UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-27100
FIELDS AIRCRAFT SPARES, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
UTAH 95-4218263
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4175 Guardian Street, Simi Valley, California 93063
---------------------------------------------------
(Address of principal executive offices)
(805) 583-0080
--------------
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class of Stock Amount Outstanding
-------------- ------------------
$.05 par value Common Shares 2,483,781 Common Shares
at November 6, 1998
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes _____ No X
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
TABLE OF CONTENTS
Page No.
Part I - Financial Information
Item 1. Consolidated Financial Statements
Balance Sheet..................................3
Statement of Operations........................4
Statement of Shareholders' Equity..............6
Statement of Cash Flows........................7
Notes to Financial Statements..................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................21
Part II. - Other Information
Item 1. Legal Proceedings......................................26
Item 2. Changes in Securities..................................26
Item 3. Defaults upon Senior Securities........................26
Item 4. Submission of Matters to a Vote
of Security Holders...........................26
Item 5. Other Information......................................26
Item 6. Exhibits and Reports on Form 8-K.......................26
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 2, 1998 AND DECEMBER 31, 1997
A S S E T S
1998 1997
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 626,000 $ 6,071,000
Accounts receivable, less allowance for doubtful
accounts of $145,000 in 1998 and $100,000
in 1997 5,563,000 1,955,000
Inventory 16,893,000 11,058,000
Prepaid expenses 790,000 191,000
------------ ----------------
Total current assets $ 23,872,000 $ 19,275,000
------------ ----------------
LAND, BUILDING AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,245,000 1,065,000
Furniture and equipment 4,172,000 565,000
------------ ----------------
Totals $ 5,627,000 $ 1,840,000
Less accumulated depreciation and amortization 2,386,000 830,000
------------ ----------------
Land, building and equipment, net $ 3,241,000 $ 1,010,000
------------ ----------------
OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization $ 1,061,000 $ 1,267,000
Goodwill, net of accumulated amortization 3,286,000
Other assets 629,000
----------------
Total other assets $ 4,347,000 $ 1,869,000
------------ ----------------
Total assets $ 31,460,000 $ 22,181,000
------------ ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,454,000 $ 1,239,000
Other accrued liabilities 1,178,000 241,000
Current portion of notes and capital
leases payable 57,000 55,000
------------ ----------------
Total current liabilities $ 4,689,000 $ 1,535,000
------------ ----------------
LONG-TERM LIABILITIES: $ 19,506,000 $ 15,047,000
------------ ----------------
SHAREHOLDERS' EQUITY:
Common stock $ 371,000 $ 351,000
Additional paid-in capital 9,308,000 6,959,000
Retained deficit (2,414,000) (1,711,000)
------------ ----------------
Total shareholders' equity $ 7,265,000 $ 5,599,000
------------ ----------------
Total liabilities and shareholders'
equity $ 31,460,000 $ 22,181,000
------------ ----------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 2, 1998 AND SEPTEMBER 30, 1997
1998 1997
---- ----
<S> <C> <C>
SALES $6,120,000 $3,414,000
COST OF SALES 4,028,000 2,148,000
----------
GROSS PROFIT $2,092,000 $1,266,000
OPERATING EXPENSES 1,263,000 791,000
---------- ----------
INCOME FROM OPERATIONS $ 829,000 $ 475,000
OTHER EXPENSES 585,000 307,000
---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES $ 244,000 $ 168,000
PROVISION FOR INCOME TAXES 2,000 7,000
---------- ----------
NET INCOME $ 242,000 $ 161,000
========== ==========
NET INCOME PER SHARE (basic) $ .10 $ .08
========== ==========
NET INCOME PER SHARE (diluted) $ .08 $ .07
========== ==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 2, 1998 AND SEPTEMBER 30, 1997
