (both present and future) of the Building, and
Tenant shall not in any event connect a greater load than such safe capacity. Tenant also agrees
to purchase from Landlord or its agents, as Landlord shall direct, at competitive, market rate
prices, all lamps, bulbs, ballasts and starters used in the Premises during the Term. Landlord
shall replace, as necessary, all lamps, ballasts, bulbs and starters in the Lobby, Receiving Docks
and other Common Areas. Tenant covenants and agrees that at all times its use of electric current
shall never exceed the capacity of the feeders to the Building or the risers or wiring installed
thereon. Notwithstanding anything to the contrary contained in this Lease, Landlord and Tenant
have agreed that Landlord shall separately meter the Premises for electrical use and Landlord and
Tenant shall share the cost of installing such separate metering, 50%-50%, provided, however, that
Tenants maximum obligation for its share of such cost shall be $37,500.00. Landlord shall
complete such separate metering by September 1, 2007. Tenant shall then pay to Landlord, as and
when Landlord receives the monthly electrical bills for the Building, the billed, separately
metered charge for Tenants electrical use. Notwithstanding anything to the contrary contained
herein, Tenant shall have the right (but in no event shall Tenant be obligated) to install, operate
and maintain, at Tenants sole cost and expense, one or two generators in a location within the
Project mutually agreeable to Landlord and Tenant. The method of installation, and plans for such
installation, shall be subject to the prior written approval of Landlord, not to be unreasonably
withheld.
(c)
Telecommunications
. Telephone and telecommunications services shall not be
furnished by Landlord. Landlord shall have exclusive access to the Building telephone riser cable
and all other telephone or communications cables or wiring, junction boxes, wire conduits and
associated facilities and equipment serving the Premises and other premises in the Building, to the
point of connection to Tenants communications equipment and all telephone and communications
closets in the Building; provided, however, that upon reasonable prior notice thereof to Landlord,
Landlord shall provide such reasonable access to such cables or other equipment or facilities as
may be necessary for Tenant to complete its Tenants Work or to repair or maintain Tenants
telephone or telecommunications services. All telephone and other telecommunications connections
which Tenant may desire shall be first approved by Landlord in
writing (which approval shall not be unreasonably withheld), before the same are installed,
and the location of all wires and the work in connection therewith shall be performed by
contractors approved by Landlord (which approval shall not be unreasonably withheld) and shall be
subject to the direction of Landlord; provided, however, that Landlord hereby consents to Tenants
performance of such telephone and telecommunications work that shall form a part of Tenants Work,
subject to Tenants compliance with
Exhibit B
, and provided, further, that Tenant may perform
ordinary repair and maintenance of its telephone and telecommunications systems within the interior
of the Premises without Landlords prior consent. Tenant reserves the right to designate the
entity or entities providing telephone or other communication cable installation, operation, repair
and maintenance for the Premises subject to obtaining Landlords prior consent
13
thereto (which
consent shall not be unreasonably withheld, conditioned or delayed so long as the Tenants use of
such service provider would not, in Landlords reasonable judgment, adversely affect operations at
the Building or otherwise result in any increase in Landlords costs or expenses); provided that
Landlord shall have the right to impose reasonable controls and to reasonably restrict and control
access to telephone cabinets and risers at the Building and to require all such access to be
coordinated with the Buildings riser manager. Tenant agrees to abide by any and all rules and
regulations established by Landlord from time to time relative to telephone riser management at the
Building (provided that Landlord shall not discriminate in its enforcement of such rules and
regulations as and to the extent provided in Section 12 below). Tenant shall be responsible for
and shall pay all costs incurred in connection with the installation of telephone or other
telecommunications cables and related wiring in the Premises or Building, including, without
limitation, any hook-up, access and maintenance fees related to the installation of such wires and
cables in the Premises or Building and the commencement of service therein, and the maintenance
thereafter of such wire and cables; and there shall be included in Expenses for the Building all
installation, hook-up or maintenance costs incurred by Landlord in connection with telephone or
other telecommunications cables and related wiring in the Building which are not allocable to any
individual users of such service but are allocable to the Building generally. If Tenant fails to
maintain all telephone or other telecommunications cables and related wiring in the Premises and
such failure affects or interferes with the operation or maintenance of any other telephone or
other telecommunications cables or related wiring in the Building, Landlord or any vendor hired by
Landlord may, upon reasonable prior notice, enter into and upon the Premises forthwith and perform
such repairs, restorations or alterations as Landlord deems necessary in order to eliminate any
such interference (and Landlord may recover from Tenant all of Landlords costs in connection
therewith and Landlord shall have no liability to Tenant by reason thereof). Upon the Expiration
Date or earlier termination of this lease or Tenants right to possession of the Premises, Tenant
agrees, to the extent required by Laws, to remove all telephone and other telecommunications,
cables and related wiring installed by Tenant. Tenant agrees that neither Landlord nor any of its
agents or employees shall be liable to Tenant, or any of Tenants employees, agents customers or
invitees or anyone claiming through, by or under Tenant, for any damages, injuries, losses,
expenses, claims or causes of action because of any interruption, diminution, delay or
discontinuance at any time for any reason in the furnishing of any telephone or other
telecommunications service to the Premises and the Building (except due to the intentional, bad
faith conduct of Landlord or its agents or employees), provided that the foregoing is subject, in
any event, to the terms of Section 16(f) below). Notwithstanding anything to the contrary
contained in this Lease, Tenant shall have the right (but in no event shall Tenant be obligated) to
install, operate and maintain, at Tenants sole
cost and expense, a telco room (the Telco Room) within the Premises, for Tenants exclusive
use, which Telco Room shall contain Tenants telephone and network communications equipment.
Tenant shall install such Telco Room in a location mutually agreed upon by Landlord and Tenant.
The installation of the Telco Room shall be included in the Plans for the Tenants Work pursuant to
the Workletter and subject to Landlords prior written approval, not to be unreasonably withheld.
Landlord shall have reasonable access to the Telco Room upon reasonable prior written or oral
notice thereof to Tenant.
(d)
Extra or Additional Services
. Tenant may request Landlord to provide services
which are extra or additional services to those described in Section 8(a), by delivery to Landlord
of an advance written request therefor. If Landlord shall agree to so provide any such
14
services
which are extra or in addition to those services described in Section 8(a), Landlord shall notify
Tenant thereof and provide Tenant with a rate quote for such additional service. If Tenant
notifies Landlord in writing of its agreement with such rate quote, then Landlord shall provide
such service to Tenant and Tenant shall pay for such service in the amount of the rate quote. If
Tenant does not promptly notify Landlord of Tenants agreement with such rate quote, Landlord shall
have no obligation to provide the requested additional service. All charges for any such extra or
additional services so provided by Landlord shall be deemed to be additional Rent hereunder and
shall be due and payable within thirty (30) days after Tenant receives Landlords bill therefor, or
in installments as may be designated by Landlord to Tenant in writing. If Tenant fails to pay when
due Landlords proper charges for any such extra or additional services, Landlord shall have the
right, in addition to all other rights and remedies available to Landlord, to discontinue
furnishing any such extra or additional services for which Tenant has failed to pay.
Notwithstanding anything to the contrary herein or in this Section 8, but subject to the terms of
this Lease regarding any work performed by or on behalf of Tenant, Tenant, at Tenants sole cost
and expense, shall have the right at any time to contract directly with a third party contractor
for any additional services not described in Section 8(a) which Tenant desires to utilize during
the Term (including, without limitation, with a third party vendor (including, without limitation,
Iron Mountain) for paper shredding services (which services shall include, without imitation, the
placement, maintenance and removal of shredding receptacle bins to be located throughout the Lobby
and Premises)). If Landlord discontinues any such extra or additional services as provided in this
Section 8(d), no such discontinuance shall be deemed an eviction or disturbance of Tenants use of
the Premises or render Landlord liable for damages or relieve Tenant from performance of Tenants
obligations under this lease. Without limiting the foregoing, if Tenant desires air conditioning
or heat during times or on days on which Landlord is not required to provide such service pursuant
to Section 8(a)(i) above, Landlord shall provide such service to Tenant provided that (i) Tenant
notifies Landlord on or before 5:00 p.m. on any business day on which Tenant desires air
conditioning or heat after hours on such business day, or before 5:00 p.m. on the business day
immediately preceding any Holiday or weekend day for which Tenant desires such service, and (ii)
Tenant shall pay Landlord, Landlords then after-hours HVAC charges in connection with such
after-hours service. Landlord agrees that, as of the Commencement Date, Landlords established
rate for after-hours HVAC is $85.00 per hour, per 40,000 square feet, which hourly rate may
increase consistent with increases in HVAC costs incurred by Landlord subsequent to the
Commencement Date.
(e)
Holidays
. For purposes of this Section 8,
Holidays
means New Years Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and any
other day designated by Landlord customarily designated as a holiday by landlords operating
Comparable Buildings (as defined in
Exhibit C
).
(f)
Interruption of Services
. Tenant agrees that neither Landlord, nor any of
Landlords constituent members, nor any of their respective beneficiaries, agents, partners or
employees, shall be liable for damage or injury to person, property or business or for loss or
interruption of business, or for any other matter, in the event there is any failure, delay,
interruption or diminution in furnishing any service. No such failure, delay, interruption or
diminution shall be deemed to constitute an eviction or disturbance of Tenants use or possession
of the Premises, in whole or in part, actual or constructive, nor entitle Tenant to any claim for
set-off, abatement (except as hereinafter provided in this Section 8(f)) or reduction of Rent, nor
15
render Landlord liable for damages, nor relieve Tenant from the performance of or affect any of
Tenants obligations under this lease. Notwithstanding anything to the contrary contained in this
Section 5.E., if: (i) Landlord ceases to furnish any service in the Building for a period in
excess of five (5) consecutive business days after Tenant notifies Landlord of such cessation; (ii)
such cessation does not arise as a result of an act or omission of Tenant or its agents, employees
or invitees; (iii) such cessation is not caused by a fire or other casualty (in which case Section
17 shall control); (iv) the restoration of such service is reasonably within the control of
Landlord; and (v) as a result of such cessation, the Premises, or a material portion thereof, is
rendered untenantable and Tenant in fact ceases to use the Premises, or a material portion thereof,
then Tenant, as its sole remedy, shall be entitled to receive an abatement of Base Rent and
Additional Rent payable hereunder during the period beginning on the sixth (6th) consecutive
business day of such cessation and ending on the day when the service in question has been
restored. In the event the entire Premises has not been rendered untenantable by the cessation in
service, the amount of abatement that Tenant is entitled to receive shall be prorated based upon
the percentage of the Premises so rendered untenantable and not used by Tenant.
(g)
Tenants Cooperation
. Tenant agrees to use commercially reasonable efforts to
cooperate fully with Landlord, at all times, in abiding by all reasonable regulations and
requirements which Landlord may prescribe for the proper functioning and protection of all
utilities and services reasonably necessary for the operation of the Premises or the Project.
Landlord and its contractors shall have reasonable free access to any and all mechanical
installations in the Premises at all reasonable times and upon reasonable prior written or oral
notice to Tenant (provided that no such notice or reasonable time requirement shall be required in
the case of an emergency so long as Landlord notifies Tenant of the entry and the work performed by
Landlord as soon as possible thereafter); provided, however, that Landlord shall use commercially
reasonable efforts not to unreasonably interfere with Tenants use of the Premises, and Landlord,
at its sole cost and expense (but subject to the terms of Section 16), shall repair any damage to
the Premises or any of Tenants personal property, furniture or trade fixtures due to such entry by
Landlord or Landlords contractors. Tenant agrees that there shall be no construction of
partitions or other obstructions which might interfere with the moving of the servicing equipment
of Landlord to or from the enclosures containing said installations. Tenant further agrees that
neither Tenant nor its employees, agents, licensees, invitees or contractors shall at any time
tamper with, adjust or otherwise in any manner adversely affect Landlords mechanical installations
in the Premises or the Project, except as may be required in order for Tenant to complete the
Tenants Work or any other Tenant Alteration or for Tenant to perform any of its repair obligations
set forth in Section 9(b) hereof.
(h)
Supplemental Heating or Cooling
. Whenever, in Landlords reasonable judgment,
Tenants use or occupation of the Premises, including lighting, personnel, heat generating machines
or equipment, or airborne emissions of smoke or other particulates, individually or cumulatively,
causes the design loads for the system providing heat and air-cooling to be exceeded, or otherwise
affects adversely the temperature, humidity or air quality otherwise maintained by the heating,
ventilating and air handling or conditioning system in the Premises or the Building, Landlord may,
following written notice thereof to Tenant and Tenants failure to remedy the situation causing
such conditions within thirty (30) days following such notice (or such longer period as is
reasonably necessary if Tenant is diligently attempting to remedy the situation in question), but
shall not be obligated to, temper such excess loads by
16
installing supplementary heating or air
handling or conditioning units in the Premises or elsewhere where necessary. In such event, the
cost of such units and the expense of installation, including, without limitation, the cost of
preparing working drawings and specifications, plus ten percent (10%) of such cost as an overhead
and supervision fee, shall be paid by Tenant as additional Rent within ten (10) days after
Landlords demand therefor. Alternatively, Landlord may require Tenant to install such
supplementary heating or air handling or conditioning units at Tenants sole expense. Landlord may
operate and maintain any such supplementary units, but shall have no continuing obligation to do so
or liability in connection therewith. The expense resulting from the operation and maintenance of
any such supplementary heating or air handling or conditioning units, including utility charges,
charges for condenser water, repair costs, labor costs and rent for space occupied by any
supplementary heating or air handling or conditioning units installed in Rentable Area outside the
Premises, shall be paid by Tenant to Landlord as additional rent at rates fixed by Landlord.
Alternatively, Landlord may require Tenant to operate and maintain any such supplementary units,
also at Tenants sole expense.
(i)
Excessive Use of Building Systems
. Tenants use or occupation of the Premises
shall not in any manner (i) cause the design loads for the Building or the systems providing
exhaust, heating, cooling, ventilation, electrical, life safety, water or sewer services to the
Building to be exceeded or (ii) adversely affect the Building or the operation of said systems in
the Premises or the Building or cause deterioration or damage to the Building or to such systems.
If Landlord determines that Tenants use or occupancy of the Premises may, in Landlords reasonable
judgment, cause the design loads for the Building or the systems providing exhaust, heating,
cooling, ventilation, electrical, life safety, water or sewer services to the Building to be
exceeded or will adversely effect the Building or the operation of said systems in the Premises or
the Building or cause deterioration or damages to the Building or to such systems, then Landlord
shall deliver written notice thereof to Tenant, and Tenant shall temper such excess loads and
correct, repair and restore the portion of the Building so affected and such systems, in a timely
and expeditious manner by installing supplementary structural support, exhaust, heating, cooling,
ventilation, electrical, life safety, water or sewer systems in the Premises or elsewhere in the
Building where necessary at the sole cost of Tenant, including, without limitation the cost of
preparing working drawings and specifications plus fifteen percent (15%) of such cost as an
overhead and supervision fee payable to Landlord from time to time as the work progresses as
Additional Rent within ten (10) days after Landlords written demand therefor, from time to time.
In the event of an emergency, Landlord may, but it shall not be required to, without notice to
Tenant, correct, repair and restore the portion of the Building so effected. Any expense to
Landlord resulting from the operation, repair, maintenance and removal of any such supplementary
structural support, exhaust, heating, cooling, ventilation,
electrical, life safety, water or sewer systems, including rent for space occupied by any such
supplementary structural support, exhaust, heating, cooling, ventilation, electrical, life safety,
water or sewer systems installed outside the Premises shall be borne exclusively by Tenant and
shall be paid by Tenant to Landlord as Additional Rent at rates fixed by Landlord from time to
time.
(j)
Access
. Tenant shall have access to the Building and the Premises on a 24 hour
per day, 7 days per week, 365 days per year basis, subject to Landlords security and admittance
requirements and procedures.
17
9.
CONDITION AND CARE OF PREMISES
.
(a)
Condition of Premises
. Tenants taking possession of the Premises or any portion
thereof shall be conclusive evidence against Tenant that such portion of the Premises was then in
good order and satisfactory condition. Tenant acknowledges that the Premises shall be accepted by
Tenant in their as-is condition, and that no promise by or on behalf of Landlord, any of
Landlords constituent members, the leasing agent of the Project or any of their respective agents,
partners or employees, to alter, remodel, improve, repair, decorate or clean the Premises has been
made to or relied upon by Tenant, and that no representation respecting the condition of the
Premises or the Project by or on behalf of Landlord, its constituent members, or any of their
respective agents, partners or employees has been made to or relied upon by Tenant, except to the
extent expressly set forth in this Lease; provided, however, that the foregoing in no way relieves
Landlord from any of its repair obligations set forth in this Lease.
(b)
Tenants Repairs
. Subject to the provisions regarding fire and other casualty
losses set forth in Section 17 hereof and to Sections 16 and 18 of this Lease, Tenant, at its
expense, shall (i) keep the Premises (including all Tenants Work and other Tenant Alterations, but
excluding any Building structural elements and any portion of any mechanical, plumbing, electrical
or other system located within the Premises that does not exclusively serve the Premises) in good
order, repair and condition at all times during the Term, and (ii) promptly and adequately repair
all damage to the Premises, including damage to interior windows and to any portion of the Building
air conditioning, heating, electrical and plumbing systems which run through the Premises and which
serve the Premises, caused by Tenant or its contractors, agents, employees or invitees. Tenant
shall give prompt notice to Landlord of any material repair, maintenance or replacement items
required under this Section 9(b). All work with respect to any such maintenance, repair or
replacement shall be performed within a reasonable period after the need for such action arises and
shall be subject to the provisions of Section 14 hereof. If Tenant fails to perform such work
within a period of thirty (30) days after written notice from Landlord to Tenant (or such longer
time period as may be reasonably necessary so long as Tenant commences taking action with respect
to such repair work within the first ten (10) days after receiving such notice and diligently
pursues completion thereof; provided, further, that no such notice or cure period shall be required
in the case of an emergency), Landlord may, in its sole discretion, elect to effect such repairs
whether or not Tenant would otherwise be prepared to do so, and, in such case, Tenant shall pay
Landlord the cost thereof, plus a coordination and management fee equal to ten percent (10%) of the
cost of such repair work, upon Landlords
written demand. Landlord shall also have the right to recover from Tenant, as Rent hereunder,
any reasonable cost incurred by Landlord for architectural, engineering or other costs and expenses
as a result of such work.
(c)
Landlords Repairs
. Subject to the provisions regarding fire and other casualty
losses set forth in Section 17 hereof, Landlord shall (i) keep the core and shell (as defined in
Section 17(e) below), including foundations, roofs, gutters, downspouts, exterior walls, and the
structural elements of the Building, the wiring, plumbing, pipes, conduits and equipment of the
Building that serve the Premises but are not located within the Premises, and the Common Areas in
the Building, exclusive of the Premises and other tenant spaces occupied by or under the control of
tenants, in good order, repair and condition at all times during the Term, and (ii) keep in good
order, condition and repair all outside windows of the Premises and
18
the electrical, plumbing,
heating, ventilating and air conditioning systems servicing the Premises (other than as set forth
in Section 9(b) above). Subject to the provisions regarding fire and other casualty losses set
forth in Section 17 hereof and to Sections 16 and 18 of this Lease, Landlord, at its sole cost and
expense and not as part of Expenses, will promptly and adequately repair all damage to the Premises
caused by Landlord or its contractors, agents or employees. Notwithstanding the foregoing, (A)
Landlord shall not be responsible for the maintenance or repair of any floor or wall coverings in
the Premises or any of such systems which are located within the Premises and are supplemental or
special to the Buildings standard systems; and (B) subject to the provisions regarding fire and
other casualty losses set forth in Section 17 hereof and to Sections 16 and 18 of this Lease, the
cost of performing any of said maintenance or repairs, whether to the Premises or to the Building,
caused by the negligence of Tenant, its employees, agents, servants, licensees, subtenants,
contractors or invitees, shall be paid by Tenant within thirty (30) days after Landlords demand
therefor. So long as Landlord uses good faith efforts to maintain reasonable access to the
Premises and to minimize unreasonable interference with the conduct of Tenants business, Landlord
may, but shall not be required to, enter the Premises at all reasonable times, upon prior written
or oral notice to Tenant (except that no such notice or reasonable time requirement shall be
required in the case of an emergency), to make repairs, alterations, improvements and additions to
the Premises or to the Building (provided that any such alterations, improvements or additions
performed within the Premises under this subclause shall only be performed with respect to Building
systems, Building structure or core and shell, or other base Building elements located therein or
any other items required by applicable Laws, and may be performed during normal Building business
hours only so long as such work will not materially and adversely affect Tenants business
operation or the size of the Premises) or to any equipment located in the Building as Landlord
shall reasonably desire or deem necessary or as Landlord may be required to make by governmental
authority or court order or decree. If Landlord fails to perform its obligations under this
Section 9(c) and such failure materially interferes with Tenants use and occupancy of the Premises
such that Tenant cannot reasonably maintain its business operation, Tenant may deliver written
notice to Landlord specifying the default in question and stating the action which Tenant believes
is required under the terms of this Lease to remedy such failure. If Landlord fails to commence to
cure such default within ten (10) business days after receipt of written notice from Tenant, Tenant
may give Landlord a second written notice (the Self-Help Notice) of such default, which notice
shall also state Tenants intention to exercise the self-help remedy set forth in this Section 9(c)
and a detailed description of the work to be performed, or actions to be taken, by Tenant to cure
Landlords default, together with a contractors estimate of the cost to perform such work or take
such action. If Landlord fails to commence to cure such default within five (5) business days
after receipt of such second notice and to thereafter diligently prosecute such cure to completion,
Tenant may engage qualified contractors to perform the work and take the actions described in the
Self-Help Notice. In such event, said contractors are hereby granted the right to enter those
portions of the Project which are reasonably necessary for the performance of such work and taking
of such action. Landlord shall reimburse Tenant for the costs reasonably expended to perform such
work and
take such actions within thirty (30) days after Tenants submission to Landlord of
invoices for the work performed, evidence of payment of such invoices, and final lien waivers from
any contractor which has performed lienable work.
If and to the extent that the Premises or Lobby sustain recurring leakage due to (i)
Landlords activities in or above the Premises or Lobby, (ii) concealed pipes, ducts, wiring,
19
conduits or appurtenances thereto in and through the Premises or Lobby in walls, below the floor or
above the suspended ceiling; or (iii) from a Building condition, and if Tenant is not reasonably
satisfied with Landlords repair of the leakage area or remediation of the condition causing such
leakage, then Tenant may, at Tenants sole cost, engage an expert to analyze the cause of such
leakage and the work required to remedy the condition. Landlord agrees to review the written
assessment of such expert, to consult in good faith with Tenant regarding the remedial work
required and to take such commercially reasonable steps as a prudent owner of Comparable Buildings
would take to remediate the leakage problem.
(d)
No Rights to Light, Air or View
. This lease does not grant any rights to light,
air or view over or about the real property of Landlord or any other real property. Subject to the
conditions and requirements of Section 13(n) below, Landlord specifically excepts and reserves to
itself all rights to and the use of any roofs, the exterior portions of the Premises, the land,
improvements and air and other rights below the improved floor level of the Premises, the
improvements and air and other rights above the improved ceiling of Premises (provided that
Landlord shall be responsible, at its cost, for repairing any damage to Tenants personal property
caused by any leakage into the Premises resulting from above ceiling work), the improvements and
air and other rights located outside the demising walls of the Premises and such areas within the
Premises as are required for installation of utility lines and other installations required to
serve the Building or any occupants of the Building, and Landlord specifically reserves to itself
the right to use, maintain and repair same, and no rights with respect thereto are conferred upon
Tenant, unless otherwise specifically provided herein.
(e)
Hazardous Substances
. Tenant shall comply, at its sole expense, with all Laws
relating to the protection of public health, safety and welfare and with all environmental Laws in
the use, occupancy and operation of the Premises. Tenant agrees that no Hazardous Substances (as
hereinafter defined) shall be used, located, stored or processed on the Premises or be brought into
the Building by Tenant, other than normal cleaning or other office supplies (and then, only to the
extent such cleaning or other office supplies are stored and used in accordance with all applicable
Laws) and no Hazardous Substances will be released or discharged from the Premises (including, but
not limited to, ground water contamination). The term
Hazardous Substances
for purposes of this
Lease shall be interpreted broadly to include, but not be limited to, any material or substance
that is defined or classified under federal, state, or local laws as: (a) a hazardous substance
pursuant to section 101 of the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. §9601(14), section 311 of the Federal
Water Pollution Control Act, 33 U.S.C. §1321, as now or hereafter amended; (b) a hazardous
waste pursuant to section 1004 or section 3001 of the Resource Conservation and Recovery Act, 42
U.S.C. §§6903, 6921, as now or hereafter amended; (c) a toxic pollutant under section 307(a)(1) of
the Federal Water Pollution Control Act, 33 U.S.C. §1317(a)(1); (d) a hazardous air pollutant
under section 112 of the Clean Air Act, 42 U.S.C. §7412, as now or hereafter amended; (e) a
hazardous material under the Hazardous Materials Transportation Uniform Safety Act of 1990, 49
U.S.C. App. § 1802(4), as now or hereafter amended; (f) toxic or hazardous pursuant to regulations
promulgated now or hereafter under the aforementioned laws; or (g) presenting a risk to human
health or the environment under other applicable federal, state or local laws, ordinances, or
regulations, as now or as may be passed or promulgated in the future. Hazardous Substance shall
also mean any substance that after release into the environment and upon exposure, ingestion,
inhalation, or assimilation, either directly from the
20
environment or directly by ingestion through
food chains, will or may reasonably be anticipated to cause death, disease, behavior abnormalities,
cancer, or genetic abnormalities. Hazardous Substance specifically includes, but is not limited
to, asbestos, polychlorinated biphenyls (PCBs), lead-based paint, storage containers (including
tanks) and their contents, petroleum and petroleum based derivatives, and urea formaldehyde. In
the event that Landlord or Tenant is notified of any investigation or alleged violation of any
environmental Law arising from Tenants activities at the Premises or otherwise affecting the
Project, the notified party shall immediately deliver to the other party a copy of such notice or
other information available regarding the investigation or alleged violation (including but not
limited to the nature, extent and contaminants of concern involved). In the event Landlord
reasonably believes that a violation of environmental Law was caused solely by Tenant at the
Premises in violation of this Lease, and upon seventy-two (72) hours written notice to Tenant
(except in emergency), then Landlord may conduct such reasonable and customary tests and studies
relating to compliance by Tenant with environmental Laws or the alleged presence of Hazardous
Substances upon the Premises. Tenant shall reimburse Landlord for all reasonable costs in
conducting such tests and studies within thirty (30) days after demand therefore only if a
violation of environmental Laws occurred in the Premises or was caused by Tenants operation within
the Project or if Hazardous Substances are in fact detected above their regulatory or background
limits. Landlord shall provide Tenant the results and reports (including drafts) of any testing or
investigation at the Premises. Landlords inspection and testing rights are for Landlords own
protection only, and Landlord has not, and shall not be deemed to have assumed any responsibility
to Tenant or any other party for compliance with environmental Laws, as a result of the exercise,
or non-exercise of such rights. Tenant shall indemnify, defend, protect and hold harmless
Landlord, its constituent members, and their respective officers, directors, members, partners,
agents, employees, successors and assigns (collectively, the
Landlord Parties
), from and against
any and all loss, claim, expense, liability and cost (including attorneys fees) arising out of or
in any way related to the presence of any Hazardous Substance introduced to the Project during the
Term by Tenant, its officers, directors, partners, shareholders, owners, affiliates, agents,
employees, contractors, subcontractors, invitees, sublessees or other representatives. Landlord
hereby agrees to indemnify, defend and hold Tenant and its agents and employees harmless from and
against any and all loss, claim, expense, liability and cost (including attorneys fees) arising
out of or in any way related to the presence of any Hazardous Substance or Biological Toxant
existing in the Premises as of the date on which possession of the Premises is delivered to Tenant
or introduced into the Project during the Term by Landlord or its agents or employees. In
addition, if and to the extent that another Building tenant introduces any Hazardous Substance
or Biological Toxant into the Project in violation of its lease, or otherwise violates
environmental Laws, Landlord shall use commercially reasonable efforts to enforce provisions of
said tenants lease pertaining to such environmental violations, including any provisions requiring
said tenant to remediate any environmental condition which it has caused.
(f)
Americans with Disabilities Act
. Landlord and Tenant acknowledge that the
Americans With Disabilities Act of 1990 (42 U.S.C. § 12101 et seq.) and regulations and guidelines
promulgated thereunder, as all of the same may be amended and supplemented from time to time
(collectively referred to herein as the
ADA
) establish requirements for business operations,
accessibility and barrier removal, and that such requirements may or may not apply to the Premises
and the Building depending on, among other things: (1) whether Tenants business is deemed a
public accommodation
or
commercial facility
, (2) whether such
21
requirements are
readily
achievable
, and (3) whether a given alteration affects a primary function area or triggers
path
of travel
requirements. The parties hereby agree that: (a) Landlord shall be responsible for ADA
Title III compliance in the Common Areas of the Building, except as provided below, (b) Tenant
shall be responsible for ADA Title III compliance in the Premises, including any leasehold
improvements or other work to be performed in the Premises under or in connection with this lease,
(c) Landlord may perform, or require that Tenant perform, and Tenant shall be responsible for the
cost of, ADA Title III
path of travel
requirements triggered by alterations in the Premises, and
(d) Landlord may perform, or require Tenant to perform, and Tenant shall be responsible for the
cost ADA Title III compliance in the common areas of the Building necessitated by the Premises or
the Building being deemed to be a
public accommodation
instead of a
commercial facility
as a
result of Tenants particular use of the Premises. Tenant shall be solely responsible for
requirements under Title I of the ADA relating to Tenants employees. Landlord hereby agrees to
indemnify, defend and hold Tenant harmless from and against any and all loss, claim, expense,
liability and cost (including attorneys fees) arising out of or in any way related to Landlords
failure to maintain the Common Areas in compliance with ADA Title III, excluding non-compliance
caused by any acts or omissions of Tenant or its officers, directors, partners, shareholders,
owners, affiliates, agents, employees, contractors, subcontractors, invitees, sublessees or other
representatives.
(g)
Landlord Responsibility
. Landlord agrees, as to any Hazardous Substances (as now
defined) or Biological Toxant (as defined below) existing in the Premises on the date on which
possession of the Premises is delivered to Tenant (and not introduced into the Premises by Tenant
or any of its employees, contractors, licensees, invitees, subtenants, assignees or agents), or
introduced into the Premises by Landlord or its agents or employees during the Term, to remove or
otherwise remediate such Hazardous Substances or Biological Toxant if and to the extent required by
Law (as existing on such date of discovery), at Landlords sole cost and expense. Tenant shall
cooperate with Landlord in allowing proper access to the Premises to perform the foregoing removal
or remediation activities, and, without limiting Landlords obligations under this Section 9(g),
shall use reasonable efforts not to take any action which may worsen any such environmental
condition once discovered. Landlord shall restore any damage caused to the Premises as a result of
such access by Landlord under this Section 9(g), to the extent such damage was not caused by
Tenants negligence or willful misconduct or Tenants breach of its obligations hereunder. In any
entry into the Premises under this Section
9(g), Landlord shall use commercially reasonable efforts to minimize interference with
Tenants business operations therefrom. Tenant shall have no claim against Landlord under this
Section 9(g), unless such Hazardous Substances materially adversely impact Tenants use and
enjoyment of the Premises in accordance with the terms of this lease. Landlord represents and
warrants to Tenant that, as of the date of this Lease, Landlord has not received any written notice
of any violation of any environmental Laws at the Project.
(h)
Biological Toxants
. Tenant and Tenants contractors, licensees, invitees,
subtenants, assignees and agents shall not create or permit to exist in or about the Premises (or
any other portion of the Building for which Tenant is responsible) any condition conducive to the
growth of mold, fungus or other potentially dangerous organisms (collectively, Biological
Toxants). For this purpose, a condition conducive to the growth of Biological Toxants shall
include the presence of wet or damp wood, wet or damp cellulose wallboard or other wet or
22
damp
materials which may constitute a food supply for Biological Toxants, including, but not limited to,
waste, food and beverages. In the event that Tenant observes the presence of any Biological Toxant
in the Premises or the Building, whether by sight, smell or otherwise, Tenant shall promptly notify
Landlord in writing of such presence and the precise location thereof. If such presence is the
result of the action or omission of Tenant or of Tenants contractors, licensees, invitees,
subtenants, assignees or agents, Tenant shall promptly, at its sole cost and expense, conduct such
remediation work as shall be necessary to completely remove the Biological Toxant from the Premises
or the Building, as applicable. Such remediation shall include removal and replacement with new
building materials of any infected host materials (i.e., wood, wallboard, etc.), as well as any
repairs and refinishing required as the result of such removal and replacement. Any remediation by
Tenant shall be in accordance with the following:
(i) The method of remediation shall be subject to the prior written approval of
Landlord, which approval shall not be unreasonably withheld, conditioned or delayed;
(ii) Subject to clause (i) above, if the impacted area is less than thirty (30) square
feet and does not affect the structural integrity of the Building or the electrical,
exhaust, mechanical, plumbing, ventilation, life safety, telecommunications, security,
heating or air conditioning systems of the Building, Tenant shall be permitted to use its
own personnel to effect such remediation;
(iii) If the impacted area is thirty (30) square feet or more or the required
remediation affects the structural integrity of the Building or the electrical, exhaust,
mechanical, plumbing, ventilation, life safety, telecommunications, security, heating or air
conditioning systems of the Building, Landlord shall have the right to require that the
remediation be effected by contractors hired by Landlord;
(iv) All work done by Tenant in connection with the remediation shall be in accordance
with Article 10 of this lease and Tenant shall pay Landlord, whether the remediation is
performed by Landlord, Landlords contractors or Tenant or Tenants contractors, an amount
equal to fifteen percent (15%) of the cost of such remediation work;
(v) Landlord shall determine, in its sole and absolute discretion based upon the advice
and recommendations of Landlords consultant, whether any wet materials can be effectively
dried out and remain in place or whether such materials must be removed and replaced. Any
materials which must be removed shall be disposed of in accordance with all applicable Laws.
In the event that Landlord employs a consultant in connection with any Biological Toxant or
apparent Biological Toxant which Tenant is responsible to remediate, Tenant shall reimburse
Landlord, as Additional Rent, the reasonable costs and fees of such consultant. Such
reimbursement shall be made within twenty (20) days after Tenants receipt of Landlords
invoice therefor.
If Tenant is not responsible for the remediation of such Biological Toxant pursuant to this
Section, Landlord shall conduct such remediation and any repairs and refinishing required as the
result of such remediation. The cost of such remediation, repair, replacement and refinishing
23
shall be included in Expenses. Tenant shall cooperate with Landlord as reasonably requested in
connection with any such remediation. There shall be no abatement of Rent on account of any
remediation of a Biological Toxant for which Tenant is responsible for the remediation of pursuant
to this Section. In the event of any remediation (i) for which Landlord is responsible pursuant
hereto and (ii) which materially and adversely interferes with Tenants use of the Premises, Rent
shall abate for the period of such remediation to the same degree as the interference with Tenants
use of the Premises. Landlords right of entry pursuant to the terms and provisions of this lease
shall include the right to enter, inspect and test the Premises for the presence of Biological
Toxants therein. If any such inspection and/or testing reveals the presence of Biological Toxants
in the Premises, Landlord or Tenant shall promptly remediate the same pursuant to the terms and
conditions of this Section. Any violation by Tenant of the covenants set forth in this Section
shall be deemed to be a Default under this lease.
10.
SURRENDER OF PREMISES
.
(a)
Surrender
. Upon the termination of this Lease by lapse of time or otherwise or
upon the earlier termination of Tenants right of possession, Tenant shall surrender possession of
the Premises to Landlord and deliver all keys, computer cards or codes and other entry devices to
the Premises to Landlord and make known to Landlord the combinations of all locks of vaults then
remaining in the Premises, and shall, subject to the following subparagraphs, return the Premises
and all equipment and fixtures of Landlord therein to Landlord in as good condition as when Tenant
originally took possession, except for ordinary wear and tear, and except for loss or damage by
fire or other casualty or condemnation (which Tenant is not required to restore pursuant to Section
17 of this Lease), failing which Landlord may, after giving Tenant written notice of Tenants
breach of this Section 10(a) and Tenants failure to remedy such breach within thirty (30) days
after such notice, restore the Premises and such equipment and fixtures to such condition, and
Tenant shall pay the cost thereof to Landlord within thirty (30) days after demand therefor.
(b)
Ownership of Improvements
. All installations, additions, partitions, hardware,
fixtures and improvements, temporary or permanent (including Tenants Work and other Tenant
Alterations), except movable furniture and equipment and other personal property
or trade fixtures belonging to Tenant, in or upon the Premises or Lobby, whether placed there
by Tenant or Landlord, shall, upon the termination of this Lease by lapse of time or otherwise or
upon the earlier termination of Tenants right of possession, become Landlords property and shall
remain upon the Premises, all without compensation, allowance or credit to Tenant; provided,
however, that if at the time Landlord consents to Tenants installation of Tenants Work, other
Tenant Alterations or other installations, additions, partitions, hardware, fixtures and
improvements, Landlord notifies Tenant in writing that any such items will be required to be
removed upon expiration of the Term or earlier termination of this Lease, then Tenant, at Tenants
sole cost and expense, upon termination of this Lease by lapse of time or otherwise or upon the
earlier termination of Tenants right of possession, shall promptly remove such designated items,
and Tenant shall thereafter repair any damage to the Premises or the Project caused by such
removal, failing which Landlord may remove the same and repair the Premises or the Project, as the
case may be, and Tenant shall pay the cost thereof to Landlord on written demand. Without
limitation of the foregoing, if any of the Tenants Work or other Tenant Alterations involved the
lowering of ceilings, raising of floors or the installation of specialized
24
wall or floor coverings
or lights, then Tenant, at Landlords request, shall also be obligated to return such surfaces to
their condition prior to the commencement of this lease. Upon being notified by Landlord that
Tenant would be required to remove any such designated items, Tenant may elect not to proceed with
installation of the items so designated. Except for items required to be removed and/or restored
by Tenant as described above (herein, the Removal Items), it is understood and agreed that as
part of Tenants request for Landlords consent to any Tenant Alterations (including, without
limitation, any Tenants Work), Tenant may specifically request a waiver of Landlords right
under this Section 10(b) to require removal of any such item or items included as part of said
Tenant Alterations. Except with respect to the Removal Items, if Tenant so requests Landlords
waiver, then Landlords failure to advise Tenant, as part of its consent process, that a given
Tenant Alteration is required to be removed upon expiration or earlier termination of the lease or
Tenants right to possession hereunder, shall be construed to mean that Tenant need not so remove
same and such determination shall be binding on Landlord at expiration or termination of this
Lease. Tenants failure to perform any work required of Tenant as described in this Section 10 on
or before the expiration or earlier termination of this Lease or Tenants right of possession
hereunder, shall, without limitation on other rights or remedies available to Landlord, give rise
to the right of Landlord, after thirty (30) days prior written notice thereof, to perform such
work, and Tenant shall pay the reasonable costs thereof to Landlord within thirty (30) days after
written demand therefor. In no event shall Landlord require Tenant to remove, at the end of the
Term or otherwise, any items located at the Premises as of the Commencement Date hereunder.
Further, in no event shall Tenant be required to remove any items described in this Section 10
prior to the expiration or earlier termination of the Term or of Tenants right to possession of
the Premises hereunder.
(c)
Removal of Personal Property
. Upon the termination of this Lease by lapse of time
or otherwise or upon the earlier termination of Tenants right of possession, Tenant shall remove
from the Premises Tenants furniture, machinery, safes and other items of movable personal property
of every kind and description and Tenants trade fixtures (excluding any of Tenants Work or any
Tenant Alteration, except as required to be removed pursuant to Section 10(b) above), and Tenant
shall restore any damage to the Premises or the Project caused thereby (such removal and
restoration to be performed prior to the expiration of the Term or earlier termination of this
Lease or Tenants right of possession), failing which Landlord, after giving
Tenant written notice of Tenants breach of this Section 10(c) and Tenants failure to remedy
such breach within thirty (30) days after such notice, may do so and thereupon the provisions of
Section 19(b)(iv) shall apply.
(d)
Survival
. Without limitation of any other obligations of Tenant which shall
survive the expiration or termination of this Lease, all obligations of Tenant under this Section
10 shall survive the expiration or earlier termination of this Lease.
11.
HOLDING OVER
. If Tenant retains possession of the Premises or any part thereof after
the termination of the Lease by lapse of time or otherwise or after the earlier termination of
Tenants right of possession, Tenant shall pay to Landlord as Rent during such holdover period an
amount equal to one hundred fifty percent (150%) of the Rent (based on the Base Rent plus the most
current Additional Rent Estimate owed by Tenant during the most recent year for the entire
Premises), for all or any portion of such holding over period, determined on a per diem basis. In
addition to and without limiting any other rights and
25
remedies which Landlord may have on account
of such holding over by Tenant, Tenant shall indemnify Landlord from and against any and all
damages suffered by Landlord on account of such holding over by Tenant, including any damages and
claims by tenants entitled to future possession; provided, however, that Tenant shall not be liable
for consequential damages arising out of Tenants holdover unless such holdover exceeds thirty (30)
days. No occupancy by Tenant after the expiration or other termination of this Lease shall be
construed to extend the Term. The provisions of this Section 11 shall not be deemed to limit or
constitute a waiver of any rights or remedies of Landlord as provided herein or at law or equity.
12.
RULES AND REGULATIONS
. Tenant agrees to observe and not to interfere with the rights
reserved to Landlord contained in Section 13 hereof and elsewhere in this Lease and agrees, for
itself, its employees, agents, invitees, licensees and contractors, to accept and comply with the
rules and regulations set forth in
Exhibit D
attached to this lease, and elsewhere in this lease,
and such other commercially reasonable rules and regulations as may be adopted from time to time by
Landlord pursuant to Section 13(o) or any other Section of this Lease. The rules and regulations
in
Exhibit D
and all other rules and regulations made in accordance with this lease are intended
and shall be construed to supplement and not limit or restrict in any way any of Landlords rights
or Tenants obligations contained in Section 13 or any other Section of this lease. Nothing
contained in this Lease shall be construed to impose upon Landlord any duty or obligation to
enforce any of said rules and regulations or the terms, covenants or conditions of any other lease
against any other tenant or any other person. The following shall apply to Landlords rules and
regulations described in Exhibit D and any other rules, regulations, directives, controls,
procedures, measures, orders or other requirements promulgated by Landlord and governing the
Project and which are described in any other provision of this Lease and the Exhibits attached to
this Lease, including the Workletter (all of the foregoing, including any modifications and
additions thereto, Rules and Regulations): (i) Landlord shall not discriminate against Tenant in
the enforcement of Rules and Regulations, (ii) the Rules and Regulations shall not be enforceable
against Tenant until Tenant has been given reasonable prior written notice of such
Rules and Regulations; and (iii) the Rules and Regulations shall not materially and adversely
affect Tenants rights under this Lease.
13.
RIGHTS RESERVED TO LANDLORD
. Landlord reserves and shall have the following rights,
to the fullest extent permitted by applicable Laws, each of which shall, unless expressly provided
otherwise, be exercisable without notice and without liability of Landlord, its constituent
members, or any of their respective agents, partners or employees, to Tenant for damage or injury
to property, person or business or for loss or interruption of business, or for any other matter,
and without effecting an eviction or disturbance of Tenants use or possession, in whole or in
part, actual or constructive, or giving rise or entitling Tenant to any claim for set-off,
abatement or reduction of Rent or relieving Tenant from the performance of or affecting any of
Tenants obligations under this lease:
(a) To change the name or the street address of the Building, upon not less than sixty
(60) days prior written notice (unless otherwise obligated to do so sooner by the U.S. post
office or other governmental or quasi-governmental body).
(b) To install and maintain or remove signs on the exterior and interior of the
Building and the Project; provided, however, in no event shall Landlord have the right to
26
(i) install, maintain or remove any signage on the interior of the Premises or Lobby
(so long as such signage has been approved by Landlord); or (ii) maintain or remove any of
Tenants signage on the exterior or any other portion of the Building, Premises or Lobby,
unless otherwise permitted under the terms of this Lease.
(c) To prescribe the location and style of the suite number and identification sign or
lettering for the Premises.
(d) To retain at all times, and to use in appropriate instances, pass keys and other
entry devices for all doors into and within the Premises.
(e) To grant to anyone the right to conduct any business or render any service in any
part of the Building, subject to Tenants expressly stated rights under this Lease.
(f) To enter the Premises for supplying janitor service or other services to be
provided to Tenant hereunder, or in the exercise of Landlords rights hereunder, and upon
reasonable prior notice (except for routine services to be performed by Landlord hereunder,
or where this lease otherwise permits entry without notice or in the event of an emergency,
in which case immediate entry shall be permitted) for other reasonable purposes.
(g) To require all persons entering or leaving the Project or any part thereof during
such hours as Landlord may from time to time reasonably determine to identify themselves to
security personnel by registration or otherwise and to establish their right to enter or
leave in accordance with Landlords security controls. Landlord shall not be liable in
damages or otherwise for any error with respect to admission to or eviction or exclusion
from the Project or any part thereof of any person. Notwithstanding anything contained
herein to the contrary, in case of fire, casualty, invasion, insurrection, mob, riot, act of
terrorism, civil disorder, public excitement or other commotion, or threat thereof, Landlord
reserves the right to limit or prevent access to the Project or any part thereof during the
continuance of the same, halt elevator service, activate elevator emergency controls, or
otherwise take such action or preventive measures reasonably deemed necessary by Landlord
for the safety or security of the tenants or other occupants of the Project or the
protection of the Project and the property in or about the Project. Tenant agrees to
cooperate in any reasonable safety or security program developed by Landlord from time to
time; provided that (i) all other Building tenants are required to participate in such
reasonable safety or security program; (ii) such safety or security program does not
materially and adversely affect any of Tenants rights hereunder or the performance of the
Tenants Work; and (iii) Tenant receives prior written notice of such safety or security
program.
(h) To control, restrict and prevent access to any areas of the Project, provided that
reasonable access to the Premises, Lobby, Building parking areas and Receiving Docks shall
be maintained at all times throughout the Term, and Landlord shall provide parking spaces as
required by Laws, subject to emergency conditions.
27
(i) To rearrange, relocate, enlarge, reduce or change corridors, exits, elevators,
stairs, lavatories, doors, entrances in or to the Building and to decorate and to make
repairs, alterations, additions and improvements, structural or otherwise, in or to the Land
or the Project or any part thereof, including the Premises (provided that entry into the
Premises and the performance of any such work in the Premises shall be conditioned upon (i)
Landlord using good faith efforts to maintain reasonable access to the Premises and to
minimize unreasonable interference with the conduct of Tenants business, (ii) Landlord
entering the Premises at reasonable times upon prior written or oral notice to Tenant
[except that no such notice or reasonable time requirement shall apply in the case of
emergency], (iii) such work being performed in the Premises during normal Building business
hours only so long as such work will not materially and adversely affect Tenants business
operation or the size of the Premises, and (iv) any alterations, improvements or additions
performed within the Premises under this subclause shall only be performed with respect to
Building systems, Building structure or core and shell, or other base Building elements
located therein or any other items required by applicable Laws), to the extent required to
fulfill Landlords duties under other provisions of this Lease or to make necessary repairs
for the benefit of other portions of the Building, and any adjacent building, land, street
or alley, including for the purpose of connection with or entrance into or use of the Land
or the Project in conjunction with any adjoining or adjacent building or buildings or
pedestrian ways, now existing or hereafter constructed, provided that, in the absence of an
emergency or as otherwise required by applicable Laws, Landlord shall (A) not take any
action under this subclause (i) which will have the affect of materially restricting
Tenants ability to access the Premises, Lobby, Receiving Docks, Auditorium or Building
Conference Room in a manner which is consistent with access rights to comparable office
premises at other comparable first class office buildings, and (B) use good faith efforts to
minimize unreasonable interference with the conduct of Tenants business or use of the
Premises, Lobby, Receiving Docks, Auditorium or Building Conference Room. In that regard,
Landlord may erect scaffolding and other structures reasonably required by the character of
the work to be performed, and during such operations to enter upon the Premises upon
reasonable prior notice and take into and upon or through any part of the Project, including
the Premises, all materials that may be required to do such work or make such decorations,
repairs, alterations, improvements or additions, and in connection with any of the
foregoing, to close public entryways, other public spaces, stairways or corridors and,
subject to Section 8(f) above, to interrupt or temporarily suspend any services or
facilities agreed to be furnished by Landlord. Landlord may at its option do any such work
and make any such decorations, repairs, alterations, improvements and additions in and about
the Project and the Premises during ordinary business hours and, if Tenant desires to have
the same done during other than ordinary business hours, Tenant shall pay all overtime and
additional expenses resulting therefrom.
(j) To establish commercially reasonable controls for the purpose of regulating all
property and packages to be taken into or removed from the Building and Premises; provided
that Tenant shall have the right to accept deliveries during Tenants normal business hours.
28
(k) To regulate delivery of supplies and services in order to ensure the cleanliness
and security of the Project and to avoid congestion of the loading docks, receiving areas
and freight elevators.
(l) To approve the weight, size and location of safes, vaults, books, files and other
heavy equipment and articles in and about the Premises and the Building so as not to exceed
the design live load per square foot designated by the structural engineers for the
Building, and to require all such items and furniture and similar items to be moved into or
out of the Building and Premises only at such times and in such manner as Landlord shall
direct in writing. Tenant shall not install or operate machinery or any mechanical devises
of a nature not directly related to Tenants ordinary use of the Premises and of a nature
not consistent with customary first-class office usage without the prior written consent of
Landlord (which consent shall not be unreasonably withheld).
(m) To show the Premises to prospective tenants at reasonable hours and upon prior
written or oral notice to Tenant and accompanied by a Landlord representative or agent
during the last twelve (12) months of the Term or to prospective mortgagees, ground lessors
or purchasers of the Land or Building or both at any time upon prior written or oral notice
to Tenant, and, if Tenants right of possession of the Premises has been terminated, to show
the Premises to prospective tenants at any time and to demolish, alter, remodel or otherwise
prepare the Premises for re-occupancy.
(n) Upon reasonable prior notice to Tenant, to erect, use and maintain concealed pipes,
ducts, wiring and conduits, and appurtenances thereto, in and through the Premises in walls,
below the floor and above the suspended ceiling; provided that, notwithstanding anything to
the contrary herein, (i) Landlord shall be responsible for maintaining at all times in good
order and repair all such concealed pipes, ducts, wiring and conduits, and appurtenances
thereto in and through the Premises or Lobby in walls, below the floor and above the
suspended ceiling; (ii) Subject to Section 16, Landlord shall indemnify, defend, protect and
hold harmless Tenant, the Tenant Parties, any employees, agents, contractors or other
representatives of Tenant from and against any and all loss, claim, expense, liability and
cost (including reasonable attorneys fees) arising out of or in any way related to
Landlords installation, use or maintenance of such concealed pipes, ducts, wiring and
conduits, and appurtenances thereto, in and through the Premises or Lobby in walls, below
the floor and above the suspended ceiling (and Landlord shall be responsible, at its cost,
to repair damage to Tenants property caused by such work); and (iii) such installation, use
and maintenance of such concealed pipes, ducts, wiring and conduits, and appurtenances
thereto in and through the Premises or Lobby in walls, below the floor and above the
suspended ceiling shall be performed in a manner so as to minimize any interference with
Tenants use of the Premises. Landlord shall repair any damage to the Premises or Lobby,
Tenants Work or any Tenant Alteration caused by Landlords installation, use or maintenance
of such concealed pipes, ducts, wiring and conduits, and appurtenances thereto, in and
through the Premises or Lobby in walls, below the floor and above the suspended ceiling
within a reasonable time after notice thereof to Landlord.
29
(o) Upon written notice to Tenant, and subject to Section 6(a) of this Lease, from time
to time to make and adopt such reasonable rules and regulations, in addition to or as an
amendment to rules and regulations contained in
Exhibit C
attached to this lease or other
Sections of this lease, or adopted pursuant to this or other Sections of this lease, for the
use, entry, operation or management of the Premises or the Project or for the protection or
welfare of the Project or its tenants or occupants, or any property therein, as Landlord may
reasonably determine, and Tenant agrees to accept, abide by and comply with all such rules
and regulations, all subject to the terms of Section 12 above.
(p) Subject to any conditions set forth in Section 13(n) which apply to such work
because such work is within the Premises, to use any roofs, the exterior portions of the
Premises, the Land, improvements and air and other rights below the improved floor level of
the Premises or above the improved ceiling of the Premises, or outside the demising walls of
the Premises, and such areas and risers within the Premises as are used for utility lines
and other facilities or equipment required to serve the Building or any occupants of the
Building, and the right to use, maintain and repair same; no rights with respect thereto are
conferred upon Tenant, unless otherwise specifically provided herein. If any such
activities would materially affect Tenants business operation, Landlord will give Tenant
prior notice of such activities.
In exercising its rights under this Section 13, Landlord shall not unreasonably interfere with
Tenants use and occupancy of the Premises or Tenants use of, and access to, the Lobby, Receiving
Docks, Auditorium and Building Conference Room. Additionally, to the extent that any Landlord
requires entry into the Premises to perform any work in the Premises or is performing work outside
of the Premises which will materially affect Tenants business operation, Landlord will make
commercially reasonable efforts to coordinate scheduling of such work with Tenant, in good faith.
14.
ALTERATIONS
. The provisions of this Section 14 pertain to Tenant Alterations
performed other than the Tenants Work which is covered by, and subject to, the terms of the
Workletter.
(a)
Consent; Conditions
. Tenant shall not perform any Tenant Alterations without
first obtaining the prior written consent of Landlord (not to be unreasonably withheld, as provided
in Section 14(e) below). Without limitation on the foregoing, and to the extent that Landlords
consent is required under this Section 14, Landlord may impose such reasonable conditions with
respect to Tenant Alterations as Landlord deems reasonably appropriate, including, without
limitation, requiring Tenant to furnish to Landlord for its approval prior to commencement of any
work or entry by Tenants contractors into the Premises or the Building, insurance against
liabilities which may arise out of the Tenant Alterations and plans and specifications and permits
necessary for the Tenant Alterations.
(b)
Contractors
. Tenant Alterations shall be done at Tenants expense by agents or
contractors hired by Tenant who are reasonably acceptable to Landlord and whose work will not cause
or threaten to cause disharmony or interference with Landlord or other tenants, contractors or
service providers at the Building, or at Landlords election, as it relates to
work affecting (1) life safety systems, (2) Building risers, (3) Building structure or core
and
30
shell, or (4) any other Building systems which can affect other tenants operations or any
other operations at the Building, by Landlords employees or contractors hired by Landlord. Before
employing any such contractors, Tenant shall submit to Landlord the names and addresses of such
contractors.
(c)
Costs; Mechanic Liens
. Tenant shall promptly pay the cost, when due, of all
Tenant Alterations. In addition to the cost of such Tenant Alterations, Tenant shall pay to
Landlord or to its designated agent, as Landlord shall direct, an amount equal to five percent (5%)
of all of the costs of all Tenant Alterations as a coordination and management fee allocable to the
Tenant Alterations; provided, however that no such fee shall be payable with respect to any Tenant
Alterations project which costs less than $10,000.00. Landlord shall also have the right to
recover from Tenant, any reasonable out-of-pocket cost incurred by Landlord for architectural,
engineering or other costs and expenses as a result of the Tenant Alterations. Upon completion of
any Tenant Alterations, Tenant shall deliver to Landlord, if payment is made directly to
contractors, evidence of payment, contractors affidavits and full and final waivers of all liens
for labor, services and materials sufficient to waive all rights to liens under the Illinois
Mechanics Lien law arising or from the work done. Tenant shall not permit any lien or claim for
lien of any mechanic, labor or supplier or any other lien to be filed against the Building, the
Land or the Premises or any part thereof, arising out of any Tenant Alterations or other work
performed or alleged to be performed, by or at the direction of Tenant. If any such lien or claim
for lien is filed, Tenant shall, within thirty (30) days of receiving notice of such lien or claim,
(i) have such lien or claim for lien released of record, or (ii) deliver to Landlord title
insurance or other security in form, content, and amount satisfactory to Landlord relative to such
lien or claim for lien (whereupon, in the case of this subclause (ii), Tenant shall thereafter
diligently contest such lien or claim for lien). Without limitation of the foregoing, Tenant shall
indemnify, defend and hold harmless, Landlord and the other Landlord Parties, from and against any
such lien or claim for lien, and the foreclosure or attempted foreclosure thereof, and Tenant shall
cause any such lien to be released of record or insured over, in any event, prior to final
enforcement thereof. If Tenant fails to take the actions described in subclause (i) or subclause
(ii) above, then Landlord, without investigating the validity of such lien or claim for lien, but
after giving Tenant written notice thereof and Tenants continued failure to take such actions
within five (5) days after such notice, may pay or discharge the same, and Tenant shall, as payment
of additional Rent hereunder, reimburse Landlord upon demand for the payment so paid by Landlord,
including Landlords expenses and attorneys fees related thereto.
(d)
General
. Excepting matters for which the parties have explicitly released each
other in this Lease (including, without limitation, the releases contained in Section 16 hereof) or
matters which are included within the scope of any indemnities contained in this Lease (including,
without limitation, any environmental indemnities contained in Section 9 hereof), Tenant agrees to
indemnify, defend by counsel reasonably acceptable to Landlord and hold Landlord and the other
Landlord Parties, and the Project, harmless of, from and against any and all losses, damages,
liabilities, claims, liens, costs and expenses, including without limitation court costs and
reasonable attorneys fees and expenses, arising in connection with any Tenant Alterations. All
Tenant Alterations done by Tenant or its contractors, including work done pursuant to Section 9,
shall be performed in a first class workmanlike manner using only good grades of materials and
shall comply with all Laws. Within thirty (30) days after substantial
completion of any Tenant Alterations by or on behalf of Tenant, Tenant shall furnish to
Landlord
31
final construction drawings (marked in the field to reflect all as built conditions)
of such Tenant Alterations. All Tenant Alterations shall be performed in accordance with
Landlords standard construction rules and regulations for the Building. In no event shall any
supervision or right to supervise by Landlord, nor shall any approvals given by Landlord hereunder,
constitute any warranty by Landlord to Tenant of the adequacy of the design, workmanship or quality
of the Tenant Alterations, or impose any liability upon Landlord in connection with the performance
of such work.
(e)
Reasonable Consent
. With respect to any Tenant Alterations for which Landlords
consent is required, Landlord agrees not to unreasonably withhold or delay its consent to such
Tenant Alterations; provided, however, that Landlord shall not be deemed to have acted unreasonably
if it withholds its consent because, in Landlords reasonable opinion, such work would adversely
affect Building systems, the structure of the Building or the safety of its occupants; would
increase Landlords cost of repairs, insurance or furnishing services or otherwise adversely affect
Landlords ability to efficiently operate the Building or furnish services to Tenant or other
tenants; involves toxic or hazardous materials in any unlawful manner; or requires entry into
another tenants premises or use of public areas (other than use of public areas for prompt
movement of materials to the Premises). The foregoing reasons, however, shall not be exclusive of
the reasons for which Landlord may withhold consent, whether or not such other reasons are similar
or dissimilar to the foregoing.
(f)
Non-Structural Alterations
. Notwithstanding the foregoing provisions of this
Section 14, Tenant may perform certain interior alterations (collectively,
Non-Structural
Alterations
) to the Premises such as carpeting, painting (so long as the odors from the same do
not materially or unreasonably interfere with any other tenants operations), hanging artwork or
wall coverings, installing furniture systems, installing non-load bearings partitions, or other
similar interior improvements, without (1) obtaining Landlords consent therefor, (2) obtaining
Landlords approval of the contractors/service providers performing the same, or (3) payment of any
supervision or other fee to Landlord or any reimbursement of Landlords out-of-pocket costs
relating thereto (but subject to the remaining requirements of this Section 14, but only if (i)
such items do not affect the Building structure or HVAC, electrical or other Building systems, the
public areas of the Building or any other tenant space, (ii) Tenant gives prior written notice to
Landlord of such items, including a description of the contemplated work and the types of materials
being used, (iii) the cost of such alterations do not exceed $25,000 for any one or any series of
related Alterations, and (iv) the contractors/service providers performing such work are reputable
and do not cause any labor disharmony at the Building. Approval of plans and specifications shall
not be required for the foregoing Non-Structural Alterations, where plans and specifications are
not reasonably appropriate for the work to be performed.
15.
ASSIGNMENT AND SUBLETTING
.
(a)
Prohibitions
. Subject to the terms of Section 15(h) below, Tenant shall not,
either prior or subsequent to the commencement of the Term, (i) assign, transfer, mortgage, pledge,
hypothecate or encumber or subject to or permit to exist upon or be subjected to any lien
or charge, this Lease or any interest under it, (ii) allow to exist or occur any transfer of
or lien upon this Lease or Tenants interest herein by operation of law, (iii) sublet the Premises
or any part thereof, or (iv) permit the use or occupancy of the Premises or any part thereof for
any
32
purpose not provided for under Section 6 of this Lease or by anyone other than Tenant and
Tenants employees. Landlord has the absolute right to withhold its consent to any of such acts
without giving any reason whatsoever, except with respect to assignment and subletting as herein
expressly provided to the contrary in Section 15(d). In no event shall this Lease be assigned or
assignable by voluntary or involuntary bankruptcy proceedings or otherwise, except as provided by
law, and in no event shall this Lease or any rights or privileges hereunder be an asset of Tenant
under any bankruptcy, insolvency or reorganization proceedings, except as provided by law. Any of
the foregoing performed or attempted in violation of the provisions of this Section shall be null
and void.
(b)
Continuing Liability
. No assignment, subletting, use, occupancy, transfer or
encumbrance by Tenant, including an assignment to a Tenant Affiliate (as hereafter defined), shall
operate to relieve Tenant from any covenant, liability or obligation hereunder except to the
extent, if any, expressly provided for in any such written consent of Landlord to the foregoing,
and none of the foregoing, and no consent to any of the foregoing, shall be deemed to be a consent
to or relieve Tenant from obtaining Landlords consent to any subsequent assignment, subletting,
use, occupancy, transfer or encumbrance. Tenant shall pay all of Landlords reasonable costs,
charges and expenses, including, without limitation, reasonable attorneys fees and expenses (which
attorneys fees shall not exceed $2,000.00 in any one instance), incurred in connection with any
assignment, subletting, use, occupancy, transfer or encumbrance made or requested by Tenant.
(c)
Notice of Proposed Assignment or Sublease; Recapture
. Tenant shall, by notice in
writing, advise Landlord of its intention from, on and after a stated date (which shall not be less
than thirty (30) nor more than ninety (90) days after the date of the giving of Tenants notice to
Landlord) to assign this Lease or sublet all or any part of the Premises for the balance or any
part of the Term, and, in such event, Landlord shall have the right, to be exercised by giving
written notice to Tenant within twenty (20) days after its receipt of Tenants notice, (1) so long
as the proposed assignee of the Lease or the proposed subtenant, as the case may be, is not a
Tenant Affiliate (as hereinafter defined), to terminate this Lease with respect to the space
described in Tenants notice as of the date that is thirty (30) days after Tenants receipt of such
Landlord termination notice (provided, however, that in the event Tenant notifies Landlord within
such thirty (30) day period that it is revoking its notice to sublet or assign, then this Lease
shall continue in full force and effect and Landlords termination notice shall be deemed null and
void), or (2) to consent or refuse to consent to the proposed assignment or sublease, as described
in Section 15(d) below. Tenants notice shall include the name and address of the proposed
assignee or subtenant, a true and complete copy of the proposed assignment or sublease and
sufficient information, as Landlord deems reasonably necessary, to permit Landlord to determine (i)
the financial responsibility and character and the nature of the business of the proposed assignee
or subtenant, and (ii) whether Landlord has the right under this lease to withhold consent to the
proposed assignment or sublease. If Tenants notice covers all of the Premises and if Landlord
exercises its right to terminate this Lease as to such space (and Tenant does not revoke its notice
to assign or sublease), then the Term of this lease shall expire and end on the date stated in
Tenants notice for the commencement of the proposed assignment or sublease as
fully and completely as if that date had otherwise been the Expiration Date. If, however,
Tenants notice covers less than all of the Premises, and if Landlord exercises its right to
terminate this lease with respect to such space described in Tenants notice (and Tenant does not
33
revoke its notice to assign or sublease), then as of the date stated in Tenants notice for the
commencement of the proposed sublease, the Base Rent and Tenants Proportionate Share shall be
adjusted on the basis of the number of square feet of Rentable Area retained by Tenant, and this
Lease as so amended, shall continue thereafter in full force and effect. Landlord shall have no
right to terminate this Lease pursuant to this Section 15(c) if the proposed assignee or the
proposed subtenant, as the case may be, is a Tenant Affiliate. Notwithstanding anything to the
contrary contained herein, if (i) Landlord fails to respond to Tenants request for consent to an
assignment or subleasing within twenty (20) days after Landlords receipt of such request
accompanied by all other information required pursuant to this Section 15 (c), (ii) Tenant sends a
second written request for such consent which request states conspicuously YOUR FAILURE TO RESPOND
TO THIS REQUEST WILL RESULT IN A DEEMED APPROVAL, and (iii) Landlord fails to respond to such
second request within seven (7) business days after receipt thereof, then Landlord shall be deemed
to have consented to the assignment or sublease in question.
(d)
Grounds for Withholding Consent
. If Landlord, upon receiving Tenants notice with
respect to any such space, does not exercise its right to terminate as aforesaid, Landlord will not
unreasonably withhold, condition or delay its consent to Tenants assignment of this Lease or
subletting the space covered by Tenants notice. Landlord shall not be deemed to have unreasonably
withheld its consent to a proposed assignment of this lease or to a proposed sublease of part or
all of the Premises if its consent is withheld because: (i) Tenant is then in Default hereunder;
(ii) any notice of termination of this lease or termination of Tenants right of possession shall
have been given under Section 19; (iii) either the portion of the Premises which Tenant proposes to
sublease, or the remaining portion of the Premises, or the means of ingress or egress to either the
portion of the Premises which Tenant proposes to sublease or the remaining portion of the Premises
is of such nature that it will violate any applicable Law, is of such accessibility, size or
irregular shape so as not to be suitable for normal renting purposes as space on a multi-tenant
floor within the Building; (iv) the proposed use of the Premises by the proposed assignee or
subtenant does not conform with the use set forth in Section 6 hereof, or will violate any
applicable Law, will impose any obligation upon Landlord or increase Landlords obligations under
or cost of compliance with any Laws, or will violate any exclusive right Landlord has granted or
contemplates granting in the future to any tenant of any part of the Project; (v) in the reasonable
judgment of Landlord the proposed assignee or subtenant is of a character or is engaged in a
business which would be deleterious to the reputation of the Project, Landlord or any of the
constituent members of Landlord; (vi) in the reasonable judgment of Landlord, the proposed assignee
or subtenant is not sufficiently financially responsible to perform its obligations under the
proposed assignment or sublease; (vii) the proposed assignee or subtenant is a government (or
subdivision or agency thereof); or (viii) the proposed assignee or subtenant is an occupant (or
affiliate thereof) of the Building or is a person or entity (or affiliate thereof) with whom
Landlord is then dealing, or has dealt with during the prior six (6) months with regard to leasing
of space in the Building; provided, however, that the foregoing are merely examples of reasons for
which Landlord may withhold its consent and shall not be deemed exclusive of any permitted reasons
for reasonably withholding consent, whether similar or dissimilar to the foregoing examples, and
Landlord may consider all relevant factors in
determining whether to give or withhold its consent. Tenant agrees that all advertising by
Tenant or on Tenants behalf with respect to the assignment of this lease or subletting of any part
of the Premises must be approved in writing by Landlord prior to publication.
34
(e)
Excess Rent Payment
. If Tenant (as Tenant or debtor-in-possession) shall sublet
the Premises, or any part thereof, at a rental or for other consideration in excess of the Rent or
pro rata portion thereof due and payable by Tenant under this Lease, then Tenant shall pay to
Landlord as additional Rent (i) on the later of the first day of each month during the term of any
sublease, or the day of receipt from such subtenant, one-half (1/2) of the excess of all rent and
other consideration paid by the subtenant for such month over the Rent then payable to Landlord
pursuant to the provisions of this lease for said month (or if only a portion of the Premises is
being sublet, one-half (1/2) of the excess of all rent and other consideration due from the
subtenant for such month over the portion of the Rent then payable to Landlord pursuant to the
provisions of this lease for said month which is allocable on a Rentable Area basis to the space
sublet), and (ii) immediately upon the receipt thereof, one-half (1/2) of any other consideration
realized by Tenant from such subletting. Landlord shall not be responsible for any deficiency if
Tenant shall assign this Lease or sublet the Premises or any part thereof at a rental less than
that provided for herein. Whenever reference is made to the excess of rent or other
consideration, such excess shall be reduced by charging (i.e., on an amortized basis over the term
of the sublease) against the rent or other consideration paid by such subtenant, reasonable
brokerage commissions and leasehold improvements and other reasonable out-of-pocket costs
(including, without limitation, construction, marketing, legal fees and other concessions) which
Tenant has paid in connection with subleasing the applicable portion of the Premises. The terms of
this subparagraph (e) shall not apply to any subletting transactions permitted under Section 15(h)
below.
(f)
Lease Assumption; Subtenant Attornment
. If Tenant shall assign this Lease, the
assignee shall expressly assume all of the obligations of Tenant hereunder in a written instrument
provided by Landlord and delivered to Landlord not later than ten (10) days prior to the effective
date of the assignment. If Tenant shall sublease any part of the Premises, Tenant shall obtain and
furnish to Landlord, not later than ten (10) days prior to the effective date of such sublease and
in form reasonably satisfactory to Landlord, the written agreement of such subtenant to the effect
that the subtenant will attorn to Landlord, at Landlords option and written request (at Landlords
sole election), if this Lease terminates before the expiration of the sublease. Tenant shall, not
later than fifteen (15) days after the effective date of any such assignment or sublease, deliver
to Landlord a certified copy of the instrument of assignment or sublease.
(g)
Corporation, Partnership and Limited Liability Company Transfers
. If Tenant is a
corporation, any transaction or series of transactions (including without limitation any
dissolution, merger, consolidation or other reorganization of Tenant, or any issuance, sale, gift,
transfer or redemption of any capital stock of Tenant, whether voluntary, involuntary or by
operation of law, or any combination of any of the foregoing transactions) resulting in the
transfer of control of Tenant, other than by reason of death, shall be deemed to be a voluntary
assignment of this Lease by Tenant subject to the provisions of this Section 15. If Tenant is a
partnership or limited liability company, any transaction or series of transactions (including
without limitation any withdrawal or admittance of a partner or member or any change in any
partners or members interest in Tenant, whether voluntary, involuntary or by operation of
law, or any combination of any of the foregoing transactions) resulting in the transfer of control
of Tenant, other than by reason of death, shall be deemed to be a voluntary assignment of this
Lease by Tenant subject to the provisions of this Section 15. The term
control
as used in this
lease
35
means the power to directly or indirectly direct or cause the direction of the management or
policies of Tenant, through the ownership of voting or other ownership interests. Notwithstanding
any of the foregoing, the provisions of this Section 15(g) shall not apply to the original named
Tenant hereunder or any permitted assignee which is a Tenant Affiliate (as defined below).
(h)
Permitted Transfers
. Notwithstanding any of the foregoing, Landlords consent
shall not be required for an assignment to a Tenant Affiliate, and Landlord shall not terminate
this Lease with respect to the Premises or any portion of the Premises or otherwise collect any
excess rent under subparagraph (e) above as a result of such assignment to a Tenant Affiliate;
provided, however, that (i) Tenant shall give reasonable prior notice to Landlord of the proposed
assignment, (ii) such assignor shall remain liable for the obligations of Tenant under this Lease,
as provided in Section 15(b) above, and (iii) such assignee shall expressly assume the obligations
of Tenant under this Lease. As used in this Lease, the term
Tenant Affiliate
shall mean any
entity (1) which results from a merger or consolidation with the Tenant under this Lease, or (2)
which acquires all or substantially all of the assets or ownership interests of the Tenant under
this Lease for a purpose other than to circumvent the provisions of this Article 15, or (3) which
controls, is controlled by, or is under common control with, the Tenant under this L ease (with
control or words of similar import meaning the power, whether directly or indirectly, by contract
or equity ownership, to control the management and policies of the entity in question).
16.
WAIVER OF CERTAIN CLAIMS, INDEMNITY BY TENANT
.
(a)
General Waiver
. In addition to and without limiting or being limited by any other
releases or waivers of claims in this Lease, but rather in confirmation and furtherance thereof, to
the extent not prohibited by law, Landlord and Tenant each releases and waives any and all claims
for, and rights to recover, damages against and from the other, and the others respective agents,
members, partners, shareholders, officers and employees (collectively, the
Released
Parties
), for loss, damage or destruction to any of its property (including the Premises, the
Building, the Common Areas and their contents), the elements of which are insured against (with
insured against meaning coverage over and above the amount of $50,000.00, it being the intent
that the cost of a loss, damage or destruction which is less than $50,000.00 shall be borne by the
party causing such loss, damage or destruction notwithstanding that such loss, damage or
destruction may be within the coverage of the other partys insurance) or which would have been
insured against (with insured against meaning coverage over and above the amount of $50,000.00,
it being the intent that the cost of a loss, damage or destruction which is less than $50,000.00
shall be borne by the party causing such loss, damage or destruction notwithstanding that such
loss, damage or destruction may be within the coverage of the other partys insurance) had such
party suffering such loss, damage or destruction maintained the property or physical damage
insurance policies required under Section 22 hereof. In no event
shall this clause be deemed, construed or asserted (i) to affect or limit any claims or rights
against any Released Parties other than the right to recover damages for loss, damage or
destruction to property, or (ii) to benefit any third party other than the Released Parties.
(b)
Indemnity by Tenant
. Subject to the terms of Section 16(a) above, in addition to
and without limiting or being limited by any other indemnity in this Lease, but rather
36
in
confirmation and furtherance thereof, to the extent not prohibited by law, and excluding matters
caused by any of the Landlord Parties, Tenant agrees to indemnify, defend by counsel reasonably
acceptable to Landlord and hold Landlord and the Landlord Parties, and the Project, harmless of,
from and against any and all losses, damages, liabilities, claims, liens, costs and expenses,
including court costs and reasonable attorneys fees and expenses, in connection with injury to or
death of any person or with respect to damage to or theft, loss or loss of the use of any property,
occurring in or about the Premises or the Project arising from Tenants occupancy of the Premises,
or the conduct of its business or from any activity, work, or thing done, permitted or suffered by
Tenant in or about the Premises or the Project, or from any breach or default on the part of Tenant
in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to
the terms of this Lease, or due to any other negligent act or omission or willful misconduct of
Tenant, or any of its employees, agents, licensees, invitees or contractors.
(c)
Waiver
. To the extent permitted by law, Tenant releases Landlord and the Landlord
Parties from, and waives all claims for, damage or injury to person or property sustained by the
Tenant or any occupant of the Building or the Premises resulting directly or indirectly from any
existing or future condition, defect, matter or thing in and about the Project or the Premises or
any part of either or any equipment or appurtenance therein, or resulting from any accident in or
about the Project or resulting directly or indirectly from any act or neglect of any tenant or
occupant of the Building or of any other person, including Landlords agents and servants, except
where resulting from the negligence or willful misconduct of Landlord or any of the Landlord
Parties. Tenant hereby waives any consequential damages, compensation or claims for inconvenience
or loss of business, rents, or profits as a result of any injury or damage occurring at or about
the Building. To the extent permitted by law, Landlord releases Tenant and the Tenant Parties
from, and waives all claims for, damage or injury to person or property sustained by the Landlord
or any occupant of the Building or the Premises resulting directly or indirectly from any existing
or future condition, defect, matter or thing in and about the Project or the Premises or any part
of either or any equipment or appurtenance therein, or resulting from any accident in or about the
Project or resulting directly or indirectly from any act or neglect of any tenant or occupant of
the Building or of any other person, including Tenants agents and servants, except where resulting
from the negligence or willful misconduct of Tenant or any of the Tenant Parties (as defined
below).
(d)
Indemnity by Landlord
. Subject to the terms of Section 16(a) above, in addition
to and without limiting or being limited by any other indemnity in this Lease, but rather in
confirmation and furtherance thereof, to the extent not prohibited by law, and excluding matters
caused by Tenant or its employees, agents, contractors, consultants, vendors, customers,
affiliates, invitees and any other person or entity acting on behalf of Tenant or whose presence in
the Project is in connection with Tenants business operation at the Project (all of the foregoing,
collectively, the
Tenant Parties
), Landlord agrees to indemnify, defend by counsel reasonably
acceptable to Tenant and hold Tenant and the constituent partners of Tenant, harmless of, from
and against any and all losses, damages, liabilities, claims, liens, costs and expenses, including
court costs and reasonable attorneys fees and expenses, imposed on them in connection with injury
to or death of any person, occurring within the common areas of the Building or elsewhere at the
Project, or with respect to damage to or theft, loss or loss of the use of property of any person,
occurring within the common areas of the Building or elsewhere at the Project, but only
37
to the
extent that the foregoing losses, damages, liabilities, claims, liens, costs and expenses arise
from or are caused by any breach or default on the part of Landlord in the performance of any
covenant or agreement on the part of Landlord to be performed pursuant to the terms of this Lease,
or from any negligent act or omission or willful misconduct of Landlord. No persons or entities
other than Tenant or its constituent partners shall be deemed third party beneficiaries of the
indemnities set forth in this Section 16(d).
17.
DAMAGE OR DESTRUCTION BY CASUALTY
.
(a)
Termination of Lease; Repair by Landlord
. If the Premises or the Building, or the
Lobby, Receiving Docks and Auditorium, shall be damaged by fire or other casualty and if such
damage does not render all or a material portion of the Premises or the Building untenantable, or
all or a material portion of the Lobby, Receiving Docks and Auditorium unusable for their intended
purposes, then Landlord shall proceed with reasonable promptness to repair and restore the Building
and the Premises, and the Lobby, Receiving Docks and Auditorium, so as to render the Premises
tenantable and the Lobby, Receiving Docks and Auditorium usable, subject to reasonable delays for
insurance adjustments and delays caused by matters beyond Landlords reasonable control, and also
subject to zoning laws and building codes then in effect. If any such damage renders all or a
material portion of the Premises or the Building untenantable, or renders the Lobby, Receiving
Docks or Auditorium unusable, Landlord shall, with reasonable promptness after the occurrence of
such damage, estimate the length of time that will be required to substantially complete the repair
and restoration of the Building and the Premises, and the Lobby, Receiving Docks and Auditorium, as
the case may be, necessitated by such damage and shall by notice given to Tenant approximately
sixty (60) days from the date such damage occurs, advise Tenant of such estimate, and advise Tenant
if Landlord has available sufficient insurance and other proceeds to complete the repair and
restoration. If it is so estimated that the amount of time required to substantially complete such
repair and restoration will exceed two hundred seventy (270) days from the date such damage
occurred, or if Landlord will not have available sufficient insurance and other proceeds to
complete the repair and restoration, then either Landlord or Tenant shall have the right to
terminate this lease as of the date of notice of such election by giving notice to the other at
anytime within twenty (20) days after Landlord gives Tenant the notice containing said estimate.
Unless this lease is terminated as provided in the preceding sentence, Landlord shall proceed with
reasonable promptness to repair and restore the Building or the Premises, and the Lobby, Receiving
Docks and Auditorium, so as to render the Premises tenantable (including restoration of reasonable
access to the Premises, if such access was destroyed as a result of the subject casualty), and the
Lobby, Receiving Docks and Auditorium usable, subject to reasonable delays for insurance
adjustments and delays caused by matters beyond Landlords reasonable control, and also subject to
zoning laws and building codes then in effect. Landlord shall have no
liability to Tenant, and Tenant shall not be entitled to terminate this lease (except as
hereinafter provided) if such repairs and restoration are not in fact completed within the time
period estimated by Landlord, as aforesaid, or within said two hundred seventy (270) days.
However, if such repairs and restoration are not completed by a date (
Outside Date
) which is
twelve (12) months after the date of such fire or other casualty (or ninety-five (95) days after
the expiration of the time period estimated by Landlord as aforesaid, if longer than two hundred
seventy (270) days and neither party terminated the lease as permitted), which Outside Date shall
be extended (as to Tenants ability to terminate only) by all periods of delay attributable to the
acts or
38
omissions of Tenant or Tenants agents, employees or contractors, for any reason
whatsoever, then either party may terminate this lease, effective as of the date of notice of such
election, by giving written notice to the other party within thirty (30) day period after said
Outside Date as extended as aforesaid, but prior to substantial completion of repair or
restoration. Notwithstanding anything to the contrary herein set forth: (i) Landlord shall have
no duty pursuant to this Section 17 to repair or restore any portion of Tenants Alterations or by
other improvements, additions or alterations made by or on behalf of Tenant in the Premises,
including improvements performed by Landlord pursuant to this Lease and/or the Workletter, if any;
(ii) Landlord shall not be obligated (but may, at its option, so elect) to repair or restore the
Premises or Building if the damage is due to an uninsurable casualty or if insurance proceeds are
insufficient to pay for such repair or restoration, or if any Mortgagee applies proceeds of
insurance to reduce its loan balance, and the remaining proceeds, if any, available to Landlord are
not sufficient to pay for such; or (iii) if any such damage rendering all or a material portion of
the Premises, Lobby or Building untenantable shall occur during the last year of the Term (and, for
the purpose of this clause (iii) only, material shall mean that it would take more than sixty
(60) to complete restoration of the affected area), either party (but as to Tenants right, only if
all or a substantial portion of the Premises is rendered untenantable) shall have the option to
terminate this lease by giving written notice to the other within thirty (30) days after the date
such damage occurred, and if such option is so exercised, this lease shall terminate as of the date
of such notice. Tenant acknowledges that Landlord shall be entitled to the full proceeds of any
insurance coverage, whether carried by Landlord or Tenant, for damage to those items or decorations
which Landlord is obligated to repair, it being agreed that Tenant shall be entitled to the
proceeds from any insurance for items which Landlord has no obligation to repair. In no event will
Landlord be required to repair or restore any of Tenants personal property.
(b)
Repair by Tenant
. If this lease is not terminated pursuant to this Section 17,
Tenant shall, in accordance with Section 14, proceed with reasonable promptness to repair and
restore all Tenants Alterations and all other alterations, additions and improvements in the
Premises, other than any repairs or restoration required to be made by Landlord pursuant to Section
17(a) above, to as near the condition which existed prior to the fire or other casualty as is
reasonably possible; provided, however, that Tenant shall have no obligation to commence any repair
work unless Landlord is diligently performing its obligations under Section 17(a) above, and Tenant
shall not be obligated to commence its repair work until Landlord has substantially completed
repair and restoration of the Premises. Tenant agrees and acknowledges that Landlord shall be
entitled to the proceeds of any insurance coverage carried by Tenant relating to improvements and
betterments to the Premises if this lease terminates (provided that Tenant shall be entitled to all
insurance proceeds from insurance which it carries relating to its non-affixed furnishings,
non-affixed trade fixtures and other items of non-affixed personalty, irrespective of whether this
lease terminates, and Landlord shall have no claim relative thereto).
(c)
Abatement of Rent
. In the event any such fire or casualty damage renders the
Premises untenantable and if this lease shall not be terminated pursuant to the foregoing
provisions of this Section 17 by reason of such damage, then Rent shall abate during the period
beginning with the date of such damage and ending on the date of the 120
th
day following
the date when Landlord substantially completes its repair or restoration required hereunder. Such
abatement shall be in an amount bearing the same ratio to the total amount of Rent for such period
as the portion of the Rentable Area of the Premises which is untenantable
39
and not used by Tenant
from time to time bears to the Rentable Area of the entire Premises; provided, however that the
Premises shall continue to be considered untenantable so long as the Lobby and Receiving Docks are
not usable in the manner in which they were used prior to the casualty. In the event of
termination of this lease pursuant to this Section 17, Rent shall be apportioned on a per diem
basis and be paid to the date of the termination.
(d)
Untenantability
. As used in this lease, the term
untenantable
means reasonably
incapable of being occupied for its intended use due to damage to the Premises or Building.
Notwithstanding anything contained to the contrary in this Section 17, neither the Premises nor any
portion of the Premises shall be deemed untenantable if Landlord is not required to repair or
restore same (or if Landlord is required to repair or restore same, then 120 days after such time
as Landlord has substantially completed the repair and restoration work required to be performed by
Landlord under this Section 17), or if Tenant continues to actually occupy the subject portion of
the Premises; it being understood that the Premises shall, in any event, be deemed untenantable for
so long as portions of the Building necessary to provide access to the Premises are rendered
unusable, and to the extent Tenant is unable to conduct its customary business operations from the
Premises as a result thereof.
18.
EMINENT DOMAIN
.
(a)
Substantial Taking
. If the entire Project or the entire Building, or a
substantial part of either of them, or any part of the Project which includes all or a material
part (meaning more than 20% of the replacement value thereof) of the Premises or Lobby, or a
material part of the Receiving Docks, shall be taken or condemned by any competent authority for
any public or quasi-public use or purpose, and, in Tenants reasonable judgment, such taking
renders the Premises unsuitable for the operation of Tenants business therein, Tenant may, within
ninety (90) days following the date of such taking, terminate this Lease upon written notice to
Landlord. If this Lease is terminated, then all of Tenants obligations hereunder, including any
obligation to pay Rent or other charges, shall end upon the earlier of the date when the possession
of the part so taken shall be required for such use or purpose or the effective date of the taking
and each party shall be released from further liability hereunder (except for such liability that
expressly survives the termination of this Lease) If any condemnation proceeding shall be
instituted in which it is sought to take or damage any part of the Project, the taking or damaging
of which would, in Landlords opinion, prevent the economical operation of the Project, or if the
grade of any street or alley adjacent to the Land or the Building is changed or any such street or
alley is closed by any competent authority, and such taking, damage, change of grade or closing
makes it necessary or desirable to remodel the Building to conform to the taking, damage, change of
grade or closing, Landlord shall have the right to terminate this lease
upon written notice to Tenant given not less than ninety (90) days prior to the date of
termination designated in the notice. In either of the events above referred to, Rent shall be
apportioned on a per diem basis and be payable to the date of the termination.
(b)
Taking of Part
. In the event a part of the Building or the Premises is taken or
condemned by any competent authority and this lease is not terminated as provided in Section 18(a)
above, the lease shall be amended to reduce or increase, as the case may be, the Monthly Base Rent
and Tenants Proportionate Share to reflect the Rentable Area of the Premises or Building, as the
case may be, remaining after any such taking or condemnation.
40
Landlord, upon receipt and to the
extent of the award in condemnation (or proceeds of sale) shall make necessary repairs and
restorations to the Premises (exclusive of any Tenants Alterations, or any other improvements made
by or on behalf of Landlord or Tenant) and to the Building to the extent necessary to constitute
the portion of the Building not so taken or condemned as a complete architectural and economically
efficient unit. In the event that Landlord does not have sufficient proceeds to make the necessary
repairs and restorations to render the Premises and the Building a complete said architecturally
and economically efficient unit, Tenant may, within ninety (90) days following the date of such
taking, terminate this Lease upon written notice to Landlord.
(c)
Compensation
. Landlord shall be entitled to receive the entire award (or sale
proceeds) from any such taking, condemnation or sale without any payment to Tenant, and Tenant
hereby assigns to Landlord all of Tenants interest, if any, in such award; provided, however,
Tenant shall have the right separately to pursue against the condemning authority a separate award
in respect of Tenants relocation expenses and the loss, if any, to Tenant Alterations paid for by
Tenant without any credit or allowance from Landlord, so long as there is no diminution of
Landlords award as a result, and subject to the rights of any ground lessor or mortgagee of
Landlord with respect thereto.
19.
DEFAULT; LANDLORDS RIGHTS AND REMEDIES
.
(a)
Default
. The occurrence of any one or more of the following matters constitutes a
Default
by Tenant under this Lease:
(i) Failure by Tenant to pay any Rent when due, if such failure continues for ten (10)
days after written notice to Tenant of such failure;
(ii) Failure by Tenant to pay any other money required to be paid by Tenant under this
Lease when due, if such failure continues for ten (10) business days after written notice to
Tenant of such failure;
(iii) Failure by Tenant to observe or perform any of the material covenants in respect
of assignment and subletting set forth in Section 15;
(iv) Failure by Tenant to commence to cure as soon as reasonably practicable under the
circumstances, after receipt of notice from Landlord, any hazardous condition which Tenant
has created or permitted in violation of law or of this Lease;
(v) Failure by Tenant to complete, execute and deliver any estoppel certificate or
subordination agreement required to be completed, executed and delivered by Tenant pursuant
to Section 20 or Section 24 of this Lease, within the time required for such instrument or
document in accordance with such Sections;
(vi) Failure by Tenant to observe or perform any other covenant, agreement, condition
or provision of this lease, if such failure shall continue for thirty (30) days after
written notice thereof from Landlord to Tenant; provided that such 30-day period shall be
extended for the time reasonably required to complete such cure (not to exceed, in any
event, an additional 60 day period), if such failure cannot reasonably be
41
cured within said
30-day period and Tenant commences to cure such failure within the first ten (10) days after
receiving said written notice and thereafter diligently and continuously proceeds to cure
such failure;
(vii) The levy upon execution or the attachment by legal process of the leasehold
interest of Tenant, or the filing or creation of a lien in respect of such leasehold
interest, which lien shall not be released or discharged within sixty (60) days from the
date of such filing (or, in any event, such earlier date prior to final enforcement of the
same);
(viii) Tenant becomes insolvent or bankrupt or admits in writing its inability to pay
its debts as they mature, or makes an assignment for the benefit of creditors, or applies
for or consents to the appointment of a trustee or receiver for Tenant or for the major part
of its property;
(ix) A trustee or receiver is appointed for Tenant or for a major part of its property,
without Tenants application therefor or consent thereto, and is not discharged within sixty
(60) days after such appointment;
(x) Any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding,
or other proceeding for relief under any bankruptcy law or similar law for the relief of
debtors, is instituted (A) by Tenant, or (B) against Tenant and is allowed against it or is
consented to by it or is not dismissed within sixty (60) days after such institution; or
(b)
Landlords Rights and Remedies
. If a Default occurs, Landlord shall have the
rights and remedies hereinafter set forth, which shall be distinct, separate and cumulative and
shall not operate to exclude or deprive Landlord of any other right or remedy allowed it at law or
in equity:
(i) By written notice to Tenant, Landlord may terminate this Lease, in which event the
Term of this Lease shall end, and all right, title and interest of Tenant hereunder shall
expire, on the date stated in such notice;
(ii) By written notice to Tenant, Landlord may terminate the right of Tenant to
possession of the Premises without terminating this Lease, whereupon the right of Tenant to
possession of the Premises or any part thereof shall cease on the date stated in such
notice;
(iii) Landlord may enforce the provisions of this Lease and may enforce and protect the
rights of Landlord hereunder by a suit or suits in equity or at law for the specific
performance of any covenant or agreement contained herein, and for the enforcement of any
other appropriate legal or equitable remedy, including without limitation distraint for
rent, injunctive relief, recovery of all money due or to become due from Tenant under any of
the provisions of this Lease and recovery of damages incurred by Landlord by reason of the
Default; and
42
(iv) Landlord may cure or correct such Default or take steps to perform any covenant,
agreement, condition or provisions of this lease, and all costs and expenses reasonably
incurred by Landlord in so doing (including reasonable attorneys fees) shall be paid by
Tenant to Landlord as additional rent upon demand plus interest at the Default Rate (defined
in Section 28(i)) from the date of expenditure. Landlords proceeding under the rights
reserved to Landlord under this Section 19(b)(iv) shall not in any way prejudice or waive
any rights as Landlord might otherwise have against Tenant by reason of that or any other
Default. Upon any Default of Tenant under this Section 19, to the extent Landlord is
seeking damages against Tenant as a result thereof, then Landlord shall be required to use
reasonable efforts to mitigate its damages generally, as and to the extent required by
applicable Law; provided, however, Landlord shall not be deemed to have failed to mitigate
if Landlord leases any other premises in the Project before reletting all or any portion of
the Premises. Any failure by Landlord to mitigate with respect to any period of time shall
only reduce Rent and any other amount to which Landlord is entitled under this Lease by the
reasonable value of the Premises during such period.
(c)
Surrender
. If Landlord exercises any of the remedies provided for in
subparagraphs (i) and (ii) of Section 19(b), Tenant shall surrender possession of and vacate the
Premises and immediately deliver possession thereof to Landlord, and Landlord may re-enter and take
complete and peaceful possession of the Premises, with process of law, full and complete license so
to do being hereby granted to Landlord, and Landlord may remove all occupants and property
therefrom, using such force as may be necessary and legally permissible, without being deemed in
any manner guilty of trespass, eviction or forcible entry and detainer, and without relinquishing
Landlords right to Rent or any other right given to Landlord hereunder or by law or in equity.
(d)
Termination of Right of Possession
. If Landlord terminates the right of Tenant to
possession of the Premises without terminating this Lease, as provided for by subparagraph (ii) of
Section 19(b), then Landlord shall be entitled to recover from Tenant all the fixed dollar amounts
of Rent accrued and unpaid for the period up to and including such termination date, as well as all
other additional sums payable by Tenant as of such termination date, or for which Tenant is liable
or in respect of which Tenant has agreed to indemnify Landlord under any of the provisions of this
Lease, which may be then owing and unpaid as of the termination date, and all costs and expenses,
including without limitation court costs and reasonable attorneys fees and expenses incurred by
Landlord in the enforcement of its rights and remedies hereunder, and in addition, Landlord shall
be entitled to recover from Tenant from time to time, and Tenant shall remain liable for, all Rent
and all other additional sums thereafter accruing as they become due under this Lease during the
period from the date of such notice of
termination of possession to the stated end of the then current Term. In any such case,
Landlord shall use reasonable efforts as required by applicable law to relet the Premises for the
account of Tenant for such rent, for such time (which may be for a term extending beyond the Term
of this Lease), in such portions and upon such terms as Landlord in Landlords sole discretion (but
subject to Landlords reasonable mitigation obligations as may be required by applicable law) shall
determine, and Landlord shall not be required to accept any tenant offered by Tenant or to observe
any instructions given by Tenant relative to such reletting. Landlord may give priority over
leasing the Premises to any other space Landlord desires to lease in the Building and shall
43
not be
required in any case to offer rent, length of terms or other terms for the Premises which are or
would be less favorable to Landlord than being offered for comparable space of Landlord in the
Building. Also, in any such case, Landlord may make repairs, alterations and additions in or to
the Premises and redecorate the same to the extent deemed by Landlord necessary or desirable, and
in connection therewith Landlord may change the locks to the Premises, and Tenant shall upon
written demand pay the cost thereof together with Landlords expenses of reletting. Landlord may
collect the rents from any such reletting and shall apply the same first to the payment of the
expenses of reentry, redecoration, repair, alterations and reletting and second to the payment of
Rent herein provided to be paid by Tenant, and any excess or residue shall operate only as an
offsetting credit against the amount of Rent, if any, due and owing or as the same thereafter
becomes due and payable hereunder, but the use of such offsetting credit to reduce the amount of
Rent due Landlord, if any, shall not be deemed to give Tenant any right, title or interest in or to
such excess or residue, and any such excess or residue shall belong to Landlord solely; provided
that in no event shall Tenant be entitled to such a credit against Rent in excess of the aggregate
sum (including Base Rent and Additional Rent) which would have been paid by Tenant for the period
for which the credit to Tenant is being determined had no Default occurred. No such re-entry,
repossession, repairs, alterations, additions or reletting shall be construed as an eviction or
ouster of Tenant or as an election on Landlords part to terminate this Lease, unless a written
notice of such intention is given to Tenant, or shall operate to release Tenant in whole or in part
from any of Tenants obligations hereunder, and Landlord may, at any time and from time to time,
sue and recover judgment for any deficiencies from time to time remaining after the application
from time to time of the proceeds of any such reletting.
(e)
Termination of Lease
. In the event of the termination of this Lease by Landlord
as provided for by subparagraph (i) of Section 19(b), Landlord shall be entitled to recover from
Tenant all the fixed dollar amounts of Rent accrued and unpaid for the period up to and including
such termination date, as well as all other additional sums payable by Tenant, or for which Tenant
is liable or in respect of which Tenant has agreed to indemnify Landlord under any of the
provisions of this lease, which may be then owing and unpaid, and all costs and expenses, including
without limitation court costs and reasonable attorneys fees and expenses incurred by Landlord in
the enforcement of its rights and remedies hereunder, and in addition, Landlord shall be entitled
to recover an amount equal to the present value (calculated using a discount rate equal to eight
percent (8%) per annum) of the aggregate Base Rent and Additional Rent payable for the period from
the termination date stated in Landlords notice terminating this lease until the date which would
have been the Expiration Date but for such termination, less the present value (calculated using a
discount rate equal to eight percent (8%) per annum) of the fair rental value of the Premises for
the same period (which fair rental value shall be calculated so as to include a reasonable vacancy
period for reletting the Premises and deductions for reasonable expenses and inducements incurred
by Landlord to achieve such reletting, including without
limitation attorneys fees and expenses, brokerage fees, advertising costs, rent abatements,
tenant improvement allowances and the like). The rights and remedies of Landlord pursuant to this
Section 19 shall survive the termination of this lease.
(f)
Tenants Property
. All property of Tenant removed from the Premises by Landlord
or which becomes Landlords property pursuant to any provisions of this Lease or by law may be
handled, removed or stored by Landlord at the cost and expense of Tenant, and Landlord shall in no
event be responsible for the value, preservation or safekeeping thereof.
44
Tenant shall pay Landlord
for all expenses incurred by Landlord in such removal and for storage charges for such property so
long as the same shall be in Landlords possession or under Landlords control. All property not
removed from the Premises or retaken from storage by Tenant on or before the end of the Term,
however terminated, or the termination of Tenants right of possession, shall, at Landlords
option, be conclusively deemed to have been conveyed by Tenant to Landlord as by bill of sale,
without further payment or credit by Landlord to Tenant.
(g)
Waiver of Notices Not Provided for in this Lease
. Tenant expressly waives the
service of any notice of intention to terminate this Lease or to reenter the Premises (except for
any notice expressly provided for in this Lease) and waives the service of any demand for payment
of rent or for possession and waives the service of any and every other notice or demand prescribed
by any ordinance, statute or other law (except as expressly otherwise provided in this lease or as
required by applicable law) and agrees that the breach of any covenants or agreements provided in
this lease shall, in and of itself, without the service of any notice or demand whatever (except as
expressly otherwise provided in this Lease or as required by applicable law), constitute a forcible
detainer by Tenant of the Premises.
(h)
Waiver of Trial by Jury
. Landlord and Tenant hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto against the other on any
matter whatsoever arising out of or in any way connected with this lease, the relationship of
Landlord and Tenant, Tenants use of or occupancy of the Premises or any claim of injury or damage
and any emergency statutory or any other statutory remedy. If Landlord commences any summary
proceeding for non-payment of rent, Tenant will not interpose any counterclaim of whatever nature
or description in any such proceeding.
(i)
Landlord Default
. If Landlord shall fail to perform any obligation under this
Lease required to be performed by Landlord, Landlord shall not be deemed to be in default hereunder
nor subject to any claims for damages of any kind, unless such failure shall have continued for a
period of thirty (30) days after written notice thereof is received by Landlord from Tenant
(provided, if the nature of Landlords failure is such that more time is reasonably required in
order to cure, Landlord shall not be in default if Landlord commences to cure within such period
and thereafter diligently seeks to cure such failure to completion). If Landlord shall default and
fail to cure as provided herein following receipt of such notice, Tenant shall have such rights and
remedies as may be available to Tenant at law or equity, subject to the other provisions of this
Lease; provided, Tenant shall have no right of self-help to perform repairs or any other obligation
of Landlord, and shall have no right to withhold, set-off, or abate Rent, or terminate this Lease,
except as expressly provided in this Lease.
20.
RIGHTS OF MORTGAGEES AND GROUND LESSORS
.
(a)
Subordination of Lease
. Landlord represents and warrants that as of the date
hereof, (1) there is no Mortgage (as defined herein) encumbering the Land, Building or Project
other than that certain Mortgage, Security Agreement and Fixture Filing (the
Existing Mortgage
)
dated as of August 10, 2004 by and between Landlord and Wilmington Trust of Pennsylvania (the
Existing Mortgagee
); (ii) Landlord is the fee simple owner of the entire Project; and (iii) there
is no Ground Lease (as defined herein) encumbering the Land, Building or
45
Project. Landlord shall
deliver to Tenant an SNDA (as defined herein) in the form of
Exhibit J
attached hereto executed on
behalf of the Existing Mortgagee. Landlord may have heretofore or may hereafter encumber with a
mortgage or trust deed the Building, the Land, the Project, any part thereof or any interest
therein, may sell and lease back the Land, or any part of the Project, and may encumber the
leasehold estate under such a sale and leaseback arrangement with a mortgage or trust deed. (Any
such mortgage or trust deed is herein called a
Mortgage
and the holder of any such mortgage or
the beneficiary under any such trust deed is herein called a
Mortgagee
. Any such lease of the
Land or other part of the Project is herein called a
Ground Lease
and the lessor under any such
lease is herein called a
Ground Lessor
.) Provided that the Mortgagee or Ground Lessor in
question furnishes a non-disturbance agreement for the benefit of Tenant in commercially reasonable
form, this Lease and the rights of Tenant hereunder shall be and are hereby expressly made subject
to and subordinate at all times to any Mortgage and to any Ground Lease now or hereafter existing,
and to all amendments, modifications, renewals, extensions, consolidations and replacements
thereof, and to all advances made or hereafter to be made upon the security thereof. Conditioned
upon receipt of such non-disturbance agreement, Tenant agrees to execute and deliver to Landlord
such further instruments consenting to or confirming the subordination of this lease to any
Mortgage and to any Ground Lease and containing such other provisions which may be requested in
writing by Landlord within ten (10) business days after Tenants receipt of such written request.
(b)
Notice of and Opportunity to Cure Defaults
. Tenant agrees that if Landlord
defaults in the performance or observance of any covenant or condition of this lease required to be
performed or observed by Landlord hereunder, Tenant will give written notice specifying such
default by certified or registered mail, postage prepaid, to any Mortgagee or Ground Lessor of
which Tenant has been notified in writing, and before Tenant exercises any right to terminate this
lease which Tenant may have on account of any such default of Landlord, such Mortgagee or Ground
Lessor shall have an additional thirty (30) days after receipt of notice thereof within which to
cure such default (or if such default is non-in nature and cannot be cured within that time, then
such additional time as may be reasonably necessary, if, within such thirty (30) days, any
Mortgagee or Ground Lessor has commenced and is diligently pursuing the remedies necessary to cure
such default, including but not limited to commencement of foreclosure proceedings or other
proceedings to acquire possession of the mortgaged or leased estate, if necessary to effect such
cure). Such period of time shall be extended by any period within which such Mortgagee or Ground
Lessor is prevented from commencing or pursuing such foreclosure proceedings or other proceedings
to acquire possession of the mortgaged or leased estate by reason of Landlords bankruptcy.
Nothing in this Section 20(b) is intended to impair or delay Tenants right of self-help as
expressly set forth in Section 9(c) of this Lease.
(c)
Rights of Successors
. If any Mortgage is foreclosed, or Landlords interest under
this lease is conveyed or transferred in lieu of foreclosure, or if any Ground Lease is terminated:
(i) So long as no Default then exists, (x) the possession and use by Tenant of the
Premises shall not be disturbed by any suit or proceeding for the foreclosure of the
Mortgage or any deed in lieu of foreclosure, or by any termination of the Ground Lease (as
the case may be); (y) the Mortgagee, Ground Lessor or such other entity that succeeds to the
interest of Landlord hereunder shall recognize any and all of
46
Tenants rights and privileges
under this Lease and under any renewals or modifications thereof; and (z) Tenant shall not
be joined as a party to any lawsuit or other proceeding for the foreclosure of the Mortgage
or any deed in lieu of foreclosure or any other proceeding related to the Mortgage or Ground
Lease.
(ii) No person or entity which as the result of any of the foregoing has succeeded to
the interest of Landlord in this Lease (any such person or entity being hereafter called a
Successor
) shall be liable for any default by Landlord or any other matter which occurred
prior to the date such Successor succeeded to Landlords interest in this Lease (subject to
the terms of the then applicable SNDA), nor shall such Successor be bound by or subject to
any offsets or defenses which Tenant may have against Landlord or any other predecessor in
interest to such Successor.
(iii) Upon request of any Successor, Tenant will attorn to such Successor, as Landlord
under this Lease, subject to the provisions of this Section 20(c) and Section 20(e), and
will execute and deliver such instruments as may be necessary or appropriate to evidence
such attornment within twenty (20) days after receipt of a written request to do so;
provided that Tenant receives written notice that such Successor has succeeded to the
interest of Landlord.
(iv) No Successor shall be bound to recognize any prepayment by more than thirty (30)
days of Base Rent or Additional Rent.
(v) No Successor shall be bound to recognize any material amendment or material
modification of this Lease made without the written consent of the Mortgagee or Ground
Lessor (as the case may be).
(d)
Subordination of Mortgage
. Notwithstanding anything to the contrary contained
herein, any Mortgagee may subordinate, in whole or in part, its Mortgage to this Lease by sending
Tenant notice in writing subordinating all or any part of such Mortgage to this Lease, and Tenant
agrees to execute and deliver to such Mortgagee such further instruments consenting to or
confirming the subordination of all or any portion of its Mortgage to this lease and containing
such other provisions which may be reasonably requested in writing by such Mortgagee within ten
(10) business days after Tenants receipt of such written request.
(e)
Liability of Mortgagee and Ground Lessor
. Whether or not any Mortgage is
foreclosed or any Ground Lease is terminated, or any Mortgagee or Ground Lessor succeeds to any
interest of Landlord under this lease, no Mortgagee or Ground Lessor shall have
any liability to Tenant for any security deposit paid to Landlord by Tenant hereunder, unless
such security deposit has actually been received by such Mortgagee or Ground Lessor.
(f)
Requests by Mortgagee or Ground Lessor
. Should any prospective Mortgagee or
Ground Lessor require execution of a short form of this lease for recording (containing, among
other customary provisions, the names of the parties, a description of the Premises and the Term of
this lease), Tenant agrees to execute such short form of lease and deliver the same to Landlord
within ten (10) business days following the request therefor.
47
(g)
Immediate Default
. If Tenant fails within ten (10) business days after initial
written demand therefor to execute and deliver any instruments as may be necessary or proper to
effectuate any of the covenants of Tenant set forth above in this Section 20, and such failure
continues for an additional five (5) business days after a second written demand therefor, then
such failure shall be deemed an immediate Default hereunder, without further notice or cure
periods, subject to all rights and remedies of Landlord described in Section 19 hereof or otherwise
available at Law or in equity.
21.
FURNITURE
. For no additional charge, Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord those items of furniture (the Furniture) described on the inventory
list attached hereto as
Exhibit E
(the
Inventory List
), which, on the date hereof, is located
within the Premises. Landlord and Tenant acknowledge that, prior to Commencement Date the parties
will conduct a walk-through inspection of the Premises in order to confirm the completeness and
accuracy of the furniture shown on the Inventory List. Tenant accepts the Furniture in its as-is
condition and configuration, without any representation or warranty by Landlord. Landlord shall
have no obligation to replace or repair, or to pay for the cost to replace or repair, any item of
Furniture. LANDLORD SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS AND/OR WARRANTIES, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE FURNITURE. During the Term, Tenant shall maintain and repair the Furniture as
reasonably necessary, and shall insure the same along with its other personal property pursuant to
Section 22 hereof. Upon the expiration or earlier termination of this lease or contraction by
Tenant of any portion of the Premises in accordance with this lease, Tenant shall surrender the
Furniture to Landlord in the same condition and repair as on the Commencement Date, reasonable wear
and tear and damage by casualty excepted.
22.
INSURANCE AND SUBROGATION
(a)
Tenants Insurance
. Tenant shall carry insurance during the entire Term hereof
(and any earlier period during which Tenant is entitled to possession of the Premises or any
portion thereof or conducting any business or construction related activities at the Project)
insuring Tenant, and with respect to the commercial general liability insurance referenced in
clause (i) of this Section 22(a), listing as additional insureds, Landlord, Landlords constituent
members and agents (so long as Tenant receives prior written notice of such parties), any
property management company engaged by Landlord (so long as Tenant receives prior written
notice of such parties), and all Mortgagees and Ground Lessors (so long as Tenant receives prior
written notice of such parties), and their respective agents, partners and employees. Such
insurance shall be with terms and coverages, and be in companies in good standing and licensed to
do business in the State of Illinois and otherwise reasonably satisfactory to Landlord having
Bests (or equivalent) ratings of A-/VIII or higher, and with such changes in insured parties,
coverages and increase in limits as Landlord may from time to time reasonably request, which
request shall be consistent with factors such as claims history, actual changes in risk pertaining
to the Project, and the practices of prudent landlords of Comparable Buildings. Initially Tenant
shall maintain the following coverages in the following amounts:
(i) Commercial general liability insurance with the broad form commercial liability
endorsement, including contractual liability insurance covering
48
Tenants indemnity
obligations hereunder, insuring against claims for death, bodily injury, personal injury and
property damage occurring upon, in or about the Premises in an amount not less than
$1,000,000.00 per occurrence and having a general aggregate amount on a per location basis
of not less than $2,000,000.00, with umbrella liability coverage of $4,000,000.00 per
occurrence, $4,000,000.00 aggregate, dedicated for the 1000 Remington Boulevard,
Bolingbrook, Illinois location. Landlord, and any such property management company (so long
as Tenant receives prior written notice of such parties) and all Mortgagees and Ground
Lessors (so long as Tenant receives prior written notice of such parties) shall be named as
additional insureds on such policy.
(ii) Special form full replacement cost property damage insurance including fire,
sprinkler leakage, vandalism and extended coverage for the full replacement cost of all
Tenants Work, other Tenants Alterations, and all other additions, improvements and
alterations to the Premises (providing that Landlord is an additional named insured as its
interest may appear) and of all office furniture, inclusive of the Furniture, trade
fixtures, office equipment, inventory, merchandise and all other items of Tenants property
on or about the Premises, on a per location basis.
(iii) Workers Compensation in such limits as are required by applicable Laws and
Employers Liability insurance in an amount of not less than $1,000,000.00.
(iv) Such other insurance or coverage as Landlord reasonably requests; provided that
such insurance is requested by prudent landlords of Comparable Buildings.
Tenant shall, prior to the Commencement Date or such earlier date as Tenant or anyone acting
on behalf of Tenant is conducting any activity at the Project, and from time to time during the
Term (and, in any event, not less than ten days prior to the expiration of any such policy),
furnish to Landlord certificates of insurance evidencing the foregoing insurance coverage.
Tenants policies shall state that such insurance coverage may not be cancelled or not renewed
without at least thirty (30) days prior written notice to Landlord and Tenant, and shall further
provide that the policy shall not be invalidated should the insured party have waived in writing
prior to a loss, any and all rights of the insured party against any other party for losses covered
by such policy. Tenant shall have the right to provide the foregoing insurance under a master or
blanket policy of insurance covering other properties of Tenant or its affiliates provided
that an endorsement insuring segregated amounts sufficient to satisfy said insurance requirements
hereunder is provided.
So long as the net worth of Tenant is in excess of $25,000,000.00, Tenant shall have the
option to maintain self insurance for the insurance required under subsections 22(a)(ii) above so
long as such self-insurance at all times provides the coverage and limits described above and is in
compliance with all Laws pertaining to self-insurance programs. Any self-insurance shall contain
all of the terms and conditions applicable to such insurance as set forth in this Section 22. If
Tenant elects to self-insure, then with respect to any claims which may result from incidents
occurring during the Term, such self-insurance obligation shall survive the expiration of the Term
or earlier termination of this Lease to the same extent as the insurance required above would so
survive. In order to prove satisfaction of the net worth requirement set forth above,
49
Tenant shall
be required to provide audited or certified financial statements (or other evidence of net worth
reasonably satisfactory to Landlord) reasonably prior to any time at which Tenant desires to
self-insure and annually within ten (10) days after written request therefor by Landlord during the
period when Tenant is maintaining self-insurance. The right to self-insure described herein is
personal to the original named Tenant and may not be assigned or transferred to any future tenant
under this Lease. All net worth or other financial information received or reviewed by Landlord or
any representative retained by Landlord is confidential information of Tenant and will not be
disclosed by Landlord (or its agents or auditors) to any third parties, and Landlord shall require
its agents, attorneys and accountants to enter into a confidentiality agreement with Tenant
agreeing to the aforesaid confidentiality requirements. Notwithstanding anything to the contrary
contained herein, Landlord may disclose confidential information as required by deposition,
interrogatory, request for documents, subpoena or similar legal process or as otherwise required to
pursue or defend against any claims or legal proceedings.
(b)
Waiver of Subrogation
. Landlord and Tenant each agree to have all property or
physical damage insurance which it may carry endorsed with a clause providing that any release from
liability of or waiver of claim for recovery from the other party or any of the parties named in
Section 22(a) above or Released Parties described in Section 16(a) entered into in writing by the
insured thereunder prior to any loss or damage shall not affect the validity of said policy or the
right of the insured to recover thereunder. Each of Landlords and Tenants policies shall provide
further that the insurer waives all rights of subrogation which such insurer might have against
either Landlord and the Landlord Parties, or Tenant and the Tenant Parties, as applicable.
Landlord and Tenant each further agrees to first seek recovery under any applicable property or
physical insurance policy maintained by such party before proceeding against the other.
(c)
Landlords Insurance
. Landlord shall maintain: (1) commercial general liability
insurance in an amount not less than $1,000,000 per occurrence and $5,000,000 in the aggregate
covering the Building (including the Common Areas) and (2) fire and extended coverage special form
insurance covering the Building on a full replacement cost basis.
23.
NONWAIVER
. No waiver of any condition expressed in this Lease shall be implied by any
neglect of Landlord or Tenant to enforce any remedy on account of the violation of such condition,
whether or not such violation be continued or repeated subsequently, and no express waiver shall
affect any condition other than the one specified in such waiver and that one only for the time and
in the manner specifically stated. Without limiting Landlords rights under the provisions of
Section 11, it is agreed that no receipt of money by Landlord from Tenant after the termination in
any way of the Term or of Tenants right of possession hereunder or after the giving any notice
shall reinstate, continue or extend the Term or affect any notice given to Tenant prior to the
receipt of such money. It is also agreed that after the service of notice or the commencement of a
suit or after final judgment for possession of the Premises, Landlord may receive and collect any
money due, and Landlords receipt and collection of said money shall not waive or affect any said
notice, suit or judgment.
24.
ESTOPPEL CERTIFICATE
. Tenant agrees that from time to time (but no more than three
times in any twelve (12) month period), upon not less than fifteen (15) business days prior
request by Landlord, or any existing or prospective Mortgagee or Ground Lessor,
50
Tenant will, and
Tenant will cause any subtenant, licensee, concessionaire or other occupant of the Premises
claiming by, through or under Tenant, to complete, execute and deliver to Landlord or Landlords
designee or to any existing or prospective Mortgagee or Ground Lessor, a written estoppel
certificate certifying (a) that this Lease is unmodified and is in full force and effect (or if
there have been modifications, that this lease, as modified, is in full force and effect and
setting forth the modifications); (b) the amounts of the monthly installments of Base Rent and
Additional Rent Estimate then required to be paid under this Lease; (c) the date to which Rent has
been paid; (d) that to the best of Tenants knowledge, Landlord is not in default under any of the
provisions of this Lease, or if in default, the nature thereof in detail and what is required to
cure same; and (e) such other information concerning the status of this Lease or the parties
performance hereunder reasonably requested by Landlord or the party to whom such estoppel
certificate is to be addressed. Tenants failure to complete, execute and deliver such estoppel
certificate within the aforesaid 15 business day period, which failure continues for an additional
five (5) business days after a second written request from Landlord, shall be deemed to be a
Default under Section 19 of this Lease, without further notice or cure periods, giving rise to all
rights and remedies available to Landlord under said Section 19 or otherwise available at law or in
equity. Without limitation of the foregoing, Tenant hereby agrees to execute and deliver to
Landlord, concurrent with Tenants execution and delivery of this Lease to Landlord, three (3)
originals of that certain Lease Estoppel Certificate in the form of Exhibit F attached hereto.
25.
TENANT CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP AUTHORITY
. In case
Tenant is a corporation or a limited liability company, Tenant represents and warrants that this
Lease has been duly authorized, executed and delivered by and on behalf of Tenant and constitutes
the valid and binding agreement of Tenant in accordance with the terms hereof. Landlord represents
and warrants that this Lease has been duly authorized, executed and
delivered by and on behalf of Landlord and constitutes the valid and binding agreement of
Landlord in accordance with the terms hereof. Also, it is agreed that each and every present and
future individual general partner, if Tenant is a partnership, in Tenant shall be and remain at all
times jointly and severally liable hereunder, to the extent permitted by law, and that the death,
resignation or withdrawal of any such partner shall not release the liability of such partner under
the terms of this Lease unless and until Landlord shall have consented in writing to such release.
26.
REAL ESTATE BROKERS
. Tenant represents and warrants to Landlord that Tenant did not
deal with any broker in connection with this lease other than the Broker identified in Section
1(d). Landlord represents and warrants to Tenant that Landlord did not deal with any broker in
connection with this lease other than the Broker identified in Section 1(d). Landlord hereby
agrees to pay the brokerage commission payable to said Broker in accordance with a written
agreement between Landlord and such Broker. Landlord and Tenant each hereby agree to indemnify,
defend and hold the other, the others agents and their respective partners and employees, and the
Project, harmless of, from and against any and all losses, damages, liabilities, claims, liens,
costs and expenses, including without limitation court costs and reasonable attorneys fees and
expenses, arising from any claims or demands of any other broker or brokers or finders for any
commission alleged to be due such other broker or brokers or finders claiming to have dealt with
the party making such indemnification in connection with this lease or with whom the party making
such indemnification hereafter deals or whom the party making such indemnification employs.
51
27.
NOTICES
. All notices, waivers, demands, requests or other communications required or
permitted hereunder shall, unless otherwise expressly provided, be in writing and be deemed to have
been properly given, served and received (a) if delivered personally or by same-day courier
messenger, when delivered, (b) if sent by nationally required overnight courier, on the first (1st)
business day after deposit with said courier, and (c) if mailed, on the third (3rd) business day
after deposit in the United States Mail, certified or registered, postage prepaid, return receipt
requested.
|
|
|
|
|
|
|
If to Landlord:
|
|
Bolingbrook Investors, LLC
|
|
|
|
|
c/o BPG Properties, Ltd.
|
|
|
|
|
200 South Michigan Avenue
|
|
|
|
|
Suite 210
|
|
|
|
|
Chicago, Illinois 60604
|
|
|
|
|
Attention: Asset Manager
|
|
|
|
|
|
|
|
With an additional copy to:
|
|
BPG Properties, Ltd.
|
|
|
|
|
1500 Market Street
|
|
|
|
|
3000 Centre Square West
|
|
|
|
|
Philadelphia, Pennsylvania 19102
|
|
|
|
|
Attention: Loretta M. Kelly, General Counsel
|
|
|
|
If to Tenant:
|
|
Ulta Salon, Cosmetics & Fragrance, Inc.
|
|
|
|
|
Windham Lakes Business Park
|
|
|
|
|
1275 Windham Drive
|
|
|
|
|
Romeoville, IL 60446
|
|
|
|
|
|
|
|
With a copy of any notice
|
|
Wachovia Capital Finance Corporation (Central)
|
|
|
to terminate this Lease to:
|
|
150 South Wacker Drive
|
|
|
|
|
Chicago, Illinois 60606-4401
|
|
|
|
|
Attention: Portfolio Manager
|
or to such other address(es) or addressee(s) as any party entitled to receive notice hereunder
shall designate to the others in the manner provided herein for the service of notices. Rejection
or refusal to accept or inability to deliver because of changed address or because no notice of
changed address was given, shall be deemed receipt.
28.
MISCELLANEOUS
.
(a)
Successors and Assigns
. Each provision of this Lease shall extend to and shall
bind and inure to the benefit not only of Landlord and Tenant, but also their respective heirs,
legal representatives, successors and assigns, but this provision shall not operate to permit any
assignment, subletting, mortgage, lien, charge, or other transfer or encumbrance contrary to the
provisions of this Lease.
(b)
Amendment
. No modification, waiver or amendment of this Lease or of any of its
conditions or provisions shall be binding upon Landlord unless the same shall be in writing and
signed by Landlord.
52
(c)
Offer
. Submission of this instrument for examination shall not constitute a
reservation of or option for the Premises or in any manner bind Landlord, and no lease or
obligation on Landlord shall arise until this instrument is signed and delivered by Landlord and
Tenant; provided, however, the execution and delivery by Tenant of this lease to Landlord, or its
agents, shall constitute an irrevocable offer by Tenant to lease the Premises on the terms and
conditions herein contained, which offer may not be revoked for ten (10) days after such delivery.
(d)
Tenant
. The word Tenant whenever used herein shall be construed to mean Tenants
or any one or more of them in all cases where there is more than one Tenant; and the necessary
grammatical changes required to make the provisions hereof apply either to corporations or other
organizations, partnerships or other entities, or individuals, shall in all cases be assumed as
though in each case fully expressed. In all cases where there is more than one Tenant, (a) the
liability of each shall be joint and several and (b) any one person or entity comprising Tenant may
give any notice or approval required or permitted to be given by Tenant under this lease and such
notice or approval shall be deemed binding upon all persons or entities comprising Tenant and may
be relied upon by Landlord as if such notice or approval had been given by all persons or entities
comprising Tenant. Notwithstanding anything to the contrary in
this Lease, Landlord shall have no recourse personally against any member or officer of Tenant
with respect to any liability of Tenant under this Lease.
(e)
Expenses of Enforcement
. The non-prevailing party shall pay within thirty (30)
days after demand all of the reasonable costs, charges and expenses (including the court costs and
fees and out-of-pocket expenses of counsel, agents and others retained by the prevailing party)
incurred by the prevailing party in enforcing the terms of this lease, and a party shall also pay
such costs and expenses incurred by the other party in any claim, action or litigation in which
said party causes the other party without the other partys fault to become involved or concerned.
Any amount due from Tenant to Landlord pursuant to this Section shall be deemed to be additional
Rent due under this lease. A party shall be considered the prevailing party if: (i) it initiated
the litigation and substantially obtains the relief it sought, either through a judgment or the
other partys voluntary action before trial or judgment; (ii) it did not initiate the litigation,
and the other party withdraws its action without substantially obtaining the relief it sought; or
(iii) it did not, initiate the litigation, and judgment was entered for either party, but without
substantially granting the relief sought.
(f)
Exhibits and Riders
. Exhibits and riders, if any, referred to in or affixed to
this Lease are made an integral part hereof.
(g)
Approval of Plans and Specifications
. Neither review nor approval by or on behalf
of Landlord of any plans and specifications for any Tenant Alterations or any other work shall
constitute a representation or warranty by Landlord, any of Landlords constituent members, or any
of their respective agents, partners or employees, that such plans and specifications either (i)
are complete or suitable for their intended purpose, or (ii) comply with applicable Laws, it being
expressly agreed by Tenant that neither Landlord, nor any of Landlords constituent members, nor
any of their respective agents, partners or employees, assume any responsibility or liability
whatsoever to Tenant or to any other person or entity for such completeness, suitability or
compliance.
53
(h)
Time of Essence
. Time is of the essence of this lease and of each and all
provisions hereof.
(i)
Due Date; Interest
. If any installment of Monthly Base Rent or any other sum due
from Tenant pursuant to any provision of this Lease shall not be received by Landlord or Landlords
designee within five (5) business days following the due date for such installment of Monthly Base
Rent or Additional Rent, or within five (5) business days following written notice that such amount
was not paid when due for any other sums which may become due under this Lease, then Tenant shall
pay to Landlord a late charge equal to five percent (5%) of the overdue amount. The late charge
shall be deemed additional rent and the right to require it shall be in addition to all of
Landlords other rights and remedies hereunder or at law and shall not be construed as liquidated
damages or as limiting Landlords remedies in any manner. In addition to the late charge described
above, any Monthly Base Rent or Additional Rent owing hereunder which are not paid within five (5)
business days following the due date for Base Rent, or within five (5) business days following
written notice that such amount was not paid when due for any other sums which may become due under
this lease shall bear interest from the date when due until paid at the Default Rate. The term
Default Rate
means the rate of interest announced
from time to time, by Bank One, Chicago, Illinois (or any successor), as its prime rate or
corporate base rate, changing as and when such rate changes, or if such rate is no longer in
existence, then such other prime rate as may be designated by Landlord (herein, the
Prime Rate
)
plus three (3) percentage points. The provisions of this subparagraph shall in no way relieve
Tenant of the obligation to pay Rent or any other sums due hereunder on or before the date on which
payment is due, nor shall the collection by Landlord of any amount under this subparagraph impair
the ability of Landlord to collect any amount under Section 19 of this Lease. Notwithstanding
anything to the contrary set forth in this Section 28(i), the first time in any 12 month period
that Tenant fails to pay Rent when due, no late charge or interest shall be charged unless such
failure continues for ten (10) days after written notice thereof from Landlord.
(j)
Interpretation
. The invalidity of any provision of this Lease shall not, to the
extent commercially reasonable, impair or affect in any manner the validity, enforceability or
effect of the rest of this Lease.
(k)
Force Majeure
. Without limiting or being limited by the provisions of Section 8
or Section 13, or any of the other provisions of this Lease, if either party fails to perform
timely any of the terms, covenants or conditions of this Lease on its part to be performed, and
such failure is due in whole or in part to any strike, lockout, labor trouble, civil disorder,
riot, insurrection, act of terrorism, war, accident, fire or other casualty, adverse weather
condition, act of God, governmental inaction, restrictive governmental law or regulation, inability
to procure materials, electricity, gas, other fuel or water or other utilities at the Building
after reasonable effort to do so, act or event caused directly or indirectly by or by default of
the other party or any of the other partys employees, agents, licensees, invitees or contractors,
concealed subsurface condition not reasonably anticipated from test results obtained prior to
commencement of work or any cause beyond the reasonable control of the first party, then the time
to perform the term, covenant or condition in question shall be extended on a day-for-day basis for
the period of the delay caused by such event; provided, however, that the party claiming the
benefit of this Section 28(k) shall, as a condition thereto, give notice to the other party in
54
writing within ten (10) business days of the incident specifying with particularity the nature
thereof, the reason therefor, the date and time such incident occurred and a reasonable estimate of
the period that such incident will delay the fulfillment of said term, covenant or condition.
Failure to give such notice within the specified time shall render such delay invalid in extending
the time for performing the subject term, covenant or condition. This Section shall not apply to
(i) the inability to pay any sum of money due hereunder or the failure to perform any other
obligation due to the lack of money or inability to raise capital or borrow for any purpose, or
(ii) extend the Commencement Date, except and to the extent that the force majeure event is a fire
or other casualty not caused by any of the Tenant Parties.
(l)
Cumulative Remedies; Illinois Law
. The rights and remedies of Landlord and Tenant
under this Lease are cumulative and none shall exclude any other rights or remedies allowed by law
or equity. This Lease is for the lease of space in a building located in the State of Illinois and
is declared to be an Illinois contract, and all of its terms shall be construed according to the
laws of the State of Illinois.
(m)
Counterparts
. This Lease may be simultaneously executed in several counterparts,
each of which shall be an original and all of which shall constitute but one and the same
instrument.
(n)
Relationship
. Landlord and Tenant disclaim any intention to create a joint
venture, partnership or agency relationship.
(o)
Action on Behalf of Landlord or Tenant
. Any service which may be provided by
Landlord under this Lease may be provided by Landlord, j any of its constituent members, or any
agent or contractor of any of them, and the cost to Landlord of any such agent or contractor shall
be included in any charge to Tenant for such service. Except as provided in the following
sentence, any right reserved to Landlord under this Lease may be exercised by Landlord, any of its
constituent members, or any agent, contractor or designee of any of them (provided that, except for
certain indemnities in favor of such parties as expressly described in this Lease, no such party,
other than Landlord, shall be deemed a third party beneficiary of the Lease for purposes of
bringing an enforcement action against Tenant). Any notice, demand, consent or approval which may
be given by Landlord under this Lease may be given only by Landlord, any constituent owner of
Landlord, or any agent or attorney of any of them. Any notice, demand, consent or approval which
may be given by Tenant under this Lease may be given only by Tenant, any constituent owner of
Tenant, or any agent or attorney of any of them.
(p)
Entire Agreement
. This Lease contains the entire agreement between Landlord, and
Tenant with respect to its subject matter, and all negotiations, considerations, representations,
understandings and agreements, oral or written, which may have been previously made between any of
the foregoing parties are incorporated and merged into this Lease. In executing and delivering
this Lease, Tenant has not relied on any representation, warranty or statement by Landlord, any of
Landlords constituent members, or any of their respective agents, partners or employees, which is
not set forth in this Lease, including without limitation any representation as to the amount of
any Additional Rent, or any component thereof, or any representation that Landlord is furnishing
the same services to other tenants, at all, on the same level or on the same basis.
55
(q)
Financial Statements
. At Landlords request given at any time that (i) Tenant is
in Default, (ii) Tenant is seeking to assign this Lease or sublease the Premises, (iii) Tenant is
expanding the Premises, or (iv) Landlord is selling or refinancing the Project, Tenant shall
deliver to Landlord, within ten (10) days after written request by Landlord, Tenants most recent
then available quarterly financial statements and any more recent financial statements then
available, including balance sheets and income statements. All such financial statements shall be
certified by the chief financial officer of Tenant as being true, accurate and complete in all
material respects. Landlord shall not disclose such financial information to any third party other
than its lenders, partners, members, agents, consultants, advisors, attorneys and accountants
(provided that, in any such case, any such persons and entities are advised of the obligation not
to disclose such information and agree not to so disclose such information) or as may be otherwise
required by a government or governmental agency or pursuant to court order or to enforce Landlords
rights hereunder.
(r)
Landlord Right to Perform Tenants Duties
. If Tenant fails to timely perform any
of its duties under this Lease, then Landlord shall have the right (but not the obligation), upon
reasonable prior written notice to Tenant (except that no such notice shall be required in the case
of an emergency) and Tenants failure to promptly take action to remedy such failure within a
reasonable time under the circumstances, and without limiting any other rights or remedies
available to Landlord, to perform such duty on behalf and at the expense of Tenant without further
notice to Tenant, and all sums expended or expenses incurred by Landlord in performing such duty,
together with interest thereon at the Default Rate accruing from and after the time so expended or
incurred by Landlord until repaid by Tenant, shall be deemed to be additional Rent under this lease
and shall be due and payable upon demand by Landlord. Any specific notice and cure period set
forth elsewhere in this Lease shall govern and control over the reasonable time under the
circumstances language set forth in this Section 28(r).
(s)
Public Safety
. Notwithstanding anything contained in this Lease to the contrary,
Tenant and all persons within the Premises or within or under Tenants control shall comply with
any and all orders and directives that may be given by Landlord (or its agents, including for these
purposes only, building management and lobby attendants) to Tenant in connection with Landlords
reasonable, good faith belief that there exists an emergency or other safety concerns which affect
the Building and/or the Premises. Such orders and directives may require, among other things, for
Tenant and its agents, employees, contractors and those under Tenants control, to vacate the
Premises and/or the Building, and/or not enter or re-enter the Premises and/or the Building.
Without limiting the foregoing: (a) Tenant shall designate, in writing, a person or persons who
shall serve as its emergency contact for purposes of this Section; (b) notices and directives under
this Section may be given orally or in writing or by any other reasonable means (including, if
applicable, the public address system of the Building); (c) if so directed by Landlord or its
agents, all persons within the Premises and persons outside the Premises and within Tenants
control shall immediately vacate the Building and/or not enter or re-enter the Premises and/or the
Building in accordance with Landlords direction; (d) Landlord shall have the right with or without
advance notice to Tenant to conduct a reasonable number of fire drills in any calendar year, and
Tenant shall comply with the direction given by Landlord or its agents in connection with such
fire drills as if a real emergency existed; (e) Tenants failure to comply with the provisions of
this Section shall
56
constitute a default under this lease; and (f) without limiting Landlords rights and remedies
in connection with Tenants obligations under this Section, (i) Tenant shall indemnify, defend
(with counsel reasonably acceptable to Landlord) and hold harmless Landlord and Landlords agents,
employees, contractors, officers, directors and partners from and against any and all loss, claim,
expense, suit, damage, injury and/or liability (including reasonable attorneys fees and court
costs) which arise out of or in connection with any failure by Tenant or any person within the
Premises or within Tenants control to comply with the provisions of this Section, and (ii) Tenant
on its behalf and on behalf of its employees, officers, directors and partners waives and releases
Landlord and Landlords agents, employees, contractors, officers, directors and partners from and
against any and all claims expenses, suits, damages, injuries and/or liabilities (including,
without limitation, reasonable attorneys fees and court costs) that arise out of any actions by
Landlord in connection with enforcement of this Section or the failure by Tenant to comply with
this Section.
(t)
Notice to Tenant
. Wherever under this Lease oral notice is permitted to be given
by Landlord to Tenant, said notice shall be given by means of a personal visit or a telephone call
to Director of Loss Prevention (initially Dominick K. Archer) (Telephone no.:
{Tenant shall
provide such number to Landlord as soon as it is available}
, which person and number may be changed
by Tenant at any time during the Term upon prior written notice to Landlord and the property
manager for the Project.
29.
RIGHT OF FIRST REFUSAL
. Landlord hereby grants to Tenant a one-time option to lease,
upon the terms and conditions hereinafter set forth, leasable space in the High Bay area shown on
the Floor Plan of Building attached hereto as Exhibit A (the
Refusal Space
) which becomes
available for leasing (as determined in accordance with subsection (i) below) and which may be
first floor or second floor space or a combination thereof.