1998 1997
---- ----
<S> <C> <C>
SALES $17,510,000 $8,444,000
COST OF SALES 11,593,000 5,136,000
----------- ----------
GROSS PROFIT $5,917,000 $3,308,000
OPERATING EXPENSES 3,881,000 2,428,000
---------- ----------
INCOME FROM OPERATIONS $2,036,000 $ 880,000
OTHER EXPENSES 2,730,000 1,249,000
---------- ----------
LOSS BEFORE PROVISION FOR
INCOME TAXES $ (694,000) $ (369,000)
PROVISION FOR INCOME TAXES 9,000 7,000
---------- ----------
NET LOSS $ (703,000) $ (376,000)
========== ==========
NET LOSS PER SHARE (basic) $ (.31) $ (.22)
========== ==========
NET LOSS PER SHARE (diluted) $ (.15) $ (.19)
========== ==========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 2, 1998 AND SEPTEMBER 30, 1997
NUMBER OF ADDITIONAL TOTAL
SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY
----------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1997 2,079,571 $351,000 $6,959,000 $(1,711,000) $5,599,000
Issuance of common stock 394,210 20,000 2,349,000 2,369,000
Net loss (703,000) (703,000)
----------------- ---------------- ----------------- ---------------- -----------------
BALANCES, OCTOBER 2, 1998 2,473,781 $371,000 $9,308,000 $(2,414,000) $7,265,000
================= ================ ================= ================ =================
BALANCES, DECEMBER 31, 1996 1,302,137 $312,000 $5,065,000 $(1,564,000) $3,813,000
Issuance of common stock 605,749 30,000 142,000 172,000
Net loss (376,000) (376,000)
----------------- ---------------- ----------------- ---------------- -----------------
BALANCES, SEPTEMBER 30, 1997 1,907,886 $342,000 $5,207,000 $(1,940,000) $3,609,000
================= ================ ================= ================ =================
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Fields Aircraft Spares, Inc.
Unaudited Consolidated Statements of Cash Flows
For The Nine Months Ended
October 2, 1998 and September 30, 1997
1998 1997
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET LOSS $ (703,000) $ (376,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 241,000 91,000
Amortization of goodwill and debt issuance costs 561,000 410,000
Increase in accounts receivable (3,608,000) (753,000)
Increase in inventory (5,835,000) (2,057,000)
Increase in prepaid expenses (599,000) (21,000)
Decrease (increase) in other assets 629,000 (138,000)
Increase in accounts payable 2,215,000 1,119,000
Increase in other accrued liabilities 937,000 90,000
Increase in income taxes payable 6,000
------------------ ------------------
Net cash used in operating activities $ (6,162,000) $(1,629,000)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment $ (2,658,000) $ (20,000)
Acquisition of goodwill (3,441,000)
------------------ ------------------
Net cash used in investing activities $ (6,099,000) $ (20,000)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line credit $ 3,982,000 $(6,232,000)
Principal payments on notes payable (69,000) (19,000)
Borrowings on notes payable 635,000 18,810,000
Costs associated with issuance of notes payable (200,000) (1,881,000)
Net proceeds from issuance of common stock 2,872,000 352,000
Costs associated with the issuance of common stock (404,000) (147,000)
------------------ ------------------
Net cash provided by financing activities $ 6,816,000 $10,883,000
------------------ ------------------
NET (DECREASE) INCREASE IN CASH: $ (5,445,000) $ 9,234,000
------------------ ------------------
CASH AND CASH EQUIVALENTS, December 31, 1997 and
1996 6,071,000 88,000
------------------ ------------------
CASH AND CASH EQUIVALENTS, October 2, 1998
and September 30, 1997 $ 626,000 $ 9,322,000
================== ==================
</TABLE>
7
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
a. Principles of consolidation and company background
The consolidated Group financial statements include the
accounts of Fields Aircraft Spares, Inc. (FASI), a Utah corporation, and its
wholly-owned subsidiaries Fields Aircraft Spares Incorporated (FASC), a
California corporation, Flightways Manufacturing, Inc. (FMI), Skylock Industries
(Skylock) and Fields Aero Management, Inc. (FAM). All significant intercompany
accounts and activity have been eliminated.
The Group manufactures and distributes new aircraft parts and
equipment for use on international and domestic commercial and military aircraft
and purchases and sells parts on a brokerage basis.
b. Concentration of credit risk
Substantially all of the Group's trade accounts receivables
are due from companies in the airline industry located throughout the United
States and internationally. The Group performs periodic credit evaluations of
its customers' financial condition and does not require collateral. Credit
losses relating to customers in the airline industry have consistently been
within management's expectations.
c. Concentration of sales
The Group had sales to foreign companies that amounted to 13%
of total sales for each of the nine months ended October 2, 1998 and September
30, 1997.
For the nine months ended October 2, 1998, two customers
accounted for sales of $3,355,000 and $1,459,000. For the nine months ended
September 30, 1997, two customers accounted for sales of $1,207,000 and
$1,063,000.
d. Cash and cash equivalents
For purposes of the statement of cash flows, the Group
considers all highly liquid investments purchased with an original maturity of
three months or less to be a cash equivalent.
The Group currently maintains cash in bank deposit accounts
which exceeds federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant risks
on cash in bank deposit accounts. Uninsured balances were approximately $525,000
as of October 2, 1998.
e. Inventory
Inventory is valued at the lower of cost or market value using
the first-in, first-out method. Where a group of parts were purchased together
as a lot, the cost of
8
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
the lot was allocated to the individual parts by management pro rata to the list
selling price at the time of purchase. Consistent with industry practice,
inventory is carried as a current asset but all inventory is not expected to be
sold within one year.
Inventory as of October 2, 1998 and December 31, 1997
consisted of the following:
1998 1997
---- ----
Raw materials $ 743,000 $
Work-in-process 689,000
Finished goods 15,461,000 11,058,000
----------- -----------
Total $16,893,000 $11,058,000
f. Land, building and equipment
Land, building and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 3 to 25 years.
The cost and related accumulated depreciation and amortization
of assets sold or otherwise retired are eliminated from the accounts and any
gain or loss is included in the statement of operations. The cost of maintenance
and repairs is charged to income as incurred, whereas significant renewals and
betterments are capitalized. Depreciation expense for the nine months ended
October 2, 1998 and September 30, 1997 amounted to $241,000 and $91,000,
respectively.
Long-term assets of the Company are reviewed annually as to
whether their carrying value has income impaired, pursuant to the guidelines
established in Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". Management considers assets to be impaired if the carrying value
exceeds the future projected cash flows from related operations. Management also
re-evaluates the periods of amortization to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. As of October 2,
1998 management expects these assets to be fully recoverable.
g. Debt issuance costs
Gross debt issuance costs of $1,509,000 less amortization of
$448,000 at October 2, 1998 relate to the issuance of financing. Amortization of
debt issuance costs for the nine months ended October 2, 1998 and September 30,
1997 amounted to $406,000 and $410,000, respectively. The costs are amortized
using the straight-line method over the life of the respective loans.
9
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
h. Revenue recognition
The Group recognizes revenue from all types of sales under the accrual
method of accounting when title transfers. Title transfers at the Group's
facilities.
i. Earnings per share
In March 1995, FASI's shareholders authorized the reverse split of its
common stock on the basis of fifty old shares for one new share. This reverse
split was effective as of November 1995. All references herein to the number of
shares are after the reverse split.
The Group adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." SFAS 128 requires the presentation of earnings per share
(EPS) as Basic EPS and Diluted EPS. Therefore, the EPS for the periods ended
September 30, 1997 have been restated to conform to SFAS 128. The reconciliation
of the basic and diluted EPS components as of October 2, 1998 and September 30,
1997 is as follows:
For the nine months ended,
October 2, September 30,
1998 1997
--------- ---------
Net Loss available to common stock $(703,000) $(376,000)
Interest on convertible debentures 163,000
Net Loss available to common stock $(540,000) $(376,000)
For the three months ended,
October 2, September 30,
1998 1997
---- ----
Net Income available to common stock $ 242,000 $ 161,000
Interest on convertible debentures 64,000
Net Income available to common stock $ 306,000 $ 161,000
10
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended,
October 2, September 30,
1998 1997
---- ----
Number of common shares outstanding 2,473,781 1,907,886
Weighted averages (197,659) (215,976)
Potential dilutive shares 1,363,380 290,056
------------ ----------
Dilutive number of shares 3,639,502 1,981,966
For the three months ended,
October 2, September 30,
1998 1997
Number of common shares outstanding 2,473,781 1,907,886
Weighted averages (24,039) (15,000)
Potential dilutive shares 1,325,667 431,404
--------- ---------
Dilutive number of shares 3,775,409 2,324,290
========= =========
j. Income taxes
The Group files consolidated income tax returns. Deferred income taxes
relate to temporary differences between financial statement and income tax
reporting of certain accrued expenses, bad debts, inventory, and depreciation.