(i) A portion of the Refusal Space shall be deemed to be available for leasing upon
the occurrence of all of the following events:
(A) such portion of the Refusal Space is not the subject of an Existing Lease (as hereinafter
defined);
(B) one (1) year prior to the expiration of an Existing Lease of such portion of the Refusal
Space, if such portion of the Refusal Space is not then subject to a right or option to lease such
space granted in another Existing Lease;
(C) if such portion of the Refusal Space is subject to a right or option granted in an
Existing Lease (whether to extend/renew or to expand), all of which rights or options are not
exercised, the expiration of the last of such unexercised right or option; and
(D) if such portion of the Refusal Space is subject to a right or option granted in an
Existing Lease, which right or option is exercised, the expiration of the term of such Existing
Lease or any later date upon which the term of the demise of such portion of the Refusal Space
created by the exercise of such right or option expires (including any renewals or extensions
thereof granted in such Existing Lease).
57
(ii) At such time as Landlord has submitted a lease proposal to a third party
prospective tenant or received a lease proposal from a third party prospective tenant, in
either case, which proposal sets forth the basic material terms of a lease for any portion
of the Refusal Space which is or will be available for leasing, Landlord shall give Tenant a
written notice (the
Refusal Notice
) setting forth (i) the location, (ii) the net rentable
area, (iii) the availability date (the
Refusal Space Commencement Date
), (iv) the rental
rate, and (v) the other agreed upon economic terms with respect to such Refusal Space. The
Refusal Space Commencement Date shall not be less than thirty (30) business days after the
date such notice is given by Landlord.
(iii) Tenants right to lease such portion of the Refusal Space on the terms described
in the applicable Offer Notice shall be exercisable by ;written notice (the Acceptance
Notice) from Tenant to Landlord given not later than ten (10) business days after the Offer
Notice is delivered, time being of the essence. If such right is not so exercised, Tenants
right of first refusal shall thereupon terminate as to such portion of the Refusal Space
described in the Refusal Notice, and Landlord may thereafter rent all or any part of such
portion of the Refusal Space described in the Refusal Notice without further notice to
Tenant and free of any right of Tenant. Tenant may not elect to lease less than the entire
area of the Refusal Space described in the Refusal Notice.
(iv) Tenant may only exercise its right to lease a portion of the Refusal Space, and an
exercise thereof shall only be effective, if at the time of Tenants exercise of said right
and on the applicable Refusal Space Commencement Date, this ;Lease is in full force and
effect and no uncured Default by Tenant, and, inasmuch as this right of first offer is
intended only for the benefit of the original Tenant named in this Lease, the entire
Premises are then occupied by Ulta Salon, Cosmetics & Fragrance, Inc. or a Tenant Affiliate,
and Ulta Salon, Cosmetics & Fragrance, Inc. has not assigned this Lease or sublet any
portion of the Premises, other than to a Tenant Affiliate pursuant to one or more
assignments and/or subleases in effect as of the time Tenant gives an Acceptance Notice or
on the Refusal Space Commencement Date, as the case may be. Notwithstanding anything herein
to the contrary, Landlord shall have the right, at its election, to waive any of the
conditions precedent to Tenants valid exercise of its rights under this Section 29, as such
conditions are described in this Section 29, whereupon Tenants prior exercise of such
renewal rights shall be valid and in full force and effect in all respects. Any such waiver
by Landlord must be in writing in order to be effective for purposes of the preceding
sentence. Without limitation of the foregoing, no sublessee or assignee, other than a
Tenant Affiliate, shall be entitled to exercise any right hereunder and no exercise of any
right hereunder, by Ulta Salon, Cosmetics & Fragrance, Inc. shall be effective in the event
said Tenant assigns this lease or subleases all or part of the Premises prior to the
applicable Refusal Space Commencement Date, other than to a Tenant Affiliate.
(v) If Tenant has validly exercised its right to lease the Refusal Space in question,
then, effective as of the applicable Refusal Space Commencement Date, such Refusal Space
shall be included in the Premises, subject to all of the terms, conditions and provisions of
this lease except that:
58
(A) the rent per square foot of net rentable area for such Refusal Space shall be equal to the
rental rate quoted by Landlord to Tenant in the Refusal Notice;
(B) the net rentable area of the Premises shall be increased by the net rentable area of such
portion of the Refusal Space and such rentable area of the Premises as increased shall be utilized
in calculating the increases in Tenants Proportionate Share;
(C) the term of the demise covering such portion of the Refusal Space shall commence on the
applicable Refusal Space Commencement Date and shall expire simultaneously with the expiration or
earlier termination of the Term (subject to any rights which Tenant has to extend the Term); and
(D) the Refusal Space shall be rented in its as is condition as of the applicable Refusal
Space Commencement Date.
(vi) If Tenant has validly exercised its right to lease all or any portion of the
Refusal Space in accordance with the terms hereof, Landlord and Tenant shall enter into a
written amendment to this Lease confirming the terms, conditions and provisions applicable
to such portion of the Refusal Space as determined in accordance herewith.
(vii) In the event Landlord is unable to deliver to Tenant possession of any portion of
the Refusal Space on or before the applicable Refusal Space Commencement Date for any reason
whatsoever, Landlord shall not be subject to any liability for such failure to deliver
possession. Such failure to deliver possession shall not affect either the validity of this
Lease or the obligations of either Landlord or Tenant hereunder or be construed to extend
the expiration of the Term of this Lease either as to such portion of the Refusal Space or
the balance of the Premises; provided, however, that under such circumstances, rent shall
not commence as to such portion of the Refusal Space until Landlord does so deliver
possession to Tenant.
(viii) In the event any portion of the Refusal Space is leased to Tenant other than
pursuant to the right of first offer described herein, such portion of the Refusal Space
shall thereupon be deleted from the Refusal Space.
(ix) As used herein, the following terms shall have the following meanings:
The term
Existing Lease
shall mean a lease (other than this Lease) of any space in the Building
in effect as of the date hereof (including extensions and renewals thereof pursuant to options
granted therein), whether or not the term of such lease has yet commenced. In the event two leases
are in effect for any portion of the Refusal Space (for example, the term of a lease which is now
in effect for a portion of the Refusal Space will soon expire, and another lease covering part or
all of such space has already been executed with a new tenant for a term commencing after the
expiration of the term of the former lease), only one of such leases shall be an Existing Lease.
In such case, the Existing Lease shall be determined by comparing the dates
59
upon which the respective terms of such two leases end, and the lease with the later expiration
date shall be deemed to be the Existing Lease and the other lease shall be disregarded;
30.
RENEWAL OPTION
. Subject to the terms and conditions set forth in this Section 30,
Landlord grants to Tenant the right and option to renew this Lease (the
Renewal Option
) for one
(1) option period of five (5) years (the
Renewal Period
). The Renewal Period shall commence on
the day immediately following the Initial Term (the
Renewal Period Commencement Date
), and end
five (5) Lease Years thereafter, unless this lease is earlier terminated or further renewed as
provided in this lease.
(a)
Right to Renew
. The Renewal Option shall be exercisable by written notice (a
Renewal Notice
) from Tenant to Landlord of Tenants election to exercise said Renewal Option
given by Tenant to Landlord not later than two hundred seventy (270) days prior to the Renewal
Period Commencement Date, time being of the essence. If such Renewal Option is not so exercised,
said Renewal Option shall expire.
(b)
Conditions to Exercise
. Tenant may only exercise the Renewal Option, and an
exercise thereof shall only be effective, if, at the time Tenant gives a Renewal Notice, and on the
Renewal Period Commencement Date, this Lease is in full force and effect, and Tenant is not in
Default under this Lease, and (inasmuch as said option is intended only for the benefit of the
original Tenant named in this Lease or a Tenant Affiliate), as of the time of Tenants exercise of
said right and as of the Renewal Period Commencement Date, the Premises are occupied by Ulta Salon,
Cosmetics & Fragrance, Inc. or a Tenant Affiliate, and Ulta Salon, Cosmetics & Fragrance, Inc. or
Tenant Affiliate has not assigned this Lease (other than to a Tenant Affiliate) or sublet the
Premises (other than to a Tenant Affiliate) pursuant to one or more assignments and/or subleases in
effect as of either such dates. Without limitation of the foregoing, no sublessee or assignee
(other than a Tenant Affiliate) shall be entitled to exercise the Renewal Option under this Section
30, and no exercise of said option by Ulta Salon, Cosmetics & Fragrance, Inc. or by a Tenant
Affiliate shall be effective, in the event Ulta Salon, Cosmetics & Fragrance, Inc. or Tenant
Affiliate has assigned this lease (other than to a Tenant Affiliate), or subleased the Premises
(other than to a Tenant Affiliate) pursuant to one or more assignments and/or subleases in effect
as of the time Tenant gives a Renewal Notice or as of the subject Renewal Period Commencement Date.
Notwithstanding anything herein to the contrary, Landlord shall have the right, at its election,
to waive any of the conditions precedent to Tenants valid exercise of its renewal rights under
this Section 30, as such conditions are described in this Section 30(b), whereupon Tenants prior
exercise of such renewal rights shall be valid and in full force and effect in all respects. Any
such waiver by Landlord must be in writing in order to be effective for purposes of the preceding
sentence.
(c)
Base Rent During Renewal Period
. Base Rent per square foot of Rentable Area of
the Premises payable during the first Lease Year of the Renewal Period shall be $28.00 per square
foot with respect to all space included in the Premises as of the Renewal Period Commencement Date,
and shall escalate annually at the rate of $0.50 per Lease Year. The Base Year for the Renewal
Period shall be the calendar year in which the Renewal Period commences.
60
(d)
Written Amendment
. If Tenant has validly exercised said option, within thirty
(30) days after determination of the Market Rate of Base Rent, Landlord and Tenant shall enter into
a written amendment to this Lease confirming the terms, conditions and provisions applicable to the
Renewal Period as determined in accordance herewith, with such revisions to the rental provisions
of this lease as may be necessary to conform such provisions to the Market Rate of Base Rent.
(e)
No Further Revisions
. Tenant shall have no right to renew or extend the Term of
this lease beyond the expiration of the Renewal Period.
31.
SIGNAGE
. Tenant shall have the signage rights described below for so long as Tenant
is not in Default under the terms of this Lease and, with respect to the Tenant Exterior Building
Signage (as defined below), for so long as Ulta Salon, Cosmetics & Fragrance, Inc. leases and
occupies no less than 80,000 rentable square feet and has not assigned this Lease or sublet any
portion of the Premises (provided that Tenant shall have the right to install the Tenant Exterior
Building Signage for the period between the Commencement Date and the Phase III Commencement Date
notwithstanding that Tenant will not be leasing and occupying at least 80,000 square feet during
that period). The rights set forth in this Section 31 are personal to Ulta Salon, Cosmetics &
Fragrance, Inc. and may not be assigned to any other party.
(a)
Exterior Building Signage
. Tenant shall have the non-exclusive right to install
its corporate identity signage on the exterior of the Building in the location set forth on
Exhibit
L
(the
Tenant Exterior Building Signage
). The size, type, color, material composition and
location of the Tenant Exterior Building Signage shall comply with all applicable governmental
signage requirements and shall be subject to Landlords prior written approval, not to be
unreasonably withheld or delayed; provided, however, that Landlord hereby approves the Tenant
Exterior Building Signage in substantially the form attached hereto and made a part hereof as
Exhibit L
to the extent of the actual detail shown on
Exhibit L
. It shall be Tenants
responsibility to obtain all required governmental approvals for the Tenant Exterior Building
Signage. Tenant shall, at its own expense, have the right to change or replace the Tenant Exterior
Building Signage at any time or from time to time during the Term so long as such change in its
signage is in compliance with all applicable Laws, and subject to Landlords prior written
approval, not to be unreasonably withheld or delayed. Tenant shall be solely responsible, at
Tenants sole cost, for installing, maintaining and repairing the Tenant Exterior Building Signage
and, upon expiration of the Term or earlier termination of this Lease, or at such time occurring
after the Phase III Commencement Date as Ulta Salon, Cosmetics & Fragrance, Inc. is not leasing and
occupying 80,000 rentable square feet in the Building, Tenant shall, at Tenants cost, remove all
Tenant Exterior Building Signage from the Building and restore the exterior of the Building to
substantially the same condition as existed prior to the installation of the Tenant Exterior
Building Signage. If Tenant fails to remove such Tenant Exterior Building Signage at any of such
times, then Landlord may do so upon thirty (30) days prior written notice thereof and charge Tenant
for the reasonable costs thereof which shall be due and payable within thirty (30) days after
request therefor.
(b)
Lobby Signage
. Tenant, at Tenants sole cost and expense, shall have the
exclusive right from time to time during the Term to install, change and replace such signage as
Tenant shall desire in the Lobby (collectively, the
Tenant Lobby Signage
) so long as such
61
Tenant Lobby Signage complies with all applicable Laws and subject to Landlords prior written approval,
not to be unreasonably withheld or delayed; provided, however, that notwithstanding the foregoing,
Landlord hereby approves of and agrees that Tenant shall have the right to install the following
signage in the Lobby: (i) the signage in substantially the form attached hereto and made a part
hereof as
Exhibit M
to the extent of the actual detail shown on Exhibit M (the
North Wall
Signage
), which North Wall Signage shall contain pinned letters and have a height of no more
than two feet (2) and a length of no more than five feet (5) and shall be located on the north
wall of the lobby in a location mutually acceptable to both Landlord and Tenant (which location the
parties agree shall either be in the center of the north wall or to one side of the North Wall
Glass Doors (as defined herein) (in the event Tenant elects to install such North Wall Glass
Doors); and (ii) silk screen letters on the South Wall Glass Door (as defined herein) identifying
Tenants name and its conference room entrance, in such location, font and size as reasonably
acceptable to the parties. Tenant shall be solely responsible, at Tenants sole cost, for
installing, maintaining and repairing the Tenant Lobby Signage and, upon expiration of the Term or
earlier termination of this Lease, or at such time as Ulta Salon, Cosmetics & Fragrance, Inc. is
not leasing and fully occupying the Phase I Premises, Tenant shall, at Tenants cost, remove all
Tenant Lobby Signage from the Lobby and restore the Lobby to substantially the same condition as
existed prior to the installation of the Tenant Lobby Signage. If Tenant fails to remove such
Tenant Lobby Signage at any of such times, then Landlord may do so upon thirty (30) days prior
written notice thereof and charge Tenant for the reasonable costs thereof which shall be due and
payable within thirty (30) days after request therefor.
(c)
Interior Premises Signage
. Tenant, at Tenants sole cost and expense, shall have
the exclusive right from time to time during the Term of this Lease to install, change and replace
such signage as Tenant shall desire in the interior of the Premises (including, without limitation,
any suite number or other tenant signage on the interior and exterior of the vestibule doors
leading to the Premises) (collectively, the
Tenant Interior Signage
) so long as such Tenant
Interior Signage complies with all applicable Laws and, with respect to any signage visible from
the exterior of the Premises, such signage has been approved in writing by Landlord, such approval
not to be unreasonably withheld or delayed. Tenant shall be solely responsible, at Tenants sole
cost, for installing, maintaining and repairing the Tenant Interior Signage and, upon expiration of
the Term or earlier termination of this Lease, Tenant shall, at Tenants cost, remove all Tenant
Interior Signage from the Premises and restore the Premises to substantially the same condition as
existed prior to the installation of the Tenant Interior Signage. If Tenant fails to remove such
Tenant Interior Signage as of the expiration of the Term, then Landlord may do so upon thirty (30)
days prior written notice thereof and charge Tenant for the reasonable costs thereof which shall be
due and payable within thirty (30) days after request therefor.
(d)
Monument Signage
. Tenant shall have the right to be identified with a sign panel
(Tenant Sign Panel) on the existing monument sign located within the Project (the Monument
Sign). The Tenant Sign Panel shall be in the Building standard size, color and font. Landlord
shall cause the Tenant Sign Panel to be fabricated and installed at Tenants cost,
provided that Tenant shall approve such cost in advance. If Tenant approves said cost, the
Tenant Sign Panel shall be installed on the Monument Sign prior to September 1, 2007.
62
For purposes of Lease interpretation, this Section 31 governs and controls over any other signage
provisions in this Lease which may be inconsistent with the specific provisions of this Section 31.
32.
LANDLORD
. The term Landlord as used in this Lease means only the owner of
Landlords interest in the Project from time to time. In the event of any assignment, conveyance
or sale, once or successively, of Landlords interest in the Project or any assignment of this
Lease by Landlord, said Landlord making such assignment, conveyance or sale shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord hereunder accruing after
such assignment, conveyance or sale, and Tenant agrees to look solely to such assignee, grantee or
purchaser with respect thereto provided that Tenant is given written notice of said assignment,
conveyance or sale. The holder of a Mortgage (or assignment in connection with a Mortgage) shall
not be deemed such an assignee, grantee or purchaser under this Section 31 unless and until the
foreclosure of the Mortgage or the conveyance or transfer of Landlords interest under this lease
in lieu of foreclosure, and then subject to the provisions of Section 20. This Lease shall not be
affected by any such assignment, conveyance or sale, and Tenant agrees to attorn to the assignee,
grantee or purchaser provided that Tenant is given written notice of said assignment, conveyance or
sale.
33.
TITLE AND COVENANT AGAINST LIENS
. Landlords title is and always shall be paramount
to the title of Tenant, and nothing in this lease contained shall empower Tenant to do any act
which can, shall or may encumber the title of Landlord. Tenant has no authority or power to cause
or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant,
operation of law or otherwise, to attach to or be placed upon Landlords title or interest in the
Premises or any part of the Project, and any and all liens and encumbrances created by Tenant shall
attach to Tenants interest only.
34.
COVENANT OF QUIET ENJOYMENT
. Landlord agrees that so long as Tenant is not in default
beyond any applicable notice and cure periods, that Tenant shall peaceably and quietly have, hold
and enjoy the Premises (including, without limitation, the non-exclusive right to use the Common
Areas and the rights set forth in this Lease to use the Lobby, Receiving Docks, Cafeteria, Building
Conference Room and Auditorium), subject to the terms, covenants, conditions, provisions and
agreements of this Lease, free from hindrance by Landlord or any person claiming by, through or
under Landlord.
35.
EXCULPATORY PROVISIONS
. The liability of any Landlord under this Lease or any
amendment to this lease, or any instrument or document executed in connection with this Lease,
shall be limited to and enforceable solely against the assets of such Landlord constituting an
interest in the Land or Building and not other assets of such Landlord. Assets of a Landlord which
is a partnership or limited liability company do not include the assets of the partners or members of such
Landlord, and any negative capital account of a partner or member in a partnership or limited
liability company which is a Landlord, and any obligation of a partner or member to contribute
capital to the partnership or limited liability company which is Landlord, shall not be deemed to
be assets of the partnership or limited liability company which is the Landlord. No directors,
officers, employees, managers, members, or shareholders of any corporation or limited liability
company which is Landlord shall have any personal liability arising from or in connection with this
Lease. At any time during which Landlord is trustee of a
63
land trust, all of the representations, warranties, covenants and conditions to be performed by it under this Lease or any documents or
instruments executed in connection with this Lease are undertaken solely as trustee, as aforesaid,
and not individually, and no personal liability shall be asserted or be enforceable against it or
any of the beneficiaries under said trust agreement by reason of any of the representations,
warranties, covenants or conditions contained in this lease or any documents or instruments
executed in connection with this Lease.
36.
PARKING
. Landlord agrees that, throughout the Term, there shall be available to
Tenant parking spaces in the Building parking areas in number corresponding to the ratio of four
(4) spaces for each 1,000 square feet of Rentable Area leased by Tenant, which spaces shall be
available to Tenant in accordance with Landlords direction on a non-exclusive, unreserved,
first-come, first-served basis, without any separate rent or other fees for such spaces. Landlord
agrees that, as of the Commencement Date, such Building parking areas contain at least 1,726
parking spaces, including 40 parking spaces designated as handicapped accessible. Landlord
specifically reserves the right to make reasonable changes to the size, configuration, design,
layout and all other aspects of the Project parking areas and improvements at any time, and Tenant
acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without
any abatement of Rent under this lease, from time to time, temporarily close-off or restrict access
to portions of the Project parking areas for purposes of permitting or facilitating any such
construction, alteration or improvements. Landlord may delegate its responsibilities hereunder to
a parking operator in which case such parking operator shall have all the rights of parking area
control attributed hereby to the Landlord. Notwithstanding anything contained herein, Tenant and
Tenants employees use of such parking spaces shall not exceed the number corresponding to the
ratio of four (4) spaces for each 1,000 square feet of Rentable Area leased by Tenant at any given
time during the Term.
37.
CERTAIN COMMON AREAS
. Tenant has been granted certain rights under this Lease with
respect to certain Common Areas within the Project, including the Lobby, the Receiving Docks, the
Cafeteria, the Auditorium and the Building Conference Room, all of which areas (other than the
Receiving Dock) are shown on Exhibit A attached to this Lease. Tenant shall be entitled to shared
exclusive use of the Lobby, together with one other tenant of the Building; provided, however, that
Tenant shall have the exclusive right to use the reception desk located in the Lobby and to have
Tenants personnel occupy said reception desk; provided, however, that Landlord shall at all times
retain the right to have Building personnel (e.g., security guard, property management employee)
stationed at the reception desk. Tenant acknowledges that it has been advised by
Landlord that it is Landlords intention to relocate the Receiving Docks within approximately
twelve to eighteen months after the date of this Lease. Tenant will at all times have access from
the Premises to the Receiving Docks internally through the Building. Landlord is responsible for
the maintenance of the Receiving Docks. With respect to the Auditorium and the Building Conference
Room, such areas are for the non-exclusive use of all Building tenants and may be reserved on a
first come-first served basis in the Building management office for no more than one day per
reservation. The charge for use of the Auditorium, as of the date of this Lease, is $125 per use.
The charge for use of the Building Conference Room, as of the date of this Lease, is $50 per use.
Such charges are subject to change from time to time during the Term. Notwithstanding the
foregoing, Tenant shall not be charged for the use of the Building Conference Room for the first
Lease Year. The Cafeteria will be open and operational by January 1, 2008. The hours for the
Cafeteria will be 7:30 A.M.
64
to 2:30 P.M. Monday through Friday. The Cafeteria will have a separate
exhaust system and Landlord will use reasonable efforts to prevent Cafeteria odors from entering
the Lobby or the Premises. Landlord shall have the right to relocate all or any of the Receiving
Docks, the Cafeteria, the Auditorium and the Building Conference Room to other areas in the
Building provided that any such new Common Area shall be substantially comparable to the
substituted area and Tenants rights of access and use of such Common Areas as described in this
Lease shall not be materially modified or impaired.
In addition to the Building Conference Room, there are small conference rooms located on the
second floor of the Building. Tenant shall be entitled to the nonexclusive use of these conference
rooms, for the Building standard charge in effect from time to time, but which charge shall be
abated as to Tenant during the first and second Lease Years. With respect to any use of such
second floor conference rooms, Tenant shall be responsible for cleaning each such room after its
use by Tenant. As of the Phase III Commencement Date, all of said second floor conference rooms
located within the Premises shall be deemed part of the Premises and shall be for Tenants
exclusive use.
Tenant shall have the right, at Tenants sole cost and expense, to install a wireless network
system in the Auditorium and Cafeteria. Any such system shall be installed only in accordance with
plans and specifications previously approved in writing by Landlord, such approval not to be
unreasonably withheld. All installation, operation, maintenance and repair of such system shall be
performed by Tenant in compliance with all applicable Laws. Tenant shall pay all taxes and other
fees or charges that may be payable with respect to the installation and operation of such system
(exclusive of any charges imposed on individual users of such system).
Tenant shall at all times have access to the Receiving Dock by means of a corridor which
satisfied the requirements of all applicable codes with respect to height and width and which, in
any event, will be of reasonable height and width.
[Signature Page Follows]
65
IN WITNESS WHEREOF,
the parties have caused this Lease to be executed as of the date first
written above.
|
|
|
|
|
|
|
|
|
LANDLORD:
|
|
|
|
TENANT:
|
|
|
|
|
|
|
|
|
|
|
|
BOLINGBROOK INVESTORS, LLC,
an Illinois limited liability company
|
|
|
|
ULTA SALON, COSMETIC & FRAGRANCE, INC.,
a Delaware
corporation
|
|
|
|
|
|
|
|
|
|
|
|
By: /s/ Joseph I. Neverauskas
|
|
|
|
By:
|
|
/s/ Alex J. Lelli, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
Name: Joseph I. Neverauskas
|
|
|
|
|
|
Alex J. Lelli, Jr.
|
|
|
|
|
|
|
|
|
Senior Vice President,
|
|
|
Its: Senior Vice President
|
|
|
|
|
|
Growth & Development
|
|
|
EXHIBIT A
FLOOR PLAN OF BUILDING
EXHIBIT A-1
SITE PLAN OF PROJECT
EXHIBIT B
WORKLETTER
THIS WORKLETTER AGREEMENT
(
Workletter
) is hereby incorporated as part of that certain Office
Lease (
Lease
) made and entered into by and between
BOLINGBROOK INVESTORS, LLC
, an Illinois
limited liability company (
Landlord
), and
ULTA SALON, COSMETICS & FRAGRANCE, INC,
a Delaware
corporation (
Tenant
), for certain leased premises at the Building described below.
WITNESSETH
:
WHEREAS
, Landlord and Tenant are hereby entering into the above-described Lease to which this
Workletter is being attached, which lease demises certain Premises (as defined in the Lease; all
capitalized terms used but not otherwise defined herein shall have the meaning as set forth in the
Lease) in the office building known as 1000 Remington Boulevard, Bolingbrook, Illinois (the
Building); and
WHEREAS
, certain tenant improvement work is to be completed on the Premises and Tenant is
initially leasing the Phase I Premises and Tenant is leasing the Phase II Premises and the Phase
III Premises at later dates;
NOW, THEREFORE
, for and in consideration of the agreement to lease the Premises and pay rent
and the mutual covenants contained herein, the parties agree as follows:
1.
TURNOVER DATE AND LANDLORDS WORK
. Landlord shall deliver the Phase I Premises to
Tenant for the construction of Tenants Work (as hereinafter defined) promptly following full
execution of the Lease provided that Tenant has delivered any security deposit required under the
Lease, as described in the Lease. Landlord shall deliver the Phase II Premises to Tenant for
construction of Tenants Work upon the first day of the second Lease Year. Landlord shall deliver
the Phase III Premises to Tenant for the construction of Tenants Work upon the first day of the
third Lease Year. It is the parties intention that Tenants Work, as used in this Workletter and
in the Lease, shall refer only to the construction of improvements to the Phase I Premises
initially and, subsequently, to the construction of improvements to the Phase II Premises and the
Phase III Premises at such times as Tenant undertakes such portion of Tenants Work.
Landlord shall, at Landlords sole expense, perform the following work (Landlords Work),
which shall be completed in accordance with all applicable laws and with building standard finishes
similar to other portions of the Building at least ninety (90) days prior to the Phase II
Commencement Date: (i) construct a demising partition approximately 50 to 60 lineal feet near the
southwest corner of the Premises on the first floor to create a public corridor; and (ii) construct
a new demising partition approximately 30 to 40 feet near the north end of the Premises on the
second floor which will provide Tenant with access to the stairwell and washrooms. The Landlords
Work is depicted on Exhibit N attached hereto and incorporated by this reference and is shown as
the items numbered 1 on Exhibit N.
B-1
2.
TENANTS WORK
. Tenant, at its sole cost and expense, but subject to payment of the
Allowance (as hereinafter defined) as provided under Paragraph 9 below, shall perform, or cause to
be performed, all work described in the lease as the Tenants Work and desired by Tenant for its
initial occupancy of the Premises (herein also referred to as the Tenants Work), all in
accordance with the Plans (as hereafter defined) submitted to and approved by Landlord (which
approval shall not be unreasonably withheld or delayed as described in Paragraph 3(b) below). The
Tenants Work shall be constructed in a good and workmanlike fashion, in accordance with the
requirements set forth herein and in compliance with all applicable statutes, laws, ordinances,
orders, codes, rules, regulations, building and fire codes and other governmental requirements,
including, without limitation, the ADA and all Building-related construction rules and regulations.
Landlords review and approval of the Plans or any other submission of Tenant shall create no
responsibility or liability on the part of Landlord for such compliance or for their completeness
or design sufficiency. Tenant shall commence the construction of the Tenants Work promptly
following completion of the pre-construction activities provided for in Paragraph 3 below. Tenant
shall coordinate the Tenants Work so as avoid material or unreasonable interference with any
activities being conducted by or on behalf of Landlord and/or other tenants at the Building from
time to time.
Notwithstanding anything to the contrary herein, as part of Tenants Work, Landlord hereby
agrees that Tenant shall have the right, at Tenants sole election, to install the following in the
Lobby: (a) double glass doors with building standard glass located on the north wall of the Lobby
(the
North Wall Glass Doors
) and (b) a single glass door located on the south wall of the Lobby
(the
South Wall Glass Door
). Landlord and Tenant hereby agree that each of Landlord and Tenant
shall be responsible for one-half (1/2) of the reasonable costs incurred by Tenant in manufacturing
and installing the North Wall Glass Doors. Landlord shall reimburse Tenant for its one-half of
such reasonable costs within thirty (30) days after demand therefore, along with copies of paid
invoices.
3.
PRE-CONSTRUCTION ACTIVITIES
.
(a) Prior to commencing any of the Tenants Work, Tenant shall submit the following
information and items to Landlord for Landlords review and approval (which approval shall not be
unreasonably withheld or delayed as described in Paragraph 3(b) below):
(i) The names and addresses of Tenants contractors (and the contractors
subcontractors and vendors) to be engaged by Tenant for the Tenants Work and of any
construction manager proposed to be engaged by Tenant for the Tenants Work (collectively,
Tenants Contractors
).
(ii) Certificates of insurance policies as hereinafter described. Tenant shall not
permit Tenants Contractors to commence work until the required insurance has been obtained
and certified copies of policies or certificates have been delivered to Landlord.
(iii) The Plans for the Tenants Work, which Plans shall be subject to Landlords
approval in accordance with Paragraph 3(b) below.
B-2
(iv) Tenant will update such information and items by notice to Landlord of any
material changes. Landlord shall promptly (or as otherwise required by this Workletter)
review all submissions made by Tenant.
(b) As used herein the term Plans shall mean full and detailed architectural and engineering
plans and specifications covering the Tenants Work (including, without limitation, architectural,
mechanical, electrical, and plumbing working drawings for the Tenants Work). The Plans shall
include drawings and specifications relating to the telecommunications and related equipment and
HVAC facilities and requirements to be installed to or to service Tenants
computer/telecommunications room(s). The Plans shall include the minimum information shown on
Attachment 1 attached hereto and incorporated herein. Subject to Landlords payment of the
Allowance, Tenant shall pay all costs and expenses of preparing the Plans. The Plans shall be
subject to Landlords approval (not to be unreasonably withheld or delayed, as hereinafter
described) and the approval of all local governmental authorities requiring approval, if any.
Landlord shall give its approval or disapproval of the Plans within seven (7) business days after
their delivery to Landlord. Landlord agrees not to unreasonably withhold its approval of said
Plans; provided, however, that Landlord shall not be deemed to have acted unreasonably if it
withholds its consent because, in Landlords reasonable opinion: (i) the Tenants Work is likely
to adversely affect Building systems, the structure of the Building or the safety of the Building
and its occupants; (ii) the Tenants Work would adversely affect Landlords ability to furnish
services to Tenant or other tenants; (iii) the Tenants Work would increase the cost of operating
the Building; (iv) the Tenants Work would violate any governmental laws, rules or ordinances; (v)
the Tenants Work contains or would require the use of hazardous or toxic material in any unlawful
manner; (vi) the Tenants Work would adversely affect the appearance of the Building; or (vii) the
Tenants Work would adversely affect another tenants premises. The foregoing reasons, however,
shall not be exclusive of the reasons for which Landlord may withhold consent, whether or not such
other reasons are similar or dissimilar to the foregoing. If Landlord fails to give its approval
or disapproval within said seven (7) business day period, and if Tenant sends a second written
request for approval of Plans which states conspicuously, YOUR FAILURE TO RESPOND TO THIS REQUEST
WILL RESULT IN A DEEMED APPROVAL OF THE SUBMITTED PLANS, and if Landlord fails to respond to said
second request within five (5) business days after receipt thereof, then Landlord shall be deemed
to have approved the Plans which were submitted with the initial request. Landlord shall cooperate
with Tenant by discussing or reviewing preliminary plans and specifications at Tenants request
prior to completion of the full, final detailed Plans in order to expedite the preparation of and
the subsequent approval process concerning the final Plans. If Landlord notifies Tenant that
changes are required to the final Plans submitted by Tenant, Tenant shall submit to Landlord, for
its approval, the Plans amended in accordance with the changes so required. Such submission of
revised Plans shall be accompanied by a written point by point response from Tenant specifically
responding to any disapprovals or other responses delivered by Landlord to Tenant. Landlord shall
give its approval or disapproval (giving reasons in case of disapproval) of any such revised Plans
within five (5) business days after their delivery to Landlord. The Plans shall also be revised,
and the Tenants Work shall be changed, to incorporate any work required in the Premises by any
local governmental field inspector. The Plans shall be prepared at Tenants sole cost and expense,
and Tenant shall pay all fees and costs for the Plans; provided, however, Landlord shall reimburse
Tenant an amount equal to $.08 per square foot of the Rentable Area of the Phase I Premises
initially, and subsequently, the Phase II
B-3
Premises, and subsequently thereafter, the Phase III Premises, towards Tenants cost for the
Plans. Such reimbursement shall be paid within thirty (30) days after Landlords receipt of
Tenants request therefor accompanied by documentation evidencing Tenants payment of such costs.
Tenant shall use reasonable efforts to utilize MEP and structural engineering drawing
consultants recommended by Landlord for all design and engineering services necessary for
preparation of the Plans. Landlord shall provide to Tenant CAD base sheets of all as built
drawing (to the extent such CAD base sheets are in Landlords possession).
Landlords approval of the Plans, or any revisions thereto, shall in no way constitute a
representation or warranty by Landlord as to the adequacy or sufficiency of such Plans, or any
revisions thereto or the improvements to which they relate for any use, purpose or condition, or be
deemed to be acceptance or approval of any element therein contained which is in violation of any
applicable statutes, laws, ordinances, orders, codes, rules, regulations, building or fire codes or
other governmental requirements. Tenant shall have no authority to deviate from the Plans in
performance of the Work, except as authorized by Landlord and its designated representative in
writing.
Tenant shall reimburse Landlord, as additional rent under the lease: (i) for Landlords
architectural and engineering costs with respect to Tenants pre-construction activities and
Landlords review and approval of the Plans, or any revisions thereto, and as may otherwise arise
out of or be in connection with, Tenants performance of Tenants Work (which costs shall not
exceed $10,000.00 in the aggregate); (ii) for Landlords cost to pay overtime to Landlords
employees and contractors; and (iii) keying charges.
(c) No Tenants Work shall be undertaken or commenced by Tenant in the Premises until:
(i) The Plans for the Premises have been submitted to and approved by Landlord (which
approval shall not be unreasonably withheld or delayed as provided in Paragraph 3(b)
hereinabove).
(ii) All necessary building permits have been obtained by Tenant (or, in the
alternative, until Tenant has filed for all necessary building permits and has documented
proof thereof from Will County, Illinois, so long as Tenant is using all reasonable efforts
to obtain the same as soon as reasonably practicable; provided that such Tenants Work may
only so proceed on the basis of filings for applicable permits, as opposed to actual
issuance of the same, if fully lawful to do so and if consistent with the practices at
Comparable Buildings, and Tenant shall remain fully and solely responsible for compliance
with all laws relating to Tenants Work and the performance of Tenants Work throughout the
entire performance of Tenants Work hereunder and shall cease performance of Tenants Work
if Will County or other applicable governmental authority at any time does not allow
construction to proceed without full building permit issuance).
(iii) All required insurance coverages have been obtained by Tenant, it being
understood that failure of Landlord to receive evidence of such coverage upon
B-4
commencement of the Tenants Work shall not waive Tenants obligations to obtain such
coverages.
(iv) Items required to be submitted to Landlord prior to commencement of construction
of the Tenants Work have been so submitted and have been approved, where required (which
approval shall not be unreasonably withheld or delayed, as provided herein).
4.
DELAYS
. In the event Tenant fails to complete the Tenants Work on or before the
Commencement Date, Tenant shall be responsible for Rent and all other obligations as set forth in
the Lease from the Commencement Date, subject to any abatement of Rent as expressly set forth in
the Lease, regardless of the degree of completion of the Tenants Work on such date, and no such
delay in completion of the Tenants Work shall affect the Commencement Date, or relieve Tenant of
any of its obligations under the lease.
5.
CHARGES AND FEES
. Subject to Paragraph 3(b) above and Paragraph 9 below and except
as otherwise expressly provided in this Workletter, Tenant shall be responsible for all costs and
expenses attributable to the Tenants Work, including any and all fees payable to Landlord
hereunder.
6.
CHANGE ORDERS
. All changes to the final Plans requested by Tenant must be approved
by Landlord in advance of the implementation of such changes as part of the Tenants Work, which
approval shall not be unreasonably withheld, in accordance with the same standards as described in
Paragraph 3(b) above. Landlord shall give its approval or disapproval (giving reasons in case of
disapproval) of any proposed changes to the Plans within three (3) business days after their
delivery to Landlord. Subject to Paragraph 9 below, Tenant shall be responsible for all costs and
expenses attributable to any changes (including, without limitation payment to Landlord of
out-of-pocket costs for review of the changes. All delays caused by Tenant initiated change
orders, including, without limitation, any stoppage of work during the change order review process,
are solely the responsibility of Tenant and shall cause no delay in the Commencement Date, or
payment of Rent and performance of other obligations set forth in the lease.
7.
STANDARDS OF DESIGN AND CONSTRUCTION AND CONDITIONS OF TENANTS PERFORMANCE
. All
work done in or upon the Premises by Tenant shall be done according to the standards set forth in
this Paragraph 7, except as the same may be expressly modified in the lease or in the Plans
approved by both Landlord and Tenant.
(a) Tenants Plans and all design and construction of the Tenants Work shall comply with all
applicable statutes, ordinances, regulations, laws, codes and industry standards, including, but
not limited to, requirements of Landlords fire insurance underwriters and the requirements of the
ADA, and with all Building-related construction rules and regulations in effect from time to time.
Approval by Landlord of the Plans shall not constitute a waiver of this requirement or assumption
by Landlord of responsibility for compliance. Where several sets of the foregoing laws, codes and
standards must be met, the strictest shall apply where not prohibited by another law, code or
standard.
B-5
(b) Tenant shall, at its own cost and expense, but subject to payment by Landlord of the
Allowance under Paragraph 9 below, obtain all required building permits and, when construction has
been completed, shall, at its own cost and expense, to the extent legally required for occupancy of
the Premises, obtain an occupancy permit for the Premises, a copy of which shall be delivered to
Landlord. Tenants failure to obtain such permits shall not cause a delay in the payment of Rent
and performance of other obligations under the lease.
(c) Tenants Contractors shall be licensed contractors, possessing good labor relations,
capable of performing quality workmanship and working in harmony with Landlords contractors and
subcontractors and with other contractors, subcontractors and service providers in the Building.
All work shall be coordinated with any other construction or other work in the Building in order
not to materially adversely affect construction work being performed by or for Landlord or its
tenants, provided, however, Landlord shall not unreasonably inhibit Tenants Contractors from
performing their work and Landlord shall cooperate with Tenant and Tenants Contractors in all
reasonable respects relative to work coordination matters.
(d) Landlord shall have the right, but not the obligation, and after reasonable prior notice
to Tenant (which, in the case of clauses (iii) and (iv) below shall mean at least 24 hours notice),
to perform, on behalf of and for the account of Tenant, subject to reimbursement by Tenant (but
subject to application of the Allowance to the extent thereof), any work (i) which Landlord deems
necessary to be done on an emergency basis, (ii) which pertains to structural components, building
systems, the general utility systems for the Building or connecting the Tenants Work with any
other work in the Building, (iii) which pertains to the erection of temporary safety barricades or
signs during construction, or (iv) which pertains to patching of Tenants Work and other work in
the Building.
(e) Tenant shall use only new, quality materials in the Tenants Work, except where explicitly
shown in the Plans approved by Landlord and Tenant. Tenant shall obtain, promptly after completion
of the Tenants Work, warranties of at least one (1) year duration from the completion of the
Tenants Work against defects in workmanship and materials on all work performed and equipment
installed in the Premises as part of the Tenants Work, a copy of which warranties shall be
delivered to Landlord upon Tenants receipt of the same. Tenant shall furnish to Landlord
as-built drawings of the Work within ninety (90) days after completion of Tenants Work.
(f) Tenant and Tenants Contractors, in performing work, shall do so in conformance with the
construction rules and regulations in effect for the Building from time to time. Tenant and
Tenants Contractors shall make all reasonable efforts and take all reasonable steps appropriate to
the level of professional standards in the industry so as not to interfere with the operation of
the Building and the Project and of other tenants in the Building or the Project, and shall, in any
event, comply with all other reasonable rules and regulations existing from time to time at the
Building. Tenant and Tenants Contractors shall take all reasonable precautionary steps to
minimize dust, noise and construction traffic, and to protect their facilities and the facilities
of others affected by the Tenants Work and to properly police same. Tenant shall not permit noise
from construction of Tenants Work to disturb other tenants in the Building. Tenants Work which
does so disturb other tenants shall be performed after regular working hours. Construction
equipment and materials are to be kept within the Premises and delivery and
B-6
loading of equipment and materials shall be done at such locations and at such time as
Landlord shall reasonably direct so as not to burden the construction or operation of the Building.
All work shall be coordinated with any other construction or other work in the Building in order
not to affect adversely construction work being performed by or for Landlord or its tenants, it
being understood that, in the event of any conflict, Landlord and its contractors and
subcontractors shall have priority over Tenant and Tenants Contractors. Electrical service will
be made available for the performance of the Tenant Work.
(g) Upon not less than twenty-four (24) hours written or oral notice to Tenant and Tenants
failure to cure such matter within such 24-hour period, Landlord shall have the right to order
Tenant or any of Tenants Contractors who violate the requirements imposed on Tenant or Tenants
Contractors in performing work to cease work and remove its equipment and employees from the
Building, to the extent Landlord determines that such violation is likely to have an adverse affect
on the Building systems, structure or operations, the safety of the Buildings occupants, or to
otherwise create any other type of hazardous condition. A violation will be curable unless the
particular violation by the particular Tenants Contractor has previously been the basis for a
notice to cease work. The foregoing cure period shall not limit the Landlords right to require
that violations cease immediately. No such action by Landlord shall delay the lease Commencement
Date, or the payment of Rent and performance of other obligations under the lease.
(h) Tenant shall not be required to pay for utility costs or charges for electricity for that
portion of the duration of Tenants Work occurring prior to the lease Commencement Date; provided,
however, Tenant acknowledges that no air-conditioning services will be available for the Premises
during such period. Tenants use of the freight elevators and the passenger elevators during the
construction of Tenants Work shall be free of charge for both the normal business hours and
overtime hours of the Building, subject to Landlords reasonable scheduling requirements. Tenant
shall not use the passenger elevators in connection with the moving of construction material or
personnel or the performance of the Tenants Work, or for Tenants initial move into the Premises.
Landlord shall provide Tenant, at no cost, with an exclusive area near the Building loading dock
for Tenants Contractors placement of a rubbish dumpster during the duration of Tenants Work,
initial installation of Tenants furniture, fixtures and equipment and move to the Premises.
Tenant shall arrange and pay for the cost of the dumpster and for removal of construction debris at
Tenants sole cost. Tenant shall not place debris in the Buildings waste containers.
(i) Tenant shall permit Landlord access to the Premises, and the Tenants Work shall be
subject to inspection, by Landlord and Landlords architects, engineers, contractors and other
representatives, at all times during the period in which the Tenants Work are being constructed
and installed and within a reasonable period following completion of the Tenants Work.
(j) Tenant shall proceed with its work expeditiously, continuously and efficiently, from the
date Landlord tenders possession of the Premises to Tenant for the construction of the Tenants
Work. Tenant shall notify Landlord upon completion of the Tenants Work and shall furnish Landlord
and Landlords title insurance company with such further documentation as may be reasonably
necessary under Paragraph 9 below.
B-7
(k) Except as otherwise expressly provided herein, Tenant shall have no authority to deviate
from the Plans in performance of the Tenants Work, except as authorized by Landlord and its
designated representative in writing (which authorization shall not be unreasonably withheld or
delayed in accordance with the same standards for approval as described in Paragraph 3(b) above).
Tenant shall furnish (or cause Tenants general contractor to furnish) to Landlord as-built
drawings of any components of the Tenants Work affecting Building systems or for any electrical,
plumbing or other system components of the Tenants Work, consisting of record drawings of the
installed condition of each such component of the Tenants Work completed from the Plans marked up
daily in the field by the various trades. Such record drawings shall be submitted in a final
package by Tenants general contractor to Landlord within ninety (90) days after completion of the
Tenants Work. Final disbursement of any remaining amounts of the Allowance will not occur until
such record drawings have been received by Landlord.
(l) Landlord shall have the right to require Tenant to install and maintain proper access
panels to utility lines, pipes, conduits, duct work and component parts of mechanical and
electrical systems existing or installed in the Premises to the extent required by applicable laws
or otherwise identified by Landlord as part of its approval of the Plans.
(m) Tenant shall impose on and enforce all applicable terms of this Workletter against
Tenants Architect, Tenants Engineer (as hereinafter defined) and the other Tenants Contractors.
(n) Landlord shall provide coordination and access by Tenant after normal business hours, at
Tenants cost (including the cost of security and monthly clean-up) to other tenant spaces on the
floor in which the Premises are located as may be necessary for the proper design and construction
of the construction of Tenants Work.
(o) Landlord shall allow Tenant to engage non-union movers for Tenants physical move, so long
as use of such non-union movers does not cause any labor unrest in the Building or the Project.
8.
INSURANCE AND INDEMNIFICATION
.
(a) In addition to any insurance which may be required under the lease, Tenant shall secure,
pay for and maintain or cause Tenants Contractors to secure, pay for and maintain during the
continuance of construction and fixturing work within the Building or Premises, insurance in the
following minimum coverages and limits of liability:
(i) Workers Compensation in accordance with applicable Laws and Employers Liability
Insurance with limits of not less than $1,000,000.00, or such other amounts as may be
required from time to time by any employee benefit acts or other statutes applicable where
the work is to be performed.
(ii) Commercial General Liability Insurance including Broad Form Contractual, Broad
Form Property Damage, Personal Injury, Completed Operations and Products coverages (such
Completed Operations and Products shall be provided for a period of three (3) years after
the date of final acceptance of the Tenants Work), and
B-8
deletion of any exclusion pertaining to explosion, collapse and underground property
damage hazards, with limits of not less than $1,000,000.00 per occurrence and having a
general aggregate amount on a per location basis of not less than $2,000,000.00, with
umbrella coverage of $4,000,000.00 per occurrence, $4,000,000.00 aggregate.
(iii) Comprehensive Automobile Liability Insurance including Owned (if applicable),
Non-Owned and Hired Car coverages, with limits of not less than $1,000,000.00 combined
single limit for both bodily injury and property damage, with $1,000,000.00 umbrella
coverage.
(iv) All-risk installation floater builders risk insurance upon the entire Tenants
Work to the full insurable value thereof. This insurance shall include the interests of
Landlord and Tenant (and their respective contractors and subcontractors of any tier to the
extent of any insurable interest therein) in the Tenants Work and shall insure against the
perils of fire and extended coverage and shall include all-risk builders risk insurance
for physical loss or damage including, without duplication of coverage, theft, vandalism and
malicious mischief. If portions of the Tenants Work are stored off the site of the
Building or in transit to said site and are not covered under said all-risk builders risk
insurance, then Tenant shall secure and maintain similar property insurance on such portions
of the Tenants Work. Any loss insured under said all-risk builders risk insurance for
the Tenant Work is to be made payable jointly to Landlord and Tenant, as their interests may
appear.
All policies (except the workers compensation policy) shall be endorsed to include as
additional insured parties Landlord and its agents, Landlords contractors, Landlords architects,
Landlords mortgagee, and such additional persons as Landlord may designate. The waiver of
subrogation provisions contained in the lease shall apply to all insurance policies (except the
workers compensation policy) to be obtained by Tenant pursuant to this paragraph. The insurance
policy endorsements shall also provide that all additional insured parties shall be given thirty
(30) days prior written notice of any reduction, cancellation or non-renewal of coverage (except
that ten (10) days notice shall be sufficient in the case of cancellation for non-payment of
premium) and shall provide that the insurance coverage afforded to the additional insured parties
thereunder shall be primary to any insurance carried independently by said additional insured
parties. Additionally, where applicable, each policy shall contain a cross-liability and
severability of interest clause.
(b) Without limitation of the indemnification provisions contained in the Lease, to the
fullest extent permitted by law, but subject to matters relating to property damage for which the
parties released each other under Section 16 of the Lease, Tenant agrees to indemnify, protect,
defend and hold harmless Landlord, Landlords contractors and Landlords architects and their
partners, directors, officers, employees and agents, from and against all claims, liabilities,
losses, damages and expenses of whatever nature arising out of or in connection with the Tenants
Work or the entry of Tenant or Tenants Contractors into the Building and the Premises, including,
without limitation, mechanics liens or the cost of any repairs to the Premises or Building
necessitated by activities of Tenant or Tenants Contractors and bodily injury to persons or damage
to the property of Tenant, its employees, agents, invitees, licensees or others, except and to the
extent that such claims, liabilities, losses, damages and
B-9
expenses arise out of the willful misconduct or negligent act or omission of Landlord, or from
Landlords breach of its obligations hereunder or under the lease. It is understood and agreed
that the foregoing indemnity shall be in addition to the insurance requirements set forth above and
shall not be in discharge of or in substitution for same or any other indemnity or insurance
provision of the lease.
9.
ALLOWANCE; PERIODIC PAYMENTS
.
(a) Landlord shall make a contribution (the Allowance) towards the cost of Tenants Work
(including, the costs of construction, design, engineering, and other professional/consultant fees,
furniture, reconfiguration and installation and wiring of phone and data processing equipment) and
towards moving costs, in an amount equal to the product of the Rentable Area of the portion of the
Premises as to which Tenants Work is then being performed (i.e. 39,355 square feet with respect to
the initial build-out of the Phase I Premises) multiplied by $10.00 (with the remaining Allowance
as to the Phase II Premises and the Phase III Premises to be contributed by Landlord at such times
as Tenant builds out the Phase II Premises and the Phase III Premises, respectively) on the terms
and conditions hereinafter set forth. If the cost of the Tenants Work exceeds the Allowance
required to be disbursed hereunder, Tenant shall have sole responsibility for the payment of such
excess cost, and Tenant shall pay any such excess when due from time to time (i.e., based upon the
most recent estimates of the cost of the Tenants Work delivered by Tenant under Paragraph 3 above
or otherwise furnished by Tenant, in certified form, upon Landlords request from time to time
therefor) prior to disbursement or further disbursement of the Allowance, and in such event,
Landlord shall have no obligation to disburse or further disburse any portion of the Allowance
until all such excess costs have been paid by Tenant, and Tenant shall have delivered to Landlord
the documentation described in Paragraph 9(b) below evidencing the payment of such excess costs by
Tenant. Landlord shall not be obligated to disburse any portion of the Allowance which is to be
disbursed to or as directed by Tenant in response to any request for disbursement which is
submitted by Tenant more than one hundred twenty (120) days following the Commencement Date, except
as otherwise provided in Paragraph 9(f) below. If the cost of Tenants Work and such other items
for which the Allowance may be applied should for any reason be less than the full Allowance,
Tenant shall not be entitled to the unapplied portion of the Allowance or any credit against Rent
in the amount any such unapplied portion, except as otherwise provided in Paragraph 9(f) below.
(b) Periodically, but not more frequently than once per month, commencing at any time
following the date of the lease, Tenant may submit to Landlord a payment request for costs of the
Tenants Work incurred and not previously paid naming the parties to be paid and the respective
amounts of such payments, which payment request shall be accompanied by:
(i) A customary owners sworn statement in writing signed by Tenant stating the
various contracts entered into by Tenant for the Tenants Work and with respect to each:
the total contract price of all labor, work, services and materials; the amounts theretofore
paid thereon; the amount requested for the current disbursement; and the balance due for
such labor, work, services and materials, after payment of the current disbursement, to
complete the Tenants Work in accordance with the Plans;
B-10
(ii) A written application for payment from each of Tenants Contractors disclosed in
the aforesaid sworn Tenants statement wherein each of Tenants Contractors certifies
completion and the cost of that portion of the Tenants Work for which payment is requested
and further certifies that the cost to complete the Tenants Work remaining to be done under
said contract will not exceed the balance due thereunder (without including in such balance
any required retainages) and a customary contractors sworn statement in writing signed by
each of Tenants Contractors stating: the names of all persons, firms, associations,
corporations or other parties by whom labor, materials, services or work will be rendered or
furnished pursuant to the contract with Tenants Contractor; the nature of labor, work,
services and materials to be rendered or furnished by each of the foregoing; the amounts (in
the case of firm subcontracts) and estimated amounts (in other cases) to be paid for such
labor, work, services and materials; the amounts theretofore paid thereon; the amount
requested for the current involved in each of those three phases of construction,
respectively, shall be made in three corresponding phases so that there will be, in effect,
three final distributions of the Allowance, one for each phase of the construction of the
Tenants Work.
10.
MISCELLANEOUS
.
(a) Except as herein expressly set forth herein, in the lease, Landlord has no agreement with
Tenant and has no obligation to do any work with respect to the Premises.
(b) Time is of the essence under this Workletter.
(c) If Tenant fails to make any payment relating to the Tenants Work as required hereunder,
Landlord, at its option, may complete the Tenants Work pursuant to the approved Plans and continue
to hold Tenant liable for the costs thereof.
(d) Notices under this Workletter shall be given in the same manner as under the lease.
(e) The liability of Landlord hereunder or under any amendment hereto shall be limited as
provided in Section 29.12 of the lease.
(f) The headings set forth herein are for convenience only.
(g) This Workletter, together with the lease, sets forth the entire agreement of Tenant and
Landlord regarding the Tenants Work. This Workletter may only be amended if in writing, duly
executed by both Landlord and Tenant. All capitalized terms used in this Workletter shall have the
respective meanings ascribed to them in the lease, unless this Workletter otherwise provides.
(h) Tenant has designated the following entities as Tenants architects for purposes of
preparing the architectural portions of the Plans for the Tenants Work (collectively, the
Tenants Architect
): (i) with respect to general construction, VOA, located at 224 South
Michigan Avenue, Suite 1400, Chicago, Illinois 60604 Attention: Don Dorsh, telephone 312.554.1400
and (ii) with respect to Tenants IT Data Center and network/telephone cables,
B-11
Technology Management, Inc., located at 1911 Rohlwing Road, Suite E, Rolling Meadows, IL
60008, Attention: Daniel J. McGrath, telephone 847-394-8900 x222.
(i) This Agreement shall not be deemed applicable to any additional space added to the
original Premises at any time or from time to time, whether by any options under the lease or
otherwise, or to any portion of the original Premises or any additions thereto in the event of a
renewal or extension of the original term of the lease, whether by any options under the lease or
otherwise, except as expressly provided in the lease or in any amendment or supplement to the
lease.
11.
DESIGNATED REPRESENTATIVES; COOPERATION
.
(a) Landlord and Tenant shall each appoint one or two qualified and readily available
representatives with the authority to give and receive notices, other materials and information
relating to the Tenants Work, and approvals under this Agreement. Initially, Landlords
representative shall be Jeff Venable, whose address is 1000 Remington Boulevard, Bolingbrook,
Illinois 60440, and whose telephone number is 630-679-1241, and Tenants representatives shall be
(a) with respect to general construction, Rick Myers, whose address is Ulta Salon, Cosmetics &
Fragrance, Inc., Windham Lakes Business Park, 1275 Windham Drive, Romeoville, Illinois, and whose
telephone number is (630) 226-8214; and (b) with respect to construction of Tenants IT Data Center
and installation of Tenants network/telephone cables, Jeff Pillers, whose address is Ulta Salon,
Cosmetics & Fragrance, Inc., Windham Lakes Business Park, 1135 Arbor Drive, Romeoville, Illinois,
and whose telephone number is (630) 771-4837.
(b) Tenant and Landlord agree to make their respective architects and engineers available to
the other to answer questions and provide clarifications and additional information as is
reasonable for the timely progress and completion of the Tenants Work.
[END OF WORKLETTER PROVISIONS
ATTACHMENT TO WORKLETTER FOLLOWS]
B-12
ATTACHMENT 1 TO WORKLETTER
MINIMUM INFORMATION FOR PLANS
Plans and specifications (including architectural, engineering and structural, as applicable,
working drawings) required for the supply, installation and finishing of the Tenants Work and
including, without limitation: finish schedule; material submittals; graphics and signage;
interior and demising partitions; doors, frames and hardware; ceilings; wiring; lights and
switches; telephone and electrical outlets; floor coverings; wall coverings; all millwork and
built-ins; appliances; plumbing fixtures; HVAC systems and equipment; refrigeration equipment;
reflected ceiling plans; and other equipment, equipment connections and facilities attached to and
forming a part of the Building.
Tenant shall pay its costs associated with the installation of Tenants network and other cabling,
telecommunications infrastructure, and all of its moving costs incurred in connection with Tenants
occupancy of the Premises.
B-13
EXHIBIT C
OTHER DEFINITIONS
1.
ADA
shall have the meaning described in Section 9(f).
2.
Additional Rent
shall have the meaning described in Section 5.
3.
Additional Rent Estimate
shall have the meaning described in Section 5(b).
4.
Allowance
shall have the meaning described in the Workletter.
5.
Calculation Date
means January 1, 2009 and each January 1 thereafter falling within the
Term.
6.
Calculation Year
means each calendar year during which a Calculation Date falls.
7.
Comparable Buildings
means office buildings which are comparable to the Building in terms
of age, quality of construction, level of service and amenities, size and appearance and are
located within the Chicago Suburban East-West Corridor.
8.
Default
shall have the meaning described in Section 19.
9.
Default Rate
shall have the meaning described in Section 28(i).
10.
Expense Adjustment
shall have the meaning described in Section 5(a).
11.
Expenses
shall mean all costs, expenses and disbursements of every kind and nature paid
or incurred by or on behalf of Landlord for or in connection with owning, managing, operating,
maintaining, replacing and/or repairing the Building, the Common Areas, the Land and the personal
property used in conjunction therewith, including without limitation: the cost of maintaining
adjoining pedestrian tunnels and walkways and related lighting, the cost of security and security
devices and systems, snow and ice and trash removal, cleaning and sweeping, planting and replacing
decorations, flowers and landscaping; the cost of all utilities for the Building, such as water,
sewer, power, fuel and heating (or hot water for heating), lighting, air-conditioning (or chilled
water for cooling) and ventilating, to the extent not specifically directly allocated to or paid by
Tenant; maintenance, repair and replacement of utility systems, telephone building riser cable,
elevators and escalators; electricity, gas, steam, water, sewers, fuel, heating, lighting, air
conditioning; window cleaning; janitorial service; insurance (including but not limited to, fire,
extended coverage, all risk, liability, workers compensation, elevator, or any other insurance
carried by the Landlord and applicable to the Project); painting; management fees; supplies;
sundries; sales or use taxes on supplies or services; rent, telephone service, postage, office
supplies, maintenance and repair of office equipment and similar costs related to operation of the
building managers office; licenses, permits and similar fees and charges related to ownership,
management, operation, repair, replacement and/or maintenance of the Project; the share of costs
and expenses allocated to the Building and the Land relating to the management, maintenance,
operation and repair of any common lobby or other facilities connecting the
C-1
Building or any of its facilities to any other adjoining building, facilities or land; cost of
wages and salaries of all persons engaged in the operation, management, maintenance and repair of
the Project, and so-called fringe benefits (including social security taxes, unemployment insurance
taxes, cost for providing coverage for disability benefits, cost of any pensions, hospitalization,
welfare or retirement plans, or any other similar or like expenses incurred under the provisions of
any collective bargaining agreement, or any other cost or expense which Landlord pays or incurs to
provide benefits for employees so engaged in the operation, management, maintenance and repair of
the Project); the charges of any independent contractor who, under contract with the Landlord or
its representatives, does any of the work of operating, managing, maintaining, replacing and/or
repairing of the Project; legal and accounting expenses (including, but not limited to, such
expenses as relate to preparation of statements of Expenses and Taxes and seeking or obtaining
reductions in and refunds of real estate taxes); sales and excise taxes; expenses allocated to the
Project under any easements, conditions, covenants or restrictions from time to time affecting the
Project, or any other expense or charge which would be considered as an expense of owning,
managing, operating, maintaining, replacing and/or repairing the Project.
Expenses shall not include: costs or other items included within the meaning of the term
Taxes (as hereinafter defined); costs of alterations and relocations of the premises of tenants
of the Building; costs of capital improvements to the Building or Common Areas other than those
specifically included in Expenses as set forth below; depreciation charges; interest and principal
payments on mortgages and other financing costs and charges; ground rental payments; legal fees in
connection with negotiating leases with other tenants in the Building or in connection with
enforcing lease obligations of other tenants in the Building; fines and penalties on late payments;
real estate brokerage and leasing commissions; any expenditures for which Landlord has been
reimbursed by tenants (other than pursuant to rent escalation or tax and operating expense
reimbursement provisions in leases); salaries, wages or other benefits paid to any executive
employee above the grade of regional building manager and regional building engineer (which are
includable only to the extent that such regional building manager and regional building engineer,
as the case may be, is engaged in servicing the Building); legal fees, space planners fees,
leasing commissions and advertising expenses incurred in connection with leasing space in the
Building; expenses for repairs, maintenance or replacements for which Landlord is reimbursed from
or pursuant to insurance or condemnation proceeds or construction warranties; appraisal and
accounting fees, disbursements and charges incurred in connection with disputes with tenants or
other occupants of the Building; costs for which Landlord has received the direct actual
reimbursement from any source (other than reimbursement through payment by tenants of operating
expenses and taxes, such as Expenses and Taxes); rental costs relating to leasing Building systems,
elevators or other equipment ordinarily considered to be of a capital nature, except to the extent
such amounts would otherwise have been included as Expenses under Paragraph (a) below had such
systems, elevators or other equipment been purchased by Landlord; marketing or advertising costs
for the Project; market study fees; costs of sculptures, paintings or other artwork in the Common
Areas; management fees in excess of the market rate management fee charged at Comparable Buildings;
costs incurred by Landlord by reason of its default under any lease or other agreement; the cost of
containing, removing or otherwise remediating any contamination of the Land or other portions of
the Project or other environmental liability (including any expenses of removal or remediation of
any underground storage tank on the Premises or the Project); costs of Landlords general overhead
and costs incurred in connection with Landlords home or branch office costs incurred in
connection
C-2
with any sale or transfer of the Project or any interest therein by Landlord; any amount the
Landlord pays a contractor or vendor because of a special relationship in excess of the amount
which would have been paid in the absence of said special relationship; and fines or penalties
incurred as a result of any violation by Landlord of any Law, provided the same is not caused by or
the result of any acts or failures to act on the part of Tenant.
Notwithstanding anything contained in the above definition of Expenses to the contrary:
(a) The cost of any capital improvements to the Building (i) which are intended to
reduce Expenses, or (ii) which are required under changes in the ADA effective subsequent to
the Commencement Date, or (iii) which are required under any other governmental laws,
regulations or ordinances (collectively, the Governmental Laws), or (iv) which are
intended to enhance the safety of the Building or its occupants, shall be included in
Expenses in the year of installation and subsequent Calculation Years as hereinafter set
forth; provided that if the Building is in violation of the ADA or any such Governmental
Laws (as existing on the Commencement Date (i.e., meaning that the Building was obligated to
take action to comply with such Governmental Laws on or before the Commencement Date, and
has failed to do so)), then the costs of any capital improvements made to the Building after
the date of this lease in order to cure such violations of the ADA or Governmental Laws
shall not be so included in Expenses. In any Calculation Year, the portion includable in
Expenses shall be the annual amortization of such cost using as the amortization period such
reasonable period as Landlord shall determine, together with interest on the unamortized
cost of any such improvements (at an annual rate equal to the greater of (i) 11%, or (ii) 2%
over the Prime Rate described in Section 28(i) of the lease calculated as of the date the
cost of such improvements was incurred) (or if applicable, such other interest rate as may
actually be charged to Landlord for acquisition financing or leasing of such capital
improvement). In the case of loss or damage to the Project due to fire or other casualty,
the costs of repairing, restoring or replacing any portion of the Project which constitute
capital improvements shall be included in Expenses to the extent of deductible amounts under
insurance policies.
(b) If the office area of the Building is not fully (at least 95% for the purposes of
this paragraph) occupied by tenants during all or a portion of the Base Year or any
Calculation Year, or if during all or a portion of any Calculation Year, Landlord is not
furnishing to any tenant or tenants any particular service, the cost of which, if furnished
by Landlord, would be included in Expenses, then Landlord shall (in the case of the Base
Year) and may (in the case of any Calculation Year), elect to make an appropriate adjustment
in Expenses for the year, by adjusting those components of Expenses which vary with the
occupancy level of the Building, to reflect the Expenses that would have been paid or
incurred by Landlord for such year had the office area of the Building been 95% occupied by
tenants and services been furnished to all such tenants during such entire Calculation Year.
Any such adjustments shall be deemed costs and expenses paid or incurred by Landlord and
included in Expenses for such year. The parties intend that Tenant pay Tenants
Proportionate Share of increase in Expenses for any Calculation Year over Expenses for the
Base Year on the basis that the Building was at least 95% occupied during the Base Year.
C-3
(c) If any item of Expenses, though paid or incurred in one calendar year, relates to
more than one calendar year, at the option of Landlord, such item may be proportionately
allocated among such related calendar years.
12.
Ground Lease
and
Ground Lessor
shall have the meanings described in Section 20.
13.
Hazardous Substances
shall have the meaning described in Section 9(e).
14.
Holidays
shall have the meaning described in Section 8(e).
15.
Landlord Parties
shall have the meaning described in Section 9(e).
16.
Landlords Expense Statement
shall have the meaning described in Section 5(c)(i).
17.
Landlords Tax Statement
shall have the meaning described in Section 5(c)(ii).
18.
Laws
shall mean all statutes, laws, ordinances, codes, rules and regulations, orders and
directions of public officials or other acts having the force or effect of law, of all federal,
state, county, municipal and other agencies, authorities or bodies having jurisdiction over the
Premises.
19.
Monthly Base Rent
shall have the meaning described in Section 4(a).
20.
Mortgage
and
Mortgagee
shall have the meanings described in Section 20(a).
21. Intentionally Omitted.
22.
Outside Date
shall have the meaning described in Section 17(a).
23.
Projection Notice
shall have the meaning described in Section 5(b)(i).
24.
Projections
shall have the meaning described in Section 5(b)(i)(A).
25.
Released Parties
shall have the meaning described in Section 16(a).
26.
Rent
shall have the meaning described in Section 3(a).
27.
Rentable Area
with respect to the Building means the rentable area of office space at
the Building, on a rentable square footage basis, measured generally in accordance with the
Building Owners and Managers Association International method of measurement (
BOMA
) existing as
of the date of this lease (with certain deviations therefore as deemed appropriate by Landlord and
with such changes to said measurement standards as may be adopted by BOMA from time to time and as
may be utilized, at Landlords election, for measurement calculations at the Building).
C-4
28.
Rentable Area
with respect to any tenant space at the Building means rentable area of
the applicable tenant space, on a rentable square footage basis, measured generally in accordance
with the BOMA method of measurement existing as of the date of this lease (with certain deviations
therefore as deemed appropriate by Landlord and with such changes to such measurement standards as
may be adopted by BOMA from time to time and as may be utilized, at Landlords election, for
measurement calculations at the Building). The Rentable Area of the Premises as of the date hereof
shall be deemed to be the number of square feet set forth in Section 1(i) of this lease.
29.
Successor
shall have the meaning described in Section 20(c).
30.
Tax Adjustment
shall have the meaning described in Section 5(a)(i).
31.
Taxes
shall mean real estate taxes, assessments (whether they be general or special),
sewer rents, rates and charges (to the extent not included as Expenses), transit taxes, taxes based
upon leases or the receipt of rent, and any other federal, state or local governmental charge,
general, special, ordinary or extraordinary (but not including (i) income or franchise taxes or any
other taxes imposed upon or measured by the Landlords income or profits, except as provided
herein, or (ii) any correction of or supplement to any tax or assessment which accrues or is for
any period prior to the Commencement Date), which may now or hereafter be levied, assessed or
imposed against the Land or the Building or Landlord as a result of its ownership of the Project.
Taxes for any calendar year or partial calendar year occurring within the Term shall mean Taxes
levied, assessed or imposed during such calendar year, regardless of when such Taxes are due and
payable.
Notwithstanding anything contained in the above definition of Taxes to the contrary:
(a) If at any time the method of taxation then prevailing shall be altered so that any
new or additional tax, assessment, levy, imposition or charge or any part thereof shall be
imposed upon Landlord in place or partly in place of any Taxes or contemplated increase
therein, or in addition to Taxes, and shall be measured by or be based in whole or in part
upon the Project, the rents or other income therefrom or any leases of any part thereof,
then all such new taxes, assessments, levies, impositions or charges or part thereof, to the
extent that they are so measured or based, shall be included in Taxes levied, assessed or
imposed against the Project to the extent that such items would be payable if the Project
were the only property of Landlord subject thereto and the income received by Landlord from
the Project were the only income of Landlord.
(b) Notwithstanding the year for which any such taxes or assessments are levied, (i) in
the case of special taxes or assessments which may be payable in installments, the amount of
each installment, plus any interest payable thereon, paid during a Calculation Year shall be
included in Taxes for that year and (ii) if any taxes or assessments payable during any
Calculation Year shall be computed with respect to a period in excess of twelve (12)
calendar months, then taxes or assessments applicable to the excess period shall be included
in Taxes for the Calculation Year when payable. Except as provided in the preceding
sentence, all references to Taxes for a particular
C-5
Calculation Year shall be deemed to refer to Taxes levied, assessed or otherwise
imposed during such Calculation Year without regard to when such Taxes are payable.
(c) Taxes shall also include any personal property taxes (attributable to the
Calculation Year in which paid) imposed upon the furniture, fixtures, machinery, equipment,
apparatus, systems or appurtenances used in connection with the Building or the operation
thereof.
32.
Tenants Proportionate Share
shall mean a fraction, the numerator of which is the
Rentable Area of the Premises from time to time, and the denominator of which is the Rentable Area
of the Building. Landlord and Tenant hereby acknowledge that, for purposes of this lease, the
Rentable Area of the Building, as of the Commencement Date is 548,130. If changes are made by the
parties to this Lease, changing the Rentable Area of the Premises, Landlord may make an appropriate
adjustment to Tenants Proportionate Share (i.e., based upon the formula used in calculating
Tenants Proportionate Share as described in the preceding sentence). Notwithstanding anything
contained herein to the contrary, if at any time and from time to time, the Project and/or the
Building or any development of which either is a part, contains non-office uses (i.e., warehouse
uses) or shall be subdivided or condominiumized, Landlord shall have the right to determine and
recompute, in accordance with sound management principles, Tenants Proportionate Share for only
the office portion of the Project and/or the Building or of such development, in which event
Tenants Proportionate Share shall be based on the ratio of the rentable square footage of the
Premises to the rentable square footage of such office portion. In the event that the Project
and/or the Building shall, from time to time, contain tenants, owners or other parties, as the case
may be, who do not participate in all or certain categories of Expenses or Taxes, Landlord may
include or exclude, in accordance with sound accounting and management principles, the amount of
Expenses or Taxes, or such categories of the same, as the case may be, attributable to such
tenants, owners or other parties, as the case may be, and exclude the rentable square footage of
their premises in computing Tenants Proportionate Share. In the alternative, Landlord shall have
the right, from time to time, to determine and re-compute, in accordance with sound management
principles, Tenants Proportionate Share of Expenses and Taxes based upon the totals of each of the
same for all such buildings and structures, the land on which the same are located, and all related
facilities, including common areas and easements, corridors, lobbies, sidewalks, elevators, loading
areas, parking facilities and driveways and other appurtenances and public areas, in which event
Tenants Proportionate Share shall be based on the ratio of the rentable square footage of the
Premises to the rentable square footage of all such buildings. Except as provided expressly to the
contrary herein, rentable square footage shall include all rentable area of all office space
leased or available for lease at the Project and the Building, which Landlord may reasonably
re-determine from time to time, to reflect re-configuration, additions or modifications to the
Project and/or the Building.
C-6
EXHIBIT D
RULES AND REGULATIONS
(1) Except with respect to the signage rights expressly granted to Tenant under the terms of
the Lease, no sign, lettering, picture, notice or advertisement shall be placed on any outside
window or in a position to be visible from outside the Premises and if visible from the outside or
public corridors within the Building shall be installed in such manner and be of such character and
style as Landlord shall approve in writing.
(2) Tenant shall not use the name of the Building for any purpose other than Tenants business
address; Tenant shall not use the name of the Building for Tenants business address after Tenant
vacates the Premises; nor shall Tenant use any picture or likeness of the Building in any
circulars, notices, advertisements or correspondence.
(3) No article which is explosive or inherently dangerous is allowed in the Building.
(4) Tenant shall not represent itself as being associated with any company or corporation by
which the Building may be known or named.
(5) Sidewalks, entrances, passages, courts, corridors, halls, elevators and stairways in and
about the Premises shall not be obstructed.
(6) No animals (except for dogs in the company of a blind person), pets, bicycles or other
vehicles shall be brought or permitted to be in the Building or the Premises.
(7) Room-to-room canvasses to solicit business from other tenants of the Building are not
permitted; Tenant shall not advertise the business, profession or activities of Tenant conducted in
the Building in any manner which violates any code of ethics by any recognized association or
organization pertaining to such business, profession or activities.
(8) Tenant shall use commercially reasonable efforts not waste electricity, water or
air-conditioning and shall cooperate fully with Landlord to assure the most effective and efficient
operation of the Buildings heating and air-conditioning systems.
(9) No locks or similar devices shall be attached to any door except by Landlord and Landlord
shall have the right to retain a key to all such locks. Tenant may not install any locks without
Landlords prior approval.
(10) Tenant shall not make any use of the Premises which may be dangerous to person or
property or which shall increase the cost of insurance or require additional insurance coverage;
provided, however, that Tenant shall have the right to use the Premises for all of the uses
permitted hereunder and exercise all of Tenants rights hereunder.
(11) Tenant shall comply with all safety, fire protection and evacuation procedures and
regulations established by Landlord or any governmental agency.
D-1
(12) Tenant shall cooperate and participate in all reasonable security programs affecting the
Building.
(13) Tenant assumes full responsibility of protecting the Premises from theft, robbery and
pilferage; the Indemnitees shall not be liable for damage thereto or theft or misappropriation
thereof. Except during Tenants normal business hours, Tenant shall keep all doors to the Premises
locked and other means of entry to the Premises closed and secured. All corridor doors shall
remain closed at all times. If Tenant desires telegraphic, telephones, burglar alarms or other
electronic mechanical devices, then Landlord will, upon request, direct where and how connections
and all wiring for such services shall be installed and no boring, cutting or installing of wires
or cables is permitted without Landlords approval.
(14) Except with the prior approval of Landlord, all cleaning, repairing, janitorial,
decorating, painting or other services and work in and about the Premises shall be done only by
authorized Building personnel.
(15) Furniture, equipment, machines and other large or bulky articles shall be brought to the
Building and into and out of the Premises at such times and in such manner as the Landlord shall
reasonably direct and at Tenants sole risk and cost. Prior to Tenants removal of any of such
articles from the Building, Tenant shall obtain written authorization of the Office of the Building
and shall present such authorization to a designated employee of Landlord.
(16) Tenant shall not overload the safe capacity of the electrical wiring of the Building and
the Premises or exceed the capacity of the feeders to the Building or risers.
(17) To the extent permitted by law, Tenant shall not cause or permit picketing or other
activity which would interfere with the business of Landlord or any other tenant or occupant of the
Building, or distribution of written materials involving its employees in or about the Building,
except in those locations and subject to time and other limitations as to which Landlord may give
prior written consent.
(18) Tenant shall not cook, otherwise prepare or sell any food or beverages in or from the
Premises or use the Premises for housing accommodations or lodging or sleeping purposes except that
Tenant may install and maintain vending machines, coffee/beverage stations and food warming
equipment and eating facilities for the benefit of its employees or guests, provided the same are
maintained in compliance with applicable laws and regulations and do not disturb other tenants in
the Building with odor, refuse or pests.
(19) Tenant shall not permit the use of any apparatus for sound production or transmission in
such manner that the sound so transmitted or produced shall be audible or vibrations therefrom
shall be detectable beyond the Premises; nor permit objectionable odors or vapors to emanate from
the Premises
(20) No floor covering shall be affixed to any floor in the Premises by means of glue or other
adhesive without Landlords prior written consent.
(21) Tenant shall at all time maintain the window blinds in the lowered position, though
Tenant may keep the louvers open.
D-2
(22) Tenant shall only use the freight elevator for mail carts, dollies and other similar
devices for delivering material between floors that Tenant may occupy.
(23) No smoking, eating, drinking, loitering or laying is permitted in the common areas of the
Building except in designated areas.
(24) Landlord may require that all persons who enter or leave the Building identify themselves
to security guards, by registration or otherwise. Landlord, however, shall have no responsibility
or liability for any theft, robbery or other crime in the Building. Tenant shall assume full
responsibility for protecting the Premises, including keeping all doors to the Premises locked
after the close of business.
(25) Tenant shall comply with all safety, fire protection and evacuation procedures and
regulations established by Landlord or any governmental agency and shall cooperate and participate
in all reasonable security and safety programs affecting the Building.
(26) Tenant shall cooperate and participate in all recycling programs established for the
Building by Landlord or any governmental agency.
D-3
EXHIBIT E
INVENTORY LIST
|
|
|
|
|
PANELS
|
|
|
|
|
42x24
|
|
|
2
|
|
42x30
|
|
|
2
|
|
42x36
|
|
|
|
|
42x48
|
|
|
|
|
64x18
|
|
|
9
|
|
64x24
|
|
|
88
|
|
64x30
|
|
|
4
|
|
63x36
|
|
|
117
|
|
64x48
|
|
|
23
|
|
WORKSURFACES
|
|
|
|
|
36x18
|
|
|
2
|
|
48x18
|
|
|
5
|
|
54x18
|
|
|
1
|
|
66X18
|
|
|
2
|
|
72X18
|
|
|
8
|
|
24X24
|
|
|
15
|
|
36X24
|
|
|
13
|
|
42x24
|
|
|
1
|
|
48X24
|
|
|
22
|
|
54x24
|
|
|
4
|
|
58x24
|
|
|
1
|
|
60x24
|
|
|
12
|
|
72x24
|
|
|
9
|
|
84x24
|
|
|
8
|
|
42x30
|
|
|
1
|
|
24/36/36/24
|
|
|
32
|
|
30/48/72/24
|
|
|
1
|
|
63x30 round end
|
|
|
11
|
|
OVERHEADS
|
|
|
|
|
24
|
|
|
1
|
|
30
|
|
|
1
|
|
36
|
|
|
29
|
|
48
|
|
|
34
|
|
60
|
|
|
1
|
|
BBF
|
|
|
32
|
|
FF
|
|
|
10
|
|
LF 30
|
|
|
53
|
|
LF 36
|
|
|
1
|
|
CABINETS
|
|
|
|
|
E-1
|
|
|
|
|
LF - (3F) 30
|
|
|
2
|
|
LF - (3F) 36
|
|
|
4
|
|
LF - 48
|
|
|
1
|
|
LF - (5F) 30
|
|
|
1
|
|
LF - (5F) 36
|
|
|
6
|
|
Hinged (5C) 36
|
|
|
5
|
|
Hinged (W/CS)
|
|
|
1
|
|
DDC 30
|
|
|
8
|
|
CHAIRS
|
|
|
|
|
Task
|
|
|
33
|
|
Side
|
|
|
23
|
|
Lobby
|
|
|
6
|
|
B2
|
|
|
|
|
PANELS
|
|
|
|
|
42x24
|
|
|
5
|
|
42x30
|
|
|
|
|
42x36
|
|
|
7
|
|
42x48
|
|
|
|
|
64x18
|
|
|
38
|
|
64x24
|
|
|
445
|
|
64x30
|
|
|
1
|
|
63x36
|
|
|
507
|
|
64x48
|
|
|
163
|
|
WORKSURFACES
|
|
|
|
|
36x18
|
|
|
|
|
48x18
|
|
|
24
|
|
60X18
|
|
|
48
|
|
72X18
|
|
|
24
|
|
24X24
|
|
|
128
|
|
36X24
|
|
|
48
|
|
48X24
|
|
|
165
|
|
60x24
|
|
|
|
|
72X24
|
|
|
91
|
|
84X24
|
|
|
48
|
|
24X36X36X24
|
|
|
176
|
|
30/48/72/24
|
|
|
|
|
63X30 round end
|
|
|
48
|
|
OVERHEADS
|
|
|
|
|
24
|
|
|
|
|
36
|
|
|
176
|
|
48
|
|
|
176
|
|
60
|
|
|
|
|
BBF
|
|
|
176
|
|
E-2
|
|
|
|
|
FF
|
|
|
48
|
|
LF
|
|
|
352
|
|
|
|
|
|
|
TABLES
|
|
|
|
|
72 x 30
|
|
|
4
|
|
144 x 48
|
|
|
|
|
120 x48
|
|
|
1
|
|
|
|
|
|
|
CABINETS
|
|
|
|
|
LF - (3F) 36
|
|
|
42
|
|
(5F) - 36
|
|
|
23
|
|
Hinged (5C)
|
|
|
40
|
|
Hinged (W/CS)
|
|
|
10
|
|
Hinged (CC/36/24)
|
|
|
|
|
CHAIRS
|
|
|
|
|
Task
|
|
|
176
|
|
Side
|
|
|
159
|
|
Conference
|
|
|
15
|
|
A2
|
|
|
|
|
PANELS
|
|
|
|
|
42x24
|
|
|
13
|
|
42x30
|
|
|
|
|
42x36
|
|
|
7
|
|
42x48
|
|
|
3
|
|
64x18
|
|
|
35
|
|
64x24
|
|
|
402
|
|
64x30
|
|
|
4
|
|
63x36
|
|
|
465
|
|
64x48
|
|
|
154
|
|
WORKSURFACES
|
|
|
|
|
36x18
|
|
|
|
|
48x18
|
|
|
12
|
|
60X18
|
|
|
24
|
|
72X18
|
|
|
12
|
|
24X24
|
|
|
104
|
|
36X24
|
|
|
24
|
|
48X24
|
|
|
188
|
|
60x24
|
|
|
24
|
|
72X24
|
|
|
116
|
|
84X24
|
|
|
24
|
|
24X36X36X24
|
|
|
164
|
|
30/48/72/24
|
|
|
|
|
63X30 round end
|
|
|
24
|
|
E-3
|
|
|
|
|
OVERHEADS
|
|
|
|
|
24
|
|
|
|
|
36
|
|
|
164
|
|
48
|
|
|
164
|
|
60
|
|
|
|
|
BBF
|
|
|
164
|
|
FF
|
|
|
24
|
|
LF
|
|
|
328
|
|
|
|
|
|
|
TABLES
|
|
|
|
|
72 x 30
|
|
|
3
|
|
144 x 48
|
|
|
1
|
|
120 x48
|
|
|
1
|
|
|
|
|
|
|
CABINETS
|
|
|
|
|
LF - (3F) 36
|
|
|
36
|
|
(5F) - 36
|
|
|
|
|
Hinged (5C)
|
|
|
27
|
|
Hinged (W/CS)
|
|
|
18
|
|
Hinged (CC/36/24)
|
|
|
|
|
CHAIRS
|
|
|
|
|
Task
|
|
|
164
|
|
Side
|
|
|
118
|
|
Conference
|
|
|
45
|
|
E-4
EXHIBIT F
FORM OF LEASE ESTOPPEL CERTIFICATE
Landlord:
BOLINGBROOK INVESTORS, LLC
Tenant:
ULTA SALON, COSMETICS & FRAGRANCE, INC.
Lender:
WILMINGTON TRUST OF PENNSYLVANIA
Premises:
Suite #
Area:
82,468 Sq. Ft.
Lease Date:
The undersigned Landlord and Tenant of the above-referenced lease (the Lease) hereby ratify the
Lease and certify to Lender as mortgagee of the Real Property of which the premises demised under
the Lease (the Premises) is a part, as follows:
1.
|
|
All initial capitalized terms not otherwise defined herein shall have the meaning ascribed to
them in the Lease.
|
|
2.
|
|
That the term of the Lease shall commence on (the Commencement Date) the earlier of either
(a) the date on which Tenant occupies the Premises for the operation of its business or (b)
September 1, 2007.
|
|
3.
|
|
That as of the Commencement Date, the Lease calls for monthly base rent installments in the
amount of $57,392.71, subject to the Abatement (as defined in the Lease).
|
|
4.
|
|
That no rental has been made more than one month in advance and there is no free rent or
other concession under the remaining term of the Lease, except as set forth in the Lease.
|
|
5.
|
|
That a security deposit in the amount $0.00 is being held by Landlord, which amount is not
subject to any set-off or reduction or to any increase for interest or other credit due to
Tenant.
|
|
6.
|
|
That the Lease is a valid lease and in full force and effect and represents the entire
agreement between the parties; that as of the date hereof, there is no existing default beyond
applicable notice and cure periods on the part of the Landlord or the Tenant in any of the
terms and conditions thereof and as of the date hereof, no event has occurred which, with the
passing of time or giving of notice or both, would constitute an event of default beyond
applicable notice and cure periods; and that said Lease has: (initial one)
|
|
|
|
þ
|
|
not been amended, modified, supplemented, extended, renewed or assigned.
|
|
|
|
o
|
|
been amended, modified, supplemented, extended, renewed or assigned as
follows by the following described agreements:
|
F-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
|
That the Lease provides for a primary term of 11 Lease Years; and that: (initial all
applicable subparagraphs)
|
|
|
|
o
|
|
neither the Lease nor any of the documents listed above in Paragraph 6,
(if any), contain an option for any additional term or terms or an option to terminate
the Lease prior to the expiration date set forth above.
|
|
|
|
þ
|
|
the Lease and/or the documents listed above in Paragraph 6 contain an
option for one (1) additional term(s) of five (5) year(s) at a rent to be determined as
follows:
|
|
|
|
|
|
Base Rent per square foot of Rentable Area of the Premises payable during the first
Lease Year of the Renewal Period shall be $28.00 per square foot with respect to all
space included in the Premises as of the Renewal Period Commencement Date, and shall
escalate annually at the rate of $0.50 per Lease Year.
|
|
|
|
o
|
|
the Lease and/or the documents listed above in Paragraph 6 contain an
option to terminate the Lease prior to the date set forth as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
|
As of the date hereof, the Landlord has not rebated, reduced or waived any amounts due from
Tenant under the Lease, either orally or in writing, nor has Landlord provided financing for,
made loans or advances to, or invested in the business of Tenant.
|
9.
|
|
As of the date hereof, there are no actions, voluntary or involuntary, pending against the
Tenant under the bankruptcy laws of the United States or any state thereof.
|
F-2
10.
|
|
That this certification is made knowing that Lender is relying upon the representations
herein made.
|
|
|
|
|
|
|
|
|
|
LANDLORD:
|
|
TENANT:
|
|
|
|
|
|
|
|
|
|
|
|
BOLINGBROOK INVESTORS, LLC
|
|
ULTA SALON, COSMETIC & FRAGRANCE, INC., a Delaware corporation
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name: Alex J. Lelli, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its: Senior Vice President, Growth &
Development
|
|
|
F-3
EXHIBIT G
FORM OF MEMORANDUM CONFIRMING TERM
THIS MEMORANDUM
(
Memorandum
) is made as of
, between
a
limited liability company (
Landlord
), and
, a
(
Tenant
), pursuant to that certain Office
Lease between Landlord and Tenant dated as of ___, 200___(as amended from time to time, the
"
Lease
) for certain leased premises (the
Premises
) located at the building (the
Building
)
known as
, Illinois and more particularly described in the Lease. All
initial-capitalized terms used in this Memorandum have the meaning ascribed to them in the Lease.
|
1.
|
|
Landlord and Tenant hereby confirm that:
|
(a) The Commencement Date of the term is ___, 200___;
(b) The Expiration Date of the Initial Term is ___, 200___;
|
2.
|
|
Tenant hereby confirms that:
|
(a) The Premises and all improvements and other work to be performed by Landlord
therein or elsewhere at the Building have been completed and furnished in accordance with
the provisions of the Lease,
except as follows:
; and
(b) Tenant has accepted and is in full possession of the Premises.
3. This Memorandum has been entered into for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, and this Memorandum may be
relied upon by both Landlord and Tenant in accordance with its terms, and shall be binding upon and
inure to the benefit of the parties and their permitted successors and assigns.
IN WITNESS WHEREOF
, the parties have executed this Memorandum as of the date first set forth
above.
[Signature Page Follows]
G-1
|
|
|
|
|
|
|
|
|
LANDLORD:
|
|
TENANT:
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G-2
EXHIBIT H
HVAC SPECIFICATIONS
|
|
|
Heating, Ventilating and Air Conditioning:
|
|
|
|
|
|
Summer Design Conditions
|
|
Winter Design Conditions
|
|
|
|
Outdoor Temperature: 95°F. Dry Bulb
|
|
Outdoor Temperature: -6°F. Dry Bulb
|
|
|
|
Outdoor Temperature: 75°F. Wet Bulb
|
|
Indoor Temperature: 70°F. ± 2°F
|
|
|
|
Indoor Temperature: 75°F. ± 2°F
|
|
|
All occupied spaces will be air-conditioned with the exception of toilet rooms, storage rooms,
and the mechanical room.
Air-conditioning systems will be designed on the basis of occupancy of one (1) person per one
hundred (100) square feet in the rentable area of the Premises and maximum electrical lighting and
receptacle load of five (5) watts per square foot of the rentable area of the Premises.
All special HVAC requirements shall be subject to Landlords approval.
H-1
EXHIBIT I
CLEANING SPECIFICATIONS
|
|
|
Frequency
|
|
Task
|
Daily
|
|
Police litter
|
|
|
|
Daily
|
|
Empty trash baskets & carry to collection areas, replace liners as needed
|
|
|
|
Daily
|
|
Spot clean carpet to remove stains
|
|
|
|
Daily
|
|
Spot vacuum to remove visible soil.
|
|
|
|
Weekly
|
|
Fully vacuum all carpet corners, edges, and hidden areas.
|
|
|
|
Daily
|
|
Dust mop all hard surface floors.
|
|
|
|
Daily
|
|
Mop all stains and spills.
|
|
|
|
Daily
|
|
Spot clean all partitions, glass
|
|
|
|
Daily
|
|
Spot clean and dust all horizontal & vertical areas removing
fingerprints, stains and smudges (below 6ft).
|
|
|
|
Daily
|
|
Pick up desk-side recycled paper
|
|
|
|
Daily
|
|
Vacuum all carpet areas
|
|
|
|
Bi-weekly
|
|
Buff all hard surface floors
|
|
|
|
Weekly
|
|
Pick up aluminum cans
|
|
|
|
Weekly
|
|
Clean telephones
|
|
|
|
Monthly
|
|
Clean or dust all surfaces above normal reach
|
|
|
|
Monthly
|
|
Detail clean baseboards
|
|
|
|
Monthly
|
|
Vacuum all fabric furniture.
|
|
|
|
Quarterly
|
|
Dust all HVAC louvers
|
|
|
|
Quarterly
|
|
Clean office partition glass
|
|
|
|
Quarterly
|
|
For vinyl and terrazzo floor surfaces- machine scrub & topcoat.
|
|
|
|
Daily
|
|
Cleaning of restrooms in Common Areas
|
I-1
EXHIBIT J
FORM OF SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
Prepared by and
return after recording to:
Ulta Salon Cosmetics & Fragrance, Inc.
Windham Lakes Business Park
1275 Windham Drive
Romeoville, IL 60446
Attn: Alison M. Richter, Esq.
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT made the ___day of ___, 2007 by and among BOLINGBROOK INVESTORS, LLC, an
Illinois limited liability company (Landlord), ULTA SALON, COSMETICS & FRAGRANCE, INC., a
Delaware corporation (Lessee), and WILMINGTON TRUST OF PENNSYLVANIA, a Pennsylvania bank and
trust company (Lender).
WITNESSETH:
A. Landlord is the owner of certain premises (Premises) described in Exhibit A attached
hereto and made a part hereof which is encumbered by a certain Mortgage, Security Agreement and
Fixture Filing dated August 5, 2004 given by Landlord to Lender and recorded August 10, 2004 as
Document R20044148156 with the Recorder of Deeds in and for Will County, Illinois (Mortgage).
The Mortgage secures Landlords indebtedness to Lender evidenced by Landlords $17,025,000 Mortgage
Note dated August 5, 2004 (Note). The Mortgage and Note, together with all other documents
evidencing and/or securing the same, as they have been or may be modified from time to time, are
hereinafter collectively referred to as Loan Documents.
B. Landlord entered into a lease for a portion of the Premises (Leased Premises) with Lessee
dated ___, 2007 (together with all amendments, renewals and extensions thereof
collectively referred to as the Lease).
C. The parties desire to set out their understanding as to certain of their respective rights
and obligations in the transactions above described.
NOW, THEREFORE, the parties hereto, in consideration of the premises and their mutual covenants
herein contained and intending to be legally bound hereby agree as follows:
1.
Warranties and Representations
.
(a) Landlord and Lessee warrant and represent that as of the date hereof (i) neither
Landlord nor Lessee is in default under the terms of the Lease beyond applicable
Ulta Tallgrass Office Lease
notice and cure periods, (ii) the Lease is in full force and effect, (iii) no payments
under the Lease have been collected, anticipated, waived, released, discounted or otherwise
discharged or compromised, except as pursuant to the terms of the Lease, (iv) Landlord has
not received any funds or deposits from Lessee other than security deposits under the Lease,
if any, and (v) Lessee has no setoff or counterclaim against Landlord under the Lease, (vi)
Landlord and Lessee have made no agreements concerning, and Lessee is not entitled to, any
free rent, partial rent, rebate of rental payments or any other type of rental concession,
except as set forth in the Lease, (vii) the fixed minimum rent payable under the Lease as of
the Commencement Date (as defined in the Lease) will be $57,392.71 per month, except as may
be abated in accordance with Section 4(b) of the Lease and (viii) no actions, whether
voluntary or involuntary, are pending against Lessee under the bankruptcy laws of the United
States or any state thereof.
2.
Assignment
. Lessee acknowledges that all of the interest of Landlord in and to the
Lease, including the rents and other sums payable thereunder, have been assigned to Lender and that
pursuant to the terms of such Assignment, until the Mortgage is satisfied of record, all rents and
other payments now or hereafter due Landlord under the Lease shall be paid to or at the direction
of Lender. Until further notice from Lender, Lessee is directed by Lender to pay all such sums to
Landlord. Landlord hereby agrees that upon receipt of a written notice from Lender (and without
any duty of inquiry and despite any knowledge or notice to the contrary of the validity of any such
notice), (i) all rents and other payments due from Lessee to Landlord under the Lease shall be paid
by Lessee to Lender and (ii) Lessee shall have no liability to Landlord for any such sums paid
directly to Lender.
3.
Lease not to be Modified, etc
. Landlord and Lessee agree that, without the prior
written consent of Lender, no material modification affecting term, Leased Premises, rent or any
provision increasing Landlords obligations or decreasing Tenants obligations may be made to the
Lease.
4.
Nonlimitation of Lenders Rights under Loan Documents
. Except as set forth in
Paragraph 7 of this Agreement, nothing in this Agreement contained shall prejudice or be construed
to prejudice the right of Lender to commence and prosecute, or to prevent Lender from commencing
and prosecuting any action which it may deem advisable, or which it may be entitled to commence and
prosecute under the terms of the Loan Documents; nor shall this Agreement be construed to waive any
defaults now existing or which may occur under said Loan Documents; nor shall this Agreement be
construed as granting a forbearance or extension of time for payment.
5.
Nonassumption of Liability by Lender Prior to Foreclosure of Mortgage
. Except to
the extent Lender succeeds to the interest of Landlord under the Lease, Lender does not by
execution and acceptance of this Agreement or making demand on or collecting monies under the Lease
assume any liability or become liable in any manner whatsoever for the performance of any of the
terms and conditions thereof.
6.
Subordination
. Subject to Paragraph 7 hereof, Lessee acknowledges, covenants and
agrees that the Lease, including any and all options to purchase, rights of first refusal or other
rights to purchase the Leased Premises, the Premises or any portion thereof, now is and
Ulta Tallgrass Office Lease
J-2
shall at all times continue to be subject and subordinate in each and every respect to the
Mortgage and to all renewals, modifications, consolidations, replacements and extensions thereof,
to the full extent of the principal, interest and other sums secured thereby. Lessee, upon
request, shall execute and deliver any certificate or other instrument reasonably acceptable to
Lessee whether or not in recordable form which Lender may reasonably request to confirm said
subordination. The foregoing notwithstanding, in no event shall any of Lessees trade fixtures,
inventory, equipment, furniture and furnishings, accounts, books or records or other assets be or
become subject or subordinate to the lien in favor of Lender.
7.
Non-Disturbance
. As long as no event of default has occurred and is continuing
under the Lease beyond applicable notice and cure periods, Lender shall not name Lessee as a party
defendant to any action for foreclosure or other enforcement of the Mortgage (unless required by
law), nor shall the Lease be terminated by Lender in connection with, or by reason of, foreclosure
or other proceedings for the enforcement of the Mortgage, or by reason of a transfer of Landlords
interest under the Lease pursuant to the taking of a deed or assignment in lieu of foreclosure (or
similar device), nor shall Lessees use or possession of the Leased Premises, Lobby (as defined in
the Lease), Receiving Docks (as defined in the Lease) or the Common Areas (as defined in the Lease)
be interfered with by Lender and all rights and privileges of Tenant under the Lease, or any
renewals, modifications, or extensions thereof, shall be recognized by Lender and any Successor (as
defined herein).
8.
Non-liability of Lender and Successors
. Neither Lender nor any other person
acquiring or succeeding to the interests of Landlord as a result of any foreclosure or other
proceeding for the enforcement of the Mortgage, or by reason of a transfer of Landlords interest
under the Lease, pursuant to the taking of a deed in lieu of foreclosure (or similar device), nor
such persons successors and assigns (all of the foregoing, including Lender, being hereinafter
referred to as the Successor), shall be:
(a) subject to any credits, offsets, defenses or claims which Lessee might have against
any prior landlord with respect to the payment of rent or other performance under the Lease
except for credits, offsets or claims arising under the Lease with respect to costs and
expenses (but not damages) incurred by Lessee after Lessee has notified Lender and given
Lender an opportunity to cure as provided in this Agreement; or
(b) bound by any prepayment of rent more than one month in advance and not actually
delivered to the Successor; or
(c) liable for any act or omission of any prior landlord; or
(d) required to account or be liable for any security deposits, or any other monies
owing by or on deposit with any prior landlord to the credit of Lessee, which are not
actually delivered to the Successor; or
(e) bound by any material amendment or modification of the Lease affecting the term,
Leased Premises, rent or any provision increasing Landlords obligations or decreasing
Tenants obligations made without Lenders consent; or
Ulta Tallgrass Office Lease
J-3
(f) bound by any covenant to undertake or complete, or to make any contribution toward,
any improvement to or expansion or rehabilitation of the Leased Premises, the Premises or
any portion thereof, except that such Successor shall be liable for the following: (i) all
of Landlords obligations with respect to maintenance, repairs, casualty and condemnation of
the Leased Premises, Lobby, Receiving Docks, Common Allowance; (iii) the payment of the
design allowance set forth in Exhibit B, Paragraph 3(b) of the Lease; (iv) the completion of
Landlords obligations with respect to the separation of the electricity metering as
provided in Section 8(b) of the Lease; (v) the completion of Landlords obligations with
respect to the demising of Tenants space as provided in Exhibit B, Paragraph 1; and (vi)
the payment of Landlords portion of the costs with respect to the North Wall Glass Doors as
set forth in Exhibit B, Paragraph 2. Lenders obligations under this subparagraph 8(f) are
expressly conditioned in each instance on Tenant having given Lender written notice of
Landlords default within fifteen (15) days following notice of such default to Landlord.
Notwithstanding the foregoing Subparagraphs 8(a) through (f), nothing herein shall excuse
Lender or any Successor Landlord from liability or responsibility for, or limit any right or remedy
of Lessee with respect to, any breach or default that continues from and after the date when Lender
or such Successor Landlord obtains title to or takes possession or control of the Premises.
9.
Further Subordination
. Except as otherwise may be required pursuant to the terms
of the Lease, so long as the Mortgage is in effect, Lessee covenants and agrees not to subordinate
or permit the subordination of the Lease to any mortgage or other lien encumbering the Premises at
any time, other than the Mortgage and any replacement, renewal, consolidation, substitution,
extension, modification, spreader and splitter thereof. Notwithstanding anything to the contrary
herein, Tenant shall have the right to place a lien on its personal property, trade fixtures,
inventory, equipment, furniture and furnishings, accounts, books or records and other assets.
10.
Notice of Default
. Lessee covenants and agrees that Lessee will notify Lender in
writing of any default of Landlord under the Lease and agrees that notwithstanding any provisions
of the Lease, no notice by Lessee of any cancellation shall be effective unless Lender has received
notice as aforesaid, and has failed to cure the default within the applicable time periods set
forth in the Lease for the cure of any Landlord default.
11.
Attornment
. If the interest of Landlord under the Lease shall be transferred by
reason of foreclosure or other proceedings for enforcement of the Mortgage, pursuant to the taking
of a deed in lieu of foreclosure (or similar device) or as a result of the exercise of any power of
sale under the Mortgage, Lessee shall be bound to the Successor, and, except as provided herein,
the Successor shall be bound to Lessee, under all of the terms, covenants and conditions of the
Lease for the balance of the term thereof remaining, with the same force and effect as if the
Successor were the landlord, and Lessee does hereby (i) agree to attorn to the Successor, including
Lender if it be the Successor, as its landlord, (ii) affirm its obligation under the Lease, and
(iii) agree to make payments when due of all sums due under the Lease to the Successor, said
attornment, affirmation and agreement to be effective and self-operative, without the execution of
any further instruments, upon Lessee and the Successor succeeding to the
Ulta Tallgrass Office Lease
J-4
interest of Landlord. Lessee shall, at the request of Successor, execute, acknowledge and
deliver such further instruments reasonably acceptable to Lessee evidencing such attornment as are
desired by the Successor. Lessee waives the provisions of any statute or rule of law now or
hereafter in effect that may give or purport to give it any right or election to terminate or
otherwise adversely affect the Lease or the obligations of Lessee thereunder by reason of any
foreclosure or similar proceeding. Anything in the Lease to the contrary notwithstanding, in the
event that a Successor shall succeed to the interests of Landlord under the Lease, the Successor
shall have no obligation, nor incur any liability, beyond its then interest, if any, in the
Premises and Lessee shall look exclusively to such interest of the Successor, if any, in the
Premises for the payment and discharge of any obligations imposed upon the Successor hereunder or
under the Lease. Lessee agrees that with respect to any judgment which may be obtained or secured
by Lessee against the Successor, Lessee shall look solely to the estate or interest owned by the
Successor in the Premises and Lessee will not collect or attempt to collect any such judgment out
of any other assets of the Successor.
12.
Lease Requirements
. Lessee agrees that this Agreement satisfies any condition or
requirement in the Lease relating to the granting of a Non-Disturbance agreement with respect to
the Mortgage.
13.
Modification
. This Agreement may not be modified orally or in any other manner
than by an agreement in writing signed by the parties hereto or their respective successors in
interest.
14.
Notices
. Any notice given pursuant to this Agreement shall be valid only if given
in writing, and shall be deemed sufficiently given if sent by hand-delivery, recognized overnight
courier service (i.e., Federal Express) or postpaid, registered or certified mail, return receipt
requested. Notice to the parties to this Agreement shall be addressed as follows:
|
|
|
|
|
|
|
Landlord:
|
|
Bolingbrook Investors, LLC
|
|
|
|
|
770 Township Line Road
|
|
|
|
|
Suite 150
|
|
|
|
|
Yardley, PA 19067
|
|
|
|
|
Attention:
|
|
|
|
|
|
|
|
Lessee:
|
|
Ulta Salon, Cosmetics & Fragrance, Inc.
|
|
|
|
|
Windham Lakes Business Park
|
|
|
|
|
1275 Windham Parkway
|
|
|
|
|
Romeoville, Illinois 60446
|
|
|
|
|
Attention: Senior Vice President, Growth &
|
|
|
|
|
Development
|
|
|
|
|
|
|
|
Lender:
|
|
Wilmington Trust of Pennsylvania
|
|
|
|
|
One Liberty Place Suite 3150
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
Attention: Commercial Real Estate Lending Department
|
Notices shall be effective upon receipt.
Ulta Tallgrass Office Lease
J-5
15.
Captions
. It is agreed that the captions of this Agreement are for convenience
only and are not a part of this Agreement and do not in any way limit or amplify the terms and
provisions of this Agreement.
16.
Benefit and Binding Effect; Governing Law
. This Agreement shall bind and inure to
the benefit of the successors and assigns of the parties hereto. This Agreement shall be governed
by and construed in accordance with the laws of the State of Illinois.
17.
Counterparts
. This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signature thereto and hereto were on the
same instrument.
Ulta Tallgrass Office Lease
J-6
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first
above written.
|
|
|
|
|
|
|
WITNESS:
|
|
BOLINGBROOK INVESTORS, LLC
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
Scott A. Williams
|
|
|
|
|
Title:
|
|
Senior Vice President
|
|
|
|
|
|
|
|
|
|
WITNESS/ATTEST:
|
|
ULTA SALON, COSMETICS & FRAGRANCE, INC.,
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
Alex J. Lelli, Jr.
|
|
|
|
|
Title:
|
|
Senior Vice President, Growth &
Development
|
|
|
|
|
|
|
|
|
|
ATTEST:
|
|
WILMINGTON TRUST OF PENNSYLVANIA
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
Title:
|
|
|
|
|
J-7
|
|
|
|
|
STATE OF ILLINOIS
|
|
:
|
|
|
COUNTY OF DUPAGE
|
|
:
:
|
|
SS.
|
On this ___day of ___, 200___, before me, a Notary Public, personally appeared Alex J.
Lelli, Jr. who acknowledged himself/herself to the Senior Vice President, Growth & Development of
Ulta Salon, Cosmetics & Fragrance, Inc., and that he/she as such Senior Vice President, Growth &
Development, being authorized to do so, executed the foregoing Subordination, Non-Disturbance, and
Attornment Agreement for the purposes therein contained by signing the name of the corporation by
himself/herself as such Senior Vice President, Growth & Development.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
|
|
|
|
|
|
Notary Public
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMONWEALTH OF PENNSYLVANIA
|
|
:
|
|
|
|
COUNTY OF PHILADELPHIA
|
|
:
|
|
SS.
|
On this ___day of ___, 200___, before me, a Notary Public, personally
appeared Scott A. Williams, who acknowledged himself to be a Senior Vice President of BOLINGBROOK
INVESTORS, LLC, an Illinois limited liability company, and that he as such Officer, who I am
satisfied is the person who executed the foregoing instrument, being authorized to do so by virtue
of the resolution of the sole Member of the limited liability company acknowledged that he executed
the foregoing instrument on behalf of the limited liability company, and delivered same, as the
voluntary authorized act and deed of the limited liability company, for the purpose therein
contained by signing the name of the limited liability company by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
|
|
|
|
|
|
Notary Public
Commission expires:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMONWEALTH OF PENNSYLVANIA
|
|
:
|
|
|
COUNTY OF PHILADELPHIA
|
|
:
:
|
|
SS.
|
On this ___day of ___, 200___, before me, ___, a Notary Public,
personally appeared ___, ___of WILMINGTON TRUST OF PENNSYLVANIA,
who I am satisfied is the person who executed the foregoing instrument, being authorized to do so,
acknowledged that he executed the foregoing instrument on behalf of the ___, and delivered
same, as the voluntary authorized act and deed of the ___, for the purpose herein contained
by signing the name of the ___by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
|
|
|
|
|
|
Notary Public
Commission expires:
|
|
|
|
|
|
|
|
|
|
|
|
EXHIBIT K
FORM OF LANDLORDS WAIVER AND CONSENT
THIS LANDLORDS WAIVER AND CONSENT (Waiver and Consent) is made and entered into as of this
___day of ___2007, by and between
Bolingbrook Investors, LLC
, an Illinois limited
liability company (Landlord), and
Wachovia Capital Finance Corporation (Central)
, an Illinois
corporation (Lender), in its capacity as Collateral Agent (Agent) for various lenders
(Lenders).
A. Landlord is the owner of the real property commonly known as 1000 Remington boulevard,
Bolingbrook, Illinois (the Premises).
B. Landlord has entered into a certain Lease Agreement (together with all amendments and
modifications thereto and waivers thereof, the Lease) with Ulta Salon, Cosmetics & Fragrance,
Inc. (Company), with respect to the Premises.
C. Agent and the Lenders have entered into a certain Second Amended and Restated Loan and
Security Agreement with Company (as amended from time to time, the Credit Agreement), and to
secure the obligations arising under such Credit Agreement, Company has granted to Agent for its
benefit and the benefit of the Lenders a security interest in and lien upon certain assets of
Company which assets may from time to time be located at the Premises, including, without
limitation, all of Companys goods, inventory, machinery, equipment, and furniture and trade
fixtures (such as equipment bolted to floors), together with all additions, substitutions,
replacements and improvements to, and proceeds of, the foregoing, but
excluding
building
fixtures (such as plumbing, lighting and HVAC systems and other fixtures not constituting trade
fixtures) (collectively, the Collateral).
NOW, THEREFORE, in consideration of any financial accommodations extended by Agent and the
Lenders to Company at any time, and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Landlord acknowledges that (a) the Lease is in full force and effect and (b) Landlord is
not aware of any existing default under the Lease.
2. Landlord will use commercially reasonable efforts to provide Lender with written notice of
any default by Company under the Lease resulting in termination of the Lease (a Default Notice).
No action by Agent pursuant to this Waiver and Consent shall be deemed to be an assumption by Agent
or any Lender of any obligation under the Lease, and, except as provided in paragraphs 5, 6, 7 and
8 below, neither Agent nor any Lender shall have any obligation to Landlord hereunder.
3. Landlord acknowledges the validity of Lenders lien on the Collateral and, until such time
as the obligations of Company to Agent and the Lenders are indefeasibly paid in full, Landlord
waives any interest in the Collateral and agrees not to distrain or levy upon any Collateral or to
assert any landlord lien, right of distraint or other claim against the Collateral for any reason,
provided that the foregoing provision shall not prevent Landlord from suing the Company for rent or
other charges owing under the Lease.
K-1
4. Landlord agrees that the Collateral consisting of trade fixtures such as equipment bolted
to the floor, which can be removed without material damage (unless company or Agent promptly
repairs such damage) shall not be deemed a fixture or part of the real estate but shall at all
times be considered personal property.
5. Prior to a termination of the Lease, Agent or its representatives or invitees may enter
upon the Premises at any time without any interference by Landlord to inspect or remove any or all
of the Collateral. Lender will use commercially reasonable efforts to provide Landlord with prior
written notice of its intention to enter onto the Premises to remove any of the Collateral.
6. Upon a termination of the Lease, Landlord will permit Agent and its representatives and
invitees to access the Premises;
provided
, that such access period (the Access Period)
shall not exceed up to 30 days following receipt by Agent of a Default Notice or, if the Lease has
expired by its own terms (absent a default thereunder) and the Company has failed to remove all of
the Collateral from the Premises, up to 30 days following Agents receipt of written notice from
Landlord of such failure.
7. During any Access Period, (a) Agent and its representatives and invitees may inspect,
repossess and remove the Collateral, in each case without interference by Landlord or liability of
Agent to Landlord, and (b) Agent shall make the Premises available for inspection by Landlord and
prospective tenants and shall cooperate in Landlords reasonable efforts to re-lease the Premises.
In no event shall Agent disturb or interfere with other tenants rights of quiet enjoyment of their
leased space and no auction or other sale shall be held by Agent at the Premises. Upon request by
the Landlord, Agent shall promptly provide Landlord with evidence that commercially reasonable
insurance is in force throughout Agents period of possession.
8. Agent shall promptly repair, at Agents expense, or reimburse Landlord for any physical
damage to the Premises actually caused by the conduct or activities of Agent or any of its
representatives or invitees with respect to the removal or other disposition of Collateral by or
through Agent (ordinary wear and tear excluded). Agent shall not be liable for any diminution in
value of the Premises caused by the absence of Collateral removed, and Agent shall not have any
duty or obligation to remove or dispose of any Collateral or any other property left on the
Premises by Company. Agent shall indemnify, defend and hold harmless Landlord and its employees
and agents from and against any loss, damage, claim, liability and expense incurred or sustained by
said indemnified parties and arising out of the conduct or activities of Agent or any of its
representatives or invitees with respect to the removal or other disposition of the Collateral.
9. All notices hereunder shall be in writing, sent by overnight courier to the respective
parties and the addresses set forth on the signature page or at such other address as the receiving
party shall designate in writing.
10. This Waiver and Consent may be executed in any number of several counterparts, shall be
governed and controlled by, and interpreted under, the laws of the state in which the Premises are
located and shall inure to the benefit of Agent and its successors and assigns and shall be binding
upon Landlord and its successors and assigns (including any transferees of the
K-2
Premises); provided that this Waiver and Consent shall be rendered null and void if Landlord
does not receive a fully executed original thereof within ten (10) business days after Landlords
execution and delivery of this Waiver and Consent to Tenant.
K-3
IN WITNESS WHEREOF, this Landlords Waiver and Consent is entered into as of the date first
set forth above.
|
|
|
|
|
|
|
|
|
|
|
|
|
LANDLORD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bolingbrook Investors, LLC,
an Illinois limited
liability company
|
|
|
|
|
|
|
|
|
|
|
|
Attention:
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telephone:
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landlords Notice Address:
c/o BPG Properties, Ltd.
200 South Michigan Avenue, Suite 210
Chicago, Illinois 60604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wachovia Capital Finance Corporation (Central),
an
Illinois corporation
|
|
|
|
|
|
|
|
|
|
|
|
Attention:
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telephone:
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lenders Notice Address:
Wachovia Capital Finance
Corporation (Central), as agent
150 South Wacker Drive
Chicago, IL 60606-4401
Attn: Portfolio Manager
|
|
|
K-4
EXHIBIT L
TENANT BUILDING SIGNAGE
{Details and location}
L-1
EXHIBIT M
TENANT LOBBY SIGNAGE
M-1
EXHIBIT N
LANDLORDS WORK
N-1
EXHIBIT 10.15
THIRD AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
by and among
LASALLE BANK NATIONAL ASSOCIATION,
as Administrative Agent, Syndication Agent, Co-Arranger,
Lead Manager and LC Issuer,
WACHOVIA CAPITAL FINANCE CORPORATION (CENTRAL),
as Collateral Agent and Co-Arranger,
JPMORGAN CHASE BANK, N.A.,
as Documentation Agent,
THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO,
as Lenders,
and
ULTA SALON, COSMETICS & FRAGRANCE, INC.
as Borrower
Dated: as of June 29, 2007
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
SECTION 1. DEFINITIONS
|
|
|
2
|
|
|
|
|
|
|
SECTION 2. CREDIT FACILITIES
|
|
|
19
|
|
|
|
|
|
|
2.1. Revolving Loans
|
|
|
19
|
|
2.2. Letter of Credit Accommodations
|
|
|
21
|
|
2.3. Availability Reserves
|
|
|
25
|
|
2.4. Commitments
|
|
|
26
|
|
2.5. Swing Line Facility
|
|
|
27
|
|
|
|
|
|
|
SECTION 3. INTEREST AND FEES
|
|
|
28
|
|
|
|
|
|
|
3.1. Interest
|
|
|
28
|
|
3.2. Other Fees
|
|
|
30
|
|
3.3. Changes in Laws and Increased Costs of Loans
|
|
|
30
|
|
|
|
|
|
|
SECTION 4. CONDITIONS PRECEDENT
|
|
|
32
|
|
|
|
|
|
|
4.1. Conditions Precedent to Initial Loans and Letter of Credit Accommodations
|
|
|
32
|
|
4.2. Conditions Precedent to All Loans and Letter of Credit Accommodations
|
|
|
33
|
|
|
|
|
|
|
SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST
|
|
|
33
|
|
|
|
|
|
|
5.1. Grant of Security Interest
|
|
|
33
|
|
5.2. Exception from Security Interest
|
|
|
35
|
|
5.3. Perfection of Security Interest
|
|
|
35
|
|
|
|
|
|
|
SECTION 6. COLLECTION AND ADMINISTRATION
|
|
|
39
|
|
|
|
|
|
|
6.1. Borrowers Loan Account
|
|
|
39
|
|
6.2. Statements
|
|
|
39
|
|
6.3. Collection of Accounts
|
|
|
40
|
|
6.4. Payments
|
|
|
42
|
|
6.5. Authorization to Make Loans
|
|
|
43
|
|
6.6. Use of Proceeds
|
|
|
44
|
|
6.7. Pro Rata Treatment
|
|
|
44
|
|
6.8. Sharing
of Payments, Etc.
|
|
|
45
|
|
6.9. Settlement Procedures
|
|
|
46
|
|
|
|
|
|
|
SECTION 7. COLLATERAL REPORTING AND COLLATERAL COVENANTS
|
|
|
46
|
|
|
|
|
|
|
7.1. Collateral Reporting
|
|
|
46
|
|
7.2. Accounts Covenants
|
|
|
46
|
|
7.3. Inventory Covenants
|
|
|
48
|
|
7.4. Power of Attorney
|
|
|
49
|
|
7.5. Right to Cure
|
|
|
50
|
|
i
|
|
|
|
|
|
|
Page
|
7.6. Access to Premises
|
|
|
50
|
|
|
|
|
|
|
SECTION 8. REPRESENTATIONS AND WARRANTIES
|
|
|
51
|
|
|
|
|
|
|
8.1. Corporate Existence; Power and Authority
|
|
|
51
|
|
8.2. Name; State of Organization; Chief Executive Office; Collateral Locations
|
|
|
51
|
|
8.3. Financial Statements; No Material Adverse Change
|
|
|
52
|
|
8.4. Priority of Liens; Title to Properties
|
|
|
52
|
|
8.5. Tax Returns
|
|
|
52
|
|
8.6. Litigation
|
|
|
53
|
|
8.7. Compliance with Other Agreements and Applicable Laws
|
|
|
53
|
|
8.8. Environmental Compliance
|
|
|
54
|
|
8.9. Credit Card Agreements
|
|
|
54
|
|
8.10. Employee Benefits
|
|
|
55
|
|
8.11. Bank Accounts
|
|
|
55
|
|
8.12. Regulation U
|
|
|
56
|
|
8.13. Investment Company Act
|
|
|
56
|
|
8.14. OFAC
|
|
|
56
|
|
8.15. Accuracy and Completeness of Information
|
|
|
56
|
|
8.16. Survival of Warranties; Cumulative
|
|
|
56
|
|
|
|
|
|
|
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
|
|
|
57
|
|
|
|
|
|
|
9.1. Maintenance of Existence
|
|
|
57
|
|
9.2. New Collateral Locations
|
|
|
57
|
|
9.3. Compliance with Laws, Regulations, Etc
|
|
|
57
|
|
9.4. Payment of Taxes and Claims
|
|
|
58
|
|
9.5. Insurance
|
|
|
59
|
|
9.6. Financial Statements and Other Information
|
|
|
59
|
|
9.7. Sale of Assets, Consolidation, Merger, Dissolution, Etc
|
|
|
60
|
|
9.8. Encumbrances
|
|
|
62
|
|
9.9. Indebtedness
|
|
|
63
|
|
9.10. Loans, Investments, Etc
|
|
|
66
|
|
9.11. Dividends and Redemptions
|
|
|
67
|
|
9.12. Transactions with Affiliates
|
|
|
69
|
|
9.13. Credit Card Agreements
|
|
|
69
|
|
9.14. Adjusted Tangible Net Worth
|
|
|
69
|
|
9.15. Compliance with ERISA
|
|
|
69
|
|
9.16. Costs and Expenses
|
|
|
70
|
|
9.17. Further Assurances
|
|
|
71
|
|
|
|
|
|
|
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
|
|
|
71
|
|
|
|
|
|
|
10.1. Events of Default
|
|
|
71
|
|
10.2. Remedies
|
|
|
73
|
|
|
|
|
|
|
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
|
|
|
75
|
|
-ii-
|
|
|
|
|
|
|
Page
|
11.1. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver
|
|
|
75
|
|
11.2. Waiver of Notices
|
|
|
76
|
|
11.3. Amendments and Waivers
|
|
|
77
|
|
11.4. Waiver of Counterclaims
|
|
|
78
|
|
11.5. Indemnification
|
|
|
78
|
|
|
|
|
|
|
SECTION 12. THE AGENTS
|
|
|
79
|
|
|
|
|
|
|
12.1. Appointment, Powers and Immunities
|
|
|
79
|
|
12.2. Reliance by Agents
|
|
|
79
|
|
12.3. Events of Default
|
|
|
80
|
|
12.4. LaSalle/Wachovia in its Individual Capacity
|
|
|
80
|
|
12.5. Indemnification
|
|
|
80
|
|
12.6. Non-Reliance on Agents and Other Lenders
|
|
|
81
|
|
12.7. Failure to Act
|
|
|
81
|
|
12.8. Additional Loans
|
|
|
82
|
|
12.9. Concerning the Collateral and the Related Financing Agreements
|
|
|
82
|
|
12.10. Field Audit, Examination Reports and other Information; Disclaimer by Lenders
|
|
|
82
|
|
12.11. Collateral Matters
|
|
|
83
|
|
12.12. Agency for Perfection
|
|
|
85
|
|
12.13. Successor Agent
|
|
|
85
|
|
12.14. Hedging Agreements
|
|
|
86
|
|
12.15. Other Agents; Arrangers and Managers
|
|
|
86
|
|
|
|
|
|
|
SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS
|
|
|
86
|
|
|
|
|
|
|
13.1. Term
|
|
|
86
|
|
13.2. Interpretative Provisions
|
|
|
88
|
|
13.3. Notices
|
|
|
89
|
|
13.4. Partial Invalidity
|
|
|
90
|
|
13.5. Successors
|
|
|
90
|
|
13.6. Assignments; Participations
|
|
|
90
|
|
13.7. Confidentiality
|
|
|
94
|
|
13.8. Entire Agreement
|
|
|
95
|
|
13.9. Counterparts, Etc
|
|
|
95
|
|
13.10. Customer Identification USA Patriot Act Notice
|
|
|
95
|
|
|
SECTION 14. ACKNOWLEDGMENT AND RESTATEMENT
|
|
|
95
|
|
|
14.1. Existing Obligations
|
|
|
95
|
|
14.2. Acknowledgment of Security Interests
|
|
|
96
|
|
14.3. Existing Agreement
|
|
|
96
|
|
14.4. Restatement
|
|
|
96
|
|
-iii-
INDEX TO
EXHIBITS AND SCHEDULES
|
|
|
Exhibit A
|
|
Assignment and Acceptance
|
|
|
|
Exhibit B
|
|
Information Certificate
|
|
|
|
Exhibit C
|
|
Form of Swap Acknowledgment Agreement
|
|
|
|
Exhibit D
|
|
Notice of Conversion/Continuation
|
|
|
|
Exhibit E
|
|
Closing Checklist
|
|
|
|
Exhibit F
|
|
Notice of Borrowing
|
|
|
|
Exhibit G
|
|
Existing Landlord Agreements
|
|
|
|
Exhibit H
|
|
Form of Landlord Agreement
|
|
|
|
Schedule I
|
|
Loan Commitments
|
-iv-
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Third Amended and Restated Loan and Security Agreement (as amended, restated or otherwise
modified from time to time, the
Agreement
) dated as of June 29, 2007 is entered into by
and among ULTA SALON, COSMETICS & FRAGRANCE, INC., a Delaware corporation (
Borrower
), the
financial institutions from time to time parties hereto as lenders (
Lenders
), LASALLE
BANK NATIONAL ASSOCIATION, in its capacity as administrative agent for Lenders (in such capacity,
Administrative Agent
; in its individual capacity,
LaSalle
) and LC Issuer,
WACHOVIA CAPITAL FINANCE CORPORATION (CENTRAL) (f/k/a Congress Financial Corporation (Central)), an
Illinois corporation, in its capacity as collateral agent for Lenders (in such capacity,
Collateral Agent
, in its individual capacity,
Wachovia
) and JPMORGAN CHASE
BANK, N.A., in its capacity as documentation agent for Lenders (in such capacity,
Documentation Agent
).
W I T N E S S E T H:
WHEREAS, Borrower, Wachovia, as agent, (
Original Agent
) and each of Wachovia and
LaSalle, individually (Wachovia and LaSalle being the
Original Lenders
) are each party to
that certain Loan and Security Agreement dated as of May 29, 1997 (the
1997 Loan
Agreement
) which was amended and restated by that certain Amended and Restated Loan and
Security Agreement dated as of December 20, 2001 (as amended or otherwise modified prior to May 31,
2005, the
2001 Loan Agreement
), and further amended by the Second Amended and Restated
Loan Agreement dated as of May 31, 2005 (as amended or otherwise modified prior to the Closing
Date, but without giving effect to this Agreement the
2005 Loan Agreement
) pursuant to
which, among other things, the Lenders made available to Borrower
Revolving Loans
(as
such term is defined in the 2005 Loan Agreement, and with such loans outstanding immediately prior
to the effectiveness of this Agreement being referred to as the
Original Revolving
Loans
);
WHEREAS, Borrower, Agents and Lenders desire to amend and restate the 2005 Loan Agreement,
subject to the terms and conditions set forth herein, to, among other things, (i) restructure the
terms of the credit facilities provided for under the 2005 Loan Agreement, (ii) provide that
LaSalle shall continue serving as Administrative Agent for the Lenders, and Wachovia shall continue
to serve as Collateral Agent for the Lenders and (iii) continue to provide loans and other
financial accommodations to Borrower for its working capital requirements and general corporate
purposes; and
WHEREAS, Agents and Lenders are willing to amend and restate the 2005 Loan Agreement and
Agents and Lenders are willing to make loans and provide other financial accommodations to
Borrower, in each case on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the respective meanings given
to them below:
1.1
Accounts
shall mean all present and future rights of Borrower to payment of a
monetary obligation, whether or not earned by performance, which is not evidenced by chattel paper
or an instrument, (a) for property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of, (b) for services rendered or to be rendered, (c) for a secondary obligation
incurred or to be incurred, or (d) arising out of the use of a credit or charge card or information
contained on or for use with the card.
1.2
Adjusted Cash Flow
shall mean, as to any Person, for any period, the amount
equal to: (a) the Net Income of such Person for such period,
plus
(b) depreciation, and
other non-cash charges for such period (to the extent deducted in the computation of Net Income),
all in accordance with GAAP,
minus
(c) debt service and capital expenditures made during
such period, (to the extent not otherwise deducted in the computation of Net Income),
minus
(d) payments made in respect of dividends for such period on any shares of Capital Stock of such
Person or the redemption or repurchase of any shares of Capital Stock of such Person or in respect
of management or consulting fees during such period (to the extent not otherwise deducted in the
computation of Net Income),
minus
(e) payments (to the extent not otherwise subtracted
under clause (c) above) made in respect of (i) principal owing on any indebtedness for borrowed
money (excluding as to Borrower, the Loans), (ii) reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers acceptances, whether or not matured or
(iii) capitalized lease obligations (to the extent not already deducted as a capital expenditure)
and for the deferred purchase price of property or services (excluding trade payables incurred by
such person in the ordinary course of business).
1.3
Adjusted Eurodollar Rate
shall mean, with respect to each Interest Period for
any Eurodollar Rate Loan, the rate per annum determined by dividing (a) the Eurodollar Rate for
such Interest Period by (b) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage.
For purposes hereof,
Reserve Percentage
shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for determining the reserve
requirement which is or would be applicable to deposits of United States dollars in a non-United
States or an international banking office of Administrative Agent used to fund a Eurodollar Rate
Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the
Administrative Agent actually holds or has made any such deposits or loans. The Adjusted
Eurodollar Rate shall be adjusted on and as of the effective day of any change in the Reserve
Percentage.
1.4
Adjusted Tangible Net Worth
shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a consolidated basis
for such Person and its subsidiaries (if any), the amount equal to the sum of (a) the difference
between: (i) the aggregate net book value of all assets of such Person and its subsidiaries
(excluding the book value of goodwill, non-competition agreements, patents, trademarks, copyrights,
licenses and other intangible assets), calculating the book value of inventory for this purpose
principally on an average cost basis, after deducting from such book
-2-
values all appropriate reserves in accordance with GAAP (including all reserves for doubtful
receivables, obsolescence, depreciation and amortization) and (ii) the aggregate amount of the
indebtedness and other liabilities of such Person and its subsidiaries (including tax and other
proper accruals) included on the balance sheet of such person in accordance with GAAP, plus (b)
indebtedness of such Person and its subsidiaries which is subordinated in right of payment to the
full and final payment of all of the Obligations on terms and conditions acceptable to
Administrative Agent.
1.5
Affiliate
shall mean, with respect to a specified Person, any other Person which
directly or indirectly, through one or more intermediaries, controls or is controlled by or is
under common control with such Person, and without limiting the generality of the foregoing,
includes (a) any Person which beneficially owns or holds ten (10%) percent or more of any class of
Voting Stock of such Person or other equity interests in such Person, (b) any Person of which such
Person beneficially owns or holds ten (10%) percent or more of any class of Voting Stock or in
which such Person beneficially owns or holds ten (10%) percent or more of the equity interests and
(c) any director or executive officer of such Person. For the purposes of this definition, the
term
control
(including with correlative meanings, the terms
controlled by
and
under common control with
), as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of Voting Stock, by agreement or otherwise.
1.6
Agents
shall mean each of Administrative Agent and Collateral Agent, or each
such entity as the context so provides and any successor agents hereunder.
1.7
Armored Car Companies
shall mean, collectively, Brinks Incorporated, AT
Systems; Safe and Sound Armed Courier, Inc.; Dunbar Armored Inc.; Loomis, Fargo & Co.; and PFI
Armored, Inc. and their respective successors and assigns or any other armored car service selected
by Borrower after the date hereof which is reasonably acceptable to Administrative Agent.
1.8
Assignment and Acceptance
shall mean an Assignment and Acceptance substantially
in the form of Exhibit A attached hereto (with blanks appropriately completed) delivered to the
Administrative Agent in connection with an assignment described under Section 13.6 hereof to the
extent such assignment is not otherwise prohibited as between or among the Lenders.
1.9
Availability Reserves
shall have the meaning set forth in Section 2.3 hereof.
1.10
Blocked Accounts
shall have the meaning set forth in Section 6.3 hereof.
1.11
Business Day
shall mean any day other than a Saturday, Sunday, or other day on
which commercial banks are authorized or required to close under the laws of the State of New York,
Illinois or the State of North Carolina, and a day on which Administrative Agent is open for the
transaction of business, except that if a determination of a Business Day
-3-
shall relate to any Eurodollar Rate Loans, the term Business Day shall also exclude any day on
which banks are closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
1.12
Capital Stock
shall mean, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such Persons capital stock
or partnership, limited liability company or other equity interests at any time outstanding, and
any and all rights, warrants or options exchangeable for or convertible into such capital stock or
other interests (but excluding any debt security that is exchangeable for or convertible into such
capital stock).
1.13
Cash Equivalents
shall mean, at any time, (a) any evidence of indebtedness with
a maturity date of one (1) year or less issued or directly and fully guaranteed or insured by the
United States of America of any agency or instrumentality thereof;
provided
,
that
,
the full faith and credit of the United States of America is pledged in support thereof, (b)
certificates of deposit or bankers acceptances with a maturity of one (1) year or less of any
financial institution that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $250,000,000; (c) commercial paper (including
variable rate demand notes) with a maturity of one hundred eighty (180) days or less issued by a
corporation (except an Affiliate of Borrower) organized under the laws of any State of the United
States of America or the District of Columbia and rated at least A-1 by Standard & Poors Ratings
Service, a division of The McGraw-Hill Companies, Inc. or at least P-1 by Moodys Investors
Service, Inc, (d) repurchase obligations with a term of not more than thirty (30) days for
underlying securities of the types described in clause (a) above entered into with any bank meeting
the qualifications specified in clause (b) above; (e) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or unconditionally guaranteed by the
United States of America or issued by any governmental agency thereof and backed by the full faith
and credit to the United States of America, in each case maturing within one hundred eighty (180)
days or less from the date of acquisition;
provided
,
that
, the terms of such
agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository
Institutions with Securities Dealers and Others, as adopted by the Comptroller of the Currency on
October 31, 1985; and (f) investments in money market funds and mutual funds which invest
substantially all of their assets in securities of the types described in clauses (a) through (e)
above.