The Group adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". SFAS 109 requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between tax basis and financial reporting basis of assets and
liabilities. The income tax effect of the temporary differences as of October 2,
1998 and December 31, 1997 consisted of the following:
1998 1997
---- ----
Deferred tax liability resulting from
taxable temporary differences for
accounting for inventory $ (314,000) $ (314,000)
Deferred tax liability resulting from
taxable temporary differences for
accounting for depreciation (19,000)
Deferred tax asset resulting from
deductible temporary differences
for allowance for doubtful accounts 32,000 6,000
11
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax asset resulting from
deductible temporary differences for
product warranty costs 3,000
Deferred tax asset resulting from deductible
temporary differences for accrued
expenses 5,000
Deferred tax asset resulting from
deductible temporary differences
for utilization of net operating loss
carryforwards for income tax purposes 1,078,000 1,078,000
Valuation allowance resulting from the
potential nonutilization of net operating
loss carryforwards for income tax
purposes (785,000) (770,000)
--------- ---------
Total deferred income taxes $ - $ -
========== =========
k. Employee benefit plan
FASC has a 401(k) Plan under Section 401(k) of the Internal
Revenue Code. The Plan allows all employees who are not covered by a collective
bargaining agreement to defer up to 25% of their compensation on a pre-tax basis
through contributions to the Plan. Contributions to the Plan by FASC are
discretionary and are determined by the Board of Directors. No contributions
were made to the Plan during the nine months ended October 2, 1998 and September
30, 1997.
l. Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
its financial statements are reasonable and prudent. Actual results could differ
from these estimates.
m. Change in accounting period
In March 1998, the Company elected to change its reporting year to a
52-53 week year ending on the Friday of the calendar week (beginning on Monday
and ending on Sunday) which includes the last business day in December, with
each quarter being reported in a similar fashion. Accordingly, this financial
statement includes the balances and activities for the periods of 1998 ending on
October 2.
12
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. Shareholders' equity
FASI has 50,000 shares authorized of its $.001 par value preferred
stock. At October 2, 1998 and December 31, 1997, there were no shares of
preferred stock issued or outstanding.
FASI has the following common stock as of October 2, 1998 and December
31, 1997: 1998 1997
Authorized 5,000,000 5,000,000
Issued and outstanding 2,473,781 2,079,571
Par value $.05 $.05
In February 1995, the Group owed $7,658,000 to McDonnell Douglas
Corporation (MDC). MDC canceled the debt in exchange for $850,000 plus 586,862
shares of Series A convertible preferred stock of FASC. This constituted full
and complete satisfaction of the MDC debt. The agreement provided for the
mandatory exchange of the Series A preferred stock of FASC for 25% of the total
outstanding common stock of FASI within 10 days following the date the common
stock is approved for quotation on, and is quoted for trading on, the Nasdaq
Stock Market.
FASI's common shares began quotation on the Nasdaq SmallCap Market on
March 26, 1997. On April 4, 1997 the MDC Series A shares were exchanged by MDC
for 564,194 common shares of FASI.
In 1996, FASI sold 317,785 shares of common stock and 158,893 warrants.
Each warrant allows the holder to purchase one share of common stock for $6.25.
The net proceeds were $1,654,000 after deducting costs of $481,000 for
underwriting and issuance. In April 1998, warrants were exercised to purchase
93,413 shares of common stock for $6.25 per share. The net proceeds were
$450,000 after deducting costs of $134,000 for underwriting and issuance.