1.14
Change of Control
shall be deemed to have occurred if (A) prior to a Qualified
Public Offering, (a) all or substantially all of Borrowers assets shall have been sold, in one or
in a series of transactions to any
Person
or
Group
(as such term is used in
Sections 14(d)(2) and 13(d)(3), respectively, of the Securities Exchange Act) other than to
Permitted Holders; (b) an event or series of events (whether a stock purchase, amalgamation,
merger, consolidation or other business combination or otherwise) shall have occurred by which any
Person or Group (other than a Permitted Holder) is or becomes the
beneficial owner
(as
defined in Rule 13d-3 under the Securities Exchange Act) directly or indirectly of fifty (50%)
percent or more of the combined voting power of the then outstanding securities of Borrower
ordinarily (and apart from rights accruing under certain circumstances) having the right to vote in
election of directors or (c) after the date of this Agreement, a majority of the Board of Directors
of Borrower over a two (2) year period commencing from the date hereof shall have replaced the
-4-
directors who constituted the Board of Directors at the beginning of such period other than
directors whose nominations for election by the stockholders of Borrower was approved by such Board
of Directors and (B) following the completion of a Qualified Public Offering, (a) an event or
series of events (whether a stock purchase, amalgamation, merger, consolidation or other business
combination or otherwise) shall have occurred by which any Person or Group (as such term is used in
Sections 14(d)(2) and 13(d)(3), respectively, of the Securities Exchange Act) (other than a
Permitted Holder) other than any of the Permitted Holders is or becomes the
beneficial
owne
r (as defined in Rule 13d-3 under the Securities Exchange Act) directly or indirectly of
[thirty-five percent (35%)] or more of the combined voting power of the then outstanding securities
of Borrower ordinarily (and apart from rights accruing under certain circumstances) having the
right to vote in election of directors or (b) a majority of the Board of Directors of Borrower over
a one (1) year period commencing from the date the completion of a Qualified Public Offering shall
have replaced the directors who constituted the Board of Directors at the beginning of such period
other than directors whose nominations for election by the stockholders of Borrower was approved by
such Board of Directors).
1.15
Closing Date
shall mean June 29, 2007.
1.16
Code
shall mean the Internal Revenue Code of 1986, as the same now exists or
may from time to time hereafter be amended, modified, recodified or supplemented, together with all
rules, regulations and interpretations thereunder or related thereto.
1.17
Collateral
shall have the meaning set forth in Section 5 hereof.
1.18
Collateral Access Agreement
shall mean an agreement in writing, in form and
substance satisfactory to Collateral Agent, from any lessor of premises to Borrower, or any other
person to whom any Collateral (including Inventory, Equipment, bills of lading or other documents
of title) is consigned or who has custody, control or possession of any such Collateral or is
otherwise the owner or operator of any premises on which any of such Collateral is located,
pursuant to which such lessor, consignee or other person,
inter
alia
, acknowledges
the first priority security interest of Collateral Agent in such Collateral, agrees to waive any
and all claims such lessor, consignee or other person may, at any time, have against such
Collateral, whether for processing, storage or otherwise, and agrees to permit Collateral Agent
access to, and the right to remain on, the premises of such lessor, consignee or other person so as
to exercise Collateral Agents rights and remedies and otherwise deal with such Collateral and, in
the case of any consignee or other person who at any time has custody, control or possession of any
Collateral, acknowledges that it holds and will hold possession of the Collateral for the benefit
of Collateral Agent and agrees to follow all instructions of Collateral Agent with respect thereto.
1.19
Commitments
shall mean, as to any Lender, the aggregate commitment of such
Lender to make Loans or to incur Letter of Credit Obligations in the maximum principal amounts set
forth on Schedule I hereto next to such Lenders name or on the Assignment and Acceptance Agreement
pursuant to which such Lender became a Lender hereunder in accordance with the provisions of
Section 13.6 hereof, as such amount may be adjusted, if at all, in accordance with this Agreement.
-5-
1.20
Cost
shall mean, as to the Inventory as of any date, the cost of such Inventory
as of such date, determined principally on the average cost basis in accordance with GAAP and on a
first-in-first-out basis in accordance with GAAP.
1.21
Credit Card Acknowledgments
shall mean, individually and collectively, the
agreements by Credit Card Issuers or Credit Card Processors in favor of Collateral Agent
acknowledging Collateral Agents first priority security interest in the monies due and to become
due Borrower (including, without limitation, credits and reserves) under the Credit Card
Agreements, and agreeing to transfer all such amounts to the Blocked Accounts, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.
1.22
Credit Card Agreements
shall mean all agreements (other than Credit Card
Acknowledgements) now or hereafter entered into by Borrower any Credit Card Issuer or any Credit
Card Processor, as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced, including, but not limited to, the agreements listed and
schedules of terms listed on Schedule 8.9 to the Information Certificate.
1.23
Credit Card Issuer
shall mean any person (other than Borrower) who issues or
whose members issue credit cards, including, without limitation, MasterCard or VISA bank credit or
debit cards or other bank credit or debit cards issued through MasterCard International, Inc.,
Visa, U.S.A., Inc. or Visa International and American Express, Discover, Diners Club, Carte Blanche
and other non-bank credit or debit cards, including, without limitation, including credit cards
issued by or through American Express Travel Related Services Company, Inc. and Novus Services,
Inc.
1.24
Credit Card Processor
shall mean any servicing or processing agent or any
factor or financial intermediary who facilitates, services, processes or manages the credit
authorization, billing transfer and/or payment procedures with respect to any of Borrowers sales
transactions involving credit card or debit card purchases by customers using credit cards or debit
cards issued by any Credit Card Issuer (including, but not limited to, First Data Merchant Services
Corporation).
1.25
Credit Facilities
shall mean the Loans and Letter of Credit Accommodations
provided to or for the benefit of Borrower pursuant to Sections 2.1 and 2.2.
1.26
Default
shall mean an act, condition or event which with notice or passage of
time or both would constitute an Event of Default.
1.27
Defaulting Lender
shall have the meaning set forth in Section 6.9 hereof.
1.28
Deposit Account Control Agreement
shall mean an agreement in writing, in form
and substance satisfactory to Collateral Agent, by and among Collateral Agent, Borrower and any
bank at which any deposit account of Borrower is at any time maintained which provides that such
bank will comply with instructions originated by Collateral Agent directing disposition of the
funds in the deposit account without further consent by Borrower and such other terms and
conditions as Collateral Agent may require, including as to any such
-6-
agreement with respect to any Blocked Account, providing that all items received or deposited
in the Blocked Accounts are the property of Collateral Agent, that the bank has no lien upon, or
right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds
from time to time on deposit therein and that the bank will wire, or otherwise transfer, in
immediately available funds, on a daily basis to the Payment Account all funds received or
deposited into the Blocked Accounts.
1.29
Eligible Inventory
shall mean Inventory consisting of finished goods held for
resale in the ordinary course of the business of Borrower that are acceptable to Collateral Agent
based on the criteria set forth below. In general, Eligible Inventory shall not include (a)
packaging and shipping materials; (b) supplies used or consumed in Borrowers business; (c)
Inventory at premises other than those owned and controlled by Borrower,
except
for
Inventory at locations of Borrower which are leased by it if either (A) Collateral Agent shall have
received a Landlord Agreement duly authorized, executed and delivered by the owner and lessor of
such premises or (B) if Collateral Agent has not received such Landlord Agreement, then Collateral
Agent shall have established an Availability Reserve in respect of amounts due or to become due to
the owner and lessor of such retail store location (without limiting any other rights and remedies
of Collateral Agent under this Agreement or under the other Financing Agreements with respect to
the establishment of Availability Reserves or otherwise) and after giving effect to such
Availability Reserves, there is Excess Availability;
provided
,
that
, (1) Borrower
shall use its best efforts to obtain the Landlord Agreement with respect to each location in
respect of which Borrower enters into a lease after the date hereof and (2) the Availability
Reserves established pursuant to this Section shall not exceed at any time one (1.0)
times
the basic monthly rent payable to such owners and lessors of such leased locations and including
amounts, if any, then outstanding and unpaid owed by Borrower to such owners and lessors (such
Availability Reserve being $389,685.49 as of the date hereof),
provided
,
that
, such
limitation on the amount of the Availability Reserves pursuant to this Section shall only apply so
long as: (aa) no Default or Event of Default shall exist or have occurred, (bb) Borrower or Agents
shall not have received notice of any default or event of default under the lease with respect to
such retail store location and (cc) Collateral Agent shall have received evidence, in form and
substance satisfactory to Collateral Agent, that Borrower has not granted to the owner and lessor a
security interest in or lien upon any assets of Borrower;(d) Inventory subject to a security
interest or lien in favor of any person other than Collateral Agent except those permitted in this
Agreement; (e) bill and hold goods; (f) unserviceable, obsolete or slow moving Inventory; (g)
Inventory which is not subject to the first priority, valid and perfected security interest of
Collateral Agent. (h) damaged and/or defective Inventory (i) returned Inventory that is not held
for resale; (j) Inventory to be returned to vendors; (k) Inventory subject to deposits made by
customers for sales of Inventory that has not been delivered; (1) Inventory held after the
applicable expiration date thereof; (m) samples (except to the extent approved from time to time by
Collateral Agent) and (n) Inventory purchased or sold on consignment. General criteria for Eligible
Inventory may be established and revised from time to time by Collateral Agent in good faith based
on an event, condition or other circumstance arising after the date hereof, or existing on the date
hereof to the extent neither Agent has any notice thereof in writing from either Borrower or any
inventory appraiser, which adversely affects or could reasonably be expected to adversely affect
the Inventory in any material respect in the good faith determination of Collateral Agent. Any
Inventory which is not Eligible Inventory shall nevertheless be part of the Collateral.
-7-
1.30
Eligible Transferee
shall mean (a) any Lender; (b) any Affiliate of a Lender
and (c) any other commercial bank, financial institution or
accredited investor
(as
defined in Regulation D under the Securities Act of 1933) approved by Administrative Agent;
provided, that, neither the Borrower nor any of its Affiliates shall qualify as an Eligible
Transferee.
1.31 Environmental Laws shall mean all foreign, Federal, State and local laws (including
common law), legislation, rules, codes, licenses, permits (including any conditions imposed
therein), authorizations, judicial or administrative decisions, injunctions or agreements between
Borrower and any Governmental Authority, (a) relating to pollution and the protection, preservation
or restoration of the environment (including air, water vapor, surface water, ground water,
drinking water, drinking water supply, surface land, subsurface land, plant and animal life or any
other natural resource), or to human health or safety, (b) relating to the exposure to, or the use,
storage, recycling, treatment, generation, manufacture, processing, distribution, transportation,
handling, labeling, production, release or disposal, or threatened release, of Hazardous Materials,
or (c) relating to all laws with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Materials. The term
Environmental Laws
includes (i)
the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the
Federal Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal Resource Conservation and
Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii) applicable
state counterparts to such laws, and (iii) any common law or equitable doctrine that may impose
liability or obligations for injuries or damages due to, or threatened as a result of, the presence
of or exposure to any Hazardous Materials.
1.32
Equipment
shall mean all of Borrowers now owned and hereafter acquired
equipment and fixtures, wherever located, including machinery, data processing and computer
equipment and computer hardware and software, whether owned or licensed, and including embedded
software, vehicles, tools, furniture, all attachments, accessions and property now or hereafter
affixed thereto or used in connection therewith, and substitutions and replacements thereof,
wherever located.
1.33
ERISA
shall mean the United States Employee Retirement Income Security Act of
1974, together with all rules, regulations and interpretations thereunder or related thereto.
1.34
ERISA Affiliate
shall mean any person required to be aggregated with Borrower
or any of its Subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
1.35
Eurodollar Rate
shall mean with respect to the Interest Period for a Eurodollar
Rate Loan, the interest rate per annum equal to the per annum rate of interest at which United
States dollar deposits in an amount comparable to the amount of the relevant Eurodollar Rate Loan
and for a period equal to the relevant Interest Period are offered in the London Interbank
Eurodollar market at 11:00 A.M. (London time) two (2) Business Days prior to the
-8-
commencement of such Interest Period (or two (2) Business Days prior to the commencement of
such Interest Period if banks in London, England were not open and dealing in offshore United
States dollars on such second preceding Business Day), as displayed in the
Bloomberg Financial
Markets
system (or other authoritative source selected by the Administrative Agent in its sole
discretion) or, if the
Bloomberg Financial Markets
system or another authoritative source is not
available, as the Eurodollar Rate is otherwise determined by the Administrative Agent in its sole
and absolute discretion, such rate to remain fixed for such Interest Period. The Administrative
Agents determination of the Eurodollar Rate shall be conclusive, absent manifest error.
1.36
Eurodollar Rate Loans
shall mean any Loans or portion thereof on which interest
is payable based on the Adjusted Eurodollar Rate in accordance with the terms hereof.
1.37
Event of Default
shall mean the occurrence or existence of any event or
condition described in Section 10.1 hereof.
1.38
Excess Availability
shall mean the amount, as determined by Collateral Agent,
calculated at any time, equal to: (a) the lesser of (i) the amount of the Loans available to
Borrower as of such time based on the applicable percentage set forth in Section 2.1(a) hereof
multiplied by the Value of Eligible Inventory, as determined by Collateral Agent, and subject to
the sublimits and Availability Reserves from time to time established by Collateral Agent hereunder
and (ii) the Maximum Credit,
minus
(b) the sum of: (i) the amount of all then outstanding
and unpaid principal amount of the Loans,
plus
(ii) at the option of either Agent, the
aggregate amount of all trade payables of Borrower which are more than sixty (60) days past due as
of such time (and for which checks included in clause (iii) below have not been issued)
plus
(iii) the amount of checks issued by Borrower to pay trade payables, but not yet sent
and the book overdraft of Borrower.
1.39
Federal Funds Rate
means, for any day, a fluctuating interest rate equal for
each day during such period to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing selected by the
Administrative Agent. The Administrative Agents determination of such rate shall be binding and
conclusive absent manifest error.
1.40
Fee Letter
shall mean the letter agreement, dated on or about the date hereof,
by and between Borrower and Administrative Agent, as the same exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.41
Financing Agreements
shall mean, collectively, this Agreement and all notes,
guarantees, security agreements and other agreements, documents and instruments at any time
executed and/or delivered by Borrower or any Obligor in connection with the 1997 Loan Agreement,
the 2001 Loan Agreement, the 2005 Loan Agreement or this Agreement (to the
-9-
extent not superseded or replaced by any other Financing Agreement), as the same now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.
1.42
GAAP
shall mean generally accepted accounting principles in the United States
of America as in effect from time to time as set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public Accountants and the
statements and pronouncements of the Financial Accounting Standards Board which are applicable to
the circumstances as of the date of determination consistently applied, except that, for purposes
of Section 9.14 hereof, GAAP shall be determined on the basis of such principles in effect on the
date hereof and consistent with those used in the preparation of the most recent audited financial
statements delivered to Administrative Agent prior to the date hereof.
1.43
Governmental Authority
shall mean any nation or government, any state,
province, or other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.
1.44
Hazardous Materials
shall mean any hazardous, toxic or dangerous substances,
materials and wastes, including hydrocarbons (including naturally occurring or man-made petroleum
and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other
kind and/or type of pollutants or contaminants (including materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes that are or become
regulated under any Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.45
Hedging Agreements
shall mean any and all transactions, agreements or
documents, now existing or hereafter entered into with a Lender or an Affiliate of a Lender subject
to Section 9.9(g) hereof and on terms and conditions reasonably satisfactory (in light of standard
ISDA documentation practices) to Administrative Agent and Borrower, which (a) provides for an
interest rate swap, cap, floor or collar or similar transaction for the purpose of hedging
Borrowers exposure to fluctuations in interest rates in respect of the Obligations, (b) are not
entered into for speculative purposes, (c) are with a financial institution having combined capital
and surplus and undivided profits of not less than $250,000,000, (d) are unsecured except to the
extent any indebtedness of Borrower thereunder constitutes Obligations secured hereby or to the
extent secured by pledges or deposits permitted under Section 9.8(i) hereof and (e) and for which
the counterparty to the Hedging Agreement and the Borrower have executed a Swap Acknowledgement
Agreement.
1.46
Hedging Balance
shall mean with respect to any Hedging Agreements as of any
date of determination, an amount equal to (a) the aggregate amount owing by the counterparties
under the Hedging Agreements to the Borrower
less
(b) the aggregate amount owing by the
Borrower to such counterparties under such Hedging Agreements
plus
(c) the aggregate
amount, if any, of all cash, Cash Equivalents and investment securities pledged or
-10-
deposited to secure the obligations of Borrower under such Hedging Agreements pursuant to
Section 9.8(i) hereof.
1.47
Information Certificate
shall mean the Information Certificate of Borrower
constituting Exhibit B hereto containing material information with respect to Borrower, its
business and assets provided by or on behalf of Borrower to Administrative Agent in connection with
the preparation of this Agreement and the other Financing Agreements and the financing arrangements
provided for herein.
1.48
Intellectual Property
shall mean Borrowers now owned and hereafter arising or
acquired: patents, patent rights, patent applications, copyrights, works which are the subject
matter of copyrights, copyright registrations, trademarks, trade names, trade styles, trademark and
service mark applications, and licenses and rights to use any of the foregoing; all extensions,
renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing;
all rights to sue for past, present and future infringement of any of the foregoing; inventions,
trade secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys, reports,
manuals, and operating standards; goodwill (including any goodwill associated with any trademark or
the license of any trademark); customer and other lists in whatever form maintained; and trade
secret rights, copyright rights, rights in works of authorship, domain names and domain name
registrations; software and contract rights relating to software, in whatever form created or
maintained.
1.49
Interest Period
shall mean for any Eurodollar Rate Loan, a period of
approximately one (1), two (2), three (3) or six (6) months duration as Borrower may elect, the
exact duration to be determined in accordance with the customary practice in the applicable
Eurodollar Rate market;
provided
,
that
, Borrower may not elect an Interest Period
which will end after the Termination Date.
1.50
Interest Rate
shall mean, as to Prime Rate Loans, a rate equal to the Prime
Rate and, as to Eurodollar Rate Loans, (x) in the event that the outstanding Loans are equal to or
less than $100,000,000, a rate of one percent (1.00%) per annum in excess of the Adjusted
Eurodollar Rate and (y) in the event that the outstanding Loans are greater than $100,000,000, for
the portion of the Loans that are equal to $100,000,000, the rate referenced in clause (x) above,
and for the portion of the Loans that exceed $100,000,000, a rate of one and one-quarter percent
(1.25%) per annum in excess of the Adjusted Eurodollar Rate (in each case based on the Eurodollar
Rate applicable for the Interest Period selected by Borrower as in effect three (3) Business Days
after the date of receipt by Administrative Agent of the request of Borrower for such Eurodollar
Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate
previously quoted to Borrower);
provided
,
that
, notwithstanding anything to the
contrary contained herein, the Interest Rate shall mean the rate of two (2%) percent per annum in
excess of the rates otherwise provided in this definition (i) without notice, at any time an Event
of Default exists pursuant to any of Sections 10.1(f), 10.1(g) and/or 10.1(h) and/or (ii) upon the
written request of Required Lenders, and otherwise without notice, for the period from and after
the date of the occurrence of any Event of Default, other than an Event of Default described in the
immediately preceding clause (i), and for so long as such Event of Default is continuing as
reasonably determined by Administrative Agent.
-11-
1.51
Inventory
shall mean all of Borrowers now owned and hereafter existing or
acquired goods, wherever located, which (a) are leased by Borrower as lessor; (b) are held by
Borrower for sale or lease or to be furnished under a contract of service; (c) are furnished by
Borrower under a contract of service; or (d) consist of raw materials, work in process, finished
goods or materials used or consumed in its business.
1.52
Investment Property Control Agreement
shall mean an agreement in writing, in
form and substance satisfactory to Collateral Agent, by and among Collateral Agent, Borrower and
any securities intermediary, commodity intermediary or other person who has custody, control or
possession of any investment property of Borrower acknowledging that such securities intermediary,
commodity intermediary or other person has custody, control or possession of such investment
property on behalf of Collateral Agent, that it will comply with entitlement orders originated by
Collateral Agent with respect to such investment property, or other instructions of Collateral
Agent, or (as the case may be) apply any value distributed on account of any commodity contract as
directed by Collateral Agent, in each case, without the further consent of Borrower and including
such other terms and conditions as Collateral Agent may require.
1.53
Landlord Agreement
shall mean an agreement in writing from the owner and lessor
of premises leased by Borrower (a) executed and delivered prior to the date hereof with respect to
a location listed on Exhibit G hereto (each, an
Existing Landlord Agreement
and
collectively, the
Existing Landlord Agreements
), (b) if executed and delivered following
the Closing Date, (i) substantially in the form attached as Exhibit H hereto, or as otherwise
approved as satisfactory by Collateral Agent or (ii) in the form of an Existing Landlord Agreement
provided
that
the lessor executing such Landlord Agreement is the same entity (or
successor or assign) that executed such Existing Landlord Agreement and the property subject to
such Landlord Agreement is of reasonably similar size to, or smaller than, the premises which is
the subject of such Existing Landlord Agreement, or (c) otherwise in form and substance reasonably
satisfactory to Collateral Agent (it being understood and agreed that if Borrower does not receive
from the Collateral Agent a written response listing objections to the proposed form of landlord
waiver within thirty (30) days of the delivery by the Borrower of a proposed form of a landlord
agreement to the Collateral Agent, Borrower shall be deemed to have satisfied all of the
requirements of delivering a Landlord Agreement, set forth in the definition of the term
Eligible Inventory
herein, and the Collateral Agent shall have been deemed to have
received a Landlord Agreement for all purposes of that definition, when Borrower delivers such a
proposed form of the landlord agreement duly authorized, executed and delivered by the owner and
lessor of leased premises, whether or not Collateral Agent executes and delivers the same).
1.54
LC Application
shall mean, with respect to any request for the issuance of a
Letter of Credit Accommodation, a letter of credit application in the form being used by the LC
Issuer at the time of such request for the type of letter of credit being requested.
1.55
LC Issuer
shall mean LaSalle, in its capacity as the issuer of Letter of Credit
Accommodations under the 2005 Loan Agreement or hereunder or any Affiliate of LaSalle that may from
time to time issue Letter of Credit Accommodations, and their successors and assigns in such
capacity.
-12-
1.56
Lenders
shall mean the financial institutions who are signatories hereto as
Lenders and other persons made a party to this Agreement as a Lender in accordance with Section
13.6 hereof, and their respective successors and assigns; each sometimes being referred to herein
individually as a
Lender
.
1.57
Letter of Credit Accommodations
shall mean, collectively, the letters of
credit, merchandise purchase or other guaranties which are from time to time either (a) issued or
opened by Administrative Agent, any Lender or any Affiliate of Lender for the account of Borrower
or any Obligor or (b) with respect to which Administrative Agent, any Lender or any Affiliate of
Lender has agreed to indemnify the LC Issuer or guaranteed to the LC Issuer the performance by
Borrower of its obligations to such LC Issuer, in each case in accordance with the terms of this
Agreement: sometimes being referred to herein individually as a
Letter of Credit
Accommodation
.
1.58
Loans
shall mean the Revolving Loans and the Swing Line Loans.
1.59
Material Adverse Effect
shall mean a material adverse effect on (a) the
condition (financial or otherwise), business, performance, operations or properties of Borrower,
(b) the legality, validity or enforceability of this Agreement or any of the other Financing
Agreements; (c) the legality, validity, enforceability, perfection or priority of the security
interest or liens of Collateral Agent on a material portion of the Collateral or any other material
property which is security for the Obligations; (d) a material portion of the Collateral or any
other material property which is security for the Obligations, or the value of a material portion
of the Collateral or such other material property, or (e) the ability of Borrower to repay the
Obligations or of Borrower or any Obligor to perform its obligations under this Agreement or any of
the other Financing Agreements.
1.60
Margin Stock
shall mean any
margin stock
as defined in Regulation U
of the Board of Governors of the Federal Reserve System.
1.61
Master Letter of Credit Agreement
shall mean that certain Master Letter of
Credit Agreement, dated as of the date hereof, between Borrower and LaSalle, as the same may be
amended, supplemented or otherwise modified from time to time.
1.62
Maximum Credit
shall mean, as of any date of determination, the aggregate
amount of the Commitments of all Lenders on such date of determination.
1.63
Net Income
shall mean, with respect to any Person, for any period, the
aggregate of the net income (loss) of such Person and its Subsidiaries, on a consolidated basis,
for such period (excluding to the extent included therein any extraordinary gains) after deducting
all charges which should be deducted before arriving at the net income (loss) for such period and
after deducting the Provision for Taxes for such period, all as determined in accordance with GAAP,
provided
,
that
, (a) the net income of any Person that is not a wholly-owned
Subsidiary or that is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid or payable to Borrower or a
wholly-owned Subsidiary of such person; (b) the effect of any change in accounting principles
adopted by such Person or its subsidiaries after the date hereof shall be excluded; and (c) the net
income (if
-13-
positive) of any wholly-owned Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such wholly-owned Subsidiary to Borrower or to any other
wholly-owned Subsidiary of Borrower is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule of government
regulation applicable to such wholly-owned Subsidiary shall be excluded. For the purpose of this
definition, net income excludes any gain (but not loss), together with any related Provision of
Taxes for such gain (but not loss) realized upon the sale or other disposition of any assets that
are not sold in the ordinary course of business (including, without limitation, dispositions
pursuant to sale and leaseback transactions), or of any Capital Stock of such Person or a
Subsidiary of such Person and any net income realized as a result of changes in accounting
principles or the application thereof to such Person.
1.64
Net Recovery Cost Percentage
shall mean the fraction, expressed as a
percentage, (a) the numerator of which is the amount equal to the recovery on the aggregate amount
of the Inventory at such time on a
going out of business sale
basis as set forth in the
most recent acceptable appraisal of Inventory received by Collateral Agent in accordance with
Section 7.3, net of operating expenses, liquidation expenses and commissions, and (b) the
denominator of which is the original Cost of the aggregate amount of the Inventory subject to such
appraisal.
1.65
Obligations
shall mean (a) any and all Loans, Letter of Credit Accommodations
and all other obligations, liabilities and indebtedness of every kind, nature and description
(except those described in clause (b) of this definition) owing by Borrower to any Agent or any
Lender and/or their Affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising, whether arising
before, during or after the initial or any renewal term of this Agreement or after the commencement
of any case with respect to Borrower under the United States Bankruptcy Code or any similar statute
(including the payment of interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable in whole or in part
in such case), whether direct or indirect, absolute or contingent, joint or several, due or not
due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired
by any Agent or any Lender and (b) for purposes only of Section 5.1 hereof and subject to priority
and right of payment under Section 6.4(a) hereof, any and all obligations, liabilities and
indebtedness of any kind, nature and description owing by Borrower arising under or in connection
with Hedging Agreements;
provided
,
that
, (i) in no event shall the amount of such
obligations, liabilities and indebtedness secured by the Collateral pursuant hereto or any of the
other Financing Agreements at any time exceed the amount of the Hedging Balance (to the extent
below $0) with respect thereto as in effect at such time and (ii) Administrative Agent or
Collateral Agent shall have entered into an agreement substantially in the form of Exhibit C hereto
with the counterparty to such Hedging Agreement, as acknowledged and agreed to by Borrower (the
Swap Acknowledgment Agreement
).
1.66
Obligor
shall mean any guarantor, endorser, acceptor, surety or other person
liable on or with respect to the Obligations or who is the owner of any property which is security
for the Obligations, other than Borrower.
-14-
1.67
OFAC
shall mean the Office of Foreign Assets Control.
1.68
Other Hedging Agreements
shall mean any and all transactions, agreements or
documents now existing or hereafter entered into with a Person other than a Lender or an Affiliate
of a Lender subject to Section 9.9(g)(B) hereof which (a) provides for an interest rate swap, cap,
floor or collar or similar transaction for the purpose of hedging Borrowers exposure to
fluctuations in interest rates in respect of the Obligations, (b) are not entered into for
speculative purposes, (c) are with a financial institution having combined capital and surplus and
undivided profits of not less than $250,000,000, and (d) are unsecured.
1.69
Participant
shall mean any financial institution that acquires and holds a
participation in the interest of any Lender in any of the Loans and Letter of Credit Accommodations
in conformity with the provision of Section 13.6 of this Agreement governing participations and its
successors and assigns.
1.70
Payment Account
shall have the meaning set forth in Section 6.3 hereof.
1.71
Permits
shall have the meaning set forth in Section 8.7 hereto.
1.72
Permitted Holders
shall mean the persons listed on Exhibit C to the Information
Certificate, and their respective successors and assigns and any Strategic Purchaser.
1.73
Person
or
person
shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S status under the
Code), limited liability company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.74
Prime Rate
shall mean, for any day, the greater of (i) the rate of interest in
effect for such day as publicly announced from time to time by the Administrative Agent as its
prime rate (whether or not such rate is actually charged by the Administrative Agent), which is not
intended to be the Administrative Agents lowest or most favorable rate of interest at any one time
and (ii) the Federal Funds Rate plus one-half of one percent (0.50%) per annum. Any change in the
Prime Rate announced by the Administrative Agent shall take effect at the opening of business on
the day specified in the public announcement of such change;
provided
that the
Administrative Agent shall not be obligated to give notice of any change in the Prime Rate.
1.75
Prime Rate Loans
shall mean any Loans or portion thereof on which interest is
payable based on the Prime Rate in accordance with the terms thereof.
1.76
Pro Rata Share
shall mean with respect to all matters relating to any Lender,
(a) with respect to all Loans and Letter of Credit Accommodations prior to the date on which the
Commitments have been terminated, the percentage obtained by dividing (i) the Commitments of that
Lender (after settlement and repayment of all Swing Line Loans by the Lenders) by (ii) the
Commitments of all Lenders, and (b) with respect to all Loans and Letter of Credit Accommodations
on and after the date on which the Commitments have been terminated, the percentage obtained by
dividing (i) the aggregate outstanding principal balance of the Loans and Letter of Credit
Accommodations held by that Lender (after settlement and repayment of all
-15-
Swing Line Loans by the Lenders), by (ii) the outstanding principal balance of the Loans and
Letter of Credit Accommodations held by all Lenders.
1.77
Provision for Taxes
shall mean, with respect to a fiscal year of any Person and
its Subsidiaries, an amount equal to all taxes imposed on or measured by net income, whether
Federal, State or local, and whether foreign or domestic, that are paid or payable by such Person
and its Subsidiaries in respect of such fiscal year on a consolidated basis in accordance with
GAAP.
1.78
Qualified Public Offering
shall mean (i) any initial bona fide, firm
underwritten offering by Borrower of shares of its Capital Stock consisting of common stock to the
public pursuant to an effective registration statement under the Securities Act, as then in effect,
or any comparable statement under any similar federal statute then in force; (ii) an acquisition of
shares of the Borrower in one or a series of related transactions by a Strategic Purchaser, in each
case, as long as the aggregate cash proceeds received by the Borrower for the shares sold in such
offering or acquisition, as the case may, is at least $15,000,000; or (iii) any subsequent public
offering by Borrower of its Capital Stock.
1.79
Receivables
shall mean all of the following now owned or hereafter arising or
acquired property of Borrower: (a) all Accounts; (b) all interest, fees, late charges, penalties,
collection fees and other amounts due or to become due or otherwise payable in connection with any
Account; (c) all payment intangibles of Borrower and other contract rights, chattel paper,
instruments, notes, and other forms of obligations owing to Borrower, whether from the sale and
lease of goods or other property, licensing of any property (including Intellectual Property or
other general intangibles), rendition of services or from loans or advances by Borrower or to or
for the benefit of any third person (including loans or advances to any Affiliates or Subsidiaries
of Borrower) or otherwise associated with any Accounts, Inventory or general intangibles of
Borrower (including, without limitation, choses in action, causes of action, tax refunds, tax
refund claims, any funds which may become payable to Borrower in connection with the termination of
any employee benefit plan and any other amounts payable to Borrower from any employee benefit plan,
rights and claims against carriers and shippers, rights to indemnification, business interruption
insurance and proceeds thereof, casualty or any similar types of insurance and any proceeds thereof
and proceeds of insurance covering the lives of employees on which Borrower is a beneficiary).
1.80
Records
shall mean all of Borrowers present and future books of account of
every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and
other shipping evidence, statements, correspondence, memoranda, credit files and other data
relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the foregoing maintained
with or by any other person).
1.81
Refunded Swing Line Loan
shall have the meaning set forth in Section 2.5(c)
hereof.
1.82
Register
shall have the meaning set forth in Section 13.6(b) hereof.
-16-
1.83
Required Lenders
shall mean Lenders having (i) more than 50% of the Commitments
of all Lenders or (ii) if the Commitments have been terminated, more than 50% of the aggregate
outstanding amount of all Loans and Letter of Credit Accommodations;
provided
,
however
, that in the event that there are three (3) or fewer Lenders party hereto, Required
Lenders must consist of at least two (2) Lenders.
1.84
Revolving Loans
shall mean the loans now or hereafter made by or on behalf of
any Lender or by Administrative Agent to or for the benefit of Borrower on a revolving basis
(involving advances, repayments and readvances) pursuant to Section 2.1 hereof.
1.85
Sanctioned Country
means a country subject to a sanctions program identified on
the list maintained by OFAC and available at
http://www.treas.gov/offices/eotffc/ofac/
sanctions/index.html
, or as otherwise published from time to time.
1.86
Sanctioned Person
means (a) a person named on the list of Specially Designated
Nationals or Blocked Persons maintained by OFAC available at
http://www.treas.gov/offices/
eotffc/ofac/sdn/index.html
, or as otherwise published from time to time, or (b) (i) an agency
of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country,
or (iii) a person resident in a Sanctioned Country, to the extent subject to a sanctions program
administered by OFAC.
1.87
Seasonal Advance Period
shall mean the period from and including September 1 of
each year to and including January 31 of the immediately following year.
1.88
Securities Act
shall mean the Securities Act of 1933, as the same now exists or
may hereafter be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.89
Securities Exchange Act
shall mean the Securities Exchange Act of 1934, as the
same now exists or may hereafter from time to time be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations thereunder or related
thereto.
1.90
Special Agent Advances
shall have the meaning set forth in Section 12.11.
1.91
Standard Advance Period
shall mean the period from and including February 1 of
each year to and including August 31 of such year.
1.92
Stated Amount
shall mean (i) in the case of termination of the Agreement, the
Maximum Credit on such date of determination and (ii) in the case of a Commitment reduction
pursuant to Section 2.4(b), the amount of such Commitment reduction.
1.93
Store Bank Accounts
shall have the meaning set forth in Section 6.3(a) hereof.
-17-
1.94
Strategic Purchaser
shall mean a Person (i) which has its shares listed on the
American Stock Exchange or the New York Stock Exchange or quoted on the NASDAQ Global Select
Markets, (ii) which has a short term unsecured debt ratings currently assigned to them of A-1 or
better by Standard and Poors Ratings Services, a division of The McGraw Hill Companies, Inc. or
P-1 by Moodys Investors Service, Inc. (or in the absence thereof, the equivalent long term
unsecured senior debt ratings) and (iii) which either (A) owns, operates or manages a business
similar to the Existing Business or (B) owns, operates or manages a retail business, or is a
supplier to the Existing Business, and has made its investment in the share of the Borrower as a
part of the strategy to enter the Existing Business through the Borrower or develop or
strategically integrate the Existing Business in conjunction with its own existing business. As
used herein,
Existing Business
shall mean the business of providing hairdressing, beauty
salon and other spa services and selling perfume, fragrances, cosmetics, salon products, beauty
aids and related goods and services at retail (including sales of such goods over the World Wide
Web/Internet), or any combination of any of the foregoing.
1.95
Subsidiary
or
subsidiary
shall mean, with respect to any Person, any
corporation, limited liability company, limited liability partnership or other limited or general
partnership, trust, association or other business entity of which an aggregate of at least a
majority of the outstanding Capital Stock or other interests entitled to vote in the election of
the board of directors of such corporation (irrespective of whether, at the time, Capital Stock of
any other class or classes of such corporation shall have or might have voting power by reason of
the happening of any contingency), managers, trustees or other controlling persons, or an
equivalent controlling interest therein, of such Person is, at the time, directly or indirectly,
owned by such Person and/or one or more subsidiaries of such Person.
1.96
Swap Acknowledgment Agreement
shall have the meaning set forth in the
definition of Obligations.
1.97
Swing Line Availability
shall mean, as of any date of determination, the lesser
of (a) the Swing Line Commitment Amount on such date and (b) Excess Availability on such date.
1.98
Swing Line Commitment Amount
means $10,000,000, or if less, the Maximum Credit
on such date, which commitment constitutes a subfacility of the Commitment of the Swing Line
Lender.
1.99
Swing Line Lender
shall mean LaSalle.
1.100
Swing Line Loan
shall have the meaning set forth in Section 2.5(a) hereof.
1.101
Termination Date
shall the meaning set forth in Section 13.1 hereof.
1.102
UCC
shall mean the Uniform Commercial Code as in effect in the State of
Illinois, and any successor statute, as in effect from time to time (except that terms used herein
which are defined in the Uniform Commercial Code as in effect in the State of Illinois on the date
hereof shall continue to have the same meaning notwithstanding any replacement or amendment of such
statute except as Administrative Agent may otherwise determine).
-18-
1.103
Value
shall mean, as determined by Collateral Agent in good faith, with
respect to Inventory, the lower of (a) Cost or (b) market value.
1.104
Voting Stock
shall mean with respect to any Person, (a) one (1) or more
classes of Capital Stock of such Person having general voting powers to elect at least a majority
of the board of directors, managers or trustees of such Person, irrespective of whether at the time
Capital Stock of any other class or classes have or might have voting power by reason of the
happening of any contingency, and (b) any Capital Stock of such Person convertible or exchangeable
without restriction at the option of the holder thereof into Capital Stock of such Person described
in clause (a) of this definition.
SECTION 2.
CREDIT FACILITIES
2.1. Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein, each Lender severally
(and not jointly) agrees to fund its Pro Rata Share of Revolving Loans to Borrower from time to
time in amounts requested by Borrower up to the amount equal to (i) during the Standard Advance
Period, the lesser of (A) eighty percent (80%) of the Value of Eligible Inventory and (B) ninety
percent (90%) of the Net Recovery Cost Percentage multiplied by the Cost of Eligible Inventory or
(ii) during the Seasonal Advance Period, the lesser of (A) eighty-five percent (85%) of the Value
of Eligible Inventory and (B) ninety percent (90%) of the Net Recovery Cost Percentage multiplied
by the Cost of Eligible Inventory
less
, in each case in clauses (i) and (ii) above, the
amount of any Availability Reserves.
(b) Collateral Agent may from time to time, and in each case upon not less than ten (10) days
prior notice to Borrower, subject to the prior written approval of Administrative Agent, reduce the
lending formula with respect to Eligible Inventory to the extent that Collateral Agent determines
that: (i) the number of days of the turnover of the Inventory for any period has changed in any
material respect or (ii) the nature, quality or mix of the Inventory has deteriorated in any
material respect. In determining whether to reduce the lending formula(s), Collateral Agent may
consider events, conditions, contingencies or risks which are also considered in determining
Eligible Inventory or in establishing Availability Reserves. To the extent Collateral Agent shall
have established an Availability Reserve which is sufficient to address any event, condition or
matter in a manner satisfactory to Collateral Agent in good faith, Collateral Agent shall not
exercise its rights under this Section 2.1(b) to reduce the lending formulas, to address such
event, condition or matter. The amount of any reduction in the lending formula by Collateral Agent
pursuant to this Section 2.1(b) shall have a reasonable relationship to the matter which is the
basis for such a reduction.
(c) Except in Administrative Agents discretion, with the consent of all Lenders, the
aggregate amount of the Loans and the Letter of Credit Accommodations outstanding at any time shall
not exceed the Maximum Credit. In the event that the outstanding amount of any component of the
Loans, or the aggregate amount of the outstanding Loans and Letter of Credit Accommodations, exceed
the amounts available under the lending formulas, the sublimits for Letter of Credit Accommodations
set forth in Section 2.2(d) or the Maximum Credit, as applicable, such event shall not limit, waive
or otherwise affect any rights of Agents or
-19-
Lenders in that circumstance or on any future occasions and Borrower shall, upon demand by
Administrative Agent, which may be made at any time or from time to time, immediately repay to
Administrative Agent the entire amount of any such excess(es) for which payment is demanded.
(d) Borrower may, at its option any time before the Termination Date, seek to increase the
Maximum Credit by up to an aggregate amount not exceeding $50,000,000 (resulting in a Maximum
Credit of up to $200,000,000) upon written notice to Administrative Agent (which shall promptly
distribute such notice to each Lender), which notice shall specify the amount of any such
incremental increase (which shall not be less than $10,000,000) sought by the Borrower and shall be
delivered at a time when no Default or Event of Default has occurred and is continuing. Each Lender
shall have the right, but no obligation, to accept to commit to up to a ratable portion of the
incremental increase in the Maximum Credit,
provided
that no later than fourteen (14) days
after receipt of such notice, each Lender shall advise Administrative Agent and Borrower whether
such Lender intends to participate in the incremental increase in the Maximum Credit and the amount
of such Lenders commitment (the
First Offer Requirement
). Any Lender that has not
responded within such period shall be deemed to have declined to participate in the requested
incremental increase in the Maximum Credit. After satisfying the First Offer Requirement and if the
Lenders do not consent to commit to the full amount of the requested incremental increase in the
Maximum Credit, Administrative Agent, subject to the consent of Borrower (which shall not be
unreasonably withheld), shall allocate within seven (7) days of the satisfaction of the First Offer
Requirement the uncommitted portion of the requested incremental increase in the Maximum Credit
(which may be declined by any Lender in its sole discretion) on a non pro-rata basis to one or more
Lenders which have not declined participation therein and shall provide a written offer to one or
more such Lenders to participate up to such allocated amount. Each Lender who has received such
offer shall have the right, but no obligation, to accept to commit to up to the offered non-ratable
portion of the requested incremental increase in the Maximum Credit,
provided
that no later
than seven (7) days after receipt of such notice, each such Lender shall advise Administrative
Agent and Borrower whether such Lender intends to so participate and the amount of its commitment
(the
Second Offer Requirement
). Any Lender that has not responded within such period
shall be deemed to have declined to participate in the offered allocated amount of the requested
incremental increase in the Maximum Credit pursuant to the Second Offer Requirement. After
satisfying the Second Offer Requirement and if the Lenders do not consent to commit to the full
amount of the requested increase in the Maximum Credit, Administrative Agent, subject to the
consent of Borrower (which shall not be unreasonably withheld), shall allocate within seven (7)
days of the satisfaction of the Second Offer Requirement the uncommitted portion of the incremental
increase Maximum Credit and shall provide a written offer to any other banks or entities
reasonably acceptable to Administrative Agent and Borrower which have expressed a desire to accept
the increase in the Maximum Credit and thereby become a Lender hereunder to participate up to such
allocated amount,
provided
that no later than seven (7) days after receipt of such notice,
each such bank or entity shall advise the Administrative Agent and the Borrower whether it intends
to so participate in the increase in the Maximum Credit and the amount of its commitment. Any bank
or entity that has not responded within such period shall be deemed to have declined to participate
in the requested incremental increase in the Maximum Credit. If Maximum Credit is increased in
accordance with this Section 2.1(d), Administrative Agent and Borrower shall determine the
effective date and the final allocation of such increase, and
-20-
Administrative Agent shall promptly notify each of the Lenders and any other banks or entities
of such increase, the allocations of such increase and the effective date thereof. No increase in
the Maximum Credit shall become effective until each of the existing or new Lenders extending such
incremental Commitment and Borrower shall have delivered to Administrative Agent a document in form
and substance reasonably satisfactory to Administrative Agent (the approval of which shall not be
unreasonably withheld or delayed) pursuant to which any such existing Lender states the amount of
its Commitment increase, any such new Lender states its Commitment amount and agrees to assume and
accept the obligations and rights of a Lender hereunder, and Borrower accepts such new Commitments.
After giving effect to such increase in the Maximum Credit, all Loans and all such other credit
exposure shall be held ratably by the Lenders in proportion to their respective Commitments, as
revised to reflect the increase in the Maximum Credit. Upon any increase in the Maximum Credit
pursuant to this Section 2.1(d), Borrower shall pay Administrative Agent, for the ratable benefit
of only the Lenders (including any new Lender) whose Revolving Commitments are increased, an
upfront fee in an amount mutually agreed to among Borrower and the Lenders whose Commitments are
increased. Administrative Agent shall use its commercially reasonable efforts to arrange any
requested increase in the Maximum Credit sought by Borrower pursuant to this Section 2.1(d), but
shall have no obligation to consummate any such increase. Borrower hereby agrees to cooperate with
Administrative Agent in such efforts.
2.2.
Letter of Credit Accommodations
.
(a) Borrower shall execute and deliver to the LC Issuer the Master Letter of Credit Agreement.
Borrower shall give notice to Administrative Agent and the LC Issuer of the proposed issuance of
each Letter of Credit Accommodation on a Business Day which is at least three (3) Business Days (or
such lesser number of days as Administrative Agent and the LC Issuer shall agree in any particular
instance in their sole discretion) prior to the proposed date of issuance of such Letter of Credit
Accommodation Each such notice shall be accompanied by an LC Application, duly executed by
Borrower and in all respects satisfactory to Administrative Agent and the LC Issuer, together with
such other documentation as Administrative Agent or the LC Issuer may request in support thereof,
it being understood that each LC Application shall specify, among other things, the date on which
the proposed Letter of Credit Accommodation is to be issued, the expiration date of such Letter of
Credit Accommodation (which shall not be later than the Termination Date (unless such Letter of
Credit Accommodation is cash collateralized pursuant to Section 10.2(b)) and whether such Letter of
Credit Accommodation is to be transferable in whole or in part. Any Letter of Credit Accommodation
outstanding after the Termination Date which is cash collateralized for the benefit of the LC
Issuer shall be the sole responsibility of the LC Issuer. So long as the LC Issuer has not received
written notice that the conditions precedent set forth in Section 4 with respect to the issuance of
such Letter of Credit Accommodation have not been satisfied, the LC Issuer shall issue such Letter
of Credit Accommodation and of any amendment thereto, extension thereof or event or circumstance
changing the amount available for drawing thereunder. In the event of any inconsistency between
the terms of the Master Letter of Credit Agreement, any application for a Letter of Credit
Accommodation and the terms of this Agreement, the terms of this Agreement shall control.
-21-
(b) The LC Issuer hereby agrees, upon request of Administrative Agent or any Lender, to
deliver to Administrative Agent or such Lender a list of all outstanding Letter of Credit
Accommodations issued by the LC Issuer, together with such information related thereto as
Administrative Agent or such Lender may reasonably request.
(c) The LC Issuer shall notify Borrower and Administrative Agent whenever any demand for
payment is made under any Letter of Credit Accommodation by the beneficiary thereunder;
provided
that the failure of the LC Issuer to so notify Borrower or Administrative Agent
shall not affect the rights of the LC Issuer or the Lenders in any manner whatsoever. Borrower
hereby unconditionally and irrevocably agrees to reimburse the LC Issuer for each payment or
disbursement made by the LC Issuer under any Letter of Credit Accommodation honoring any demand for
payment made by the beneficiary thereunder, in each case on the date that such payment or
disbursement is made. If Borrower does not pay any reimbursement obligation when due, Borrower
shall be deemed to have immediately requested that the Lenders make a Revolving Loan which is a
Prime Rate Loan in a principal amount equal to such reimbursement obligations (such Revolving Loan
shall be referred to herein as an
LC Reimbursement Loan
). Administrative Agent shall
promptly notify such Lenders of such deemed request and, without the necessity of compliance with
the requirements of Section 4, Section 6.5 or otherwise such Lender shall make available to
Administrative Agent its Pro Rata Share of such Loan. The proceeds of such Loan shall be paid over
by Administrative Agent to the LC Issuer for the account of Borrower in satisfaction of such
reimbursement obligations.
(d) Borrowers reimbursement obligations hereunder shall be irrevocable and unconditional
under all circumstances, including (i) any lack of validity or enforceability of any Letter of
Credit Accommodation, this Agreement or any other Financing Agreement, (ii) the existence of any
claim, set-off, defense or other right which Borrower may have at any time against a beneficiary
named in a Letter of Credit Accommodation, any transferee of any Letter of Credit Accommodation (or
any Person for whom any such transferee may be acting), Administrative Agent, the LC Issuer, any
Lender or any other Person, whether in connection with any Letter of Credit Accommodation, this
Agreement, any other Financing Agreement, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between Borrower and the beneficiary named in
any Letter of Credit Accommodation), (iii) the validity, sufficiency or genuineness of any document
which the LC Issuer has determined complies on its face with the terms of the applicable Letter of
Credit Accommodation, even if such document should later prove to have been forged, fraudulent,
invalid or insufficient in any respect or any statement therein shall have been untrue or
inaccurate in any respect, or (iv) the surrender or impairment of any security for the performance
or observance of any of the terms hereof. Without limiting the foregoing, no action or omission
whatsoever by Administrative Agent or any Lender (excluding any Lender in its capacity as the LC
Issuer) under or in connection with any Letter of Credit Accommodation or any related matters shall
result in any liability of the Administrative Agent or any Lender to Borrower, or relieve Borrower
of any of its obligations hereunder to any such Person.
(e) Concurrently with the issuance of each Letter of Credit Accommodation, the LC Issuer shall
be deemed to have sold and transferred to each Lender with a Commitment, and each such Lender shall
be deemed irrevocably and unconditionally to have purchased and received from the Issuing Lender,
without recourse or warranty, an undivided interest and
-22-
participation, to the extent of such Lenders Pro Rata Share, in such Letter of Credit
Accommodation and Borrowers reimbursement obligations with respect thereto. If the LC Issuer makes
any payment or disbursement under any Letter of Credit Accommodation and (a) (x) Borrower has not
reimbursed the LC Issuer in full for such payment or disbursement by 11:00 A.M., Chicago time, on
the date of such payment or disbursement and (y) an LC Reimbursement Loan may not be made in
accordance with Section 2.1 or (b) any reimbursement received by the LC Issuer from Borrower is or
must be returned or rescinded upon or during any bankruptcy or reorganization of Borrower or
otherwise, each other Lender shall be obligated to pay to Administrative Agent for the account of
the LC Issuer, in full or partial payment of the purchase price of its participation in such Letter
of Credit Accommodation, its Pro Rata Share of such payment or disbursement (but no such payment
shall diminish the obligations of Borrower under Section 2.2 (c) and (d)), and, upon notice from
the LC Issuer, Administrative Agent shall promptly notify each other Lender thereof. Each other
Lender irrevocably and unconditionally agrees to so pay to Administrative Agent in immediately
available funds for the LC Issuers account the amount of such other Lenders Pro Rata Share of
such payment or disbursement. If and to the extent any Lender shall not have made such amount
available to Administrative Agent by 2:00 P.M., Chicago time, on the Business Day on which such
Lender receives notice from Administrative Agent of such payment or disbursement (it being
understood that any such notice received after 12:00 noon, Chicago time, on any Business Day shall
be deemed to have been received on the next following Business Day), such Lender agrees to pay
interest on such amount to Administrative Agent for the LC Issuers account forthwith on demand,
for each day from the date such amount was to have been delivered to Administrative Agent to the
date such amount is paid, at a rate per annum equal to (a) for the first three days after demand,
the Federal Funds Rate from time to time in effect and (b) thereafter, the Prime Rate from time to
time in effect. Any Lenders failure to make available to Administrative Agent its Pro Rata Share
of any such payment or disbursement shall not relieve any other Lender of its obligation hereunder
to make available to Administrative Agent such other Lenders Pro Rata Share of such payment, but
no Lender shall be responsible for the failure of any other Lender to make available to
Administrative Agent such other Lenders Pro Rata Share of any such payment or disbursement.
(f) Except as otherwise provided in Sections 2.5 and 2.2(e), no Lender shall have an
obligation to make any Loan, or to permit the continuation of or any conversion into any Eurodollar
Rate Loan, and the LC Issuer shall not have any obligation to issue any Letter of Credit
Accommodation, if a Default or Event of Default exists.
(g) In addition to any charges, fees or expenses charged by any bank or LC Issuer in
connection with the Letter of Credit Accommodations, Borrower shall pay to Administrative Agent,
for the benefit of Lenders, a letter of credit fee at a rate equal to 1.125% per annum on the daily
outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or
part thereof), payable in arrears as of the first day of each succeeding month, except that
Borrower shall pay to Administrative Agent for the ratable benefit of Lenders, such letter of
credit fee, at Administrative Agents option, without notice, at a rate equal to two percent (2%)
per annum in excess of the rate otherwise provided in this Section 2.2(h) on such daily outstanding
balance (i) without notice, at any time an Event of Default pursuant to any of Sections 10.1(f),
10.1(g) and/or 10.1(h) and/or (ii) upon the written request of Required Lenders, and otherwise
without notice, for the period from and after the date of the occurrence of any Event of Default,
other than an Event of Default described in the immediately
-23-
preceding clause (i), and for so long as such Event of Default is continuing as determined by
Administrative Agent. Such letter of credit fee shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed and the obligation of Borrower to pay such fee
shall survive the termination of this Agreement.
(h) No Letter of Credit Accommodations shall be available unless on the date of the proposed
issuance of any Letter of Credit Accommodations, the Loans available to Borrower (subject to the
Maximum Credit and any Availability Reserves) are equal to or greater than: (i) if the proposed
Letter of Credit Accommodation is for the purpose of purchasing Eligible Inventory, the sum of (A)
the percentage equal to one hundred (100%) percent minus the then applicable percentage set forth
in Section 2.1(a) above multiplied by the Value of such Eligible Inventory, plus (B) freight,
taxes, duty and other amounts which Collateral Agent estimates must be paid in connection with such
Inventory upon arrival and for delivery to one of Borrowers locations for Eligible Inventory and
(ii) if the proposed Letter of Credit Accommodation is for any other purpose, an amount equal to
one hundred (100%) percent of the face amount thereof and all other commitments and obligations
made or incurred by Administrative Agent with respect thereto. Effective on the issuance of each
Letter of Credit Accommodation, a Reserve shall be established in the applicable amount set forth
in Section 2.2(i)(i) or Section 2.2(i)(ii).
(i) Except in Administrative Agents discretion, with the consent of all Lenders, the amount
of all outstanding Letter of Credit Accommodations and all other commitments and obligations made
or incurred by either Agent or any Lender in connection therewith shall not at any time exceed
$10,000,000. At any time an Event of Default exists or has occurred and is continuing, upon
Administrative Agents request, Borrower will either furnish cash collateral to secure the
reimbursement obligations to the LC Issuer in connection with any Letter of Credit Accommodations
or furnish cash collateral to Administrative Agent for the Letter of Credit Accommodations, and in
either case, the Loans otherwise available to Borrower shall not be reduced as provided in Section
to 2.2(i) the extent of such cash collateral.
(j) Borrower shall indemnify and hold Agents and Lenders harmless from and against any and all
losses, claims, damages, liabilities, costs and expenses which either Agent or any Lender may
suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or
acceptances relating thereto, including any losses, claims, damages, liabilities, costs and
expenses due to any action taken by any LC Issuer or correspondent with respect to any Letter of
Credit Accommodation. Borrower assumes all risks with respect to the acts or omissions of the
drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer
or beneficiary shall be deemed Borrowers agent. Borrower assumes all risks for, and agrees to
pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject
to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder.
Borrower hereby releases and holds Agents and Lenders harmless from and against any acts, waivers,
errors, delays or omissions, whether caused by Borrower, by any LC Issuer or correspondent or
otherwise with respect to or relating to any Letter of Credit Accommodation, except for the gross
negligence or willful misconduct of either Agent or any Lender as determined pursuant to a final,
non-appealable order of a court of competent jurisdiction. The provisions of this Section 2.2(k)
shall survive the payment of Obligations and the termination of this Agreement.
-24-
(k) Nothing contained herein shall be deemed or construed to grant Borrower any right or
authority to pledge the credit of either Agent or any Lender in any manner. Agents and Lenders
shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by
an LC Issuer other than either Agent or any Lender unless Administrative Agent has duly executed
and delivered to such LC Issuer the application or a guarantee or indemnification in writing with
respect to such Letter of Credit Accommodation. Borrower shall be bound by any interpretation made
in good faith by Administrative Agent, or any other LC Issuer or correspondent under or in
connection with any Letter of Credit Accommodation or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of
Borrower. At any time an Event of Default exists or has occurred and is continuing, Administrative
Agent shall have the sole and exclusive right and authority to, and Borrower shall not: (i) approve
or resolve any questions of non-compliance of documents, (ii) give any instructions as to
acceptance or rejection of any documents or goods, (iii) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, (iv) grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or
documents, or (v) agree to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in
the Collateral;
provided
,
that
, Borrower shall not, at any time prior to an Event
of Default, take any of the actions specified in clauses (iv) and (v) above except after prior
written notice to Administrative Agent and with the prior written consent of Administrative Agent,
if Administrative Agent shall determine in good faith that any such action shall increase the risk
of Agents or Lenders with respect to such Letter of Credit Accommodations. Administrative Agent
may take such actions either in its own name or in Borrowers name.
(l) Any rights, remedies, duties or obligations granted or undertaken by Borrower to any LC
Issuer or correspondent in any application for any Letter of Credit Accommodation, or any other
agreement in favor of any LC Issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been granted or undertaken by Borrower to Administrative
Agent for the ratable benefit of Lenders. Any duties or obligations undertaken by Administrative
Agent to any LC Issuer or correspondent in any application for any Letter of Credit Accommodation,
or any other agreement by Administrative Agent in favor of any LC Issuer or correspondent relating
to any Letter of Credit Accommodation, shall be deemed to have been undertaken by Borrower to
Administrative Agent for the ratable benefit of Lenders and to apply in all respects to Borrower.
2.3.
Availability Reserves
.
Without limiting any other rights and remedies of Agents or Lenders hereunder or under the
other Financing Agreements, all Loans and Letter of Credit Accommodations otherwise available to
Borrower shall be subject to the right of Collateral Agent from time to time, in each case subject
to the prior written approval of Administrative Agent, to establish and revise in good faith
reserves reducing the amount of Loans and Letter of Credit Accommodations that would otherwise be
available to Borrower (
Availability Reserves
): (a) to reflect events, conditions or
contingencies that, as determined by Collateral Agent in good faith, adversely affect or have a
reasonable likelihood of adversely affecting either (i) the Collateral or any other
-25-
property which is security for the Obligations, its value or the amount which may be
realized by Collateral Agent from the sale or other disposition thereof, or (ii) the assets or
financial condition of Borrower or any Obligor, or (iii) the security interests and other rights of
Collateral Agent in the Collateral (including the enforceability, perfection and priority thereof),
or (b) to reflect either Agents good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower or any Obligor to Agents is or may have been
incomplete, inaccurate or misleading in any material respect, or (c) in respect of any state of
facts which either Agent determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default, or (d) to reflect inventory
shrinkage (as reflected on the most recent financial statements delivered pursuant to Section
9.6(a)(i)), or (e) to reflect the aggregate amount of deposits, if any, received by Borrower from
its retail customers in respect of unfilled orders, or (f) to reflect amounts due or to become due
in respect of sales, use and/or withholding taxes,
provided
,
that
, an Availability
Reserve pursuant to this Section 2.3(f) will only be established if (i) Excess Availability
(without giving effect to any reserve for such amounts) shall be less than $1,000,000, or (ii) an
Event of Default or act, condition or event which with notice or passage of time or both would
constitute an Event of Default, shall exist or have occurred and be continuing, or (g) to reflect
any rental payments, service charges or other amounts due to lessors of real or personal property
(other than amounts due to lessors who have executed and delivered Landlord Agreements) to the
extent Inventory or Records are located in or on such property or such Records are needed to
monitor or otherwise deal with the Collateral, or (h) to reflect net amounts owing by Borrower to
Credit Card Issuers or Credit Card Processors in connection with the Credit Card Agreements. To the
extent Collateral Agent may revise the lending formula set forth in Section 2.1 hereof or establish
new criteria or revise existing criteria for Eligible Inventory so as to address any circumstance,
condition, event or contingency in a manner satisfactory to Collateral Agent, Collateral Agent
shall not establish an Availability Reserve for the same purpose. The amount of any Availability
Reserve established by Collateral Agent shall have a reasonable relationship to the event,
condition or other matter which, is the basis for such reserve as determined by Collateral Agent in
good faith.
2.4.
Commitments
.
(a) The aggregate amount of each Lenders Pro Rata Share of the Loans and Letter of Credit
Accommodations shall not exceed the amount of such Lenders Commitments, as the same may from time
to time be amended in accordance with the provisions hereof.
(b) Borrower may at any time upon at least five (5) days prior written notice to the
Administrative Agent permanently reduce the Commitments hereunder;
provided
that (A) prior
to a Qualified Public Offering, and in the event that the Commitments have been increased pursuant
to Section 2.1(d) prior to such reduction, no more than three (3) Lenders are party to the
Agreement at the time of such reduction, (B) the Commitments may not be reduced to less than fifty
percent (50%) of the Maximum Credit in effect immediately prior to such reduction, (C) any such
reduction shall be in a minimum amount of $5,000,000 and integral multiples of $250,000 in excess
of such amount, and (D) such reduction must be accompanied by payment of an early termination fee
in respect of the amount of the Commitments reduced as required by Section 13.1(c), if any,
plus
the payment of any funding breakage costs in accordance with Section 3.1(c).
-26-
2.5.
Swing Line Facility
.
(a) The Administrative Agent shall notify the Swing Line Lender upon the Administrative
Agents receipt of any Notice of Borrowing (as defined in Section 6.5) that requests a Swing Line
Loan. Subject to the terms and conditions hereof, upon the Borrowers request for a Swing Line
Loan as set forth in the applicable Notice of Borrowing, the Swing Line Lender may, in its sole
discretion, make available from time to time until the Termination Date advances (each, a
Swing Line Loan
) in accordance with any such notice, notwithstanding that after making a
requested Swing Line Loan, the sum of the Swing Line Lenders Pro Rata Share of the Revolving Loans
outstanding and all outstanding Swing Line Loans may exceed the Swing Line Lenders Pro Rata Share
of the Commitment. The provisions of this Section 2.5 shall not relieve Lenders of their
obligations to make Revolving Loans under Section 2.1;
provided
that if the Swing Line
Lender makes a Swing Line Loan pursuant to any such notice, such Swing Line Loan shall be in lieu
of any Revolving Loan that otherwise may be made by the Lenders pursuant to such notice. The
aggregate amount of Swing Line Loans outstanding shall not exceed at any time Swing Line
Availability. Until the Termination Date, the Borrower may from time to time borrow, repay and
reborrow under this Section 2.5. Each Swing Line Loan shall be made pursuant to a Notice of
Borrowing delivered by the Borrower to the Administrative Agent in accordance with Section 6.5(a).
Any such notice must be given no later than 2:00 P.M., Chicago time, on the Business Day of the
proposed Swing Line Loan. Unless the Swing Line Lender has received at least one Business Days
prior written notice from the Required Lenders instructing it not to make a Swing Line Loan, the
Swing Line Lender shall, notwithstanding the failure of any condition precedent set forth in
Section 4.2, be entitled to fund that Swing Line Loan, and to have the Lenders make Revolving Loans
in accordance with Section 2.5(c) or purchase participating interests therein in accordance with
Section 2.5(d). Notwithstanding any other provision of this Agreement or the other Loan
Documents, each Swing Line Loan shall constitute a Prime Rate Loan. The Borrower shall repay the
aggregate outstanding principal amount of each Swing Line Loan upon demand therefor by the
Administrative Agent.
(b) The entire unpaid balance of each Swing Line Loan and all other noncontingent Obligations
shall be immediately due and payable in full in immediately available funds on the Termination Date
if not sooner paid in full.
(c) The Swing Line Lender, at any time and from time to time no less frequently than once
weekly, shall on behalf of the Borrower (and the Borrower hereby irrevocably authorizes the Swing
Line Lender to so act on its behalf) request each Lender with a Commitment (including the Swing
Line Lender) to make a Revolving Loan to the Borrower (which shall be a Prime Rate Loan) in an
amount equal to that Lenders Pro Rata Share of the principal amount of all Swing Line Loans (the
Refunded Swing Line Loan
) outstanding on the date such notice is given. Unless any of
the events described in any of Sections 10.1(f), 10.1(g) or 10.1(h) has occurred (in which event
the procedures of Section 2.5(d) shall apply) and regardless of whether the conditions precedent
set forth in this Agreement to the making of a Revolving Loan are then satisfied, each Lender shall
disburse directly to the Administrative Agent, its Pro Rata Share on behalf of the Swing Line
Lender, prior to 2:00 P.M., Chicago time, in immediately available funds on the date that notice is
given (
provided
that such notice is given by 12:00 noon, Chicago time, on such date, which
shall be a Business Day). The proceeds of
-27-
those Revolving Loans shall be immediately paid to the Swing Line Lender and applied to repay
the Refunded Swing Line Loan.
(d) If, prior to refunding a Swing Line Loan with a Revolving Loan pursuant to Section 2.5(c),
one of the events described in any of Sections 10.1(f), 10.1(g) or 10.1(h) has occurred, then,
subject to the provisions of Section 2.5(e) below, each Lender shall, on the date such Revolving
Loan was to have been made for the benefit of the Borrower, purchase from the Swing Line Lender an
undivided participation interest in the Swing Line Loan in an amount equal to its Pro Rata Share of
such Swing Line Loan. Upon request, each Lender shall promptly transfer to the Swing Line Lender,
in immediately available funds, the amount of its participation interest.
(e) Each Lenders obligation to make Revolving Loans in accordance with Section 2.5(c) and to
purchase participation interests in accordance with Section 2.5(d) shall be absolute and
unconditional and shall not be affected by any circumstance, including (i) any setoff,
counterclaim, recoupment, defense or other right that such Lender may have against the Swing Line
Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of any Default or Event of Default; (iii) any inability of the Borrower to satisfy the
conditions precedent to borrowing set forth in this Agreement at any time or (iv) any other
circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If
and to the extent any Lender shall not have made such amount available to the Administrative Agent
or the Swing Line Lender, as applicable, by 2:00 P.M., Chicago time, the amount required pursuant
to Sections 2.5(c) or 2.5(d), as the case may be, on the Business Day on which such Lender receives
notice from the Administrative Agent of such payment or disbursement (it being understood that any
such notice received after noon, Chicago time, on any Business Day shall be deemed to have been
received on the next following Business Day), such Lender agrees to pay interest on such amount to
the Administrative Agent for the Swing Line Lenders account forthwith on demand, for each day from
the date such amount was to have been delivered to the Administrative Agent to the date such amount
is paid, at a rate per annum equal to (a) for the first three days after demand, the Federal Funds
Rate from time to time in effect and (b) thereafter, the Prime Rate from time to time in effect.
SECTION 3.
INTEREST AND FEES
3.1.
Interest
.
(a) Borrower shall pay to Administrative Agent, for the benefit of Lenders, interest on the
outstanding principal amount of the Loans at the Interest Rate. All interest accruing hereunder on
and after the date of any Event of Default or termination hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate Loans be converted to Eurodollar
Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period.
Borrower shall give written notice (each such written notice, a
Notice of
Conversion/Continuation
) substantially in the form of
Exhibit D
or telephonic notice
(followed immediately by a Notice of Conversion/Continuation) to the Administrative Agent of each
proposed conversion or continuation not later than (i) in the case of conversion into Prime
-28-
Rate Loans, 12:00 noon, Chicago time, on the proposed date of such conversion and (ii) in the
case of conversion into or continuation of Eurodollar Rate Loans, 12:00 noon, Chicago time, at
least three (3) Business Days prior to the proposed date of such conversion or continuation,
specifying in each case: (A) the proposed date of conversion or continuation, (B) the aggregate
amount of Loans to be converted or continued, (C) the type of Loans resulting from the proposed
conversion or continuation, and (D) in the case of conversion into, or continuation of, Eurodollar
Loans, the duration of the requested Interest Period therefor. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Administrative Agent of such a request
from Borrower, such Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar
Rate Loans shall continue, as the case may be,
provided
,
that
, (i) no Default or
Event of Default shall exist or have occurred and be continuing, (ii) no party hereto shall have
sent any notice of termination of this Agreement, (iii) Borrower shall have complied with such
customary procedures as are established by Administrative Agent and specified by Administrative
Agent to Borrower from time to time for requests by Borrower for Eurodollar Rate Loans, (iv) no
more than ten (10) Interest Periods may be in effect at any one time, (v) the aggregate amount of
the Eurodollar Rate Loans must be in an amount not less than $2,000,000 or an integral multiple of
$100,000 in excess thereof and (vi) Administrative Agent and each Lender shall have determined that
the Interest Period or Adjusted Eurodollar Rate is available to Administrative Agent and such
Lender and can be readily determined as of the date of the request for such Eurodollar Rate Loan by
Borrower. Any request by Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to
continue any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the
contrary contained herein, Agents and Lenders shall not be required to purchase United States
Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund
any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Agents and
Lenders had purchased such deposits to fund the Eurodollar Rate Loans. Administrative Agent will
promptly notify each Lender of its receipt of a Notice of Conversion/Continuation pursuant to this
Section 3.1(b)
or, if no timely notice is provided by the Borrower, of the details of any
automatic conversion.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last
day of the applicable Interest Period, unless Administrative Agent has received and approved a
request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last
day in accordance with the terms hereof. Any Eurodollar Rate Loans shall, at Administrative Agents
option, upon notice by Administrative Agent to Borrower, convert to Prime Rate Loans in the event
that (i) a Default or an Event of Default shall exist, (ii) this Agreement shall terminate or not
be renewed, or (iii) the aggregate principal amount of the Prime Rate Loans which have previously
been converted to Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as the case
may be, at the beginning of an Interest Period shall at any time during such Interest Period exceed
either (A) the aggregate principal amount of the Loans then outstanding, or (B) the Loans then
available to Borrower under Section 2 hereof. Borrower shall pay to Administrative Agent, for the
benefit of Lenders, upon demand by Administrative Agent (or Administrative Agent may, at its
option, charge any loan account of Borrower) any amounts required to compensate any Lender, the
Administrative Agent or any Participant for any loss (other than the loss of anticipated profits),
cost or expense reasonably incurred by such person, as a result of the conversion of Eurodollar
Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
-29-
(d) Interest accruing in respect of Prime Rate Loans shall be payable by Borrower to
Administrative Agent, for the benefit of Lenders, quarterly in arrears not later than the last day
of each calendar quarter and shall be calculated on the basis of a three hundred sixty (360) day
year and actual days elapsed. Interest accruing in respect of Eurodollar Rate Loans shall be
payable on the last day of each applicable Interest Period, unless the Interest Period is greater
than three (3) months, in which case interest shall be payable on the last day of each three (3)
month interval commencing with the first day of such Interest Period. The interest rate on
non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an
amount equal to each increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day
of the month in which any such change occurs. In no event shall charges constituting interest
payable by Borrower to Agents and Lenders exceed the maximum amount or the rate permitted under any
applicable law or regulation, and if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision shall be deemed amended to
conform thereto.
3.2.
Other Fees
.
(a) Borrower shall pay to Administrative Agent, for the account of Lenders, monthly as billed,
an unused line fee at a rate equal to 0.1875% per annum calculated upon the amount by which the
Maximum Credit (or in the event that the Maximum Credit has changed during a measuring period, the
average daily Maximum Credit during such period) exceeds the average daily principal balance of the
outstanding Revolving Loans and Letter of Credit Accommodations during the immediately preceding
calendar quarter (or part thereof), which fee shall be payable on the last day of each calendar
quarter in arrears.
(b) Borrower agrees to pay to Administrative Agent the other fees and amounts set forth in the
Fee Letter in the amounts and at the times specified therein.
3.3.
Changes in Laws and Increased Costs of Loans
.
(a) Notwithstanding anything to the contrary contained herein, all Eurodollar Rate Loans of
any Lender shall, upon notice by Administrative Agent to Borrower, convert to Prime Rate Loans in
the event that (i) any change in applicable law or regulation (or the interpretation or
administration thereof) shall either (A) make it unlawful for such Lender to make or maintain
Eurodollar Rate Loans or to comply with the terms hereof in connection with the Eurodollar Rate
Loans, or (B) shall result in the increase in the costs to such Lender of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Administrative Agent to be material, or (C) reduce the
amounts received or receivable by such Lender in respect thereof, by an amount deemed by
Administrative Agent to be material or (ii) the cost to such Lender of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed by Administrative Agent to be
material. Borrower shall pay to Administrative Agent, for the ratable benefit of Lenders, upon
demand by Administrative Agent (or Administrative Agent may, at its option, charge any loan account
of Borrower) any amounts required to compensate any Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person as a result of the foregoing,
including, without limitation, any such loss, cost or expense incurred by reason of the liquidation
or reemployment of deposits or
-30-
other funds acquired by such person to make or maintain the Eurodollar Rate Loans or any
portion thereof. A certificate of Administrative Agent or the applicable Lender setting forth the
basis for the determination of such amount necessary to compensate such Lender as aforesaid shall
be delivered to Borrower and shall be presumptive evidence of such amount.
(b) If any payments or prepayments in respect of the Eurodollar Rate Loans are received by
either Agent or any Lender other than on the last day of the applicable Interest Period (whether
pursuant to acceleration, upon maturity or otherwise), including any payments pursuant to the
application of collections under Section 6.3 or any other payments made with the proceeds of
Collateral, Borrower shall pay to Administrative Agent, upon demand by Administrative Agent (or
Administrative Agent may, at its option, charge any loan account of Borrower) any amounts required
to compensate any Lender or any Participant for any additional loss (including loss of anticipated
profits), cost or expense incurred by such person as a result of such prepayment or payment,
including, without limitation, any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such person to make or maintain such Eurodollar
Rate Loans or any portion thereof. A certificate of Administrative Agent or the applicable Lender
setting forth the basis for the determination of such amount necessary to compensate such Lender
shall be delivered to Borrower and shall be presumptive evidence of such amount.
(c) If any Lender delivers notice pursuant to Sections 3.3(a) and 3.3(b) above in which such
Lender asserts a claim for compensation which claim is not being asserted by the other Lenders,
Borrower may require within 90 days of receiving such notice, at its expense, that such Lender
assign, at par, without recourse (in accordance with Section 13.6(a) hereof) all of its interests,
rights and obligations hereunder and under the other Financing Agreements (including all of its
Commitments and the Loans at the time owing to it and any participations in Loans held by it) to an
Eligible Transferee proposed by Borrower (a
Substitute Lender
),
provided
, that
(i) no Event of Default shall exist at the time of such assignment, (ii) such assignment shall not
conflict with or violate any law, rule or regulation or order of any court or other governmental
authority, (iii) Borrower shall have received the written consent of Administrative Agent to such
assignment (which consent shall not be unreasonably withheld or delayed) and (iv) Borrower shall
have paid to the assigning Lender all monies accrued and owing hereunder to it (including pursuant
to Sections 3.3(a) and 3.3(b) above.
(d) Promptly after any Lender becomes aware of any circumstance that will, in its sole
judgment, result in a request for increased compensation pursuant to Sections 3.3(a) and 3.3(b)
above, such Lender shall notify the Borrower thereof. Each Lender will use reasonable efforts to
designate a lending office (or a different lending office), so long as such designation is not
adverse to such Lender in such Lenders sole judgment, if such designation would avoid the need to,
or reduce the amount which would be required to, compensate such Lender for any additional costs
incurred or reductions suffered. Failure on the part of any Lender to so notify Borrower or to
demand compensation for any increased costs in amounts received or receivable with respect to any
period shall not constitute a waiver of such Lenders right to demand compensation with respect to
such period or any other period.
-31-
SECTION 4.
CONDITIONS PRECEDENT
4.1.
Conditions Precedent to Initial Loans and Letter of Credit Accommodations
.
Each of the following is a condition precedent to Agents and Lenders making the initial Loans
and providing the initial Letter of Credit Accommodations hereunder:
(a) all requisite corporate action and proceedings in connection with this Agreement and the
other Financing Agreements shall be satisfactory in form and substance to Administrative Agent, and
Administrative Agent shall have received all information and copies of all documents, including
records of requisite corporate action and proceedings which Administrative Agent may have requested
in connection therewith, such documents where requested by Administrative Agent or its counsel to
be certified by appropriate corporate officers or Governmental Authority (and including a copy of
the certificate of incorporation of Borrower certified by the Secretary of State (or equivalent
Governmental Authority) which shall set forth the same complete corporate name of Borrower as is
set forth herein and such document as shall set forth the organizational identification number of
Borrower, if one is issued in its jurisdiction of incorporation);
(b) Agents shall have received evidence, in form and substance satisfactory to Agents, that
Collateral Agent continues to have a valid perfected first priority security interest in all of the
Collateral; and any other property which is intended to be security for the Obligation or the
liability of any Obligor in respect thereof, subject only to the security interests and liens
permitted herein or in the other Financing Agreement;
(c) Agents shall have received and reviewed lien and judgment search results for the
jurisdiction of incorporation of Borrower and the jurisdiction of the chief executive office of
Borrower, which search results shall be in form and substance satisfactory to Agents;
(d) Agents shall have received, in form and substance satisfactory to Agents, such opinion
letters of counsel to Borrower with respect to the Financing Agreements and such other matters as
Agents may reasonably request;
(e) Administrative Agent shall have received evidence of payment by Borrower of all accrued
and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date,
together with all reasonable legal expenses and reasonable attorneys fees incurred by the Agents,
plus such additional amounts as shall constitute the Agents reasonable estimate of reasonable
legal expenses and reasonable attorneys fees incurred or to be incurred by the Agents through the
closing proceedings (provided that such estimate shall not thereafter preclude final settling of
accounts between Borrower and the Agents);
(f) Administrative Agent shall have received evidence of the existence of insurance required
to be maintained pursuant to
Section 9.5
, together with evidence that the Collateral Agent
continues to be named as a lenders loss payee under Borrowers property insurance policy and each
Agent has been named as an additional insured under Borrowers liability insurance policy;
-32-
(g) the other Financing Agreements and all instruments and documents hereunder and thereunder
required by Administrative Agent shall have been duly executed and delivered to Administrative
Agent, in form and substance satisfactory to Administrative Agent, including, without limitation,
the agreements, instruments and documents set forth on the closing checklist attached as
Exhibit E
hereto.
4.2.
Conditions Precedent to All Loans and Letter of Credit Accommodations
.
Each of the following is an additional condition precedent to Agents and Lenders making Loans
and/or providing Letter of Credit Accommodations to Borrower, including the initial Loans and
Letter of Credit Accommodations and any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the other Financing Agreements
shall be true and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of the making of each such Loan
or providing each such Letter of Credit Accommodation and after giving effect thereto, except to
the extent that such representations and warranties expressly relate solely to an earlier date (in
which case such representations and warranties shall have been true and accurate on and as of such
earlier date);
(b) no law, regulation, order, judgment or decree of any Governmental Authority shall exist,
and no action, suit, investigation, litigation or proceeding shall be pending or threatened in any
court or before any arbitrator or Governmental Authority, which (i) purports to enjoin, prohibit,
restrain or otherwise affect (A) the making of the Loans or providing the Letter of Credit
Accommodations, or (B) the consummation of the transactions contemplated pursuant to the terms
hereof or the other Financing Agreements or (ii) has or could reasonably be expected to have a
material adverse effect on the assets, business or prospects of Borrower or would impair the
ability of Borrower to perform its obligations hereunder or under any of the other Financing
Agreements or of either Agent or any Lender to enforce any Obligations or realize upon any of the
Collateral; and
(c) no Default or Event of Default shall exist or have occurred and be continuing on and as of
the date of the making of such Loan or providing each such Letter of Credit Accommodation and after
giving effect thereto.
SECTION 5.
GRANT AND PERFECTION OF SECURITY INTEREST
5.1.
Grant of Security Interest.
To secure payment and performance of all Obligations, Borrower hereby grants to Collateral
Agent, for itself and the ratable benefit of Lenders, a continuing security interest in, a lien
upon, and a right of set off against, and hereby assigns to Collateral Agent, for itself and the
ratable benefit of Lenders, as security, all personal and real property and fixtures and interests
in property and fixtures of Borrower, whether now owned or hereafter acquired or existing, and
wherever located (together with all other collateral security for the Obligations at any time
granted to or held or acquired by either Agent or any Lender, collectively, the
Collateral
), including:
-33-
(a) all Accounts;
(b) all general intangibles, including, without limitation, all Intellectual Property;
(c) all goods, including, without limitation, Inventory and Equipment;
(d) all chattel paper (including all tangible and electronic chattel paper);
(e) all instruments (including all promissory notes);
(f) all documents;
(g) all deposit accounts;
(h) all letters of credit, bankers acceptances and similar instruments and including all
letter-of-credit rights;
(i) all supporting obligations and all present and future liens, security interests, rights,
remedies, title and interest in, to and in respect of Receivables and other Collateral, including
(i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit
and credit and other insurance related to the Collateral, (ii) rights of stoppage in transit,
replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or
secured party, (iii) goods described in invoices, documents, credit card sales drafts, credit card
sales slips or charge slips or receipts and other forms of store receipts, contracts or instruments
with respect to, or otherwise representing or evidencing, Receivables or other Collateral,
including returned, repossessed and reclaimed goods, and (iv) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
(j) all (i) investment property (including securities, whether certificated or uncertificated,
securities accounts, security entitlements, commodity contracts or commodity accounts) and (ii)
monies, credit balances, deposits and other property of Borrower now or hereafter held or received
by or in transit to either Agent, any Lender or their Affiliates or at any other depository or
other institution from or for the account of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise;
(k) all commercial tort claims, including, without limitation, those identified in the
Information Certificate;
(l) to the extent not otherwise described above, all Receivables;
(m) all Records; and
(n) all products and proceeds of the foregoing, in any form, including insurance proceeds and
all claims against third parties for loss or damage to or destruction of or other involuntary
conversion of any kind or nature of any or all of the other Collateral.
-34-
5.2.
Exception from Security Interest
.
(a) Notwithstanding anything to the contrary set forth in Section 5.1 above, the types or
items of Collateral described in such Section shall not include any rights or interests in any
contract, lease, permit, license, charter or license agreement covering real or personal property,
as such, if under the terms of such contract, lease, permit, license, charter or license agreement,
or applicable law with respect thereto, the valid grant of a security interest or lien therein to
Collateral Agent is prohibited and such prohibition has not been or is not waived or the consent of
the other party to such contract, lease, permit, license, charter or license agreement has not been
or is not otherwise obtained or under applicable law such prohibition cannot be waived;
provided
,
that
, the foregoing exclusion shall in no way be construed (a) to apply
if any such prohibition is unenforceable under the UCC or other applicable law or (b) so as to
limit, impair or otherwise affect Collateral Agents unconditional continuing security interests in
and liens upon any rights or interests of Borrower in or to monies due or to become due under any
such contract, lease, permit, license, charter or license agreement (including any Accounts).
(b) Notwithstanding anything to the contrary contained in Section 5.1 above, the Collateral
shall not include the trademark
Studio Gear
to the extent such trademark is licensed to
Studio Gear Cosmetics, Inc. pursuant to the License and Distribution Agreement, dated May, 1996,
between Borrower and Studio Gear Cosmetics, Inc.
(c) Notwithstanding anything to the contrary contained in Section 5.1 above, the types or
items of Collateral described in such Section shall not include any Equipment which is, or at the
time of Borrowers acquisition thereof shall be, subject to a purchase money mortgage or other
purchase money lien or security interest (including capitalized or finance leases) permitted under
Section 9.8 hereof if: (a) the valid grant of a security interest or lien to Collateral Agent in
such item of Equipment is prohibited by the terms of the agreement between Borrower and the holder
of such purchase money mortgage or other purchase money lien or security interest or under
applicable law and such prohibition has not been or is not waived, or the consent of the holder of
the purchase money mortgage or other purchase money lien or security interest has not been or is
not otherwise obtained, or under applicable law such prohibition cannot be waived and (b) the
purchase money mortgage or other purchase money lien or security interest on such item of Equipment
is or shall become valid and perfected.
5.3.
Perfection of Security Interest
(a) Borrower irrevocably and unconditionally authorizes Collateral Agent (or its agent) to
file at any time and from time to time such financing statements with respect to the Collateral
naming Collateral Agent or its designee as the secured party and Borrower as debtor, as Collateral
Agent may require, and including any other information with respect to Borrower or otherwise
required by part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as Collateral
Agent may determine, together with any amendment and continuations with respect thereto, which
authorization shall apply to all financing statements filed on, prior to or after the date hereof.
Borrower hereby ratifies and approves all financing statements naming Collateral Agent or its
designee as secured party and Borrower as debtor with respect to the Collateral (and any amendments
with respect to such financing statements) filed by or on behalf of Collateral Agent prior to the
date hereof and ratifies and confirms the authorization of Collateral Agent to
-35-
file such financing statements (and amendments, if any). Borrower hereby authorizes
Collateral Agent to adopt on behalf of Borrower any symbol required for authenticating any
electronic filing. In the event that the description of the collateral in any financing statement
naming Collateral Agent or its designee as the secured party and Borrower as debtor includes assets
and properties of Borrower that do not at any time constitute Collateral, whether hereunder, under
any of the other Financing Agreements or otherwise, the filing of such financing statement shall
nonetheless be deemed authorized by Borrower to the extent of the Collateral included in such
description and it shall not render the financing statement ineffective as to any of the Collateral
or otherwise affect the financing statement as it applies to any of the Collateral. In no event
shall Borrower at any time file, or permit or cause to be filed, any correction statement or
termination statement with respect to any financing statement (or amendment or continuation with
respect thereto) naming Collateral Agent or its designee as secured party and Borrower as debtor.
(b) Borrower does not have any chattel paper (whether tangible or electronic) or instruments
as of the date hereof, except as set forth in the Information Certificate. In the event that
Borrower shall be entitled to or shall receive any chattel paper or instrument after the date
hereof, Borrower shall promptly notify Collateral Agent thereof in writing. Promptly upon the
receipt thereof by or on behalf of Borrower (including by any agent or representative), Borrower
shall deliver, or cause to be delivered to Collateral Agent, all tangible chattel paper and
instruments that Borrower or may at any time acquire, accompanied by such instruments of transfer
or assignment duly executed in blank as Collateral Agent may from time to time specify, in each
case except as Collateral Agent may otherwise agree. At Collateral Agents option, Borrower shall,
or Collateral Agent may at any time on behalf of Borrower, cause the original of any such
instrument or chattel paper to be conspicuously marked in a form and manner acceptable to
Collateral Agent with the following legend referring to chattel paper or instruments as applicable:
This [chattel paper][instrument] is subject to the security interest of Wachovia Capital Finance
Corporation (Central), as Collateral Agent, and any sale, transfer, assignment or encumbrance of
this [chattel paper][instrument] violates the rights of such secured party.
(c) In the event that Borrower shall at any time hold or acquire an interest in any electronic
chattel paper or any
transferable record
(as such term is defined in Section 201 of the
Federal Electronic Signatures in Global and National Commerce Act or in Section 16 of the Uniform
Electronic Transactions Act as in effect in any relevant jurisdiction), Borrower shall promptly
notify Collateral Agent thereof in writing. Promptly upon Collateral Agents request, Borrower
shall take, or cause to be taken, such actions as Collateral Agent may reasonably request to give
Collateral Agent control of such electronic chattel paper under Section 9-105 of the UCC and
control of such transferable record under Section 201 of the Federal Electronic Signatures in
Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic
Transactions Act, as in effect in such jurisdiction.
(d) Borrower does not have any deposit accounts as of the date hereof, except as set forth on
Schedule 6.3 to the Information Certificate. Borrower shall not, directly or indirectly, after the
date hereof open, establish or maintain any deposit account unless each of the following conditions
is satisfied: (i) Collateral Agent shall have received not less than five (5) Business Days prior
written notice of the intention of Borrower to open or establish such account which notice shall
specify in reasonable detail and specificity acceptable to Collateral Agent the name of the
account, the owner of the account, the name and address of the bank at which such
-36-
account is to be opened or established, the individual at such bank with whom Borrower is
dealing and the purpose of the account, (ii) the bank where such account is opened or maintained
shall be acceptable to Collateral Agent, and (iii) on or before the opening of such deposit
account, Borrower shall as Collateral Agent may specify either (A) deliver to Collateral Agent a
Deposit Account Control Agreement with respect to such deposit account duly authorized, executed
and delivered by Borrower and the bank at which such deposit account is opened and maintained or
(B) arrange for Collateral Agent to become the customer of the bank with respect to the deposit
account on terms and conditions acceptable to Collateral Agent. The terms of this subsection (d)
shall not apply to deposit accounts specifically and exclusively used for payroll, taxes, other
obligations to third parties or other employee wage and benefit payments to or for the benefit of
Borrowers salaried employees.
(e) Borrower does not own or hold, directly or indirectly, beneficially or as record owner or
both, any investment property, as of the date hereof, or have any investment account, securities
account, commodity account or other similar account with any bank or other financial institution or
other securities intermediary or commodity intermediary as of the date hereof, in each case except
as set forth in the Information Certificate.
(i) In the event that Borrower shall be entitled to or shall at any time after
the date hereof hold or acquire any certificated securities, Borrower shall promptly
endorse, assign and deliver the same to Collateral Agent, for itself and the ratable
benefit of Lenders. accompanied by such instruments of transfer or assignment duly
executed in blank as Collateral Agent may from time to time specify. If any
securities, now or hereafter acquired by Borrower are uncertificated and are issued
to Borrower or its nominee directly by the issuer thereof, Borrower shall
immediately notify Collateral Agent thereof and shall as Collateral Agent may
specify, either (A) cause the issuer to agree to comply with instructions from
Collateral Agent as to such securities, without further consent of Borrower or such
nominee, or (B) arrange for Collateral Agent, for itself and the ratable benefit of
Lenders, to become the registered owner of the securities.
(ii) Borrower shall not, directly or indirectly, after the date hereof open,
establish or maintain any investment account, securities account, commodity account
or any other similar account (other than a deposit account) with any securities
intermediary or commodity intermediary unless each of the following conditions is
satisfied: (A) Collateral Agent shall have received not less than five (5)
Business Days prior written notice of the intention of Borrower to open or establish
such account which notice shall specify in reasonable detail and specificity
acceptable to Collateral Agent the name of the account, the owner of the account,
the name and address of the securities intermediary or commodity intermediary at
which such account is to be opened or established, the individual at such
intermediary with whom Borrower is dealing and the purpose of the account, (B) the
securities intermediary or commodity intermediary (as the case may be) where such
account is opened or maintained shall be acceptable to Collateral Agent, and (C) on
or before the opening of such investment account, securities account or other
similar account with a securities intermediary or commodity intermediary, Borrower
shall as Collateral Agent may specify either
-37-
(1) execute and deliver, and cause to be executed and delivered to Collateral
Agent, an Investment Property Control Agreement with respect thereto duly
authorized, executed and delivered by Borrower and such securities intermediary or
commodity intermediary or (2) arrange for Collateral Agent, for itself and for the
ratable benefit of Lenders, to become the entitlement holder with respect to such
investment property on terms and conditions acceptable to Collateral Agent.
(f) Borrower is not the beneficiary or otherwise entitled to any right to payment under any
letter of credit, bankers acceptance or similar instrument as of the date hereof, except as set
forth in the Information Certificate. In the event that Borrower shall be entitled to or shall
receive any right to payment under any letter of credit, bankers acceptance or any similar
instrument, whether as beneficiary thereof or otherwise after the date hereof, Borrower shall
promptly notify Collateral Agent thereof in writing. Borrower shall immediately, as Collateral
Agent may specify, either (i) deliver, or cause to be delivered to Collateral Agent, with respect
to any such letter of credit, bankers acceptance or similar instrument, the written agreement of
the issuer and any other nominated person obligated to make any payment in respect thereof
(including any confirming or negotiating bank), in form and substance satisfactory to Collateral
Agent, consenting to the assignment of the proceeds of the letter of credit to Collateral Agent,
for itself and for the ratable benefit of Lenders, by Borrower and agreeing to make all payments
thereon directly to Collateral Agent, for itself and for the ratable benefit of Lenders, or as
Collateral Agent may otherwise direct or (ii) cause Collateral Agent, for itself and for the
ratable benefit of Lenders, to become, at Borrowers expense, the transferee beneficiary of the
letter of credit, bankers acceptance or similar instrument (as the case may be).
(g) Borrower has no commercial tort claims as of the date hereof, except as set forth in the
Information Certificate. In the event that Borrower shall at any time after the date hereof assert
any commercial tort claims in respect of which the expected net recovery exceeds $250,000, Borrower
shall promptly notify Collateral Agent thereof in writing, which notice shall (i) set forth in
reasonable detail the basis for and nature of such commercial tort claim and (ii) if requested by
any Agent, include the express grant by Borrower to Collateral Agent, for itself and the ratable
benefit of Lenders, of a security interest in such commercial tort claim (and the proceeds
thereof). In the event that such notice does not include such grant of a security interest, the
sending thereof by Borrower to Collateral Agent shall be deemed to constitute such grant to
Collateral Agent, for itself and for the ratable benefit of Lenders. Upon the sending of such
notice, any commercial tort claim described therein shall constitute part of the Collateral and
shall be deemed included therein. Without limiting the authorization of Collateral Agent provided
in Section 5.3(a) hereof or otherwise arising by the execution by Borrower of this Agreement or any
of the other Financing Agreements, Collateral Agent is hereby irrevocably authorized from time to
time and at any time to file such financing statements naming Collateral Agent or its designee as
secured party and Borrower as debtor, or any amendments to any financing statements, covering any
such commercial tort claim as Collateral. In addition, Borrower shall promptly upon Collateral
Agents request, execute and deliver, or cause to be executed and delivered, to Collateral Agent
such other agreements, documents and instruments as Collateral Agent may require in connection with
such commercial tort claim.
(h) Borrower does not have any goods, documents of title or other Collateral in the custody,
control or possession of a third party as of the date hereof, except as set forth in
-38-
the Information Certificate and except for goods located in the United States in transit to a
location of Borrower permitted herein in the ordinary course of business of Borrower in the
possession of the carrier transporting such goods. In the event that any goods, documents of the
title or other Collateral are at any time after the date hereof in the custody, control or
possession of any other person not referred to in the Information Certificate or such carriers,
Borrower shall promptly notify Collateral Agent thereof in writing. Promptly upon Collateral
Agents request, Borrower shall deliver to Collateral Agent a Collateral Access Agreement duly
authorized, executed and delivered by such person and Borrower.
(i) Borrower shall take any other actions reasonably requested by Collateral Agent from time
to time to cause the attachment, perfection and first priority of, and the ability of Collateral
Agent to enforce, the security interest of Collateral Agent in any and all of the Collateral
located in the United States, Canada or Puerto Rico, including, without limitation, (i) executing,
delivering and, where appropriate, filing financing statements and amendments relating thereto
under the UCC or other applicable law, to the extent, if any, that Borrowers signature thereon is
required therefor, (ii) causing Collateral Agents name to be noted as secured party on any
certificate of title for a titled good if such notation is a condition to attachment, perfection or
priority of, or ability of Collateral Agent to enforce, the security interest of Collateral Agent
in such Collateral, (iii) complying with any provision of any statute, regulation or treaty of the
United States, Canada or Puerto Rico as to any Collateral if compliance with such provision is a
condition to attachment, perfection or priority of, or ability of Collateral Agent to enforce, the
security interest of Collateral Agent in such Collateral, (iv) obtaining the consents and approvals
of any Governmental Authority or third party, including, without limitation, any consent of any
licensor, lessor or other person obligated on Collateral, and taking all actions required by any
earlier versions of the UCC or by other law, as applicable in any relevant jurisdiction.
SECTION 6.
COLLECTION AND ADMINISTRATION
6.1.
Borrowers Loan Account.
Administrative Agent shall maintain one or more loan account(s) on its books in which shall be
recorded (a) all Loans, Letter of Credit Accommodations and other Obligations, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and credits as provided in
this Agreement, including fees, charges, costs, expenses and interest. All entries in the loan
account(s) shall be made in accordance with Administrative Agents customary practices as in effect
from time to time. The Revolving Loans shall be evidenced by the loan accounts maintained by
Administrative Agent;
provided
that if any Lender so requests, the Borrower will execute a
promissory note in favor of such Lender further evidencing such Lenders Commitment.
Administrative Agent is authorized by all the parties hereto to make all revisions and
modifications to
Schedule I
hereto at any time to reflect the then current Commitments of
each Lender.
6.2.
Statements
.
Administrative Agent shall render to Borrower each month a statement setting forth the balance
in the Borrowers loan account(s) maintained by Administrative Agent for
-39-
Borrower pursuant to the provisions of this Agreement, including principal, interest, fees,
costs and expenses. Each such statement shall be subject to subsequent adjustment by
Administrative Agent but shall, absent manifest errors or omissions, be considered correct and
deemed accepted by Borrower and conclusively binding upon Borrower as an account stated except to
the extent that Administrative Agent receives a written notice from Borrower of any specific
exceptions of Borrower thereto within forty-five (45) days after the date such statement has been
mailed by Administrative Agent. Until such time as Administrative Agent shall have rendered to
Borrower a written statement as provided above, the balance in Borrowers loan account(s) shall be
presumptive evidence of the amounts due and owing to Administrative Agent and Lenders by Borrower.
6.3.
Collection of Accounts
.
(a) Borrower shall establish and maintain, at its expense, deposit account arrangements and
merchant payment arrangements with the banks set forth on Schedule 6.3 to the Information
Certificate and after prior written notice to Administrative Agent, and subject to Section 5.3(d),
such other banks as Borrower may hereafter select as are acceptable to Administrative Agent. The
banks set forth on Schedule 6.3 to the Information Certificate constitute all of the banks with
whom Borrower has deposit account arrangements and merchant payment arrangements as of the date
hereof and such Schedule identifies each of the deposit accounts at such banks to a retail store
location of Borrower or otherwise describes the nature of the use of such deposit account by
Borrower.
(i) Borrower shall deposit all proceeds from sales of Inventory in every form,
including, without limitation, cash, checks, credit card sales drafts, credit card
sales or charge slips or receipts and other forms of store receipts, from each
retail store location of Borrower on each Business Day into the deposit accounts of
Borrower used solely for such purpose and identified to each retail store location
as set forth on Schedule 6.3 to the Information Certificate (together with any other
deposit accounts at any time established or used by Borrower for receiving such
store receipts from any retail store location, collectively, the
Store Bank
Accounts
) or as otherwise provided in Section 6.3(a)(iii) below. Borrower shall
irrevocably authorize and direct, and shall use its best efforts to cause, all
available funds deposited into the Store Bank Accounts to be sent by wire transfer
or by transfer using the automated clearinghouse network (
ACH transfer
) on
a daily basis, and all other proceeds of Collateral to be sent by wire transfer or
by ACH transfer, to the Blocked Account as provided in Section 6.3(a)(ii) below
(except nominal amounts which are required to be maintained in such Store Bank
Accounts under the terms of Borrowers arrangements with the bank at which such
Store Bank Accounts are maintained as in effect on the date hereof, not to exceed
$250,000 in the aggregate in all such deposit accounts at any time). Borrower shall
irrevocably authorize and direct in writing, in form and substance satisfactory to
Administrative Agent, each of the banks into which proceeds from sales of Inventory
from each retail store location of Borrower are at any time deposited as provided
above to send all available funds deposited in such account (other than the nominal
amounts referred to above) by wire transfer or ACH transfer on a daily basis to the
Blocked Account. Such authorization and direction
-40-
shall not be rescinded, revoked or modified without the prior written consent
of Administrative Agent. In the event any of such banks fails to send such funds to
the Blocked Account as provided herein, Borrower shall pursue all of its rights and
remedies as a result of such failure. Notwithstanding the foregoing, for those Store
Bank Accounts that transfer funds daily by ACH transfer initiated by Borrowers
store management notifying a third party processor, Borrower shall irrevocably
authorize and direct in writing, in form and substance satisfactory to
Administrative Agent, the third party processor that establishes the routing and
executes the ACH transfer to send funds only to the Blocked Accounts and to agree to
do so at any time upon Administrative Agents request and Administrative Agent shall
receive an agreement from such third party processor confirming its agreement to do
so. Such authorization and direction shall not be rescinded, revoked or modified
without the prior written consent of Administrative Agent.
(ii) Borrower shall establish and maintain, at its expense, a deposit account
with such bank as is acceptable to Administrative Agent (the
Blocked
Account
) into which Borrower shall promptly either cause all amounts on deposit
in the Store Bank Accounts to be sent as provided in Section 6.3(a)(i) above or
shall itself deposit or cause to be deposited all proceeds from sales of Inventory,
all amounts payable to Borrower from Credit Card Issuers and Credit Card Processors
and all other proceeds of Collateral. The banks at which the Blocked Account is
established shall enter into an agreement, in form and substance satisfactory to
Administrative Agent, providing that all items received or deposited in the Blocked
Account are the property of Borrower subject to the lien and security interest of
Collateral Agent, for the benefit of Agents and Lenders, that the depository bank
has no lien upon, or right of setoff against, the Blocked Account, the items
received for deposit therein, or the funds from time to time on deposit therein and
that the depository bank will wire, or otherwise transfer, immediately available
funds, on a daily basis, all funds received or deposited into the Blocked Account to
such bank account of Administrative Agent as Administrative Agent may from time to
time designate for such purpose (
Payment Account
). Borrower agrees that
all amounts deposited in such Blocked Account or in the Store Bank Accounts or other
funds received and collected by either Agent, whether as proceeds of inventory or
other Collateral or otherwise shall be the property of Collateral Agent, for the
benefit of Agents and Lenders.
(iii) To the extent Borrower may elect, at Borrowers option, to use the
Armored Car Companies to pick up and collect cash or other proceeds of sales of
Inventory from a retail store location, Borrower shall deliver to the Armored Car
Companies all proceeds from sales of Inventory and other Collateral from such retail
store location of Borrower. Borrower shall irrevocably authorize and direct the
Armored Car Companies in writing, in form and substance reasonably satisfactory to
Administrative Agent, to remit all such proceeds at any time received by the Armored
Car Companies only to the deposit account identified on Schedule 6.3 to the
Information Certificate for such purpose and thereafter to the
-41-
Blocked Accounts. Such authorization and direction to the Armored Car Companies
shall not be rescinded, revoked or modified without the prior written consent of
Administrative Agent unless Borrower shall cease to do business with such Armored
Car Company, provided that upon any such termination the Armored Car Company shall
not be released from its obligation to make payments for amounts previously
delivered to such Armored Car Company. As of the date hereof, the only Armored Car
Companies used by Borrower are those identified in Section 1.7 hereof. Borrower
shall not use any other Armored Car Companies for any purpose unless the aforesaid
arrangements are in place with such other Armored Car Company. Upon request of the
Administrative Agent, Borrower will promptly either obtain and provide an agreement
in writing from such other Armored Car Companies, in form and substance satisfactory
to Administrative Agent, duly authorized, executed and delivered by such other
Armored Car Company, or cease doing business with such Armored Car Company.
(b) For purposes of calculating interest on the Obligations and the amount of Loans available
to Borrower, payments or other funds received in the Payment Account shall be applied to the
Obligations (conditional upon final collection) promptly and in accordance with its customary
depository practice as such amounts become available.
(c) Borrower and all of its subsidiaries, shareholders, directors, employees, agents or other
Affiliates shall, acting as trustee for Collateral Agent, receive, as the property of Borrower
subject to the lien and security interest of Collateral Agent, for the benefit of Agents and
Lenders, any cash, checks, credit card sales drafts, credit card sales or charge slips or receipts,
notes, drafts and all forms of store receipts or any other payment relating to and/or proceeds of
Accounts or other Collateral which come into their possession or under their control and
immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to Administrative Agent.
Borrower agrees to reimburse Administrative Agent on demand for any amounts owed or paid to any
bank at which a Blocked Account is established or any other bank or person involved in the transfer
of funds to or from the Blocked Accounts arising out of Administrative Agents payments to or
indemnification of such bank or person. The obligation of Borrower to reimburse Administrative
Agent for such amounts pursuant to this Section 6.3 shall survive the termination of this
Agreement.
6.4.
Payments
.
(a) All Obligations shall be payable to the Payment Account as provided in Section 6.3 or such
other place as Administrative Agent may designate from time to time. The Agents shall apply
payments received or collected from Borrower or for the account of Borrower (including the monetary
proceeds of collections or of realization upon any Collateral) as follows:
first
, to pay
any fees, indemnities or expense reimbursements then due to any Agent, any Lender or their
representatives from Borrower (other than in connection with any Hedging Agreements);
second
, to pay interest due in respect of any Loans;
third
, to pay principal due in
respect of the Swing Line Loans;
fourth
, to pay principal due in respect of the Revolving
Loans;
fifth
, to pay any other Obligations (other than in connection with any Hedging
Agreements) then due and
-42-
owing, in such order and manner as Administrative Agent determines;
sixth
, to pay any
Obligations then due and owing relating to Hedging Agreements (including fees, indemnities,
expenses and other amounts arising from any Hedging Agreements) on a pro rata basis and
seventh
, to the extent of any balance remaining, such balance shall be delivered to
Borrower or as a court of competent jurisdiction may direct. Notwithstanding anything to the
contrary contained in this Agreement, (i) unless so directed by Borrower, or unless a Default or an
Event of Default shall exist or have occurred and be continuing, no Agent shall apply any payments
which it receives to any Eurodollar Rate Loans, except on the expiration date of the Interest
Period applicable to any such Eurodollar Rate Loans and (ii) to the extent Borrower uses any
proceeds of the Loans or Letter of Credit Accommodations to acquire rights in or the use of any
Collateral or to repay any Indebtedness used to acquire rights in or the use of any Collateral,
payments in respect of the obligations shall be deemed applied first to the Obligations arising
from Loans and Letter of Credit Accommodations that were not used for such purposes and second to
the Obligations arising from Loans and Letter of Credit Accommodations the proceeds of which were
used to acquire rights in or the use of any Collateral in the chronological order in which Borrower
acquired such rights or use. Each payment on any of the Loans to or for the account of one or more
Lenders entitled to such payments pursuant to the this Section 6.4(a) shall be allocated among
such Lenders based on their respective Pro Rata Shares of such Loans.
(b) At Administrative Agents option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be charged directly to
the loan account(s) of Borrower. Borrower shall make all payments to Agents and Lenders on the
Obligations free and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, any Agent or any Lender is required
to surrender or return such payment or proceeds to any Person for any reason, then the Obligations
intended to be satisfied by such payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or proceeds had not been
received by such Agent or such Lender. Borrower shall be liable to pay to each Agent, and does
hereby indemnify and hold Agents and Lenders harmless for the amount of any payments or proceeds
surrendered or returned. This Section 6.4 shall remain effective notwithstanding any contrary
action which may be taken by any Agent or any Lender in reliance upon such payment or proceeds.
This Section 6.4 shall survive the payment of the Obligations and the termination of this
Agreement.
(c) If any payment of principal or interest with respect to any of the Loans, or of any fees,
falls due on a day which is not a Business Day, then such due date shall be extended to the
immediately following Business Day (unless, in the case of a Eurodollar Rate Loan, such immediately
following Business Day is the first Business Day of a calendar month, in which case such due date
shall be the immediately preceding Business Day) and, in the case of principal, additional interest
shall accrue and be payable for the period of any such extension.
6.5.
Authorization to Make Loans
.
Agents and Lenders are authorized to make the Loans upon the receipt by Administrative Agent
of a written notice (each such written notice, a
Notice of Borrowing
)
-43-
substantially in the form attached hereto as
Exhibit F
or telephonic notice (followed
immediately by a Notice of Borrowing) of each proposed borrowing not later than (a) in the case of
a Prime Rate borrowing, 12:00 noon, Chicago time, on the proposed date of such borrowing, and (b)
in the case of a Eurodollar Rate borrowing, 12:00 noon, Chicago time, at least three (3) Business
Days prior to the proposed date of such borrowing. Each such notice shall be effective upon
receipt by the Administrative Agent, shall be irrevocable, and shall specify the date, amount and
type of borrowing and, in the case of a Eurodollar Rate borrowing, the initial Interest Period
therefor. Promptly upon receipt of such notice, the Administrative Agent shall advise each Lender
thereof. Not later than 3:00 P.M., Chicago time, on the date of a proposed borrowing, each Lender
shall provide the Administrative Agent at the office specified by the Administrative Agent with
immediately available funds covering such Lenders Pro Rata Share of such borrowing and, so long as
the Administrative Agent has not received written notice that the conditions precedent set forth in
Section 4
with respect to such borrowing have not been satisfied, the Administrative Agent
shall pay over the funds received by the Administrative Agent to Borrower on the requested
borrowing date. Each borrowing shall be on a Business Day. Each Eurodollar Rate borrowing shall be
in an aggregate amount of at least $2,000,000 and an integral multiple of at least $100,000. All
Loans and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to
have been made to, and at the request of and for the benefit of, Borrower when deposited to the
credit of Borrower or otherwise disbursed or established in accordance with the instructions of
Borrower or in accordance with the terms and conditions of this Agreement.
6.6.
Use of Proceeds
.
All Loans made or Letter of Credit Accommodations provided to Borrower pursuant to the
provisions hereof shall be used by Borrower only for general operating, working capital and other
proper corporate purposes of Borrower not otherwise prohibited by the terms hereof, including
without limitation the payment of all costs, expenses and fees in connection with the preparation,
negotiation, execution and delivery of this Agreement and the other Financing Agreements. None of
the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any
margin security or for the purposes of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a purpose credit within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended.
6.7.
Pro Rata Treatment
.
Except to the extent otherwise provided in this Agreement: (a) the making and conversion of
Loans shall be made among the Lenders based on their respective Pro Rata Shares as to the Loans and
(b) each payment on account of any Obligations to or for the account of one or more of Lenders in
respect of any Obligations due on a particular day shall be allocated among the Lenders entitled to
such payments based on their respective Pro Rata Shares and shall be distributed accordingly.
-44-
6.8.
Sharing of Payments, Etc
.
(a) Borrower agrees that, in addition to (and without limitation of) any right of setoff,
bankers lien or counterclaim either Agent or any Lender may otherwise have, each Lender shall be
entitled, at its option (but subject, as among Agents and Lenders, to the provisions of Section
12.3(b) hereof), to offset balances held by it for the account of Borrower at any of its offices,
in dollars or in any other currency, against any principal of or interest on any Loans owed to such
Lender or any other amount payable to such Lender hereunder, that is not paid when due (regardless
of whether such balances are then due to Borrower), in which case it shall promptly notify Borrower
and Administrative Agent thereof;
provided
,
that
, such Lenders failure to give
such notice shall not affect the validity thereof.
(b) If any Lender (including either Agent) shall obtain from Borrower or any Obligor payment
of any principal of or interest on any Loan owing to it or payment of any other amount under this
Agreement or any of the other Financing Agreements through the exercise of any right of setoff,
bankers lien or counterclaim or similar right or otherwise (other than from Administrative Agent
as provided herein), and, as a result of such payment, such Lender shall have received more than
its Pro Rata Share of the principal of the Loans or more than its share of such other amounts then
due hereunder or thereunder by Borrower or any Obligor to such Lender than the percentage thereof
received by any other Lender, it shall promptly pay to Administrative Agent, for the benefit of the
applicable Lenders, the amount of such excess and simultaneously purchase from such other
applicable Lenders a participation in the Loans or such other amounts, respectively, owing to such
other Lenders (or such interest due thereon, as the case may be) in such amounts, and make such
other adjustments from time to time as shall be equitable, to the end that all Lenders of the same
category of Loans shall share the benefit of such excess payment (net of any expenses that may be
incurred by such Lender in obtaining or preserving such excess payment) in accordance with their
respective Pro Rata Shares or as otherwise agreed by the applicable Lenders. To such end all
applicable Lenders shall make appropriate adjustments among themselves (by the resale of
participation sold or otherwise) if such payment is rescinded or must otherwise be restored.
(c) Borrower agrees that any Lender purchasing a participation (or direct interest) as
provided in this Section may exercise, in a manner consistent with this Section, all rights of
setoff, bankers lien, counterclaim or similar rights with respect to such participation as fully
as if such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such
Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise any right of setoff,
bankers lien, counterclaims or similar rights or shall affect the right of any Lender to exercise,
and retain the benefits of exercising, any such right with respect to any other Indebtedness or
obligation of Borrower or any Obligor. If, under any applicable bankruptcy, insolvency or other
similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies,
such Lender shall, to the extent practicable, assign such rights to Administrative Agent for the
benefit of Lenders and, in any event, exercise its rights in respect of such secured claim in a
manner consistent with the rights of Lenders entitled under this Section to share in the benefits
of any recovery on such secured claim.
-45-
6.9.
Settlement Procedures
.
Administrative Agent shall promptly remit to each Lender its share of all payments received in
collected funds by Administrative Agent for the account of such Lender. All payments under Section
3.3 shall be made by Borrower directly to the Lender entitled thereto without setoff, counterclaim
or other defense.
SECTION 7.
COLLATERAL REPORTING AND COLLATERAL COVENANTS
7.1.
Collateral Reporting
.
Borrower shall provide Collateral Agent with the following documents in a form satisfactory to
Collateral Agent (a) on a monthly basis or more frequently as either Agent may reasonably request
(i) inventory reports by category and location (with such details as to the mix of Inventory as
either Agent may request), (ii) agings of accounts payable, and (iii) reports of sales for each
category of Inventory; (b) upon reasonable request of either Agent (i) the stock status reports of
Borrower, (ii) reports on sales and use tax payment and including monthly sales and use tax
accruals, (iii) reports of amounts of consigned Inventory held by Borrower by category and
consignor, (iv) reports of sales of Inventory indicating net sales, (v) reports of aggregate
Inventory purchases (including all costs related thereto, such as freight, duty and taxes) and
identifying items of Inventory in transit to Borrower related to the applicable documentary letter
of credit and/or bill of lading number, (vi) reports of the Cost of the Inventory (net of
markdowns), (vii) reports on the status of all payments to owners and lessors of the leased retail
store locations of Borrower and other leased premises of Borrower, (viii) copies of customer
statements and credit memos, remittance advices and reports, and copies of deposit slips and bank
statements, (ix) copies of shipping and delivery documents, (x) copies of purchase orders, invoices
and delivery documents for Inventory and Equipment acquired by Borrower, (xi) reports by retail
store location of sales and operating profits for each such retail store location and (xii) the
monthly statements received by Borrower from any Credit Card Issuers or Credit Card Processors,
together with such additional information with respect thereto as shall be sufficient to enable
Collateral Agent to monitor the transactions pursuant to the Credit Card Agreements; and (c) such
other reports as to the Collateral as Collateral Agent shall reasonably request from time to time.
If any of Borrowers records or reports of the Collateral are prepared or maintained by an
accounting service, contractor, shipper or other agent, Borrower hereby irrevocably authorizes such
service, contractor, shipper or agent to deliver such records, reports, and related documents to
Collateral Agent and to follow the instructions of Administrative Agent or, subject to the prior
written approval of Administrative Agent, Collateral Agent with respect to further services at any
time that an Event of Default exists or has occurred and is continuing.
7.2.
Accounts Covenants
.
(a) Borrower shall notify Administrative Agent promptly of the assertion of any material
claims, offsets, defenses or counterclaims by any account debtor, Credit Card Issuer or Credit Card
Processor or any material disputes with any of such persons or any settlement, adjustment or
compromise thereof and (ii) all material adverse information relating to the financial condition of
any account debtor, Credit Card Issuer or Credit Card Processor. No material credit, discount,
allowance or extension or agreement for any of the foregoing shall be
-46-
granted to any account debtor, Credit Card Issuer or Credit Card Processor except in the
ordinary course of Borrowers business in accordance with the current practices of Borrower as in
effect on the date hereof. So long as no Event of Default exists or has occurred and is
continuing, Borrower shall settle, adjust or compromise any claim offset, counterclaim or dispute
with any account debtor, Credit Card Issuer, Credit Card Processor. At any time that an Event of
Default exists or has occurred and is continuing, Administrative Agent shall, at its option, have
the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with
account debtors, Credit Card Issuers or Credit Card Processors or grant any credits, discounts or
allowances.
(b) Borrower shall notify Administrative Agent promptly of (i) any notice of a material
default by Borrower under any of the Credit Card Agreements or of any default which might result in
the Credit Card Issuer or Credit Card Processor ceasing to make payments or suspending payments to
Borrower, (ii) any notice from any Credit Card Issuer or Credit Card Processor that such person is
ceasing or suspending, or will cease or suspend, any present or future payments due or to become
due to Borrower from such person, or that such person is terminating or will terminate any of the
Credit Card Agreements, and (iii) the failure of Borrower to comply with any material terms of the
Credit Card Agreements or any terms thereof which might result in the Credit Card Issuer or Credit
Card Processor ceasing or suspending payments to Borrower.
(c) With respect to each Account: (i) the amounts shown on any invoice delivered to either
Agent or schedule thereof delivered to either Agent shall be true and complete, (ii) no payments
shall be made thereon except payments immediately delivered to Administrative Agent pursuant to the
terms of this Agreement, (iii) no credit, discount, allowance or extension or agreement for any of
the foregoing shall be granted to any account debtor except as reported, to the extent required
hereunder, to Administrative Agent in accordance with this Agreement and except for credits,
discounts, allowances or extensions made or given in the ordinary course of Borrowers business in
accordance with practices and policies previously disclosed to Administrative Agent, (iv) there
shall be no setoffs, deductions, contras, defenses, counterclaims or disputes existing or asserted
with respect thereto except as reported to Administrative Agent in accordance with the terms of
this Agreement, (v) none of the transactions giving rise thereto will violate any applicable
foreign, Federal, State or local laws or regulations, all documentation relating thereto will be
legally sufficient under such laws and regulations and all such documentation will be legally
enforceable in accordance with its terms.
(d) Collateral Agent may, with the consent of Administrative Agent, at any time or times that
an Event of Default exists or has occurred, (i) notify any or all account debtors, Credit Card
Issuers and Credit Card Processors that the Accounts have been assigned to Collateral Agent and
that Collateral Agent has a security interest therein and Collateral Agent may direct any or all
account debtors, Credit Card Issuers and Credit Card Processors to make payments of Accounts
directly to Collateral Agent, (ii) extend the time of payment of, compromise, settle or adjust for
cash, credit, return of or otherwise, and upon any terms or conditions, any and all Accounts or
other obligations included in the Collateral and thereby discharge or release the account debtor or
any other party or parties in any way liable for payment thereof without affecting any of the
Obligations, (iii) demand, collect or enforce payment of any Accounts or such other obligations,
but without any duty to do so, and Collateral
-47-
Agent shall not be liable for its failure to collect or enforce the payment thereof nor for
the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action
Collateral Agent may deem necessary or desirable for the protection of its interests. At any time
that an Event of Default exists or has occurred and is continuing, at either Agents request, all
invoices and statements sent to any account debtor, Credit Card Issuer or Credit Card Processor
shall state that the Accounts due from such account debtor, Credit Card Issuer or Credit Card
Processor and such other obligations have been assigned to Collateral Agent and are payable
directly and only to Collateral Agent and Borrower shall deliver to Collateral Agent such originals
of documents evidencing the sale and delivery of goods or the performance of services giving rise
to any Accounts as Collateral Agent may require.
(e) Collateral Agent shall have the right at any time or times, in Collateral Agents name or
in the name of a nominee of Collateral Agent, to verify the validity, amount or any other matter
relating to any Account or other Collateral, by mail, telephone, facsimile transmission or
otherwise.
(f) Borrower shall deliver or cause to be delivered to Collateral Agent, with appropriate
endorsement and assignment, with full recourse to Borrower, all chattel paper and instruments which
Borrower now owns or may at any time acquire immediately upon Borrowers receipt thereof, except as
Collateral Agent may otherwise agree.
7.3.
Inventory Covenants
.
With respect to the Inventory: (a) Borrower shall at all times maintain inventory records
reasonably satisfactory to Collateral Agent, keeping correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory, Borrowers cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a physical count of the
Inventory either through periodic cycle counts or wall-to-wall counts so that all Inventory is
covered by such counts at least once each year, but at any time or times as any Agent may request
on or after an Event of Default, and promptly following such physical inventory (whether pursuant
to periodic cycle counts or otherwise) shall, to the extent requested, supply Collateral Agent with
a report in the form and with such specificity as may be reasonably satisfactory to Collateral
Agent concerning such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of Collateral Agent,
except for sales of Inventory in the ordinary course of Borrowers business and except to move
Inventory directly from one location set forth or permitted herein to another such location or to
return defective, returned or slow moving Inventory to the relevant distribution center or directly
to the supplier for appropriate credit; (d) Borrower shall make all material payments required to
be made under leases of premises at which Inventory is located when due, except as specifically
reported to Collateral Agent pursuant to Section 7.1 above; (e) upon Collateral Agents request,
Borrower shall, at its expense, no more than once in any twelve (12) month period, but at any time
or times as Collateral Agent may reasonably request on or after an Event of Default, deliver or
cause to be delivered to Collateral Agent written appraisals as to the Inventory in form, scope and
methodology acceptable to Collateral Agent and by an appraiser acceptable to Collateral Agent,
addressed to Collateral Agent and upon which Collateral Agent is expressly permitted to rely; (f)
upon Collateral Agents request, Borrower shall, at its expense, conduct through RGIS Inventory
Specialists, Inc. or another inventory
-48-
counting service acceptable to Collateral Agent, a physical count of the Inventory in form,
scope and methodology acceptable to Collateral Agent no more than once in any twelve (12) month
period, but at any time or times as Collateral Agent may request on or after an Event of Default,
the results of which shall be reported directly by such inventory counting service to Collateral
Agent and Borrower shall promptly deliver confirmation in a form satisfactory to Collateral Agent
that appropriate adjustments have been made to the inventory records of Borrower to reconcile the
inventory count to Borrowers inventory records; (g) Borrower shall produce, use, store and
maintain the Inventory with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with applicable laws (including the requirements of
the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders
related thereto); (h) Borrower assumes (as between Lender and Borrower) all responsibility and
liability arising from or relating to the production, use, sale or other disposition of the
Inventory; (i) Borrower shall not sell Inventory to any customer on approval, or any other basis
which entitles the customer to return or may obligate Borrower to repurchase such Inventory except
for the right of return given to retail customers of Borrower in the ordinary course of the
business of Borrower in accordance with the then current return policy of Borrower; (j) Borrower
shall use its best efforts to keep the Inventory in good and marketable condition and to identify
and make appropriate adjustments for Inventory that does not meet that requirement except that
which is to be returned; and (k) Borrower shall not acquire or accept any Inventory on consignment
or approval except to the extent such Inventory is reported to Collateral Agent in accordance with
the terms hereof.
7.4.
Power of Attorney
.
Borrower hereby irrevocably designates and appoints each Agent (and all persons designated by
either Agent) as Borrowers true and lawful attorney-in-fact, and authorizes Collateral Agent, in
Borrowers or Collateral Agents name, to: (a) at any time an Event of Default exists or has
occurred and is continuing (i) demand payment on Receivables or other Collateral, (ii) enforce
payment of Receivables by legal proceedings or otherwise, (iii) exercise all of Borrowers rights
and remedies to collect any Receivable or other Collateral, (iv) sell or assign any Receivable upon
such terms, for such amount and at such time or times as the Collateral Agent deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Receivable,
(vii) prepare, file and sign Borrowers name on any proof of claim in bankruptcy or other similar
document against an account debtor or other obligor in respect of any Receivables or other
Collateral, (viii) notify the post office authorities to change the address for delivery of
remittances from account debtors or other obligors in respect of Receivables or other proceeds of
Collateral to an address designated by Collateral Agent, and open and dispose of all mail addressed
to Borrower and handle and store all mail relating to the Collateral; and (ix) do all acts and
things which are necessary, in Collateral Agents determination, to fulfill Borrowers obligations
under this Agreement and the other Financing Agreements and (b) at any time to (i) take control in
any manner of any item of payment in respect of Receivables or constituting Collateral or otherwise
received in or for deposit in the Blocked Accounts or otherwise received by either Agent or any
Lender, (ii) have access to any lockbox or postal box into which remittances from account debtors
or other obligors in respect of Receivables or other proceeds of Collateral are sent or received,
(iii) endorse Borrowers name upon any items of payment in respect of Receivables or constituting
Collateral or otherwise received by either Agent or any Lender and deposit the same in
-49-
Administrative Agents account for application to the Obligations, (iv) endorse Borrowers
name upon any chattel paper, document, instrument, invoice, or similar document or agreement
relating to any Receivable or any goods pertaining thereto or any other Collateral, including any
warehouse or other receipts, or bills of lading and other negotiable or non-negotiable documents,
(v) clear Inventory the purchase of which was financed with Letter of Credit Accommodations through
U.S. Customs or foreign export control authorities in Borrowers name, Collateral Agents name or
the name of Collateral Agents designee, and to sign and deliver to customs officials powers of
attorney in Borrowers name for such purpose, and to complete in Borrowers or Collateral Agents
name, any order, sale or transaction, obtain the necessary documents in connection therewith and
collect the proceeds thereof, (vi) sign Borrowers name on any verification of Receivables and
notices thereof to account debtors or any secondary obligors or other obligors in respect thereof.
Borrower hereby releases each Agent and Lenders and their respective officers, employees and
designees from any liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of such Agents or any
Lenders own gross negligence or willful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.
7.5.
Right to Cure
.
Administrative Agent may, at its option upon notice to Borrower (a) cure any default by
Borrower under any material agreement with a third party that affects the Collateral, its value or
the ability of Administrative Agent to collect, sell or otherwise dispose of the Collateral or the
rights and remedies of Administrative Agent therein or the ability of Borrower to perform its
obligations hereunder or under the other Financing Agreements, (b) pay or bond on appeal any
judgment entered against Borrower, (c) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral and (d) pay any
amount, incur any expense or perform any act which, in Administrative Agents judgment, is
necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of
Agents and Lenders with respect thereto. Administrative Agent may add any amounts so expended to
the Obligations and charge Borrowers account therefor, such amounts to be repayable by Borrower on
demand. Agents and Lenders shall be under no obligation to effect such cure, payment or bonding
and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrower. Any
payment made or other action taken by either Agent or any Lender under this Section shall be
without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly.
7.6.
Access to Premises
.
From time to time as reasonably requested by any Agent, at the cost and expense of Borrower,
(a) each Agent or its designee shall have complete access to all of Borrowers premises during
normal business hours and after notice to Borrower, or at any time and without notice to Borrower
if an Event of Default exists or has occurred and is continuing, for the purposes of conducting
field examinations (which Collateral Agent shall conduct not more than twice per year,
provided
,
however
, that Borrower shall not be obligated to reimburse or pay for
more than fifty percent (50%) of the reasonable and actual out-of-pocket costs and expenses of any
such field examination, or at such greater frequency as Administrative Agent shall elect during the
existence of a Default or Event of Default) inspecting, verifying and auditing the
-50-
Collateral and all of Borrowers books and records, including the Records, and (b) Borrower
shall promptly furnish to each Agent such copies of such books and records or extracts therefrom as
any Agent may reasonably request, and (c) any Agent or any Agents designee may use during normal
business hours such of Borrowers personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for
the collection of Receivables and realization of other Collateral.
SECTION 8.
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Agents and Lenders the following (which shall
survive the execution and delivery of this Agreement), the truth and accuracy of which are a
continuing condition of the making of Loans and providing Letter of Credit Accommodations to
Borrower:
8.1.
Corporate Existence; Power and Authority
.
Borrower is a corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good standing in all states or
other jurisdictions where the nature and extent of the business transacted by it or the ownership
of assets makes such qualification necessary, and in which the failure to so qualify would have a
Material Adverse Effect. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder (a) are all within
Borrowers corporate powers, (b) have been duly authorized and (c) are not in contravention of law
or the terms of Borrowers certificate of incorporation, by-laws, or other organizational
documentation, or any indenture, agreement or undertaking to which Borrower is a party or by which
Borrower or its property are bound. This Agreement and the other Financing Agreements constitute
legal, valid and binding obligations of Borrower enforceable in accordance with their respective
terms. Borrower does not have any Subsidiaries except as set forth on the Information Certificate.
8.2.
Name; State of Organization; Chief Executive Office; Collateral Locations
.
(a) The exact legal name of Borrower is as set forth on the signature page of this Agreement
and in the Information Certificate. Borrower has not, during the past five years, been known by or
used any other corporate or fictitious name or been a party to any merger or consolidation, or
acquired all or substantially all of the assets of any Person, or acquired any of its property or
assets out of the ordinary course of business, except as set forth in the Information Certificate.
(b) Borrower is an organization of the type and organized in the jurisdiction set forth in the
Information Certificate. The Information Certificate accurately sets forth the organizational
identification number of Borrower or accurately states that Borrower has none and accurately sets
forth the federal employer identification number of Borrower.
(c) The chief executive office and mailing address of Borrower and Borrowers Records
concerning Accounts are located only at the address identified as such in Schedule 8.2 to the
Information Certificate and its only other places of business and the only
-51-
other locations of Collateral, if any, are the addresses set forth in Schedule 8.2 to the
Information Certificate, subject to the right of Borrower to establish new locations in accordance
with Section 9.2 below. The Information Certificate correctly identifies any of such locations
which are not owned by Borrower and sets forth the owners and/or operators thereof.
8.3.
Financial Statements; No Material Adverse Change
.
All financial statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Agents and Lenders have been prepared in accordance with GAAP (except as to any interim
financial statements, to the extent such statements are subject to normal year-end adjustments and
do not include any notes) and fairly present the financial condition and the results of operation
of Borrower as at the dates and for the periods set forth therein. Except as disclosed in any
interim financial statements furnished by Borrower to Administrative Agent prior to the date of
this Agreement, there has been no material adverse change in the assets, liabilities, properties
and condition, financial or otherwise, of Borrower, since the date of the most recent audited
financial statements furnished by Borrower to Administrative Agent prior to the date of this
Agreement.
8.4.
Priority of Liens; Title to Properties
.
The security interests and liens granted to Collateral Agent under this Agreement and the
other Financing Agreements constitute valid and perfected first priority liens and security
interests in and upon the Collateral which is located within the United States of America, Canada
or Puerto Rico subject only to the liens indicated on Schedule 8.4 to the Information Certificate
and the other liens permitted under Section 9.8 hereof. Borrower has good and marketable fee
simple title to all of its other properties and assets subject to no liens, mortgages, pledges,
security interests, encumbrances or charges of any kind, except those granted to Collateral Agent
and such others as are specifically listed on Schedule 8.4 to the Information Certificate or
permitted under Section 9.8 hereof.
8.5.
Tax Returns
.
Borrower has filed, or caused to be filed, in a timely manner all (i) federal and state tax
returns, reports and declarations which are required to be filed by Borrower and (ii) all other tax
returns, reports and declarations which are required to be filed by Borrower, other than such tax
returns, reports and declarations the failure of which to file could not reasonably be expected to
have a Material Adverse Effect. All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to be paid all taxes
due and payable or claimed due and payable in any assessment received by it and has collected,
deposited and remitted in accordance with all applicable laws all sales and/or use taxes applicable
to the conduct of its business, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books and except for any taxes of less than
$250,000 in the aggregate. Adequate provision has been made for the payment of all accrued and
unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable
and whether or not disputed. Borrower has collected and deposited in a separate bank account or
remitted to the appropriate tax authority all sales and/or use taxes applicable to
-52-
its business required to be collected and so deposited under the laws of the United States and
each possession or territory thereof, and each State or political subdivision thereof, including
any State in which Borrower owns any Inventory or owns or leases any other property.
8.6.
Litigation
.
Except as set forth in Schedule 8.6 to the Information Certificate, there is no present
investigation by any Governmental Authority pending, or to the best of Borrowers knowledge
threatened, against or affecting Borrower, its assets or business and there is no action, suit,
proceeding or claim by any Person pending, or to the best of Borrowers knowledge threatened,
against Borrower or its assets or goodwill, or against or affecting any transactions contemplated
by this Agreement, which if adversely determined against Borrower could reasonably be expected to
have a Material Adverse Effect.
8.7.
Compliance with Other Agreements and Applicable Laws
.
(a) Borrower is not in default in any respect under, or in violation in any respect of any of
the terms of, any agreement, contract, instrument, lease or other commitment to which it is a party
or by which it or any of its assets are bound, in each case where such default or violation has or
would have a Material Adverse Effect. Borrower is in compliance in all respects with the
requirements of all applicable laws, rules, regulations and orders of any governmental authority
relating to its business, including, without limitation, those set forth in or promulgated pursuant
to the Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of
1938, as amended, ERISA, the Code, as amended, and the rules and regulations thereunder, the
Environmental Laws, all Federal, State and local statutes, regulations, rules and orders relating
to consumer credit (including, without limitation, as each has been amended, the Truth-in-Lending
Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting
Act, and regulations, rules and orders promulgated thereunder), all Federal, State and local
states, regulations, rules and orders pertaining to sales of consumer goods (including, without
limitation, the Consumer Products Safety Act of 1972, as amended, and the Federal Trade Commission
Act of 1914, as amended, and all regulations, rules and orders promulgated thereunder) in each case
where the failure to comply would have a Material Adverse Effect.
(b) Borrower has obtained all material permits, licenses, approvals, consents, certificates,
orders or authorizations of any governmental agency required for the lawful conduct of its business
(the
Permits
). Schedule 8.7 to the Information Certificate sets forth all of the Permits
issued to or held by Borrower as of the date hereof by any Federal, State or local governmental
agency and any applications pending by Borrower with such federal, state or local governmental
agency. The Permits constitute all permits, licenses, approvals, consents, certificates, orders or
authorizations necessary for Borrower to own and operate its business as presently conducted or
proposed to be conducted where the failure to have such Permits would have a Material Adverse
Effect. All of the Permits are valid and subsisting and in full force and effect. There are no
actions, claims or proceedings pending or threatened that seek the revocation, cancellation,
suspension or modification of any of the Permits.
-53-
8.8.
Environmental Compliance
.
(a) Except as set forth on Schedule 8.8 to the Information Certificate, Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any
Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which
violates any applicable Environmental Law and the operations of Borrower comply with all applicable
Environmental Laws, in each case where such violation or failure to so comply would have a Material
Adverse Effect.
(b) Except as set forth on Schedule 8.8 to the Information Certificate, there is no
investigation, proceeding, complaint, order, directive, claim, citation or notice by any
Governmental Authority or any other person pending or to the best of Borrowers knowledge
threatened, with respect to any material non-compliance with or material violation of the
requirements of any applicable Environmental Law by Borrower.
(c) Except as set forth in Schedule 8.8 to the Information Certificate, Borrower does not have
any liability (contingent or otherwise) in connection with a release, spill or discharge,
threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous Materials which
would have a Material Adverse Effect.