In addition, during 1997, FASI issued 31,574 shares of common stock and
41,128 warrants. Each warrant allows the holder to purchase one share of common
stock for $6.25. FASI issued another 15,000 of common stock in association with
the issue of $10,000,000 at 8.50% subordinated debentures.
The Group's wholly-owned subsidiaries have a Loan and Security
Agreement for an aggregate of up to $15,000,000 with NationsCredit Commercial
Funding ("NationsCredit") at an interest rate of prime plus 2%. In connection
with the NationsCredit loan facility, FASI issued NationsCredit an option to
acquire 40,000 common shares of FASI at a price of $6.25 per share.
In September 1997, FASI closed the sale of $10,000,000 Subordinated
Redeemable Debentures due 2000 issued under an Indenture with Etablissement Pour
le Placement
13
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Prive as Trustee. The Securities were sold in reliance on Regulation S of the
Securities Act of 1933 to entities which represented to FASI to be accredited
non-U.S. persons.
The Debenture holders have a one-time right at any time between
December 29, 1997 and September 27, 2000, subject to prior redemption or
repurchase, to convert up to 30% of the principal amount of such holder's
Debentures into Common Shares at a conversion price equal to 85% of the average
closing price of the Common Shares during the 20-trading day period ending on
the date of notice of conversion, but in no event less than $12.00 per share. In
the event that during any 20-day trading period, the average closing price of
the Common Shares equals or exceeds $12.00 per share, FASI may require the
conversion of up to 20% of the principal amount of outstanding Debentures at the
Conversion Price. Pursuant to this, in November 1997, FASI required the
conversion of $2,000,000 of Debentures in exchange for 166,666 of common shares
at $12.00 per share.
The Debentures are redeemable, in whole or in part, at the option of
the Group, at any time on or after March 31, 1999 at 100% of the principal
amount plus accrued interest.
In February 1998, the Group entered into a Supplemental Indenture to
the Indenture with Etablissement Pour le Placement Prive as trustee, relating to
the 8.5% Subordinated Redeemable Debenture due 2000. The Supplemental Indenture
provides that the Debenture holders have the following additional rights: at any
time between February 20, 1998 and June 30, 1998, each holder may convert 20% of
the original principal amount of such holder's Debentures into Common Shares at
a conversion price of $9.75 per share; at any time between February 20, 1998 and
September 30, 1998, each holder may convert an additional 20% of the original
principal amount of such holder's Debentures into Common Shares at a conversion
price of $11.00 per share; at any time between February 20, 1998 and December
31, 1998, each holder may convert an additional 20% of the original principal
amount of such holder's Debentures into Common Shares at a conversion price of
$13.00 per share. No additional debentures have been converted.
In February 1998, the Group received and accepted subscription
agreements for the sale of 210,664 shares of common stock and 52,666 warrants
for approximately $2,055,000. Each warrant allows the holder to purchase one
share of common stock for $13.00. The Securities were sold in reliance on
Regulation S of the Securities Act of 1933 to entities which represented to FASI
to be accredited non-U.S. persons.
In April 1998, 48,015 common shares were issued to acquire Skylock
Industries. In April 1998, warrants were exercised to purchase 93,413 shares of
common stock at $6.25 per share. The net proceeds were $450,000 after deducting
costs of $134,000 for underwriting and issuance.
In July 1998, warrants were exercised to purchase 12,118 shares of
common stock at $6.25 per share. The net proceeds were $72,000 after deducting
costs of $4,000 for underwriting and issuance. In August 1998, warrants were
exercised to purchase 30,000 shares of common stock at $6.25 per share. The net
proceeds were $178,000 after deducting costs of $9,000 for underwriting and
issuance.