(d) Borrower has all licenses, certificates, approvals and other Permits required to be
obtained or filed in connection with the operations of Borrower under any Environmental Law in each
case where the failure to obtain or file the same would have a Material Adverse Effect and all such
licenses, permits, certificates, approvals or similar authorizations are valid and in full force
and effect where the failure to have any of such licenses, permits, certificates, approvals or
similar authorization would have a Material Adverse Effect.
8.9.
Credit Card Agreements
.
Set forth in Schedule 8.9 to the Information Certificate is a correct and complete list, as of
the date hereof, of (a) all of the Credit Card Agreements and all other agreements, documents and
instruments existing as of the date hereof between or among Borrower, any of its affiliates, the
Credit Card Issuers, the Credit Card Processors and any of, their affiliates; (b) the percentage of
each sale payable to the Credit Card Issuer or Credit Card Processor under the terms of the Credit
Card Agreements; (c) the amount of all reserves; or collateral maintained as of the date hereof by
the Credit Card Issuer or Credit Card Processor, if any, (d) all other fees and charges payable by
Borrower under or in connection with the Credit Card Agreements; and (e) the term of such Credit
Card Agreements. The Credit Card Agreements constitute all of such agreements necessary for
Borrower to operate its business as presently conducted with respect to credit cards and debit
cards and no Accounts of Borrower arise from purchases by customers of Inventory with credit cards
or debit cards, other than those which are issued by Credit Card Issuers with whom Borrower has
entered into one of the Credit Card Agreements set forth on Schedule 8.9 to the Information
Certificate or with whom Borrower has entered into a Credit Card Agreement in accordance with
Section 9.13 hereof. Each of the Credit Card Agreements constitutes a legal, valid and binding
obligation of Borrower and to the best of Borrowers knowledge, the other parties thereto,
enforceable in accordance with their respective terms and
-54-
are in full force and effect. No default or event of default, or act, condition or event which
after notice or passage of time or both, would constitute a default or an event of default under
any of the Credit Card Agreements exists or has occurred and is continuing which would have a
Material Adverse Effect, and Borrower and the other parties thereto have complied with all of the
terms and conditions of the Credit Card Agreements to the extent necessary for Borrower to be
entitled to receive all payments thereunder. Borrower has delivered, or caused to be delivered to
Collateral Agent, true, correct and complete copies of all of the Credit Card Agreements.
8.10.
Employee Benefits
.
(a) Borrower has not engaged in any transaction in connection with which Borrower or any of
its ERISA Affiliates could be subject to either a civil penalty assessed pursuant to ERISA or a tax
imposed the Code, including any accumulated funding deficiency described in Section 8.10(c) hereof
and any deficiency with respect to vested accrued benefits described in Section 8.10(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been or is expected by
Borrower to be incurred with respect to any employee benefit plan of Borrower or any of its ERISA
Affiliates. There has been no reportable event (within the meaning of ERISA) or any other event or
condition with respect to any employee benefit plan of Borrower or any of its ERISA Affiliates
which presents a risk of termination of any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or any of its ERISA Affiliates is
required under ERISA and the Code to have paid under the terms of each employee benefit plan as
contributions to such plan as of the last day of the most recent fiscal year of such plan ended
prior to the date hereof, and no accumulated funding deficiency (as defined in ERISA and the Code),
whether or not waived, exists with respect to any employee pension benefit plan, including any
penalty or tax described in Section 8.10(a) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.10(d) hereof.
(d) The current value of all vested accrued benefits under all employee pension benefit plans
maintained by Borrower that are subject to Title IV of ERISA does not exceed the current value of
the assets of such plans allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.10(a) hereof and any accumulated funding deficiency described in Section
8.10(c) hereof. The terms current value and accrued benefit have the meanings specified in
ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever been obligated to
contribute to any multiemployer plan (as such term is defined in ERISA) that is subject to Title
I of ERISA.
8.11.
Bank Accounts
.
All of the deposit accounts, investment accounts or other accounts in the name of or used by
Borrower maintained at any bank or other financial institution are set forth in Schedule 6.3 to the
Information Certificate, subject to the right of Borrower to establish new accounts in accordance
with Section 5.3(d) hereof.
-55-
8.12.
Regulation U
.
Borrower is not engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin Stock.
8.13.
Investment Company Act
.
Neither Borrower nor any of its Subsidiaries is an investment company or a company
controlled by an investment company or a subsidiary of an investment company, within the
meaning of the Investment Company Act of 1940.
8.14.
OFAC
.
Neither Borrower nor, to the best knowledge of Borrower, any Affiliate of Borrower (a) is a
Sanctioned Person, (b) does business in a Sanctioned Country in violation of the economic sanctions
of the United States administered by OFAC or (c) does business in such country or with any such
agency, organization or person, in violation of the economic sanctions of the United States
administered by OFAC.
8.15.
Accuracy and Completeness of Information
.
All information furnished by or on behalf of Borrower in writing to any Agent or any Lender in
connection with this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information Certificate is true
and correct in all material respects on the date as of which such information is dated or certified
and does not omit any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected to have a Material
Adverse Effect, which has not been fully and accurately disclosed to Administrative Agent in
writing.
8.16.
Survival of Warranties; Cumulative
.
All representations and warranties contained in this Agreement or any of the other Financing
Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have
been made again to Agents and Lenders on the date of each additional borrowing or other credit
accommodation hereunder except to the extent that any such representations and warranties expressly
relate solely to an earlier date (in which case such representations and warranties shall have been
true and accurate on and as of such earlier date) and shall be conclusively presumed to have been
relied on by Agents and Lenders regardless of any investigation made or information possessed by
any Agent or any Lender. The representations and warranties set forth herein shall be cumulative
and in addition to any other representations or warranties which Borrower shall now or hereafter
give, or cause to be given, to any Agent or any Lender. In no event shall the corporate officers
of Borrower have any personal liability to any Agent or any Lender if any of the representations
and warranties of Borrower in this Section 8 are false or misleading, absent fraud.
-56-
SECTION 9.
AFFIRMATIVE AND NEGATIVE COVENANTS
9.1.
Maintenance of Existence
.
(a) Borrower shall at all times preserve, renew and keep in full, force and effect its
corporate existence and rights and franchises with respect thereto and maintain in full force and
effect all permits, licenses, trademarks, trade names, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be conducted.
(b) Borrower shall not change its name unless each of the following conditions is satisfied:
(ii) Administrative Agent shall have received not less than thirty (30) days prior written notice
from Borrower of such proposed change in its corporate name, which notice shall accurately set
forth the new name; and (ii) Administrative Agent shall have received a copy of the amendment to
the Certificate of Incorporation of Borrower providing for the name change certified by the
Secretary of State of the jurisdiction of incorporation or organization of Borrower as soon as it
is available.
(c) Borrower shall not change its chief executive office or its mailing address or
organizational identification number (or if it does not have one, shall not acquire one) unless
Administrative Agent shall have received not less than thirty (30) days prior written notice from
Borrower of such proposed change, which notice shall set forth such information with respect
thereto as Administrative Agent may require and Administrative Agent shall have received such
agreements as Administrative Agent may reasonably require in connection therewith. Borrower shall
not change its type of organization, jurisdiction of organization or other legal structure.
9.2.
New Collateral Locations
.
Borrower may only open any new location within the United States of America, Canada or Puerto
Rico provided Borrower has granted to Collateral Agent (i) a perfected security interest in the
Collateral at such location and (ii) a Landlord Agreement in respect of such new location if
required by Collateral Agent. From time to time, upon request of the Collateral Agent, Borrower
shall provide Collateral Agent with an accurate list showing any new locations or closed locations
since the last such listing provided hereunder.
9.3.
Compliance with Laws, Regulations, Etc
.
(a) Borrower shall, and shall cause any Subsidiary to, at all times, comply in all material
respects with all laws, rules, regulations, licenses, Permits, approvals and orders applicable to
it and duly observe all requirements of any foreign, Federal, State or local Governmental
Authority, including ERISA, the Code, the Occupational Safety and Health Act of 1970, as amended,
the Fair Labor Standards Act of 1938, as amended, and all statutes, rules, regulations, orders,
permits and stipulations relating to environmental pollution and employee health and safety,
including all of the Environmental Laws in each case where the failure to so comply therewith or
observe such requirements would have a Material Adverse Effect. Without limitation of the
preceding provisions of this Section 9.3, Borrower shall (x) ensure that neither Borrower nor, to
the best knowledge of Borrower, any Affiliate of Borrower (i) becomes a Sanctioned Person, (ii)
does business in a Sanctioned Country in violation of the economic sanctions of the United States
administered by OFAC or (iii) does business in such country or
-57-
with any such agency, organization or person, in violation of the economic sanctions of the
United States administered by OFAC, and (y) comply, and cause each of its Subsidiaries to comply,
with all applicable Bank Secrecy Act and anti-money laundering laws and regulations.
(b) Borrower shall give both oral and written notice to Administrative Agent within five (5)
Business Days of Borrowers receipt of any notice of, or Borrowers otherwise obtaining knowledge
of, (i) the occurrence of any event involving the release, spill or discharge, threatened or
actual, of any Hazardous Material at any one of Borrowers properties or (ii) any investigation,
proceeding, complaint, order, directive, claims, citation or notice with respect to: (A) any
material non-compliance with or material violation of any Environmental Law by Borrower or (B) the
release, spill or discharge, threatened or actual, of any Hazardous Material or (C) the generation,
use, storage, treatment, manufacture, handling, production or disposal of any Hazardous Materials
or (D) any other environmental, health or safety matter which has or would have a Material Adverse
Effect.
(c) Without limiting the generality of the foregoing, whenever Administrative Agent reasonably
determines that there is non-compliance, or any condition which requires any action by or on behalf
of Borrower in order to avoid any material non-compliance, with any Environmental Law, Borrower
shall, at Administrative Agents request and Borrowers expense: (i) cause an independent
environmental engineer acceptable to Administrative Agent to conduct such tests of the site where
Borrowers non-compliance or alleged non-compliance with such Environmental Laws has occurred as to
such non-compliance and prepare and deliver to Administrative Agent a report as to such
non-compliance setting forth the results of such tests, a proposed plan for responding to any
material environmental problems described therein, and an estimate of the costs thereof and (ii)
provide to Administrative Agent a supplemental report of such engineer whenever the scope of such
non-compliance, or Borrowers response thereto or the estimated costs thereof, shall change in any
material respect.
(d) Borrower shall indemnify and hold harmless Agents and Lenders and their respective
directors, officers, employees, agents, invitees, representatives, successors and assigns, from and
against any and all losses, claims, damages, liabilities, costs, and expenses (including attorneys
fees and legal expenses) directly or indirectly arising out of or attributable to the use,
generation, manufacture, reproduction, storage, release, threatened release, spill, discharge,
disposal or presence of a Hazardous Material, including the costs of any required or necessary
repair, cleanup or other remedial work with respect to any property of Borrower and the preparation
and implementation of any closure, remedial or other required plans. All representations,
warranties, covenants and indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination of this Agreement.
9.4.
Payment of Taxes and Claims
.
Borrower shall, and shall cause any Subsidiary to, duly pay and discharge all taxes,
assessments, contributions and governmental charges upon or against it or its properties or assets,
except for taxes the validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower or such Subsidiary, as the case may be, and with
respect to which adequate reserves have been set aside on its books. Borrower shall be liable for
any tax or penalties imposed on any Agent or any Lender as a result of the financing
-58-
arrangements provided for herein and Borrower agrees to indemnify and hold Agents and Lenders
harmless with respect to the foregoing, and to repay to Administrative Agent, for the benefit of
Agents and Lenders, on demand the amount thereof, and until paid by Borrower such amount shall be
added and deemed part of the Loans,
provided
,
that
, nothing contained herein shall
be construed to require Borrower to pay any income or franchise taxes attributable to the income of
Lenders from any amounts charged or paid hereunder to Lenders. The foregoing indemnity shall
survive the payment of the Obligations and the termination of this Agreement.
9.5.
Insurance
.
Borrower shall, and shall cause any Subsidiary to, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against loss or damage and
all other insurance of the kinds and in the amounts customarily insured against or carried by
corporations of established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be reasonably satisfactory to Administrative Agent as
to form, amount and insurer. Borrower shall furnish certificates, policies or endorsements to
Administrative Agent as Administrative Agent shall require as proof of such insurance, and, if
Borrower fails to do so, Administrative Agent is authorized, but not required, to obtain after
providing written notice thereof to Borrower such insurance with respect to the Collateral at the
expense of Borrower. All policies shall provide for at least thirty (30) days prior written notice
to Administrative Agent of any cancellation or reduction of coverage. Administrative Agent may act
as attorney for Borrower in obtaining, and at any time an Event of Default exists or has occurred
and is continuing, adjusting, settling, amending and canceling any such insurance which relates to
the Collateral. Borrower shall cause Collateral Agent to be named as a loss payee and each Agent
an additional insured (but without any liability for any premiums) under such insurance policies
relating to the Collateral and Borrower shall obtain non-contributory lenders loss payable
endorsements to all such insurance policies in form and substance satisfactory to Administrative
Agent. Such lenders loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Collateral Agent as its interests may appear and further specify that
Collateral Agent shall be paid regardless of any act or omission by Borrower or any of its
Affiliates. Any insurance proceeds received by Collateral Agent at any time shall be applied to
payment of the Obligations in the order and manner set forth in Section 6.4(a) hereof.
9.6.
Financial Statements and Other Information
.
(a) Borrower shall keep proper books and records in which true and complete entries shall be
made of all dealings or transactions of or in relation to the Collateral and the business of
Borrower and its Subsidiaries (if any) in accordance with GAAP and Borrower shall furnish or cause
to be furnished to Administrative Agent: (i) within thirty-five days after the end of each fiscal
month, monthly unaudited consolidated financial statements (including in each case balance sheets,
statements of income and loss statements of cash flow and statements of shareholders equity), all
in reasonable detail, fairly presenting the financial position and the results of the operations of
borrower an its Subsidiaries, as of the end of and through such fiscal month and (ii) within ninety
(90) days after the end fiscal year, audited consolidated financial statements and, if Borrower has
any Subsidiaries, audited consolidating financial statements of Borrower and its Subsidiaries
(including in each case balance sheets, statements of income and
-59-
loss, statements of cash flow and statements of shareholders equity), and the accompanying
notes thereto, all in reasonable detail, fairly presenting the financial position and the results
of the operations of Borrower and its Subsidiaries, as of the end of and for such fiscal year,
together with the opinion of independent certified public accountants, which accountants shall be
an independent accounting firm selected by Borrower and reasonably acceptable to Lender, that such
financial statements have been prepared in accordance with GAAP, and present fairly the results of
operations and financial condition of Borrower and its subsidiaries as of the end of and for the
fiscal year then ended.
(b) Borrower shall promptly notify Administrative Agent in writing of the details of (i) any
material loss, damage, investigation, action, suit, proceeding or claim relating to the Collateral
or any other property which is security for the Obligations or which has or would have a Material
Adverse Effect and (ii) the occurrence of any Event of Default or act condition or event which,
with the passage of time or giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof furnish or cause to be
furnished to Administrative Agent copies of all reports which Borrower sends to its stockholders
generally and copies of all reports and registration statements which Borrower files with the
Securities and Exchange Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Administrative Agent such budgets,
forecasts, projections and other information respecting the Collateral and the business of
Borrower, as Administrative Agent may, from time to time, reasonably request. Administrative Agent
is hereby authorized to deliver a copy of any financial statement or any other information relating
to the business of Borrower to any court or other Governmental Authority or to any Lender or
Participant or to any prospective Lender or prospective Participant. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Administrative Agent, at
Borrowers expense, copies of the financial statements of Borrower and any reports or management
letters prepared by such accountants or auditors on behalf of Borrower and to disclose to any Agent
or any Lender such information as they may have regarding the business of Borrower. Any documents,
schedules, invoices or other papers delivered to any Agent or any Lender may be destroyed or
otherwise disposed of by such Agent or such Lender one (1) year after the same are delivered to
such Agent or such Lender, except as otherwise designated by Borrower to such Agent or such Lender
in writing.
9.7.
Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Borrower shall not, and shall not permit any Subsidiary to (and no Agent nor any Lender
authorizes Borrower to), directly or indirectly,
(a) merge into or with or consolidate with any other Person or permit any other Person to
merge into or with or consolidate with it if such merger or consolidation results in a Change of
Control;
-60-
(b) sell, assign, lease, transfer, abandon or otherwise dispose of any Capital Stock or
indebtedness to any other Person or any of its assets to any other Person, except for
(i) sales of Inventory in the ordinary course of business,
(ii) the disposition of worn-out or obsolete Equipment so long as (A) any
proceeds are paid to Administrative Agent and (B) such sales do not involve
Equipment having an aggregate fair market value in excess of $2,000,000 for all such
Equipment disposed of in any fiscal year of Borrower;
(iii) sales or other dispositions by Borrower of assets in connection with the
closing or sale of a retail store location of Borrower in the ordinary course of
Borrowers business which consist of leasehold interests in the premises of such
store, the Equipment and fixtures located at such premises and the books and records
relating exclusively and directly to the operations of such store;
provided
,
that
, as to each and all such sales, (A) on the date of, and after giving
effect to, any such sale, in any calendar year, Borrower shall not have closed or
sold retail store locations accounting for more than seven and one-half (7 1/2%)
percent of all sales of Borrower in the immediately preceding twelve (12) month
period, (B) Administrative Agent shall have received not less than ten (10) Business
Days prior written notice of such sale, which notice shall set forth in reasonable
detail satisfactory to Administrative Agent, the parties to such sale or other
disposition, the assets to be sold or otherwise disposed of, the purchase price and
the manner of payment thereof and such other information with respect thereto as
Administrative Agent may request, (C) as of the date of such sale or other
disposition and after giving effect thereto, no Event of Default, or act, condition
or event which with notice or passage of time would constitute an Event of Default,
shall exist or have occurred, (D) such sale shall be on commercially reasonable
prices and terms in a bona fide arms length transaction, and (E) any and all net
proceeds payable or delivered to respect of such sale or other disposition shall be
paid or delivered, or caused to be paid or delivered, to Administrative Agent in
accordance with the terms of this Agreement either, at Administrative Agents
option, for application to the Obligations in accordance with the terms hereof
(except to the extent such proceeds reflect payment in respect of indebtedness
secured by a properly perfected first priority security interest in the assets sold,
in which case, such proceeds shall be applied to such indebtedness secured thereby)
or to be held by Administrative Agent as cash collateral for the Obligations on
terms and conditions acceptable to Administrative Agent;
(iv) sales of Capital Stock of Borrower pursuant to a Qualified Public
Offering;
provided
,
that
, (A) Borrower shall not (except as
permitted by Section 9.11) pay or be required to pay any dividends or repurchase or
redeem such stock or make any other payments in respect thereof on or prior to the
end of the then current term of this Agreement and (B) the terms of such Capital
Stock and the purchase and sale thereof shall otherwise be reasonably acceptable to
Administrative Agent in all respects;
-61-
(v) sales or other issuances of Capital Stock of Borrower to Borrowers
directors, officers, employees and/or consultants pursuant to the Borrowers
Restricted Stock Plan or any of Borrowers other stock ownership arrangements
established for the benefit of such directors, officers, employees and/or
consultants;
(vi) sales of Capital Stock to existing shareholders of the Borrower or
pursuant to rights offerings to such existing shareholders; or
(vii) sales of Capital Stock to new investors if the sale of the stock is
authorized under the Amended and Restated Reclassification and Sale of Shares
Agreement, dated April 29, 1998, as amended or otherwise modified from time to time
pursuant to the terms thereof;
(c) form or acquire any subsidiaries; or
(d) wind up, liquidate or dissolve (other than wind up, liquidate or dissolve Internet Sub in
accordance with Section 9.16); or
(e) agree to do any of the foregoing.
9.8.
Encumbrances
.
Borrower shall not, and shall not permit any Subsidiary to, create, incur, assume, suffer or
permit to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any
nature whatsoever on any of its assets or properties, including the Collateral,
except
:
(a) the security interests and liens of Collateral Agent for itself and the benefit of Lenders; (b)
liens securing the payment of taxes, either not yet overdue or the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and available to Borrower or
such Subsidiary, as the case may be and with respect to which adequate reserves have been set aside
on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes)
arising in the ordinary course of Borrowers or such Subsidiarys business to the extent: (i) such
liens secure Indebtedness which is not overdue or (ii) such liens secure Indebtedness relating to
claims or liabilities which are fully insured and being defended at the sole cost and expense and
at the sole risk of the insurer or being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower or such Subsidiary, in each case prior to the
commencement of foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books; (d) zoning restrictions, easements, licenses, covenants
and other restrictions affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the business of Borrower or such
Subsidiary as presently conducted thereon or materially impair the value of the real property which
may be subject thereto; (e) purchase money security interests in Equipment (including Capital
Leases) and purchase money mortgages on real estate not to exceed $15,000,000 in the aggregate at
any time outstanding so long as such interests and mortgages do not apply to any property of
Borrower other than the Equipment or real estate so acquired, and the indebtedness secured thereby
does not exceed the cost of the Equipment or real estate so acquired, and the indebtedness secured
thereby does not exceed the cost of the Equipment or real
-62-
estate so acquired, as the case may be; (f) liens or rights of setoffs or credit balances of
Borrower with Credit Card Processors as a result of fees and chargebacks; (g) deposits of cash with
the owner or lessor of retail store locations leased and operated by Borrower in the ordinary
course of the business of Borrower to secure the performance by Borrower of its obligations under
the terms of the lease for such premises; (h) liens on assets of Borrower to secure indebtedness of
Borrower permitted under Section 9.9(d) below,
provided
,
that
, such liens shall be
junior and subordinate to the liens of Collateral Agent on terms and conditions acceptable to
Collateral Agent; (i) pledges and deposits of cash, Cash Equivalents or investment securities by
Borrower to secure indebtedness of Borrower permitted under Section 9.9(g) hereof;
provided
,
that
, (i) the aggregate amount so pledged or deposited, together with the
amount of all Letter of Credit Accommodations issued in connection with any Hedging Agreements,
shall not in the aggregate exceed $2,500,000, (ii) as of each of the thirty (30) days immediately
preceding the date of such pledge or deposit and after giving effect thereto, Excess Availability
shall not be less than $4,000,000, (iii) such pledge or deposit (or the right to demand such pledge
or deposit) shall be required by the other party to the Hedging Agreement as a condition to it
entering into such contract with Borrower and Administrative Agent shall have received evidence
thereof in form and substance satisfactory to Administrative Agent and (iv) as of the date of such
pledge or deposit and after giving effect thereto, no Default or Event of Default shall exist or
have occurred and be continuing; and (j) the security interests and liens set forth on Schedule 8.4
to the Information Certificate.
9.9.
Indebtedness
.
Borrower shall not, and shall not permit any Subsidiary to, incur, create, assume, become or
be liable in any manner with respect to, suffer or permit to exist, any obligations or
indebtedness,
except
:
(a) the Obligations (excluding those described in Section 9.9(g) below);
(b) trade obligations and normal accruals in the ordinary course of business not yet due and
payable, or with respect to which Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the extent not incurred or
secured by liens (including capital leases) in violation of any other provision of this Agreement;
(d) indebtedness of Borrower for borrowed money (other than indebtedness permitted under
Section 9.9(c) above or Section 9.9(e) below) arising after the date hereof owing to any person in
an aggregate amount not to exceed $20,000,000 at any time outstanding;
provided
,
that
, as to each and all of such indebtedness: (i) Administrative Agent shall have received
not less than ten (10) Business Days prior written notice of the intention to incur such
indebtedness, which notice shall set forth in reasonable detail satisfactory to Administrative
Agent, the amount of such indebtedness, the person to whom such indebtedness will be owed, the
interest rate, the schedule of repayments and maturity date with respect thereto and such other
information with respect thereto as Administrative Agent may request, (ii) Administrative
-63-
Agent shall have received true, correct and complete copies of all agreements, documents and
instruments evidencing or otherwise related to such indebtedness, as duly authorized, executed and
delivered by the parties thereto, (iii) such indebtedness shall be incurred by Borrower at
commercially reasonable rates and terms in a bona fide arms length transaction, (iv) if any of
such indebtedness is to be secured by any assets of Borrower, then (A) all of the terms and
conditions of such indebtedness and the person to whom such indebtedness is owed shall be
reasonably acceptable to Administrative Agent, (B) the security interests and liens on the assets
of Borrower in favor of such person to secure such indebtedness shall be junior and subordinate to
the security interests and liens of Administrative Agent on such assets on terms and conditions
reasonably acceptable to Administrative Agent, and (C) Administrative Agent shall have received, in
form and substance satisfactory to Administrative Agent, an intercreditor agreement between
Administrative Agent and such person, as acknowledged and agreed to by Borrower, duly authorized,
executed and delivered by such person and Borrower, providing for,
inter
alia
, the
parties relative rights and priorities with respect to the assets of Borrower, (v) such
indebtedness shall not at any time include terms and conditions which in any manner adversely
affect Agents or Lenders or any rights of either Agent or Lenders as determined in good faith by
Administrative Agent and confirmed by Administrative Agent to Borrower in writing or which are more
restrictive or burdensome than the terms or conditions of any other indebtedness of Borrower as in
effect on the date hereof (other than the Obligations), (vi) as of the date of incurring such
indebtedness and after giving effect thereto, no Event of Default shall exist or have occurred,
(vii) Borrower may only make regularly scheduled payments of principal and interest in respect of
such indebtedness, (viii) Borrower shall not, directly or indirectly, (A) amend, modify, alter or
change the terms of the agreements with respect to such indebtedness,
except
,
that
,
Borrower may, after prior written notice to Administrative Agent, amend, modify, alter or change
the terms thereof so as to extend the maturity thereof or defer the timing of any payments in
respect thereof, or to forgive or cancel a portion of such indebtedness (other than pursuant to
payments thereof), or to release any liens or security interests in any assets of Borrower which
secure such indebtedness (if any), or to reduce the rate or any fees in connection therewith, or to
make any covenants contained therein less restrictive or burdensome as to Borrower or otherwise
more favorable to Borrower (as determined in good faith by Administrative Agent), or (B) redeem,
retire, defease, purchase or otherwise acquire such indebtedness, or set aside or otherwise deposit
or invest any sums for such purpose, and (ix) Borrower shall furnish to Administrative Agent all
notices or demands in connection with such indebtedness either received by Borrower or on its
behalf promptly after the receipt thereof, or sent by Borrower on its behalf, concurrently with the
sending thereof, as the case may be;
(e) indebtedness of Borrower for borrowed money after the date hereof (other than indebtedness
permitted under Sections 9.9(c) and (d) above) arising after the date hereof;
provided
,
that
, as to each and all of such indebtedness: (i) Administrative Agent shall have received
not less than ten (10) Business Days prior written notice of the intention to incur such
indebtedness, which notice shall set forth in reasonable detail satisfactory to Administrative
Agent, the amount of such indebtedness, the person to whom such indebtedness will be owed, the
interest rate, the schedule of repayments and maturity date with respect thereto and such other
information with respect thereto as Administrative Agent may request (ii) Administrative Agent
shall have received true, correct and complete copies of all agreements, documents and instruments
evidencing or otherwise related to such indebtedness, as duly authorized, executed and delivered by
the parties thereto, (iii) such indebtedness shall be incurred by Borrower at
-64-
commercially reasonable rates and terms in a bona fide arms length transaction, (iv) such
indebtedness is and shall remain at all times unsecured, (v) such indebtedness is, and shall be,
subject and subordinate in right of payment to the right of Administrative Agent to receive the
prior indefeasible payment and satisfaction in full of all of the Obligations, and Borrower shall
not make or be required to make payments in cash or other immediately available funds or other
property (but may make payment of interest by issuing indebtedness on the same terms) at any time
during the then current term of this Agreement, (vi) Administrative Agent shall have received, in
form and substance satisfactory to Administrative Agent, a subordination agreement between
Administrative Agent and such person, as acknowledged and agreed to by Borrower, duly authorized,
executed and delivered by such person and Borrower, providing for,
inter
alia
the
terms of the subordination in right of payment of the indebtedness of Borrower to such person to
the prior indefeasible payment and satisfaction in full of all of the Obligations, (vii) such
indebtedness shall not at any time include terms and conditions which in any manner adversely
affect Administrative Agent or any rights of Administrative Agent as determined in good faith by
Administrative Agent and confirmed by Administrative Agent to Borrower in writing or which are more
restrictive or burdensome than the terms or conditions of any other indebtedness of Borrower as in
effect on the date hereof (other than the Obligations), (viii) as of the date of incurring such
indebtedness and after giving effect thereto, no Event of Default shall exist or have occurred,
(ix) Borrower shall not, directly or indirectly, (A) amend, modify, alter or change the terms of
the agreements with respect to such indebtedness,
except
,
that
, Borrower may, after
prior written notice to Administrative Agent, amend, modify, alter or change the terms thereof so
as to extend the maturity thereof or defer the timing of any payments in respect thereof, or to
forgive or cancel a portion of such indebtedness (other than pursuant to Payments thereof), or to
reduce the rate or any fees in connection therewith, or to make any covenants contained therein
less restrictive or burdensome as to Borrower or otherwise more favorable to Borrower (as
determined in good faith by Administrative Agent), or (B) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (x) Borrower shall furnish to Administrative Agent all notices or demands in
connection with such indebtedness either received by Borrower or on its behalf promptly after the
receipt thereof, or sent by Borrower on its behalf, concurrently with the sending thereof, as the
case may be;
(f) obligations or indebtedness existing as of the date hereof set forth on Schedule 9.9 to
the Information Certificate,
provided
,
that
, (i) Borrower may only make regularly
scheduled payments of principal and interest in respect of such indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such indebtedness as in effect on
the date hereof, (ii) Borrower shall not, directly or indirectly, (A) amend, modify, alter or
change the terms of such indebtedness or any agreement, document or instrument related thereto as
in effect on the date hereof,
except
,
that
, Borrower may, after prior written
notice to Administrative Agent, amend, modify, alter or change the terms thereof so as to extend
the maturity thereof or defer the timing of any payments in respect thereof, or to forgive or
cancel a portion of such indebtedness (other than pursuant to payments thereof), or to reduce the
interest rate or any fees in connection therewith, or to release any of the liens or security
interests in any assets and properties of Borrower which secure such indebtedness, or to make any
covenants contained therein less restrictive or burdensome as to Borrower or otherwise more
favorable to Borrower (as determined in good faith by Administrative Agent), or (B) redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set aside or otherwise deposit
-65-
or invest any sums for such purpose, and (iii) Borrower shall furnish to Administrative Agent
all notices or demands in connection with such indebtedness either received by Borrower or on its
behalf, promptly after the receipt thereof, or sent by Borrower or on its behalf, concurrently with
the sending thereof, as the case may be; and
(g) (A) contingent liabilities of Borrower pursuant to any Hedging Agreements entered into by
Borrower;
provided
that
the aggregate principal notional amount of indebtedness
that may be subject to Hedging Agreements at any one time shall not exceed (i) $50,000,000 prior to
May 31, 2008, (ii) $60,000,000 from and after May 31, 2008 but prior to May 31, 2009, (iii)
$70,000,000 from and after May 31, 2009 but prior to May 31, 2010 and (iv) $80,00,000 from and
after May 31, 2010. Notwithstanding any provision herein to the contrary, no Affiliate of a Lender
shall act as a counterparty to a Hedging Agreement unless and until such Affiliate shall have
entered into a written agreement and acknowledgement in favor of Administrative Agent, in form and
substance satisfactory to Administrative Agent, in which such Affiliate agrees to be bound by the
terms of this Agreement, in the capacity as a counterparty to a Hedging Agreement, in the same
manner as a Lender hereunder, in the capacity as a counterparty to a Hedging Agreement and (B)
contingent liabilities of Borrower pursuant to any Other Hedging Agreements entered into by
Borrower;
provided
that
(i) Lenders shall have been given a reasonable opportunity
to match the proposed terms of the Other Hedging Agreements prior to Borrower entering into the
Other Hedging Agreements and (ii) the aggregate principal notional amount of indebtedness that may
be subject to Other Hedging Agreements at any one time shall not exceed $25,000,000.
9.10.
Loans, Investments, Etc.
Borrower shall not, and shall not permit any Subsidiary to, directly or indirectly, make, or
suffer or permit to exist, any loans or advance money or property to any person, or any investment
in (by capital contribution, dividend or otherwise) or purchase or repurchase the Capital Stock or
indebtedness or all or a substantial part of the assets or property of any Person, or guarantee,
assume, endorse or otherwise become responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person, or agree to do any of the foregoing,
except
:
(a) the endorsement of instruments for collection or deposit in the ordinary course of
business;
(b) investments in Cash Equivalents,
provided
,
that
, as to any of the
foregoing, unless waived in writing by Administrative Agent, Borrower shall take such actions as
are deemed necessary by Administrative Agent to perfect the security interest of Collateral Agent
in such investments;
(c) loans and advances by Borrower to employees of Borrower not to exceed the principal amount
of $500,000 in the aggregate at any time outstanding for reasonable and necessary work-related
travel or other ordinary business expenses to be incurred by employees in connection with their
work for Borrower;
-66-
(d) the existing loans, advances and guarantees by Borrower outstanding as of the date hereof
as set forth on Schedule 9.10 to the Information Certificate;
provided,
that
, as to
such loans, advances and guarantees, (i) Borrower shall not directly or indirectly, (A) amend,
modify, alter or change the term of such loans, advances or guarantees or any agreement, document
or instrument related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase or
otherwise acquire such guarantee or set aside or otherwise deposit or invest any sums for such
purpose and (ii) Borrower shall furnish to Administrative Agent all notices, demands or other
materials in connection with such loans, advances or guarantees either received by Borrower or on
its behalf, promptly after the receipt thereof, or sent by Borrower or on its behalf, concurrently
with the sending thereof, as the case may be; and
(e) loans by Borrower to officers or directors of Borrower not to exceed $15,000,000 in the
aggregate at any time,
provided
,
that
, with respect to any such loan, (i) the
officer or director shall have executed and delivered to the Borrower a promissory note in form and
substance sufficient to evidence the loan, (ii) the loan shall be recorded on the books and records
of Borrower in a manner satisfactory to Administrative Agent, (iii) the proceeds of the loan shall
be used either to purchase common or preferred stock in the Borrower, or to finance the exercise of
restricted stock options, together with the ordinary income tax attributable to such exercise
(
provided
, that the aggregate outstanding amount of such loans used to finance tax
liabilities shall at no time exceed $7,500,000), (iv) the stock so purchased shall be pledged by
such officer or director to the Borrower as security for the loan, (v) the maturity date of the
loan shall not be more than ten (10) years from the date the loan is made and (vi) the interest
rate on the loan shall be sufficient under regulations promulgated by the Internal Revenue Service
to prevent such loan from being treated as a below-market loan causing the attribution to such
officer or director of income as a result of the loan transaction.
9.11.
Dividends and Redemptions
.
Borrower shall not, directly or indirectly, declare or pay any dividends on account of any
shares of class of Capital Stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of Capital Stock (or set aside or otherwise deposit or
invest any sums for such purpose) for any consideration other than common stock or apply or set
apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of
any such shares or agree to do any of the foregoing,
except
, that
(a) Borrower may repurchase shares of Capital Stock of Borrower from any former employee of
Borrower (or in connection with any severance arrangement with any employee) to the extent such
Capital Stock was obtained by such employee pursuant to the exercise of a stock option or any other
employee stock purchase arrangement granted in the ordinary course of the business of Borrower;
provided, that
, (i) no Default or Event of Default shall exist or have occurred at the time
of or after giving effect to any such payments, (ii) the aggregate amount paid by Borrower
(including any amount forgiven by Borrower with respect to any loan or advance made to any such
employees under clause (e) of Section 9.10) to all such former employees of Borrower shall not in
any twelve (12) month period exceed $25,000,000 less the amount of any payments which are made in
such period under Section 9.11(c) below and which are not funded from a Qualified Public Offering,
(iii) as of the date of any such payments,
-67-
the daily average of the Excess Availability for the immediately preceding thirty (30)
consecutive day period shall be not less than $7,500,000, and after giving effect to such payments,
Excess Availability shall be not less than $5,000,000, and (iv) there shall be no limitation on the
right of Borrower to make such purchases using net cash proceeds of a Qualified Public Offering;
and
(b) Borrower may declare and pay dividends in respect of the Capital Stock of Borrower
constituting common stock,
provided
,
that
, each of the following conditions is
satisfied: (i) no Default or Event of Default shall exist or have occurred at the time of or after
giving effect to any such dividends, (ii) any dividends shall be out of funds legally available
therefor, (iii) immediately after giving effect to any such dividends, the aggregate amount of all
such dividends paid in any fiscal year of Borrower shall not exceed the amount equal to fifty (50%)
percent of the positive Adjusted Cash Flow of Borrower in the immediately preceding fiscal year
calculated based on the annual audited financial statements for such fiscal year delivered to
Administrative Agent in accordance with Section 9.6(a) hereof, (iv) as of the date of any such
payments, the daily average of the Excess Availability for the immediately preceding thirty (30)
consecutive day period shall be not less than $7,500,000, and after giving effect to such payments,
Excess Availability shall be not less than $5,000,000, and (v) Administrative Agent shall have
received not less than ten (10) Business Days prior written notice of the intention of Borrower to
pay such dividends specifying the amount of such dividends which Borrower intends to pay; and
(c) Borrower may declare and pay any accrued and unpaid dividends, or redeem or retire any
shares of Capital Stock of Borrower (in addition to any dividends permitted under Section 9.11(b)
above),
provided
,
that
, each of the following conditions is satisfied: (i) no
Default or Event of Default shall exist or have occurred at the time of or after giving effect to
any such payments, (ii) any such payments shall be out of funds legally available therefor, (iii)
all such payments shall either (A) be made solely with the net cash proceeds received by Borrower
from a Qualified Public Offering or (B) be limited to an amount in any twelve (12) month period of
$25,000,000 less any amounts paid during such period under Section 9.11(a) above,
provided
that
, as of the date of any payment under this Section 9.11(c)(iii)(B), the daily average
of the Excess Availability for the immediately preceding thirty (30) consecutive day period shall
be not less than $7,500,000, and after giving effect to such payments, Excess Availability shall be
not less than $5,000,000, and (iv) Administrative Agent shall have received not less than five (5)
Business Days prior written notice of the intention of Borrower to make such payments specifying
the amount of such payments which Borrower intends to make.
(d) In connection with any stockholder rights agreement or rights plan adopted by Borrowers
Board of Directors (commonly referred to as a poison pill) Borrower may declare and pay a
dividend in respect of the Capital Stock of Borrower, consisting, with respect to each share of
such Capital Stock, solely of the right to purchase a specified fraction of a share of a newly
created junior preferred stock, such specified fraction of a share of preferred stock to have
equivalent voting and dividend rights as one whole share of common stock.
-68-
9.12.
Transactions with Affiliates
.
Borrower shall not directly or indirectly, (a) purchase, acquire or lease any property from or
sell, transfer or lease any property to, any officer, employee, shareholder, director, agent or any
other affiliate of Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrowers business and upon fair and reasonable terms no less favorable to
Borrower than Borrower would obtain in a comparable arms length transaction with a person who is
not an Affiliate or (b) make any payments of management, consulting or other fees for management or
similar services, or of any Indebtedness owing to any officer, employee, shareholder, director or
other person affiliated with Borrower except reasonable compensation to officers, employees and
directors for services rendered to Borrower in the ordinary course of business.
9.13.
Credit Card Agreements
.
Borrower shall (a) observe and perform all material terms, covenants, conditions and
provisions of the Credit Card Agreements to be observed and performed by it at the times set forth
therein; (b) not do, permit, suffer or refrain from doing anything, as a result of which there
could be a default under or breach of any of the terms of any of the Credit Card Agreements and (c)
at all times maintain in full force and effect the Credit Card Agreements and not terminate,
cancel, surrender, modify, amend, waive or release any of the Credit Card Agreements, or consent to
or permit to occur any of the foregoing;
except
,
that
, Borrower may terminate or
cancel any of the Credit Card Agreements in the ordinary course of the business of Borrower,
provided
,
that
, Borrower shall give each Agent not less than fifteen (15) days
prior written notice of its intention to so terminate or cancel any of the Credit Card Agreements;
(d) not enter into any new Credit Card Agreements with any new Credit Card Issuer unless (i) each
Agent shall have received not less than thirty (30) days prior written notice of the intention of
Borrower to enter into such agreement (together with such other information with respect thereto as
any Agent may reasonably request) and (ii) Borrower delivers, or causes to be delivered to
Collateral Agent, a Credit Card Acknowledgment in favor of Collateral Agent, (e) give each Agent
immediate written notice of any Credit Card Agreement entered into by Borrower after the date
hereof, together with a true, correct and complete copy thereof and such other information with
respect thereto as any Agent may reasonably request; and (f) furnish to each Agent, promptly upon
the request of any Agent, such information and evidence as any Agent may reasonably request from
time to time concerning the observance, performance and compliance by Borrower or the other party
or parties thereto with the terms, covenants or provisions of the Credit Card Agreements.
9.14.
Adjusted Tangible Net Worth
.
Borrower shall, at all times have and maintain Adjusted Tangible Net Worth of not less than
$80,000,000.
9.15.
Compliance with ERISA
.
(a) Borrower shall not with respect to any employee benefit plans maintained by Borrower or
any of its ERISA Affiliates: (i) terminate any of such employee
-69-
pension plans so as to incur any liability to the Pension Benefit Guaranty Corporation
established pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction involving
any of such employee benefit plans or any trust created them-under which would subject Borrower or
such ERISA Affiliate to a tax or penalty or other liability on prohibited transactions imposed
under the Code or ERISA, (iii) fail to pay to any such employee benefit plan any contribution which
it is obligated to pay under ERISA, the Code or the term of such plan, (iv) allow or suffer to
exist any accumulated funding deficiency, whether or not waived, with respect to any such employee
benefit plan, (v) allow or suffer to exist any occurrence of a reportable event or any other event
or condition which presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan, which termination
could result in any liability to the Pension Benefit Guaranty Corporation or (ii) incur any
withdrawal liability with respect to any multiemployer pension plan.
(b) As used in this Section 9.15, the term employee pension benefit plans, employee benefit
plans, accumulated funding deficiency and reportable event shall have the respective meanings
assigned to them in ERISA, and the term prohibited transaction shall have the meaning assigned to
it in the Code and ERISA.
9.16.
Costs and Expenses
.
Borrower shall pay to each Agent on demand all reasonable costs, expenses, filing fees and
taxes paid or payable in connection with the preparation, negotiation, execution, delivery,
recording, administration, collection, liquidation, enforcement and defense of the Obligations,
Collateral Agents rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements or consents which
may hereafter be contemplated (whether or not executed) or entered into in respect hereof and
thereof, including, but not limited to: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all reasonable
appraisal fees and search fees; (c) costs and expenses of remitting loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the Blocked Accounts, together
with each Agents customary charges and fees with respect thereto; (d) charges, fees or expenses
charged by any bank or LC Issuer in connection with the Letter of Credit Accommodations; (e)
reasonable costs and expenses of preserving and protecting the Collateral; (f) costs and expenses
paid or incurred in connection with obtaining payment of the Obligations, enforcing the security
interests and liens of Collateral Agent, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against any Agent or any Lender arising out of the
transactions contemplated hereby and thereby (including, without limitation, preparations for and
consultations concerning any such matters); (g) all reasonable out-of-pocket expenses and costs
heretofore and from time to time hereafter incurred by Collateral Agent during the course of
periodic field examinations of the Collateral and Borrowers operations, plus a per diem charge at
the rate of $750 per person per day for Collateral Agents examiners in the field and office,
provided
,
that
, so long as no Default or Event of Default shall exist or have
occurred, Borrower shall not be required to pay such costs and expenses or per diem charge in
connection with more than four (4) such field examinations
-70-
in any calendar year; and (h) the fees and disbursements of counsel (including legal
assistants) to Agents and Lenders in connection with any of the foregoing.
9.17.
Further Assurances
.
At the request of any Agent at any time and from time to time, Borrower shall, at its expense,
duly execute and deliver, or cause to be duly executed and delivered, such further agreements,
documents and instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the priority thereof
in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any
of the other Financing Agreements. Administrative Agent may at any time and from time to time
request a certificate from an officer of Borrower representing that all conditions precedent to the
making of Loans and providing Letter of Credit Accommodations contained herein are satisfied. In
the event of such request by Administrative Agent, Agents and Lenders may, at Administrative
Agents option, cease to make any further Loans or provide any further Letter of Credit
Accommodations until Administrative Agent has received such certificate and, in addition,
Administrative Agent has determined that such conditions are satisfied.
SECTION 10.
EVENTS OF DEFAULT AND REMEDIES
10.1.
Events of Default
.
The occurrence or existence of any one or more of the following events is referred to herein
individually as an
Event of Default
, and collectively as
Events of Default
:
(a) (i) Borrower fails to pay any of the Obligations within three (3) Business Days after the
same becomes due and payable or (ii) Borrower or any Obligor fails to perform any of the covenants
contained in Sections 5.3(d), 9.1, 9.2, 9.3, 9.4, 9.6, 9.13, 9.14, 9.15 and 9.16 of this Agreement
and such failure shall continue for ten (10) days;
provided
,
that
, such ten (10)
day period shall not apply in the case of: (A) any failure to observe any such covenant which is
not capable of being cured at all or within such ten (10) day period or which has been the subject
of a prior failure within a six (6) month period or (B) an intentional breach by Borrower or any
Obligor of any such covenant or (iii) Borrower fails to perform any of the terms, covenants,
conditions or provisions contained in this Agreement or any of the other Financing Agreements other
than those described in Sections 10.1(a)(i) and 10.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by Borrower to any Agent or any
Lender in this Agreement, the other Financing Agreements or any other agreement, schedule,
confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any
material respect;
(c) any Obligor revokes, terminates or fails to perform any of the terms, covenants,
conditions or provisions of any guarantee, endorsement or other agreement of such party in favor of
any Agent or any Lender;
(d) any judgment for the payment of money is rendered against Borrower or any Obligor in
excess of $2,500,000 in any one case or in excess of $5,000,000 in the aggregate
-71-
and shall remain undischarged or unvacated for a period in excess of thirty (30) days or
execution shall at any time not be effectively stayed, or any judgment other than for the payment
of money, or injunction, attachment, garnishment or execution is rendered against Borrower or any
Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an Obligor which is a
partnership) dies or Borrower or any Obligor, which is a partnership, limited liability company,
limited liability partnership or a corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent (however defined or evidenced), makes an
assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a
meeting of its creditors or principal creditors;
(g) a case or proceeding under the bankruptcy laws of the United States of America now or
hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether
at law or in equity) is filed against Borrower or any Obligor or all or any part of its properties
and such petition or application is not dismissed within sixty (60) days after the date of its
filing or Borrower or any Obligor shall file any answer admitting or not contesting such petition
or application or indicates its consent to, acquiescence in or approval of, any such action or
proceeding or the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United States of America now or
hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether
at a law or equity) is filed by Borrower or any Obligor or for all or any part of its property; or
(i) any default by Borrower or any Obligor under any agreement, document or instrument
relating to any indebtedness for borrowed money owing to any person other than Agent and Lenders,
or any capitalized lease obligations, contingent indebtedness in connection with any guarantee,
letter of credit, indemnity or similar type of instrument in favor of any person other than Agents
and Lenders, in any case in an amount in excess of $5,000,000, which default continues for more
than the applicable cure period, if any, with respect thereto, or any default by Borrower or any
Obligor under any material contract, lease, license or other obligation to any person other than
Agents and Lenders, which default continues for more than the applicable cure period, if any, with
respect thereto;
(j) any Change of Control;
(k) the indictment or threatened indictment of Borrower or any Obligor under any criminal
statute. or commencement or threatened commencement of criminal or civil proceedings against
Borrower or any Obligor, pursuant to which statute or proceedings the penalties or remedies sought
or available include forfeiture of any of the property of Borrower or such Obligor; or
-72-
(l) there shall be an event of default under any of the other Financing Agreements.
10.2.
Remedies
.
(a) At any time an Event of Default exists or has occurred and is continuing, Agents and
Lenders shall have all rights and remedies provided in this Agreement, the other Financing
Agreements, the UCC and other applicable law, all of which rights and remedies may be exercised
without notice to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights, remedies and powers
granted to Agents and Lenders hereunder, under any of the other Financing Agreements, the UCC or
other applicable law, are cumulative, not exclusive, and enforceable, in Administrative Agents
discretion, alternatively, successively, or concurrently on any one or more occasions, and shall
include, without limitation, the right to apply to a court of equity for an injunction to restrain
a breach or threatened breach by Borrower or of this Agreement or any of the other Financing
Agreements. Administrative Agent may, in accordance with the terms hereof, at any time or times,
proceed directly against Borrower or any Obligor to collect the Obligations without prior recourse
to any Obligor or any of the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default exists or has occurred and
is continuing, Administrative Agent may, in its discretion, or upon the direction of Required
Lenders shall, and, without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Administrative Agent for itself and for the ratable benefit of Lenders
(
provided
,
that
, upon the occurrence of any Event of Default described in Sections
10.1(g) and 10.1(h), all Obligations shall automatically become immediately due and payable), (ii)
with or without judicial process or the aid or assistance of others, direct Collateral Agent to,
and Collateral Agent shall, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing, manufacturing and repair of
all or any portion of the Collateral, (iii) require Borrower, at Borrowers expense, to assemble
and make available to Collateral Agent any part or all of the Collateral at any place and time
designated by Collateral Agent, (iv) direct Collateral Agent to, and Collateral Agent shall,
collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (v)
direct Collateral Agent to, and Collateral Agent shall, remove any or all of the Collateral from
any premises on or in which the same may be located for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose, (vi) direct Collateral Agent to,
and Collateral Agent shall, sell, lease, transfer, assign, deliver or otherwise dispose of any and
all Collateral (including entering into contracts with respect thereto, public or private sales at
any exchange, brokers board, at any office of Collateral Agent or elsewhere) at such prices or
terms as Collateral Agent may deem reasonable, for cash, upon credit or for future delivery, with
the Collateral Agent having the right to purchase the whole or any part of the Collateral at any
such public sale, all of the foregoing being free from any right or equity of redemption of
Borrower, which right or equity of redemption is hereby expressly waived and released by Borrower
and/or (vii) terminate this Agreement. If any of the Collateral is sold or leased by Collateral
Agent upon credit terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Collateral Agent. If notice of disposition
of Collateral is required by law, ten (10) days prior notice by Collateral Agent to Borrower
designating the time and place of any public sale or the time after which any
-73-
private sale or other intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice. In the event any Agent institutes
an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment
remedy, Borrower waives the posting of any bond which might otherwise be required. At any time an
Event of Default exists or has occurred and is continuing, upon Administrative Agents request,
Borrower will either, as Administrative Agent shall specify, furnish cash collateral to the LC
Issuer to be used to secure and fund Agents reimbursement obligations to the LC Issuer in
connection with any Letter of Credit Accommodations or furnish cash collateral to Administrative
Agent for the Letter of Credit Accommodations. Such cash collateral shall be in the amount equal
to one hundred ten (110%) percent of the amount of the Letter of Credit Accommodations plus the
amount of any fees and expenses payable in connection therewith through the end of the expiration
of such Letter of Credit Accommodations.
(c) To the extent that applicable law imposes duties on any Agent or any Lender to exercise
remedies in a commercially reasonable manner (which duties cannot be waived under such law),
Borrower acknowledges and agrees that it is not commercially unreasonable for Agents and Lenders
(i) to fail to incur expenses reasonably deemed significant by any Agent or any Lender to prepare
Collateral for disposition or otherwise to complete raw material or work in process into finished
goods or other finished products for disposition, (ii) to fail to obtain third party consents for
access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to
obtain consents of any Governmental Authority or other third party for the collection or
disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection
remedies against account debtors, secondary obligors or other persons obligated on Collateral or to
remove liens or encumbrances on or any adverse claims against Collateral, (iv) to exercise
collection remedies against account debtors and other persons obligated on Collateral directly or
through the use of collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (vi) to contact other persons, whether or not in the same
business as Borrower for expressions of interest in acquiring all or any portion of the Collateral,
(vii) to hire one or more professional auctioneers to assist in the disposition of Collateral,
whether or not the collateral is of a specialized nature, (viii) to dispose of Collateral by
utilizing Internet sites that provide for the auction of assets of the types included in the
Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of
assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, (xi) to purchase insurance or credit enhancements to insure Agents and
Lenders against risks of loss, collection or disposition of Collateral or to provide to Collateral
Agent a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent
deemed appropriate by Collateral Agent, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist Collateral Agent in the collection or
disposition of any of the Collateral. Borrower acknowledges that the purpose of this Section is to
provide non-exhaustive indications of what actions or omissions by Collateral Agent would not be
commercially unreasonable in Collateral Agents exercise of remedies against the Collateral and
that other actions or omissions by any Agent or any Lender shall not be deemed commercially
unreasonable solely on account of not being indicated in this Section. Without limitation of the
foregoing, nothing contained in this Section shall be construed to grant any rights to Borrower or
to impose any duties on any Agent or any Lender that would not have been granted or imposed by this
Agreement or by applicable law in the absence of this Section.
-74-
(d) For the purpose of enabling Agents to exercise the rights and remedies hereunder, Borrower
hereby grants to Agents, to the extent assignable, an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to Borrower) to use, assign, license
or sublicense any of the trademarks, service-marks, trade names, business names, trade styles,
designs, logos and other source of business identifiers and other Intellectual Property and general
intangibles now owned or hereafter acquired by Borrower, wherever the same maybe located, including
in such license reasonable access to all media in which any of the licensed items may be recorded
or stored and to all computer programs used for the compilation or printout thereof.
(e) Administrative Agent may apply the cash proceeds of Collateral actually received by
Collateral Agent from any sale, lease, foreclosure or other disposition of the Collateral to
payment of the Obligations, in whole or in part and in such order as Administrative Agent may
elect, whether or not then due. Borrower shall remain liable to Agents and Lenders for the payment
of any deficiency with interest at the highest rate provided for herein and all costs and expenses
of collection or enforcement, including attorneys fees and legal expenses.
(f) Without limiting the foregoing, upon the occurrence of a Default or Event of Default,
Administrative Agent may, at its option, or upon the direction of Required Lenders shall, without
notice, (i) cease making Loans or arranging for Letter of Credit Accommodations or reduce the
lending formulas or amounts of Revolving Loans and Letter of Credit Accommodations available to
Borrower and/or (ii) terminate any provision of this Agreement providing for any future Loans or
Letter of Credit Accommodations to be made by Agents and Lenders to Borrower.
|
|
|
SECTION 11.
|
|
JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
|
11.1.
Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver
.
(a) The validity, interpretation and enforcement of this Agreement and the other Financing
Agreements and any dispute arising out of the relationship between the parties hereto, whether in
contract, tort, equity or otherwise, shall be governed by the internal laws of the State of
Illinois (without giving effect to principles of conflicts of law).
(b) Borrower, Agents and Lenders irrevocably consent and submit to the non-exclusive
jurisdiction of the Circuit Court of Cook County, Illinois and the United States District Court for
the Northern District of Illinois and waive any objection based on venue or
forum
non
conveniens
with respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or any of the other
Financing Agreements or the transactions related hereto or thereto, in each case whether now
existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that
any dispute with respect to any such matters shall be heard only in the courts described above
(except that Agents and Lenders shall have the right to bring any action or proceeding against
Borrower or its property in the courts of any other jurisdiction which Administrative Agent deems
necessary or
-75-
appropriate in order to realize on the Collateral or to otherwise enforce its rights against
Borrower or its property).
(c) Borrower hereby waives personal service of any and all process upon it and consents that
all such service of process may be made by certified mail (return receipt requested) directed to
its address set forth herein and service so made shall be deemed to be completed five (5) days
after the same shall have been so deposited in the U.S. mails, or, at Administrative Agents
option, by service upon Borrower in any other manner provided under the rules of any such courts.
Within thirty (30) days after such service, Borrower shall appear in answer to such process,
failing which Borrower shall be deemed in default and judgment may be entered by Administrative
Agent against Borrower for the amount of the claim and other relief requested.
(d) BORROWER, AGENTS AND LENDERS EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER, AGENTS AND LENDERS EACH HEREBY AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Agents and Lenders shall not have any liability to Borrower (whether in tort, contract,
equity or otherwise) for losses suffered by Borrower in connection with, arising out of, or in any
way related to the transactions or relationships contemplated by this Agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on such Agent and such Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful misconduct of such Agent
or such Lender. In any such litigation, Agents and Lenders shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the
performance by it of the terms of this Agreement.
11.2.
Waiver of Notices
.
Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice
of dishonor with respect to any and all instruments and chattel paper, included in or evidencing
any of the Obligations or the Collateral, and any and all other demands and notices of any kind or
nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such
as are expressly provided for herein. No notice to or demand on Borrower which any Agent or any
Lender may elect to give shall entitle Borrower to any other or further notice or demand in the
same, similar or other circumstances.
-76-
11.3.
Amendments and Waivers
.
(a) Except for actions expressly permitted to be taken by any Agent, no amendment,
modification, termination or waiver of any provision of this Agreement or any other Financing
Agreement, or any consent to any departure by Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by an authorized officer of Administrative Agent and
Borrower, and by Required Lenders or all affected Lenders, as applicable. Except as set forth in
clauses (b) and (c) below, all such amendments, modifications, terminations or waivers requiring
the consent of any Lenders shall require the written consent of Required Lenders.
(b) No amendment, modification, termination or waiver of or consent with respect to any
provision of this Agreement that (i) increases the percentage advance rates set forth in Section
2.1(a) hereof, makes less restrictive the nondiscretionary criteria for exclusion from
Eligible Inventory
set forth in the definition of such term, or (ii) amends Section 12.8
hereof or amends the maximum dollar amount in Section 12.11(a)(i) hereof shall be effective unless
the same shall be in writing and signed by Administrative Agent, Required Lenders and Borrower. No
amendment, modification, termination or waiver of or consent with respect to any provision of this
Agreement that waives compliance with the conditions precedent set forth in
Section 4.2
to
the making of any Revolving Loan or the incurrence of any Letter of Credit Accommodation shall be
effective unless the same shall be in writing and signed by Administrative Agent, Required Lenders
and Borrower. Notwithstanding anything contained in this Agreement to the contrary, no waiver or
consent with respect to any Event of Default shall be effective for purposes of the conditions
precedent to the making of Revolving Loans or the incurrence of Letter of Credit Accommodations set
forth in
Section 4.2
unless the same shall be in writing and signed by Administrative
Agent, Required Lenders and Borrower.
(c) No amendment, modification, termination or waiver shall, unless in writing and signed by
Administrative Agent and each Lender directly affected thereby: (i) increase the principal amount
of such Lenders Commitment over the amount then in effect; (ii) reduce the principal of, rate of
interest on or fees payable with respect to any Loan or Letter of Credit Accommodations of any
affected Lender; (ii) extend any scheduled payment date or final maturity date of the principal
amount of any Loan of any affected Lender; (iv) waive, forgive, defer, extend or postpone any
payment of interest or fees as to any affected Lender; (v) release any Obligor except as otherwise
permitted herein (which action shall be deemed to directly affect all Lenders); (vi) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the Loans that shall
be required for Lenders or any of them to take any action hereunder (which action shall be deemed
to directly effect all Lenders); (vii) amend or waive this
Section 11.3
or the definition
of the term
Required Lenders
insofar as such definition affects the substance of this
Section 11.3
; or (viii) permit the assignment or transfer by Borrower of any of its right
and obligations hereunder (which action shall be deemed to directly affect all Lenders).
(d) No amendment, modification, termination or waiver shall, unless otherwise permitted by
this Agreement or unless consented to in writing and signed by Administrative Agent and all
Lenders, (i) release, or permit Borrower or any Obligor to sell or
-77-
otherwise dispose of, all or substantially all of the Collateral, or release any Obligor from
any guaranty of any or all of the Obligations or (ii) amend Section 6.4(a) hereof.
(e) Agents and Lenders shall not, by any act, delay, omission or otherwise be deemed to have
expressly or impliedly waived any of its or their rights, powers and/or remedies unless such waiver
shall be in writing and signed as provided herein. Any such waiver shall be enforceable only to
the extent specifically set forth therein. A waiver by any Agent or any Lender of any right, power
and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right,
power and/or remedy which any Agent or any Lender would otherwise have on any future occasion,
whether similar in kind or otherwise.
(f) The consent of each Agent shall be required for any amendment, waiver or consent affecting
the rights or duties of such Agent hereunder or under any of the other Financing Agreements, in
addition to the consent of the Lenders otherwise required by this Section.
(g) The consent of Swing Line Lender shall be required for any amendment, waiver or consent
affecting the rights or duties of the Swing Line Lender in its capacity as such.
11.4.
Waiver of Counterclaims
.
Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of
any nature (other then compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or
thereto.
11.5.
Indemnification
.
Borrower shall indemnify and hold each Agent and each Lender, and their respective directors,
agents, employees and counsel, harmless from and against any and all losses, claims, damages,
liabilities, costs or expenses imposed on, incurred by or asserted against any of them in
connection with any litigation, investigation, claim or proceeding commenced or threatened related
to the negotiation, preparation, execution, delivery, enforcement, performance or administration of
this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of
the transactions contemplated hereby or any act, omission, event or transaction related or
attendant thereto, including amounts paid in settlement, court costs, and the fees and expenses of
counsel except for any such losses, claims, liabilities, costs or expenses resulting from the gross
negligence or willful misconduct of any Agent or any Lender as determined pursuant to a final
non-appealable order of a court of competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates
any law or public policy, Borrower shall pay the maximum portion which it is permitted to pay under
applicable law to Agents and Lenders in satisfaction of indemnified matters under this Section.
The foregoing indemnity shall survive the payment of the Obligations and the termination of this
Agreement.
-78-
12.1.
Appointment, Powers and Immunities.
Each Lender (including any Lender in its capacity as a counterparty to a Hedging Agreement)
irrevocably designates, appoints and authorizes LaSalle to act as Administrative Agent, and
Wachovia to act as Collateral Agent, hereunder and under the other Financing Agreements with such
powers as are specifically delegated to Administrative Agent and Collateral Agent, respectively by
the terms of this Agreement and of the other Financing Agreements, together with such other powers
as are reasonably incidental thereto. Agents (a) shall have no duties or responsibilities except
those expressly set forth in this Agreement and in the other Financing Agreements, and shall not by
reason of this Agreement or any other Financing Agreement be a trustee or fiduciary for any Lender
(including any Lender in its capacity as a counterparty to a Hedging Agreement); (b) shall not be
responsible to Lenders (including any Lender in its capacity as a counterparty to a Hedging
Agreement) for any recitals, statements, representations or warranties contained in this Agreement
or in any of the other Financing Agreements, or in any certificate or other document referred to or
provided for in, or received by any of them under, this Agreement or any other Financing Agreement,
or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Financing Agreement or any other document referred to or provided for herein
or therein or for any failure by Borrower or any Obligor or any other Person to perform any of its
obligations hereunder or thereunder; and (c) shall not be responsible to Lenders (including any
Lender in its capacity as a counterparty to a Hedging Agreement) for any action taken or omitted to
be taken by it hereunder or under any other Financing Agreement or under any other document or
instrument referred to or provided for herein or therein or in connection herewith or therewith,
except for its own gross negligence or willful misconduct as determined by a final non-appealable
judgment of a court of competent jurisdiction. Each Agent may employ agents and attorneys-in-fact
and shall not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. Agents may deem and treat the payee of any note as
the holder thereof for all purposes hereof unless and until the assignment thereof pursuant to an
agreement (if and to the extent permitted herein) in form and substance satisfactory to Agents
shall have been delivered to and acknowledged by Agents.
12.2.
Reliance by Agents
.
Each Agent shall be entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent accountants and other experts
selected by such Agent. As to any matters not expressly provided for by this Agreement or any
other Financing Agreement, each Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions given by the
Required Lenders or all Lenders as is required in such circumstance, and such instructions of such
Agent and any action taken or failure to act pursuant thereto shall be binding on all Lenders.
-79-
12.3.
Events of Default
.
(a) Agents shall not be deemed to have knowledge or notice of the occurrence of an Event of
Default or other failure of a condition precedent to the Loans and Letter of Credit Accommodations
hereunder, unless and until the respective Agent has received written notice from a Lender, or
Borrower specifying such Event of Default or any unfulfilled condition precedent, and stating that
such notice is a
Notice of Default or Failure of Condition
. In the event that
Administrative Agent receives such a Notice of Default or Failure of Condition, Administrative
Agent shall give prompt notice thereof to the Lenders. Each Agent shall (subject to Section 12.7)
take such action with respect to any such Event of Default or failure of condition precedent as
shall be directed by the Required Lenders. Notwithstanding the existence or occurrence and
continuance of an Event of Default or any other failure to satisfy any of the conditions precedent
set forth in Section 4 of this Agreement to the contrary, Administrative Agent may, but shall have
no obligation to, continue to make Revolving Loans and issue or cause to be issued Letter of Credit
Accommodations for the ratable account and risk of Lenders from time to time if Administrative
Agent believes making such Revolving Loans or issuing or causing to be issued such Letter of Credit
Accommodations is in the best interests of Lenders.
(b) Except with the prior written consent of Administrative Agent, neither Collateral Agent
nor any Lender (including any Lender in its capacity as a counterparty to a Hedging Agreement) may
assert or exercise any enforcement right or remedy in respect of the Loans, Letter of Credit
Accommodations or other Obligations, as against Borrower or any Obligor or any of the Collateral or
other property of Borrower or any Obligor.
12.4.
LaSalle/Wachovia in its Individual Capacity
.
With respect to any Commitment it may make and any Loans made and Letter of Credit
Accommodations issued or caused to be issued by it (and any successor acting as an Agent), if and
to the extent that each of LaSalle and Wachovia shall be a Lender hereunder, it shall have the same
rights and powers hereunder as any other Lender and may exercise the same as though it were not
acting as an Agent, and the term
Lender
or
Lenders
shall, unless the context
otherwise indicates, include each of LaSalle and Wachovia in its individual capacity as Lender
hereunder. Each of LaSalle and Wachovia (and any successor acting as Administrative Agent or
Collateral Agent, respectively) and its Affiliates may (without having to account therefor to any
Lender) lend money to, make investments in and generally engage in any kind of business with
Borrower (and any of its Subsidiaries or Affiliates) as if it were not acting as an Agent, and
each of LaSalle and Wachovia and their Affiliates may accept fees and other consideration from
Borrower and any of its Subsidiaries and Affiliates for services in connection with this Agreement
or otherwise without having to account for the same to Lenders.
12.5.
Indemnification
.