14
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. Notes and capital leases payable
The notes and capital leases payable at October 2, 1998 and
December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Subordinated debenture with fixed interest at 8.50%
per annum, payable semi-annually, due 2000 $ 8,000,000 $ 8,000,000
Note payable to NationsCredit, secured by all
assets of the Group, interest at prime plus
2.0% (11.0% at October 2, 1998), payable
monthly, due 2001 11,029,000 7,047,000
Notes and capital leases payable, secured by equipment,
monthly payments of $11,940 including
interest at rates ranging from 8.9% to 16.6%,
due through October 2002 477,000
Other notes payable 57,000 55,000
----------- -----------
Total notes and capital leases payable $19,563,000 $15,102,000
Less current portion 57,000 55,000
Notes and capital leases payable, net of
current portion $19,506,000 $15,047,000
=========== ===========
</TABLE>
Principal payment requirements on all notes payable based on
terms explained above are as follows:
YEAR ENDING
OCTOBER 2, AMOUNT
1999 $ 57,000
2000 8,197,000
2001 11,090,000
2002 170,000
2003 49,000
Thereafter
Total interest expense including the amortization of debt issuance
costs for the nine months ended October 2, 1998 and September 30, 1997 amounted
to $1,530,000 and $1,249,000, respectively. Total interest paid for the nine
months ended October 2, 1998 and September 30, 1997 amounted to $1,114,000 and
$786,000, respectively.
15
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FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Other expense
During the quarter ended July 3, 1998, the Company recorded
non-recurring expenses of $1,200,000 to reflect the acquisition of a new
facility, relocation costs and the initial expansion of the newly acquired
manufacturing operations.
5. Provision for income taxes
The provision for income taxes for the nine months ended October 2,
1998 and September 30, 1997 consisted of the following:
1998 1997
---- ----
CURRENT:
State $ 9,000 $ 2,000
-------- --------
Total provision for income
taxes $ 9,000 $ 2,000
======== ========
Total income taxes paid in 1998 and 1997 amounted to $9,000 and $3,000.
The Group has net operating loss carryovers available to offset future federal
and California taxable income. The amount and expiration date of the carryovers
are as follows:
YEAR ENDING
DECEMBER 31, FEDERAL STATE
------------ ------- -----
1998 $ $ 750,000
1999 580,000
2000 126,000
2001 110,000
2008 942,000 70,000
2009 1,161,000
2010 255,000
2011 225,000
2012 140,000
6. Commitments
The Group leases facilities and vehicles under operating leases
expiring through October 31, 2008 and subleases a facility to a third party. The
minimum lease payments required under the leases as of October 2, 1998 are as
follows:
16
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDING OPERATING LEASE OPERATING LEASE
OCTOBER 2, EXPENSE INCOME
---------- ------- ------
1999 $ 998,000 $ 156,000
2000 955,000 39,000
2001 900,000
2002 900,000
2003 756,000
Thereafter 3,654,000
Lease expense for the nine months ended October 2, 1998 and September
30, 1997 was $413,000 and $98,000, respectively. Lease income for the nine
months ended October 2, 1998 was $136,000.
7. Related party transactions
The Group leases a small overseas office facility on a month to month
basis from an entity owned by certain officers of the Group.
8. Stock option plans
In November 1995, FASI adopted a Management Stock Option Plan
("Management Plan") and Employee Stock Option Plan ("Employee Plan"). Pursuant
to the Management Plan, FASI has issued options to five individuals involved in
the management of FASI to acquire up to 69,025 common shares of FASI at a
purchase price of $3.00 per share subject to vesting requirements, which
includes FASI obtaining sales during a 12-month period of $7,500,000 and an
average closing price for FASI's Common Shares for a three-month period of
$6.00, $9.00 and $12.00, respectively, for each one-third of the options to
vest. The options must vest by November 1998 and must be exercised within three
years of vesting. Pursuant to the Employee Plan, FASI has issued options to
acquire 13,500 common shares of FASI to 20 employees of FASI at a purchase price
of $3.00 per share subject to vesting requirements, which include FASI obtaining
sales during a 12-month period of $7,500,000 and at least one year continued
employment after the grant of the option. The options must vest by November 1998
and must be exercised within two years of vesting.
In April 1997, FASI issued options to employees of the Group to acquire
up to 100,000 common shares of FASI at an exercise price of $6.25 per share.
Half of the options vested in April 1998 and the remaining half will vest in
April 1999. The options expire in April 2000.