Lenders (including any Lender in its capacity as a counterparty to a Hedging Agreement) agree
to indemnify Agents (to the extent not reimbursed by Borrower hereunder and without limiting any
obligations of Borrower hereunder) ratably, in accordance with their Pro Rata Shares, for any and
all claims of any kind and nature whatsoever that may be imposed on, incurred by or asserted
against any Agent (including by any Lender (including any Lender in its
-80-
capacity as a counterparty to a Hedging Agreement)) arising out of or by reason of any
investigation in or in any way relating to or arising out of this Agreement, any Hedging Agreement
or any other Financing Agreement or any other documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby (including the costs and expenses that
each Agent is obligated to pay hereunder) or the enforcement of any of the terms hereof or thereof
or of any such other documents, provided, that, no Lender (including any Lender in its capacity as
a counterparty to a Hedging Agreement) shall be liable for any of the foregoing to the extent it
arises from the gross negligence or willful misconduct of the party to be indemnified as determined
by a final non-appealable judgment of a court of competent jurisdiction.
12.6.
Non-Reliance on Agents and Other Lenders
.
Each Lender (including any Lender in its capacity as a counterparty to a Hedging Agreement)
agrees that it has, independently and without reliance on any Agent or other Lenders, and based on
such documents and information as it has deemed appropriate, made its own credit analysis of
Borrower and Obligors and has made its own decision to enter into this Agreement and that it will,
independently and without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any of the other Financing
Agreements. Neither Agent shall be required to keep itself informed as to the performance or
observance by Borrower or any Obligor of any term or provision of this Agreement or any of the
other Financing Agreements or any other document referred to or provided for herein or therein or
to inspect the properties or books of Borrower or any Obligor. Administrative Agent will use
reasonable efforts to provide Lenders with any information received by Administrative Agent from
Borrower or any Obligor regarding its financial performance or the Collateral(including the
collateral reports identified in Section 7.1 and the financial information delivered by the
Borrower hereunder) or which is otherwise required to be provided to Lenders hereunder and with a
copy of any Notice of Default or Failure of Condition received by Administrative Agent from
Borrower or any Lender; provided, that, Administrative Agent shall not be liable to any Lender for
any failure to do so, except to the extent that such failure is attributable to Administrative
Agents own gross negligence or willful misconduct as determined by a final non-appealable judgment
of a court of competent jurisdiction.
12.7.
Failure to Act
.
Except for action expressly required of Agents hereunder and under the other Financing
Agreements, each Agent shall in all cases be fully justified in failing or refusing to act
hereunder and thereunder unless it shall receive further assurances to its satisfaction from
Lenders (including any Lender in its capacity as a counterparty to a Hedging Agreement) of their
indemnification obligations under Section 12.5 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such action.
-81-
12.8.
Additional Loans
.
Administrative Agent shall not make any Revolving Loans or provide any Letter of Credit
Accommodations to Borrower on behalf of Lenders intentionally and with actual knowledge that such
Revolving Loans or Letter of Credit Accommodations would cause the aggregate amount of the total
outstanding Revolving Loans and Letter of Credit Accommodations to Borrower to exceed the amount of
the Loans available to Borrower as of such time based on the lending formulas set forth in Section
2.1(a), without the prior consent of all Lenders, except, that, Administrative Agent may make such
additional Revolving Loans or provide such additional Letter of Credit Accommodations on behalf of
Lenders, intentionally and with actual knowledge that such Loans or Letter of Credit Accommodations
will cause the total outstanding Revolving Loans and Letter of Credit Accommodations to Borrower to
exceed the amount of the Loans available to Borrower as of such time based on the lending formulas
set forth in Section 2.1(a), as Administrative Agent may deem necessary or advisable in its
discretion, provided, that: (a) the total principal amount of the additional Revolving Loans or
additional Letter of Credit Accommodations to Borrower which Administrative Agent may make or
provide after obtaining such actual knowledge that the aggregate principal amount of the Revolving
Loans equal or exceed the amount of the Loans available to Borrower as of such time based on the
lending formulas set forth in Section 2.1.(a) shall not exceed the amount equal to $2,000,000
outstanding at any time less the then outstanding amount of any Special Agent Advances and shall
not cause the total principal amount of the Revolving Loans and Letter of Credit Accommodations to
exceed the Maximum Credit and (b) without the consent of all Lenders, Administrative Agent shall
not make any such additional Revolving Loans or Letter of Credit Accommodations more than sixty
(60) days from the date of the first such additional Revolving Loans or Letter of Credit
Accommodations. Each Lender shall be obligated to pay Administrative Agent the amount of its Pro
Rata Share of any such additional Revolving Loans or Letter of Credit Accommodations provided that
Administrative Agent is acting in accordance with the terms of this Section 12.8.
12.9.
Concerning the Collateral and the Related Financing Agreements
.
Each Lender (including any Lender in its capacity as a counterparty to a Hedging Agreement)
authorizes and directs Agents to enter into this Agreement and the other Financing Agreements.
Each Lender (including any Lender in its capacity as a counterparty to a Hedging Agreement) agrees
that any action taken by any Agent or Required Lenders or all Lenders in accordance with the terms
of this Agreement or the other Financing Agreements and the exercise by any Agent or any category
of Lenders of their respective powers set forth therein or herein, together with such other powers
that are reasonably incidental thereto, shall be binding upon all of the Lenders (including any
Lender in its capacity as a counterparty to a Hedging Agreement).
12.10.
Field Audit, Examination Reports and other Information; Disclaimer by Lenders
.
By signing this Agreement, each Lender:
(a) is deemed to have requested that Collateral Agent furnish such Lender, promptly after it
becomes available, a copy of each field audit or examination report and a
-82-
weekly report with respect to the amount of the Loans available to Borrower as of such time
based on the lending formulas set forth in Section 2.1.(a) prepared by Collateral Agent (each field
audit or examination report and weekly report with respect to the amount of the Loans available to
Borrower as of such time based on the lending formulas set forth in Section 2.1.(a) being referred
to herein as a
Report
and collectively,
Reports
) and Borrower hereby consents
to the distribution of such Reports;
(b) expressly agrees and acknowledges that Collateral Agent (A) does not make any
representation or warranty as to the accuracy of any Report, or (B) shall not be liable for any
information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that Collateral Agent or any other party performing any audit or examination will
inspect only specific information regarding Borrower and the Subsidiaries and will rely
significantly upon Borrowers and the Subsidiaries books and records, as well as on
representations of Borrowers and the Subsidiaries personnel; and
(d) agrees to keep all Reports confidential and strictly for its internal use and not to
distribute or use any Report in any other manner.
12.11.
Collateral Matters
.
(a) Administrative Agent may, at its option, from time to time, at any time on or after an
Event of Default and for so long as the same is continuing or upon any other failure of a condition
precedent to the Revolving Loans and Letter of Credit Accommodations hereunder, make such
disbursements and advances (
Special Agent Advances
) which Administrative Agent, in its
sole discretion, deems necessary or desirable either (i) to preserve or protect the Collateral or
any portion thereof (provided that in no event shall Special Agent Advances for such purpose exceed
the amount equal to $2,000,000 in the aggregate outstanding at any time less the then outstanding
Revolving Loans under Section 12.8 hereof) or (ii) to pay any other amount chargeable to Borrower
pursuant to the terms of this Agreement or any of the other Financing Agreements consisting of
costs, fees and expenses and payments to any LC Issuer of Letter of Credit Accommodations. Special
Agent Advances shall be repayable on demand and be secured by the Collateral. Special Agent
Advances shall not constitute Loans but shall otherwise constitute Obligations hereunder.
Administrative Agent shall notify each Lender and Borrower in writing of each such Special Agent
Advance, which notice shall include a description of the purpose of such Special Agent Advance.
Without limitation of its obligations pursuant to Section 6.9, each Lender agrees that it shall
make available to Administrative Agent, upon Administrative Agents demand, in immediately
available funds, the amount equal to such Lenders Pro Rata Share of each such Special Agent
Advance. If such funds are not made available to Administrative Agent by such Lender,
Administrative Agent shall be entitled to recover such funds, on demand from such Lender together
with interest thereon for each day from the date such payment was due until the date such amount is
paid to Administrative Agent at the Federal Funds Rate for each day during such period and if such
amounts are not paid within three (3) days of Administrative Agents demand, at the highest
Interest Rate provided for in Section 3.1 hereof applicable to Prime Rate Loans.
-83-
(b) Lenders (including any Lender in its capacity as a counterparty to a Hedging Agreement)
hereby irrevocably authorize Collateral Agent, to release any security interest in, mortgage or
lien upon, any of the Collateral (i) upon termination of the Commitments and payment and
satisfaction of all of the Obligations and delivery of cash collateral to the extent required under
Section 13.1 below, or (ii) constituting property being sold or disposed of if Borrower certifies
to Collateral Agent that the sale or disposition is made in compliance with Section 9.7 or 9.16
hereof (and Collateral Agent may rely conclusively on any such certificate, without further
inquiry), or (iii) constituting property in which Borrower or any Obligor did not own an interest
at the time the security interest, mortgage or lien was granted or at any time thereafter, or (iv)
if approved, authorized or ratified in writing by the applicable Lenders pursuant to Section
11.3(d) hereof. Except as provided above, Collateral Agent will not release any security interest
in, mortgage or lien upon, any of the Collateral without the prior written authorization of all the
applicable Lenders pursuant to Section 11.3(d) hereof.
(c) Without any manner limiting Collateral Agents authority to act without any specific or
further authorization or consent by the Lenders (including any Lender in its capacity as a
counterparty to a Hedging Agreement), each Lender (including any Lender in its capacity as a
counterparty to a Hedging Agreement) agrees to confirm in writing, upon request by Collateral
Agent, the authority to release Collateral conferred upon Collateral Agent under this Section and
in Section 11.3(d) hereof. Collateral Agent shall (and is hereby irrevocably authorized by Lenders
to) execute such documents as may be necessary to evidence the release of the security interest,
mortgage or liens granted to Collateral Agent upon any Collateral to the extent set forth above and
in Section 11.3(d) hereof;
provided
,
that
, (i) Collateral Agent shall not be
required to execute any such document on terms which, in either Agents opinion, would expose
Collateral Agent to liability or create any obligations or entail any consequence other than the
release of such security interest, mortgage or liens without recourse or warranty and (ii) such
release shall not in any manner discharge, affect or impair the Obligations or any security
interest, mortgage or lien upon (or obligations of Borrower or any Obligor in respect of) the
Collateral retained by Borrower or such Obligor.
(d) No Agent shall have any obligation whatsoever to any Lender (including any Lender in its
capacity as a counterparty to a Hedging Agreement) or any other Person to investigate, confirm or
assure that the Collateral exists or is owned by Borrower or any Obligor or is cared for, protected
or insured or has been encumbered, or that any particular items of Collateral meet the eligibility
criteria applicable in respect of the Loans or Letter of Credit Accommodations hereunder, or
whether any particular reserves are appropriate, or that the liens and security interests granted
to Collateral Agent pursuant hereto or any of the Financing Agreements or otherwise have been
properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to
any particular priority, or to exercise at all or in any particular manner or under any duty of
care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to Collateral Agent in this Agreement or in any of the other Financing
Agreements, it being understood and agreed that in respect of the Collateral, or any act, omission
or event related thereto, subject to the prior consent of Administrative Agent, Collateral Agent
may act in any manner it may deem appropriate, in its discretion, given Collateral Agents own
interest in the Collateral as a Lender and that, subject to acting in accordance with the consent
of Administrative Agent, Collateral Agent shall have no duty or liability whatsoever to any other
Lender.
-84-
12.12.
Agency for Perfection
.
Each Lender (including any Lender in its capacity as a counterparty to a Hedging Agreement)
and Administrative Agent hereby appoints Collateral Agent and each other Lender (including any
Lender in its capacity as a counterparty to a Hedging Agreement) and Agent as agent and bailee for
the purpose of perfecting the security interests in and liens upon the Collateral of Collateral
Agent in assets which, in accordance with Article 9 of the UCC can be perfected only by possession
(or where the security interest of a secured party with possession has priority over the security
interest of another secured party) and each Lender (including any Lender in its capacity as a
counterparty to a Hedging Agreement) and Agent hereby acknowledges that it holds possession of any
such Collateral for the benefit of Collateral Agent as secured party. Should any Lender (including
any Lender in its capacity as a counterparty to a Hedging Agreement) obtain possession of any such
Collateral, such Lender (including any Lender in its capacity as a counterparty to a Hedging
Agreement) shall notify Collateral Agent thereof, and, promptly upon Collateral Agents request
therefor shall deliver such Collateral to Collateral Agent or in accordance with Collateral Agents
instructions.
12.13.
Successor Agent
.
Either Agent may resign at any time by giving not less than 30 days prior written notice
thereof to Lenders and Borrower. Upon any such resignation, the Required Lenders shall have the
right, with the prior consent of each other Agent, to appoint a successor Administrative Agent or
Collateral Agent, as applicable. If no successor Agent shall have been so appointed by the
Required Lenders and other Agents and shall have accepted such appointment within 30 days after the
resigning Agents giving notice of resignation, then the resigning Agent may, on behalf of Lenders
(including any Lender in its capacity as a counterparty to a Hedging Agreement), appoint a
successor Agent, which shall be a Lender, if a Lender is willing to accept such appointment, or
otherwise shall be a commercial bank or financial institution or a subsidiary of a commercial bank
or financial institution if such commercial bank or financial institution is organized under the
laws of the United States of America or of any State thereof and has a combined capital and surplus
of at least $500,000,000. If no successor Agent has been appointed pursuant to the foregoing,
within 30 days after the date such notice of resignation was given by the resigning Agent, such
resignation shall become effective and the Required Lenders shall thereafter perform all the duties
of such resigning Agent hereunder until such time, if any, as the Required Lenders appoint a
successor Agent as provided above. Any successor Agent appointed by Required Lenders and Agents
hereunder shall be subject to the approval of Borrower, such approval not to be unreasonably
withheld or delayed; provided that such approval shall not be required if an Event of Default has
occurred and is continuing. Upon the acceptance of any appointment as Administrative Agent or
Collateral Agent, as applicable, hereunder by a successor Agent, such successor Agent shall succeed
to and become vested with all the rights, powers, privileges and duties of the resigning Agent.
Upon the earlier of the acceptance of any appointment as Agent hereunder by a successor Agent or
the effective date of the resigning Agents resignation, the resigning Agent shall be discharged
from its duties and obligations under this Agreement and the other Financing Agreements, except
that any indemnity rights or other rights in favor of such resigning Agent shall continue. After
any resigning Agents resignation hereunder, the provisions of this Section 12 shall inure to its
benefit as to any actions
-85-
taken or omitted to be taken by it while it was acting as Agent under this Agreement and the
other Financing Agreements.
12.14.
Hedging Agreements
.
Each Lender agrees that in its capacity as a counterparty to a Hedging Agreement with
Borrower, it shall not be deemed to have any rights as a Lender hereunder except for the right to
receive proceeds of Collateral, as a counterparty to a Hedging Agreement, in the order and manner
set forth in Section 6.4(a) hereof. Each Lender further agrees that Administrative Agent shall
have no duties to a Lender hereunder in its capacity as a counterparty to a Hedging Agreement other
than in respect of such Lenders entitlements to proceeds of Collateral, as a counterparty to a
Hedging Agreement, in the order and manner set forth in Section 6.4(a) hereof. Nothing in this
Section 12.14 is intended to diminish or otherwise alter any Lenders rights, or either Agents
duties to such Lender, under this Agreement as to Lender in its capacity as a Lender hereunder.
12.15.
Other Agents; Arrangers and Managers
.
None of the Lenders or other Persons identified on the facing page or signature pages of this
Agreement as a syndication agent, documentation agent, co-agent, book manager, lead
manager, arranger, lead arranger or co-arranger, if any, shall have any right, power,
obligation, liability, responsibility or duty under this Agreement other than, in the case of such
Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the
Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship
with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the
Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not
taking action hereunder.
|
|
|
SECTION 13.
|
|
TERM OF AGREEMENT; MISCELLANEOUS
|
13.1.
Term.
(a) This Agreement and the other Financing Agreements shall become effective as of the date
set forth on the first page hereof and shall continue in full force and effect for a term ending on
May 31, 2011 (the
Termination Date
), unless sooner terminated pursuant to the terms
hereof. Borrower may terminate this Agreement at any time upon ten (10) days prior written notice
to Administrative Agent (which notice shall be irrevocable) and Administrative Agent or Required
Lenders may terminate this Agreement at any time on or after an Event of Default. Upon the
effective date of termination of this Agreement, Borrower shall pay to Administrative Agent, in
full, all outstanding and unpaid Obligations and shall furnish cash collateral to Administrative
Agent in such amounts as Administrative Agent determines are reasonably necessary to secure (or
reimburse) Administrative Agent from loss, cost, damage or expense, including attorneys fees and
legal expenses, in connection with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments provisionally credited to the
Obligations and/or as to which any Agent or any Lender has not yet received final and indefeasible
payment. Such payments in respect of the Obligations and cash collateral shall be remitted by wire
transfer in Federal funds to such bank
-86-
account of Administrative Agent, as Administrative Agent may, in its discretion, designate in
writing to Borrower for such purpose. Interest shall be due until and including the next Business
Day, if the amounts so paid by Borrower to the bank account designated by Administrative Agent are
received in such bank account later than 2:00 P.M., Chicago time, or as may be otherwise permitted
by the Administrative Agent at its sole discretion.
(b) No termination of this Agreement or the other Financing Agreements shall relieve or
discharge Borrower of its respective duties, obligations and covenants under this Agreement or the
other Financing Agreements until all Obligations have been fully and finally discharged and paid,
and Collateral Agents continuing security interest in the Collateral and the rights and remedies
of Agents and the Lenders hereunder, under the other Financing Agreements and applicable law, shall
remain in effect until all such Obligations have been fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to May 31, 2009, or any portion of
the Commitments are reduced pursuant to Section 2.4(b) prior to May 31, 2009, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the
parties as to a reasonable calculation each Agents and each Lenders lost profits as a result
thereof, Borrower agrees to pay to Administrative Agent for itself and the ratable benefit of
Lenders, upon the effective date of such termination and on each effective date of any Commitment
reduction, an early termination fee in the amount set forth below if such termination or reduction,
as applicable, is effective in the period indicated:
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Period
|
|
|
(i)
|
|
fifteen one-hundredths of one
(.15%) percent of the Stated
Amount
|
|
From the Closing Date to and
including May 31, 2008
|
|
(ii)
|
|
one tenth of one (.10%) percent
of the Stated Amount
|
|
From May 31, 2008 to and
including May 31 2009
|
Such early termination fee shall be presumed to be the amount of damages sustained by
Administrative Agent and Lenders as a result of such early termination or reduction and Borrower
agrees that it is reasonable under the circumstances currently existing. The early termination fee
provided for in this Section 13.1 shall be deemed included in the Obligations.
(d) Notwithstanding anything to the contrary contained in Section 13.1(c), in the event of
termination of this Agreement by Borrower prior to May 31, 2009 and the full and final repayment of
all of the Obligations and the receipt by Administrative Agent of cash collateral all as provided
in Section 13.1(a) above, Borrower shall only be required to pay to Administrative Agent, for its
benefit and the ratable benefit of Lenders, an early termination fee in an amount equal to fifty
(50%) percent of the early termination fee otherwise payable under Section 13.1(c) if each of the
following conditions is satisfied: (i) no Default or Event of Default shall exist or have occurred
and be continuing, (ii) Administrative Agent shall have received not less than thirty (30) days
prior written notice of the intention of Borrower to so terminate this Agreement and (iii) the full
and final repayment of all of the Obligations and the cash collateral
-87-
is paid with the proceeds from a Qualified Public Offering upon the consummation of such
Qualified Public Offering or from another transaction resulting in a Change of Control upon the
consummation of such transaction.
13.2.
Interpretative Provisions
.
(a) All terms used herein which are defined in Article 1 or Article 9 of the UCC shall have
the meanings given therein unless otherwise defined in this Agreement.
(b) All references to the plural herein shall also mean the singular and to the singular shall
also mean the plural unless the context otherwise requires.
(c) All references to Borrower, Agents and Lenders pursuant to the definitions set forth in
the recitals hereto, or to any other person herein, shall include their respective successors and
assigns.
(d) The words hereof, herein, hereunder, this Agreement and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(e) The word including when used in this Agreement shall mean including, without
limitation.
(f) All references to the term good faith used herein when applicable to either Agent shall
mean, notwithstanding anything to the contrary contained herein or in the UCC, honesty in fact in
the conduct or transaction concerned. Borrower shall have the burden of proving any lack of good
faith on the part of such Agent alleged by Borrower at any time.
(g) An Event of Default shall exist or continue or be continuing until such Event of Default
is waived in accordance with Section 11.3 or is cured in a manner reasonably satisfactory to
Administrative Agent, if such Event of Default is capable of being cured as reasonably determined
by Administrative Agent.
(h) Any accounting term used in this Agreement shall have, unless otherwise specifically
provided herein, the meaning customarily given in accordance with GAAP, and all financial
computations hereunder shall be computed unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for inventory valuation as
used in the preparation of the financial statements of Borrower most recently received by
Administrative Agent prior to the date hereof.
(i) In the computation of periods of time from a specified date to a later specified date, the
word from means from and including, the words to and until each mean to but excluding and
the word through means to and including.
(j) Unless otherwise expressly provided herein, (i) references herein to any agreement,
document or instrument shall be deemed to include all subsequent amendments, modifications,
supplements, extensions, renewals, restatements or replacements with respect
-88-
thereto, but only to the extent the same are not prohibited by the terms hereof or of any
other Financing Agreement, and (ii) references to any statute or regulation are to be construed as
including all statutory and regulatory provisions consolidating, amending, replacing, recodifying,
supplementing or interpreting the statute or regulation.
(k) The captions and headings of this Agreement are for convenience of reference only and
shall not affect the interpretation of this Agreement.
(l) This Agreement and other Financing Agreements may use several different limitations, tests
or measurements to regulate the same or similar matters. All such limitations, tests and
measurements are cumulative and shall each be performed in accordance with their terms.
(m) This Agreement and the other Financing Agreements are the result of negotiations among and
have been reviewed by counsel to Administrative Agent and the other parties, and are the products
of all parties. Accordingly, this Agreement and the other Financing Agreements shall not be
construed against Agents or Lenders merely because of either Agents or any Lenders involvement in
their preparation.
13.3.
Notices
.
All notices, requests and demands hereunder shall be in writing and deemed to have been given
or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next Business Day, one (1)
Business Day after sending; and if by certified mail, return receipt requested, five (5) days after
mailing. All notices, requests and demands upon the parties are to be given to the following
addresses (or to such other address as any party may designate by notice in accordance with this
Section):
|
|
|
If to Borrower:
|
|
Ulta Salon, Cosmetics & Fragrance, Inc.
1135 Arbor Drive
Romeoville, Illinois 60646
Attention: Gregg Bodnar
Telephone No.: (630) 226-8212
Telecopy No.: (630) 226-0020
|
|
|
|
with a copy, in the
case of a Default or
Event of Default, to:
|
|
Latham & Watkins
5800 Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606
Attention: Donald L. Schwartz
Telephone No.: (312) 876-7700
Telecopy No.: (312) 993-9767
|
-89-
|
|
|
If to Administrative Agent:
|
|
LaSalle Bank National Association,
as Administrative Agent
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Scott Carbon
Telephone No.: (312) 904-4818
Telecopy No.: (312) 904-6150
|
|
|
|
If to Collateral Agent:
|
|
Wachovia Capital Finance Corporation (Central),
as Collateral Agent
150 S. Wacker Drive
Suite 2200
Chicago, Illinois 60606
Attention: Account Officer (Ulta Cosmetics)
Telephone No.: (312) 332-0420
Telecopy No.: (312) 332-0424
|
13.4.
Partial Invalidity
.
If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or
unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be
construed as though it did not contain the particular provision held to be invalid or unenforceable
and the rights and obligations of the parties shall be construed and enforced only to such extent
as shall be permitted by applicable law.
13.5.
Successors
.
This Agreement, the other Financing Agreements and any other document referred to herein or
therein shall be binding upon and inure to the benefit of and be enforceable by Agents, Lenders,
Borrower and their respective successors and assigns, except that Borrower may not assign its
rights under this Agreement, the other Financing Agreements and any other document referred to
herein or therein without the prior written consent of Agents and Lenders. Any such purported
assignment without the prior written consent shall be void. No Lender may assign its rights and
obligations under this Agreement without the prior written consent of Administrative Agent, except
as provided in Section 13.6 below. The terms and provisions of this Agreement and the other
Financing Agreements are for the purpose of defining the relative rights and obligations of
Borrower, Agents and Lenders with respect to the transactions contemplated hereby and there shall
be no third party beneficiaries of any of the terms and provisions of this Agreement or any of the
other Financing Agreements.
13.6.
Assignments; Participations
.
(a) Each Lender may (i) assign all or a portion of its rights and obligations under this
Agreement (including, without limitation, a portion of its Commitments, the Loans owing to it and
its rights and obligations as a Lender with respect to Letter of Credit Accommodations) and the
other Financing Agreements to (A) its parent company and/or any Affiliate of such Lender which is
at least fifty (50%) percent owned by such Lender or its parent
-90-
company or (B) one or more Lenders or (C) any person (whether a corporation, partnership,
trust or otherwise) that is engaged in the business of making, purchasing, holding or otherwise
investing in bank loans and similar extensions of credit in the ordinary course of its business and
is administered or managed by a Lender or with respect to any Lender that is a fund which invests
in bank loans and similar extensions of credit, any other fund that invests in bank loans and
similar extensions of credit and is managed by the same investment advisor as such Lender or by an
Affiliate of such investment advisor or (ii) assign all or a portion of its rights and obligations
under this Agreement to one or more Eligible Transferees, each of which assignees shall become a
party to this Agreement as a Lender by execution of an Assignment and Acceptance;
provided
,
that
, (A) the consent of Administrative Agent shall be required in connection with any
assignment to an Eligible Transferee pursuant to clause (ii) above, which consent shall not be
unreasonably withheld, (B) absent the existence of an Event of Default, the consent of Borrower
shall be required in connection with any assignment to an Eligible Transferee pursuant to clause
(ii) above, which consent shall not be unreasonably withheld; (C) if such Eligible Transferee is
not a bank, Administrative Agent shall receive a representation in writing by such Eligible
Transferee that either (1) no part of its acquisition of its Loans is made out of assets of any
employee benefit plan, or (2) after consultation, in good faith, with Borrower and provision by
Borrower of such information as may be reasonably requested by such Eligible Transferee, the
acquisition and holding of such Commitments and Loans does not constitute a non-exempt prohibited
transaction under Section 406 of ERISA and Section 4975 of the Code, or (3) such assignment is an
insurance company general account, as such term is defined in the Department of Labor Prohibited
Transaction Class Exemption 95.60 (issued July 12, 1995) (PTCE 95-60), and, as of the date of the
assignment, there is no employee benefit plan with respect to which the aggregate amount of such
general accounts reserves and liabilities for the contracts held by or on behalf of such employee
benefit plan and all other employee benefit plans maintained by the same employer (and
affiliates thereof as defined in Section V(a)(1) of PTCE 95-60) or by the same employee
organization (in each case determined in accordance with the provisions of PTCE 95-60) exceeds ten
(10%) percent of the total reserves and liabilities of such general account (as determined under
PTCE 95-60) (exclusive of separate account liabilities) plus surplus as set forth in the National
Association of Insurance Commissioners Annual Statement filed with the state of domicile of such
Eligible Transferee, (D) such transfer or assignment will not be effective until recorded by the
Administrative Agent on the Register, (E) except as Administrative Agent shall otherwise agree, any
such assignment shall be in a minimum aggregate amount equal to $5,000,000 or, if less, the
remaining Commitment and Loans held by the assigning Lender. As used in this Section, the term
employee benefit plan shall have the meaning assigned to it in Title I of ERISA and shall also
include a plan as defined in Section 4975(e)(1) of the Code and (F) any Lender desiring to assign
all or any portion of its rights and obligations under this Agreement to a Person other than a
Lender shall first and prior to any assignment to such Person provide a written offer to each of
the other existing Lenders to accept such assignment, and each Lender who has received such offer
shall have the right, but no obligation, to accept such assignment,
provided
that, no later
than seven (7) days
after receipt of such notice, each such Lender shall advise Administrative
Agent and the Borrower whether it intends to accept such assignment, and any Lender that has not
responded within such period shall be deemed to have declined such assignment and in the event that
more than one Lender accepts such assignment, the assigning Lender shall assign its rights and
obligations to such Lenders on a pro rata basis.
-91-
(b) Administrative Agent shall maintain a register of the names and addresses of Lenders,
their Commitments and the principal amount of their Loans (the
Register
). Administrative
Agent shall also maintain a copy of each Assignment and Acceptance delivered to and accepted by it
and shall modify the Register to give effect to each Assignment and Acceptance. The entries in the
Register shall be conclusive and binding for all purposes, absent manifest error, and Borrower, any
Obligor, Agents and Lenders may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be available for
inspection by Borrower and any Lender at any reasonable time and from time to time upon reasonable
prior notice.
(c) Upon such execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto
and to the other Financing Agreements and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations
(including, without limitation, the obligation to participate in Letter of Credit Accommodations)
of a Lender hereunder and thereunder and (ii) the assigning Lender shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement. In the event that
any Lender assigns or otherwise transfers all or any part of the Obligations, Administrative Agent
shall so notify Borrower and Borrower shall, upon the request of the Administrative Agent, execute
new promissory notes in exchange for the promissory notes of such assigning Lender, if any.
(d) By execution and delivery of an Assignment and Acceptance, the assignor and assignee
thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other
than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or any of the other Financing
Agreements or the execution, legality, enforceability, genuineness, sufficiency or value of this
Agreement or any of the other Financing Agreements furnished pursuant hereto, (ii) the assigning
Lender makes no representation or warranty and assumes no responsibility with respect to the
financial condition of Borrower, any Obligor or any of their Subsidiaries or the performance or
observance by Borrower or any Obligor of any of the Obligations; (iii) such assignee confirms that
it has received a copy of this Agreement and the other Financing Agreements, together with such
other documents and information it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance, (iv) such assignee will, independently and
without reliance upon the assigning Lender, Administrative Agent and based on such documents and
information as it shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Financing Agreements, (v) such
assignee appoints and authorizes Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement and the other Financing Agreements as are
delegated to Agents by the terms hereof and thereof, together with such powers as are reasonably
incidental thereto, and (vi) such assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement and the other Financing
Agreements are required to be performed by it as a Lender. Agents and Lenders may furnish any
information concerning
-92-
Borrower or any Obligor in the possession of either Agent or any Lender from time to time to
assignees and Participants.
(e) Each Lender may sell participations to one or more banks or other entities in or to all or
a portion of its rights and obligations under this Agreement and the other Financing Agreements
(including, without limitation, all or a portion of its Commitments and the Loans owing to it and
its participation in the Letter of Credit Accommodations, without the consent of Administrative
Agent or the other Lenders);
provided
,
that
, (i) such Lenders obligations under
this Agreement (including, without limitation, its Commitment hereunder) and the other Financing
Agreements shall remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, and Borrower, and Administrative Agent
shall continue to deal solely and directly with such Lender in connection with such Lenders rights
and obligations under this Agreement and the other Financing Agreements, (iii) the Participant
shall not have any rights under this Agreement or any of the other Financing Agreements (the
Participants rights against such Lender in respect of such participation (including rights in
connection with increased costs pursuant to Section 3.3 hereof) to be those set forth in the
agreement executed by such Lender in favor of the Participant relating thereto) and all amounts
payable by Borrower or any Obligor hereunder shall be determined as if such Lender had not sold
such participation;
provided
, that the Borrower shall not be required to reimburse any
Participant pursuant to the increased cost provisions of Section 3.3 in any amount which exceeds
the amount that would have been payable under such provisions to such Lender had such Lender not
sold such participation, (iv) absent the existence of an Event of Default, the consent of Borrower,
which consent shall not be unreasonably withheld, shall be required in connection with any
participation to an Eligible Transferee that does not consist of (A) any Lenders parent company
and/or any Affiliate of such Lender which is at least fifty (50%) percent owned by such Lender or
its parent company or (B) one or more Lenders or (C) any person (whether a corporation,
partnership, trust or otherwise) that is engaged in the business of making, purchasing, holding or
otherwise investing in bank loans and similar extensions of credit in the ordinary course of its
business and is administered or managed by a Lender or with respect to any Lender that is a fund
which invests in bank loans and similar extensions of credit, any other fund that invests in bank
loans and similar extensions of credit and is managed by the same investment advisor as such Lender
or by an Affiliate of such investment advisor, and (v) if such Participant is not a bank, represent
that either (A) no part of its acquisition of its participation is made out of assets of any
employee benefit plan, or (B) after consultation, in good faith, with Borrower and provision by
Borrower of such information as may be reasonably requested by the Participant, the acquisition and
holding of such participation does not constitute a non-exempt prohibited transaction under Section
406 of ERISA and Section 4975 of the Code, or (C) such participation is an insurance company
general account, as such term is defined in the PTCE 95-60, and, as of the date of the transfer
there is no employee benefit plan with respect to which the aggregate amount of such general
accounts reserves and liabilities for the contracts held by or on behalf of such employee benefit
plan and all other employee benefit plans maintained by the same employer (and affiliates
thereof as defined in Section V(a)(1) of PTCE 95-60) or by the same employee organization (in each
case determined in accordance with the provisions of PTCE 95-60) exceeds ten (10%) percent of the
total reserves and liabilities of such general account (as determined under PTCE 95-60) (exclusive
of separate account liabilities) plus surplus as set forth in the National Association of Insurance
Commissioners Annual Statement filed with the state of domicile of the Participant. As used in
this Section, the term
-93-
employee benefit plan shall have the meaning assigned to it in Title I of ERISA and shall
also include a plan as defined in Section 4975(e)(1) of the Code.
(f) Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Loans
hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal
Reserve Bank.
(g) Borrower shall, and shall cause each of its Subsidiaries to, assist any Agent or any
Lender permitted to sell assignments or participations under this Section 13.6 in whatever manner
reasonably necessary in order to enable or effect any such assignment or participation, including
(but not limited to) the execution and delivery of any and all agreements, notes and other
documents and instruments as shall be requested and the delivery of informational materials,
appraisals or other documents for, and the participation of relevant management in meetings and
conference calls with, potential Lenders or Participants. Borrower shall certify the correctness,
completeness and accuracy, in all material respects, of all descriptions of Borrower and its
Subsidiaries and their affairs provided, prepared or reviewed by Borrower that are contained in any
selling materials and all other information provided by it and included in such materials.
13.7.
Confidentiality
.
(a) Each Agent and each Lender shall use all reasonable efforts to keep confidential, in
accordance with its respective customary procedures for handling confidential information and safe
and sound lending practices, any non-public information supplied to them by Borrower pursuant to
this Agreement which is clearly and conspicuously marked as confidential at the time such
information is furnished by Borrower to any Agent or any Lender,
provided
,
that
,
nothing contained herein shall limit the disclosure of any such information: (i) to the extent
required by statute, rule, regulation, subpoena or court order, (ii) to bank examiners and other
regulators, auditors and/or accountants, (iii) in connection with any litigation to which any Agent
or any Lender is a party, (iv) to any assignee or Participant (or prospective assignee or
Participant) so long as such assignee or Participant (or prospective assignee or Participant) shall
have first agreed in writing to treat such information as confidential in accordance with this
Section 13.7, (v) to any Affiliate, employee, director, officer or agent of such Agent or such
Lender so long as such Affiliate, employee, director, officer of agent shall have been instructed
to treat such information as confidential in accordance with this Section 13.7 or (vi) to counsel
for either Agent or any Lender or any Participant or assignee (or prospective participant or
assignee);
provided
,
that
, in the case of
clause (i)
, such Agent or Lender,
as applicable, shall use reasonable efforts to provide Borrower with prior notice of such required
disclosure and the opportunity to obtain a protective order in respect thereof if no conflict
exists with such Agents or Lenders governmental, regulatory or legal requirements.
(b) In no event shall this Section 13.7 or any other provision of this Agreement or applicable
law be deemed: (i) to apply to or restrict disclosure of information that has been or is made
public by Borrower or any third party without breach of this Section 13.7 or otherwise become
generally available to the public other than as a result of a disclosure in violation hereof, (ii)
to apply to or restrict disclosure of information that was or becomes available to Agents or
Lenders on a non-confidential basis from a person other than Borrower,
-94-
(iii) require Agents or Lenders to return any materials furnished by Borrower to Agents or
Lenders or (iv) prevent Agents or Lenders from responding to routine informational requests in
accordance with the
Code of Ethics for the Exchange of Credit Information
promulgated The
Robert Morris Associates or other applicable industry standards relating to the exchange of credit
information. The obligations of Agents and Lenders under this Section 13.7 shall supersede and
replace the obligations of Agents and Lenders under any confidentiality letter signed prior to the
date hereof.
13.8.
Entire Agreement
.
This Agreement, the other Financing Agreements, any supplements hereto or thereto, and any
instruments or documents delivered or to be delivered in connection herewith or therewith
represents the entire agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements, understandings, negotiations
and discussions, representations, warranties, commitments, proposals, offers and contracts
concerning the subject matter hereof, whether oral or written. In the event of any inconsistency
between the terms of this Agreement and any schedule or exhibit hereto, the terms of this Agreement
shall govern.
13.9.
Counterparts, Etc
.
This Agreement or any of the other Financing Agreements may be executed in any number of
counterparts, each of which shall be an original, but all of which taken together shall constitute
one and the same agreement. Delivery of an executed counterpart of this Agreement or any of the
other Financing Agreements by telefacsimile shall have the same force and effect as the delivery of
an original executed counterpart of this Agreement or any of such other Financing Agreements. Any
party delivering an executed counterpart of any such agreement by telefacsimile shall also deliver
an original executed counterpart, but the failure to do so shall not affect the validity,
enforceability or binding effect of such agreement.
13.10.
Customer Identification - USA Patriot Act Notice
.
Each Lender and Administrative Agent (for itself and not on behalf of any other party) hereby
notifies Borrower that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L.
107-56, signed into law October 26, 2001 (the
Act
), it is required to obtain, verify and
record information that identifies Borrower and/or its subsidiaries, which information includes the
name and address of Borrower and/or its subsidiaries and other information that will allow such
Lender or Administrative Agent, as applicable, to identify Borrower and/or its subsidiaries in
accordance with the Act.
|
|
|
SECTION 14.
|
|
ACKNOWLEDGMENT AND RESTATEMENT
|
14.1.
Existing Obligations.
Borrower hereby acknowledges, confirms and agrees that it is indebted to Original Lenders for
Loans and advances to Borrower under the 2005 Loan Agreement, as of the close of business on June
29, 2007, in the aggregate principal amount of $82,712,131 and the amount of $326,264 in respect of
that certain Letter of Credit Accommodation (as defined in the
-95-
2005 Loan Agreement) described on Exhibit I hereto (the
2005 Letter of Credit
Accommodation
), together with all interest accrued and accruing thereon (to the extent
applicable), and all fees, costs, expenses and other charges relating thereto, all of which are
unconditionally owing by Borrower to Original Lenders, without offset, defense or counterclaim of
any kind, nature or description whatsoever. All such Loans under, and as such term is defined in
the 2005 Loan Agreement, outstanding on the Closing Date shall be deemed to be Loans outstanding
under this Agreement as of the Closing Date, the 2005 Letter of Credit Accommodation shall be
deemed to be a Letter of Credit Accommodation existing as of the Closing Date under this Agreement
and any and all other Obligations under, and as such term is defined in the 2005 Loan Agreement,
existing as of the Closing Date shall be deemed to be comparable Obligations existing as of the
Closing Date under this Agreement.
14.2.
Acknowledgment of Security Interests
.
(a) Borrower hereby acknowledges, confirms and agrees that Collateral Agent, for itself and
the ratable benefit of Lenders, has and shall continue to have a security interest in and lien upon
the Collateral heretofore granted to Collateral Agent pursuant to the 2005 Loan Agreement to secure
the Obligations, as well as any Collateral granted under this Agreement or under any of the other
Financing Agreements or otherwise granted to or held by any Agent or any Lender.
(b) The liens and security interests of Collateral Agent, for itself and the ratable benefit
of Lenders, in the Collateral shall be deemed to be continuously granted and perfected from the
earliest date of the granting and perfection of such liens and security interests, whether under
the 2005 Loan Agreement, this Agreement or any other Financing Agreements.
14.3.
Existing Agreement
.
Borrower hereby acknowledges, confirms and agrees that: (a) the 2005 Loan Agreement has been
duly executed and delivered by Borrower and is in full force and effect as of the date hereof and
(b) the agreements and obligations of Borrower contained in the 2005 Loan Agreement constitute the
legal, valid and binding obligations of Borrower enforceable against it in accordance with their
respect terms and Borrower has no valid defense to the enforcement of such obligations and (c)
Original Lenders are entitled to all of the rights and remedies provided for in the 2005 Loan
Agreement.
14.4.
Restatement
.
(a) Except as otherwise stated in Section 14.2 hereof and this Section 14.4, as of the date
hereof, the terms, conditions, agreements, covenants, representations and warranties set forth in
the 2005 Loan Agreement are hereby amended and restated in their entirety, and as so amended and
restated, replaced and superseded, by the terms, conditions, agreements, covenants, representations
and warranties set forth in this Agreement and the other Financing Agreements,
except
that
nothing herein or in the other Financing Agreements shall impair or adversely affect the
continuation of the liability of Borrower for the Obligations heretofore granted, pledged and/or
assigned to any Agent or any Lender. The amendment and restatement contained herein shall not, in
any manner, be construed to constitute payment of, or impair, limit, cancel or
-96-
extinguish, or constitute a novation in respect of, the indebtedness and other obligations and
liabilities of Borrower evidenced by or arising under the 2005 Loan Agreement, and the liens and
security interests securing such indebtedness and other obligations and liabilities, which shall
not in any manner be impaired, limited, terminated, waived or released.
(b) Notwithstanding the foregoing, with respect to any Eurodollar Rate Loan (as defined in the
2005 Loan Agreement) having an Interest Period (as defined in the 2005 Loan Agreement) that
terminates after the date hereof, such Eurodollar Rate Loan shall continue to be a Eurodollar Rate
Loan under this Agreement with the same maturity (but reduced margin to reflect this Agreement)
that it had under the 2005 Loan Agreement.
(c) All references in any or all of the Financing Agreements to the 2005 Loan Agreement shall
be deemed to be a reference to this Agreement, as it may be amended, restated, supplemented or
otherwise modified from time to time, and such Financing Agreements are hereby amended to reflect
such reference. All references in any or all of the Financing Agreements to Congress Financial
Corporation (Central) (i) in its capacity as collateral agent shall continue to be deemed to be a
reference to Collateral Agent and (ii) in its capacity as administrative agent shall continue to be
deemed to be a reference to Administrative Agent.
[SIGNATURE PAGE FOLLOWS]
-97-
IN WITNESS WHEREOF, Agents, Lenders and Borrower have caused these presents to be duly
executed as of the day and year first above written.
|
|
|
|
|
|
|
|
|
LASALLE BANK NATIONAL
ASSOCIATION,
|
|
|
|
BORROWER
|
as Administrative Agent, as a Lender and as
LC Issuer
|
|
|
|
ULTA SALON , COSMETICS &
FRAGRANCE, INC.
|
|
|
|
|
|
|
|
|
|
By:
Title:
|
|
/s/ Scott Carbon
First Vice President
|
|
|
|
By:
Title:
|
|
/s/ Gregg Bodnar
CFO
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
|
Chief Executive Office:
|
|
|
|
|
|
|
|
|
|
135 South LaSalle Street
Chicago, Illinois 60603
|
|
|
|
1135 Arbor Drive
Romeoville, Illinois 60446
|
|
|
|
|
|
|
|
|
|
WACHOVIA CAPITAL FINANCE
CORPORATION (CENTRAL),
as Collateral Agent and as a Lender
|
|
|
|
JPMORGAN CHASE BANK, N.A., as a
Lender
|
|
|
|
|
|
|
|
|
|
By:
Title:
|
|
/s/ Anthony Vizgirda
Director
|
|
|
|
By:
Title:
|
|
/s/ Teresa M. Bolick
Vice President
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
150 South Wacker Drive
Chicago, Illinois 60606
|
|
|
|
JPMorgan Chase
120 South LaSalle Street, Floor 8
Mail Code, IL1-1458
Chicago, IL 60603
Attention: Teresa M. Bolick
|
Third Amended and Restated Loan and Security Agreement
EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
Date:
|
|
|
To:
|
|
Ulta Salon, Cosmetics and Fragrance, Inc. and
LaSalle Bank National Association, as Administrative Agent
|
|
|
|
Re:
|
|
Assignment under the Loan Agreement referred to below
|
Gentlemen and Ladies:
Please refer to
Section 13.6
of the Third Amended and Restated Loan and Security
Agreement dated as of June 29, 2007 (as amended or otherwise modified from time to time, the
Loan Agreement
) among Ulta Salon, Cosmetics and Fragrance, Inc. (the
Borrower
),
various financial institutions and LaSalle Bank National Association, as administrative agent (in
such capacity, the
Administrative Agent
). Unless otherwise defined herein or the context
otherwise requires, terms used herein have the meanings provided in the Loan Agreement.
(the
Assignor
) hereby sells and assigns, without
recourse, to (the
Assignee
), and the Assignee hereby purchases and assumes from the
Assignor, that interest in and to the Assignors rights and obligations under the Loan Agreement as
of the date hereof equal to ___% of all of the Loans, of the participation interests in
the Letter of Credit Accommodations and of the Commitments, such sale, purchase, assignment and
assumption to be effective as of
, ___, or such later date on which the
Borrower and the Administrative Agent shall have consented hereto (the
Effective Date
).
After giving effect to such sale, purchase, assignment and assumption, the Assignees and the
Assignors respective Pro Rata Shares for purposes of the Loan Agreement will be as set forth
opposite their names on the signature pages hereof.
The Assignor hereby instructs the Administrative Agent to make all payments from and after the
Effective Date in respect of the interest assigned hereby directly to the Assignee. The Assignor
and the Assignee agree that all interest and fees accrued up to, but not including, the Effective
Date are the property of the Assignor, and not the Assignee. The Assignee agrees that, upon
receipt of any such interest or fees, the Assignee will promptly remit the same to the Assignor.
The Assignor represents and warrants that it is the legal and beneficial owner of the interest
being assigned by it hereunder and that such interest is free and clear of any adverse claim.
The Assignee represents and warrants to the Borrower and the Administrative Agent that, as of
the date hereof, the Borrower will not be obligated to pay any greater amount under Section 3.3 of
the Loan Agreement than the Borrower is obligated to pay to the Assignor under such Section. The
[Assignee/Assignor] [Borrower] shall pay a processing fee equal to $3,500 to the Administrative
Agent.
The Assignee hereby confirms that it has received a copy of the Loan Agreement. Except as
otherwise provided in the Loan Agreement, effective as of the Effective Date:
(d) the Assignee (i) shall be deemed automatically to have become a party to the Loan
Agreement and to have all the rights and obligations of a
Lender
under the Loan Agreement
as if it were an original signatory thereto to the extent specified in the second paragraph hereof;
and (ii) agrees to be bound by the terms and conditions set forth in the Loan Agreement as if it
were an original signatory thereto; and
(e) the Assignor shall be released from its obligations under the Loan Agreement to the extent
specified in the second paragraph hereof.
i
The Assignee hereby advises each of you of the following administrative details with respect
to the assigned Loans and Commitment:
|
|
|
|
|
|
|
(A)
|
|
Institution Name:
|
|
|
|
|
Address:
|
|
|
|
|
Attention:
|
|
|
|
|
Telephone:
|
|
|
|
|
Facsimile:
|
|
|
(B)
|
|
Payment Instructions:
|
This Assignment shall be governed by and construed in accordance with the laws of the State of
Illinois
Please evidence your receipt hereof and your consent to the sale, assignment, purchase and
assumption set forth herein by signing and returning counterparts hereof to the Assignor and the
Assignee.
|
|
|
|
|
|
|
Percentage = __%
|
|
[ASSIGNEE]
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Percentage = __%
|
|
[ASSIGNOR]
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACKNOWLEDGED AND CONSENTED TO
|
|
|
this ____ day of
, ____
|
|
|
|
|
|
|
|
LASALLE BANK NATIONAL ASSOCIATION, as
|
|
|
Administrative Agent
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[ACKNOWLEDGED AND CONSENTED TO
|
|
|
this ____ day of
, ____
|
|
|
|
|
|
|
|
ULTA SALON, COSMETICS AND FRAGRANCE, INC.
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
]
|
|
|
|
|
|
|
ii
EXHIBIT B
INFORMATION CERTIFICATE
See attached.
iii
EXHIBIT C
FORM OF SWAP ACKNOWLEDGMENT AGREEMENT
, 200_
LaSalle Bank National Association, as
Administrative Agent for itself and the Lenders as referred
to below
135 South LaSalle Street
Chicago, Illinois 60603
Ladies and Gentlemen:
Reference is made to the Third Amended and Restated Loan and Security Agreement among LaSalle
Bank National Association as administrative agent (in such capacity,
Administrative
Agent
) for itself and the financial institutions from time to time party thereto, as lenders
(collectively,
Lenders
), Wachovia Capital Finance Corporation (Central) as Collateral
Agent for itself and the Lenders, the Lenders, and Ulta Salon, Cosmetics & Fragrance, Inc. (the
Borrower
), as the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced (the
Loan Agreement
). All capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given to such terms in the Loan
Agreement.
Pursuant to such financing arrangements, Administrative Agent and Lenders may from time to
time make loans to Borrower secured by substantially all of the assets and properties of Borrower
including among other things, all right, title and interest of Borrower in, to and under the swap
agreements, cap agreements, collar agreements, exchange agreements, futures or forward hedging
contracts or similar contractual arrangements intended to protect Borrower against fluctuations in
interest rates as listed on Exhibit A hereto, and at any time entered into between Borrower and
(the
Bank
; collectively,
Hedge Agreements
and individually, a
Hedge Agreement
).
Bank and Borrower agree in favor of Agents and Lenders that upon receipt by Bank of written
instructions from Administrative Agent in the form annexed hereto as Exhibit B, Bank will no longer
comply with any instructions or orders originated by Borrower or any of its affiliates or
representatives concerning any Hedge Agreement and will comply only with the instructions or orders
of Administrative Agent with respect thereto, without any further consent by Borrower or its
affiliates or representatives. Bank is hereby irrevocably authorized and directed to follow such
instructions or orders without any inquiry as to Administrative Agents right or authority to give
such instructions or orders and Bank is fully protected in acting in accordance therewith. Bank
shall not for any reason exercise any lien rights or rights of setoff or other claims against
amounts owing to Borrower pursuant to Hedge Agreements, without the prior consent of Administrative
Agent. Upon Administrative Agents request, Bank will report to Administrative Agent the amounts
then outstanding with respect to the Hedge Agreements consistent with its current practices as of
the date hereof with Borrowers or more frequently as Administrative Agent may request after
Administrative Agent has sent the written instructions
iv
referred to above, together with such other information with respect thereto as Administrative
Agent may reasonably request.
Nothing contained herein shall be construed as an assumption by Administrative Agent or any
Lender of the obligations or liabilities of Borrower or any of its affiliates to Bank or any other
person pursuant to any Hedge Agreement or otherwise. Bank agrees that in its capacity as a
counterparty to the Hedge Agreement, it shall not be deemed to have any rights as a Lender under
the Loan Agreement except for the right to receive proceeds of Collateral, as a counterparty to the
Hedge Agreement, in the order and manner set forth in Section 6.4(a) of the Loan Agreement. Bank
further aggress that Administrative Agent has no duties to Bank under the Loan Agreement in its
capacity as a counterparty to the Hedge Agreement other than in respect of Banks entitlement to
proceeds of Collateral, as a counterparty to the Hedge Agreement, in the order and manner set forth
in Section 6.4(a) of the Loan Agreement. To the extent Bank is also a Lender under the Loan
Agreement, nothing in the preceding two sentences is intended to diminish or otherwise alter Banks
rights, or Administrative Agents duties to Bank, under the Loan Agreement as to Bank in its
capacity as a Lender thereunder.
Administrative Agent and Lenders are relying upon this letter agreement in providing financing
to Borrower and this letter agreement shall be binding upon Borrower and its successors and assigns
and inure to the benefit of Administrative Agent and Lenders and their successors and assigns. This
agreement may not be amended, modified, supplemented or terminated orally or by course of conduct
or otherwise. This agreement may only be amended, modified, supplemented or terminated with the
written agreement of Administrative Agent.
Borrower agrees that it will not assert any claims against the Bank as counterparty to the
Hedge Agreement solely as a result of Bank following the instructions or orders of Administrative
Agent pursuant to the terms hereof with respect to any Hedge Agreement.
This agreement shall be governed by and construed in accordance with the laws of the State of
Illinois.
This agreement may be executed in any number of counterparts, but all of such counterparts
shall together constitute but one and the same agreement. In making proof of this agreement, it
shall not be necessary to produce or account for more than one counterpart thereof signed by each
of the parties hereto.
[Signature Page Follows]
v
This agreement shall be binding upon Bank and Borrower and inure to the benefit of
Administrative Agent, Lenders and each of the parties hereto and their respective successors and
assigns.
|
|
|
|
|
|
|
|
|
Very truly yours,
|
|
|
|
|
|
|
|
|
|
|
|
[
BANK
]
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ULTA SALON, COSMETICS & FRAGRANCE, INC.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACKNOWLEDGED AND AGREED:
|
|
|
|
|
|
|
|
LASALLE BANK NATIONAL ASSOCIATION,
|
|
|
as Administrative Agent
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
vi
EXHIBIT A
TO
SWAP ACKNOWLEDGMENT AGREEMENT
[Details to be completed for each such agreement.]
vii
EXHIBIT B
TO
SWAP ACKNOWLEDGMENT AGREEMENT
Form of Notice to Bank
|
|
|
|
|
[Name and Address
|
of Hedge Lender]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attn:
|
|
|
|
|
|
|
|
|
|
Re:
Swap Transactions with
Ladies and Gentlemen:
Reference is made to the Third Amended and Restated Loan and Security Agreement among LaSalle
Bank National Association, as administrative agent (in such capacity,
Administrative
Agent
) for itself and the financial institutions from time to time party thereto as lenders
(collectively, together with Administrative Agent,
Lenders
), the Lenders, and Ulta Salon,
Cosmetics & Fragrance, Inc. (
Borrower
), as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced (the
Loan
Agreement
). All capitalized terms used herein, unless otherwise defined herein, shall have the
meanings given to such terms in the Loan Agreement.
A default or event of default under the Loan Agreement exists or has occurred and is
continuing. Accordingly, Bank is no longer to comply with any instructions or orders originated by
Borrower or any of its affiliates or representatives and Bank is only to comply with the
instructions or orders or Administrative Agent with respect thereto. Borrower and its affiliates
and representatives no longer have any authority with respect to the Hedge Agreement (as defined in
the Loan Agreement) except as Administrative Agent may otherwise specify to Bank in writing.
|
|
|
|
|
|
|
|
|
Very truly yours,
|
|
|
|
|
|
|
|
|
|
LASALLE BANK NATIONAL ASSOCIATION,
|
|
|
as Administrative Agent
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
viii
EXHIBIT D
FORM OF NOTICE OF CONTINUATION/CONVERSION
To: LaSalle Bank National Association, as Administrative Agent
Please refer to the Third Amended and Restated Loan and Security Agreement dated as of June
29, 2007 (as amended, restated, supplemented or otherwise modified from time to time, the Loan
Agreement) among Ulta Salon, Cosmetics and Fragrance, Inc. (the
Borrower
), various
financial institutions and LaSalle Bank National Association, as Administrative Agent. Terms used
but not otherwise defined herein are used herein as defined in the Loan Agreement.
The undersigned hereby gives irrevocable notice, pursuant to
Section 3.1(b)
of the
Loan Agreement, of its request to:
(a) on
[ date ] convert $[
] of the aggregate outstanding principal amount of the
[
] Loan, bearing interest at the [
] Rate, into a(n) [
] Loan [and, in the
case of a Eurodollar Rate Loan, having an Interest Period of
[
]
month(s)]; [(b) on [ date ] continue $[
] of the aggregate outstanding principal amount of the [___] Loan, bearing
interest at the Eurodollar Rate, as a Eurodollar Rate Loan having an Interest Period of [
]
month(s)].
The undersigned hereby represents and warrants that all of the conditions contained in
Section 4.2
of the Loan Agreement have been satisfied on and as of the date hereof, and
will continue to be satisfied on and as of the date of the conversion/continuation requested
hereby, before and after giving effect thereto.
The Borrower has caused this Notice of Conversion/Continuation to be executed and delivered by
its officer thereunto duly authorized on
,
.
|
|
|
|
|
|
|
|
|
ULTA SALON, COSMETICS AND FRAGRANCE, INC.
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
ix
EXHIBIT E
CLOSING CHECKLIST
1.
|
|
Third Amended & Restated Loan & Security Agreement
|
|
2.
|
|
Amended and Restated Promissory Notes payable to each Lender (if requested)
|
|
3.
|
|
Certificates of good standing for Borrower in the States of Delaware and in all other
jurisdictions in which Borrower is qualified to do business
|
|
4.
|
|
Secretarys Certificate as to Borrowers Articles of Incorporation, By-Laws and Resolution
authorizing transaction
|
|
5.
|
|
Amended & Restated Fee Letter
|
|
6.
|
|
Latham & Watkins Opinion
|
x
EXHIBIT F
FORM OF NOTICE OF BORROWING
To: LaSalle Bank National Association, as Administrative Agent
Please refer to the Third Amended and Restated Loan and Security Agreement dated as of June
29, 2007 (as amended, restated, supplemented or otherwise modified from time to time, the Loan
Agreement) among Ulta Salon, Cosmetics and Fragrance, Inc. (the
Borrower
), various
financial institutions and LaSalle Bank National Association, as Administrative Agent. Terms used
but not otherwise defined herein are used herein as defined in the Loan Agreement.
The undersigned hereby gives irrevocable notice, pursuant to
Section 6.5
of the Loan
Agreement, of a request hereby for a borrowing as follows:
(i) The requested borrowing date for the proposed borrowing (which is a Business Day) is
,
.
(ii) The aggregate amount of the proposed borrowing is $
.
(iii) The type of Revolving Loans comprising the proposed borrowing is [Prime Rate]
[Eurodollar Rate] Loans.
(iv) The duration of the Interest Period for each Eurodollar Rate Loan made as part of the
proposed borrowing, if applicable, is
months (which shall be 1, 2, 3 or 6 months).
The undersigned hereby certifies that on the date hereof and on the date of borrowing set
forth above, and immediately after giving effect to the borrowing requested hereby: (i) there
exists and there shall exist no Default or Event of Default under the Loan Agreement; and (ii) each
of the representations and warranties contained in the Loan Agreement and the other Financing
Agreements is true and correct as of the date hereof, except to the extent that such representation
or warranty expressly relates to another date and except for changes therein expressly permitted or
expressly contemplated by the Loan Agreement.
The undersigned requests, subject to the provisions of Section 2.5, that the requested
borrowing be funded as a Swing Line Loan.
[Delete as applicable]
The Borrower has caused this Notice of Borrowing to be executed and delivered by its officer
thereunto duly authorized on
,
.
|
|
|
|
|
|
|
|
|
ULTA SALON, COSMETICS AND FRAGRANCE, INC.
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
xi
SCHEDULE I
LENDERS AND PRO RATA SHARES
|
|
|
|
|
|
|
|
|
Lender
|
|
Commitment Amount
|
|
Pro Rata Share
|
LaSalle Bank National Association
|
|
$ 75,000,000.00
1
|
|
50.000000000%
|
Wachovia Capital Finance Corporation (Central)
|
|
$ 45,000,000.00
|
|
30.000000000%
|
JPMorgan Chase Bank, N.A.
|
|
$ 30,000,000.00
|
|
20.000000000%
|
TOTALS
|
|
$ 150,000,000.00
|
|
100%
|
|
|
|
1
This amount includes Swing Line Commitment Amount of $10,000,000.
|
xii
EXHIBIT G
EXISTING LANDLORD AGREEMENTS
xiii
EXHIBIT H
FORM OF LANDLORD AGREEMENT
THIS LANDLORDS WAIVER AND CONSENT (Waiver and Consent) is made and entered into as of this
day of
, by and between
, a
(Landlord),
and
Wachovia Capital Finance Corporation (Central)
, an Illinois corporation (Lender), in its
capacity as Collateral Agent (Agent) for various lenders (Lenders).
A. Landlord is the owner of the real property commonly known as
(the Premises).
B. Landlord has entered into a certain Lease Agreement (together with all amendments and
modifications thereto and waivers thereof, the Lease) with Ulta Salon, Cosmetics & Fragrance,
Inc. (Company), with respect to the Premises.
C. Agent and the Lenders have entered into a certain Third Amended and Restated Loan and
Security Agreement with Company (as amended from time to time, the Credit Agreement), and to
secure the obligations arising under such Credit Agreement, Company has granted to Agent for its
benefit and the benefit of the Lenders a security interest in and lien upon certain assets of
Company which assets may from time to time be located at the Premises, including, without
limitation, all of Companys cash, cash equivalents, goods, inventory, machinery, equipment, and
furniture and trade fixtures (such as equipment bolted to floors), together with all additions,
substitutions, replacements and improvements to, and proceeds of, the foregoing, but
excluding
building fixtures (such as plumbing, lighting and HVAC systems and other fixtures
not constituting trade fixtures) (collectively, the Collateral).
NOW, THEREFORE, in consideration of any financial accommodations extended by Agent and the
Lenders to Company at any time, and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Landlord acknowledges that (a) the Lease is in full force and effect and (b) Landlord is
not aware of any existing default under the Lease.
2. Landlord will use commercially reasonable efforts to provide Lender with written notice of
any default by Company under the Lease resulting in termination of the Lease (a Default Notice).
Agent shall have at least 15 days following receipt of such Default Notice to cure such default,
but Agent shall not be under any obligation to cure any default by Company under the Lease. No
action by Agent pursuant to this Waiver and Consent shall be deemed to be an assumption by Agent or
any Lender of any obligation under the Lease, and, except as provided in paragraphs 5, 6, 7 and 8
below, neither Agent nor any Lender shall have any obligation to Landlord hereunder.
3. Landlord acknowledges the validity of Lenders lien on the Collateral and, until such time
as the obligations of Company to Agent and the Lenders are indefeasibly paid in full,
xiv
Landlord waives any interest in the Collateral and agrees not to distrain or levy upon any
Collateral or to assert any landlord lien, right of distraint or other claim against the Collateral
for any reason, provided that the foregoing provision shall not prevent Landlord from suing the
Company for rent or other charges owing under the Lease.
4. Landlord agrees that the Collateral consisting of trade fixtures such as equipment bolted
to the floor shall not be deemed a fixture or part of the real estate but shall at all times be
considered personal property.
5. Prior to a termination of the Lease, Agent or its representatives or invitees may enter
upon the Premises at any time without any interference by Landlord to inspect, remove, sell or
otherwise dispose of any or all of the Collateral, subject, in each case, to any restrictions
contained in any applicable restrictive covenants, easements or other documents recorded in the
applicable public records against the Premises, publicly stated rules or regulations or governing
laws (Sale Restrictions). Lender will use commercially reasonable efforts to provide Landlord
with prior written notice of its intention to enter onto the Premises to conduct any sale, removal
or disposition of Collateral.
6. Upon a termination of the Lease, Landlord will permit Agent and its representatives and
invitees to occupy and remain on the Premises;
provided
, that (a) such period of occupation
(the Disposition Period) shall not exceed up to 60 days following receipt by Agent of a Default
Notice or, if the Lease has expired by its own terms (absent a default thereunder) and the Company
has failed to remove all of the Collateral from the Premises, up to 45 days following Agents
receipt of written notice from Landlord of such failure, (b) for the actual period of occupancy by
Agent, Agent will pay to Landlord all rent and other charges due and payable by the Company under
the Lease (including, without limitation, taxes, common area maintenance costs and insurance, but
excluding any percentage or contingent rent) which becomes due under the Lease pro-rated on a per
diem basis determined on a 30-day month, and shall provide and retain liability and property
insurance coverage, electricity and heat to the extent required by the Lease, and (c) such amounts
paid by Agent to Landlord shall exclude any rent adjustments, indemnity payments or similar amounts
for which the Company remains liable under the Lease for default, holdover status or other similar
charges. If any injunction or stay is issued that prohibits Agent from removing the Collateral,
the commencement of the Disposition Period will be deferred until such injunction or stay is lifted
or removed.
7. During any Disposition Period, (a) Agent and its representatives and invitees may inspect,
repossess, remove and otherwise deal with the Collateral, and Agent may, subject to any applicable
Sale Restrictions, advertise and sell or otherwise dispose of the Collateral at the Premises, in
each case without interference by Landlord or liability of Agent to Landlord, and (b) Agent shall
make the Premises available for inspection by Landlord and prospective tenants and shall cooperate
in Landlords reasonable efforts to re-lease the Premises. If Agent conducts a sale of the
Collateral at the Premises, Agent shall use commercially reasonable efforts to notify Landlord
first and to conduct such sale in a manner that would not unduly disrupt Landlords or any other
tenants use of the Premises. In no event shall Agent disturb or interfere with other tenants
rights of quiet enjoyment of their leased space and no auction or other advertised sale shall be
held by Agent at the Premises. Upon request by the Landlord, Agent shall promptly
xv
provide Landlord with evidence that commercially reasonable insurance is in force throughout
Agents period of possession.
8. Agent shall promptly repair, at Agents expense, or reimburse Landlord for any physical
damage to the Premises actually caused by the conduct of any sale, removal or other disposition of
Collateral by or through Agent (ordinary wear and tear excluded). Agent shall not be liable for
any diminution in value of the Premises caused by the absence of Collateral removed, and Agent
shall not have any duty or obligation to remove or dispose of any Collateral or any other property
left on the Premises by Company.
9. All notices hereunder shall be in writing, sent by certified mail, return receipt requested
or by telecopy, to the respective parties and the addresses set forth on the signature page or at
such other address as the receiving party shall designate in writing.
10. This Waiver and Consent may be executed in any number of several counterparts, shall be
governed and controlled by, and interpreted under, the laws of the state in which the Premises are
located and shall inure to the benefit of Agent and its successors and assigns and shall be binding
upon Landlord and its successors and assigns (including any transferees of the Premises).
xvi
IN WITNESS WHEREOF, this Landlords Waiver and Consent is entered into as of the date first
set forth above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LANDLORD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attention:
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telephone:
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facsimile:
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landlords Notice Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wachovia Capital Finance Corporation
(Central)
, an Illinois corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attention:
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telephone:
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facsimile:
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lenders Notice Address
:
|
|
|
|
|
|
|
|
|
Wachovia Capital Finance
|
|
|
|
|
|
|
|
|
Corporation (Central), as agent
|
|
|
|
|
|
|
|
|
150 South Wacker Drive
|
|
|
|
|
|
|
|
|
Chicago, IL 60606-4401
|
|
|
|
|
|
|
|
|
Attn: Portfolio Manager
|
|
|
xvii
EXHIBIT I
2005 LETTER OF CREDIT ACCOMMODATION
That certain Letter of Credit No. S585314 issued by LaSalle to Aetna Life Insurance Company c/o
Nicholson, Porter and List Inc. on November 18, 2005 in the original face amount of $326,264.00.
xviii