In August 1997, FASI issued options to executives of the Group to
acquire up to 270,000 common shares of FASI at an exercise price of $10.00 per
share. The options will vest if the Group meets the following conditions; the
Group must raise at least
17
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
$7,500,000 in additional debt or equity capital and the Group must have sales of
at least $14,000,000 in any 12-month period after the grant date. Half of the
options vested August 6, 1998 and the other half will vest in August 1999. The
conditions must be met by June 30, 1999 and the options will expire three years
after the vesting date.
In August 1997, FASI issued options to employees of the Group to
acquire up to 89,500 common shares of FASI at an exercise price of $8.25 per
share. Half of the options vested in August 1998 and the remaining half will
vest in August 1999. The options expire in August 2002.
The Company granted share options to certain key employees and
executives on the following dates:
On January 16, 1998, Group A: 10,000 common shares at a price of $8.35
per share. Half of the options will vest on January 15, 1999 and the remainder
will vest on January 14, 2000. The options will expire January 16, 2003 and
Group B: 40,000 common shares at a price of $8.35 per share subject to certain
vesting requirements. Subject to satisfaction of performance conditions, half of
the options vest on January 15, 1999, and the remainder vest on January 14,
2000. The options expire three years after vesting.
On February 13, 1998, 119,600 common shares at a price of $10.00 per
share subject to vesting requirements. Subject to satisfaction of performance
conditions, half of the options vest on February 12, 1999, and the remainder
vest on February 11, 2000.
The options expire on February 13, 2003.
On March 16, 1998, 5,000 options of which half vest on March 15, 1999
and the remainder vest on March 15, 2000, subject to performance and expire
March 16, 2003.
The Group accounts for stock options under the provision of APB Opinion
25 "Accounting for Stock Issued to Employees". Accordingly, no compensation cost
has been recognized for its stock option grants. Had compensation cost for the
Group's stock option grants been determined based on the fair value at the grant
dates consistent with the method of FASB Statement 123 "Accounting for
Stock-Based Compensation", the Group's net loss and loss per share would have
been increased to the pro forma amounts indicated below for the nine months
ended October 2, 1998 and September 30, 1997:
18
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1998 1997
---- ----
<S> <C> <C>
Net loss
As reported $ (703,000) $ (376,000)
================= ==============
Pro forma $ (2,175,000) $ (639,000)
================= ==============
Basic loss per share
As reported $ (.31) $ (.22)
================= ==============
Pro forma $ (.95) $ (.38)
================= ==============
Diluted loss per share
As reported $ (.15) $ (.19)
================= ==============
Pro forma $ (.55) $ (.32)
================= ==============
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
the April 1997, August 7, 1997 and August 28, 1997 grants, respectively:
risk-free interest rates of 6.4%, 5.7% and 6.0%; expected lives of two years for
all three grants; and volatility of 78% for all three grants.
For all the 1998 grants, risk-free interest rates ranging from 5.3% to
5.6% were used, with expected lives of two years and volatility of 73% for all
grants.
The first condition for vesting of the August 7, 1997 option grant was
met in September 1997. The Group met the second vesting condition of sales of
$14,000,000 in any 12-month period on August 6, 1998. Accordingly, it is assumed
these options will vest at the earliest possible date.
The fair value of the November 1995 option grant was determined to be
immaterial. Accordingly, the effect of these options on income is not included
in the above pro forma amounts.
9. Contingency
In the event of the death of a Director or Officer of the Group, the
Group is obligated to pay up to 100% of the Director's or Officer's annual
compensation to their beneficiary within the twelve months subsequent to their
death.
10. Acquisitions
In January 1998, the Group completed the acquisition of Flightways
Manufacturing, Inc. (FMI). FMI is a manufacturer of plastic replacement
components for commercial aircraft seats and interiors.
19
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Each share of FMI tendered into the offer was exchanged for cash. The
total cost of the acquisition excluding liabilities assumed was approximately
$2,866,000. The acquisition was accounted for as a purchase. The purchase price
was allocated to the assets acquired based on their estimated fair values and
liabilities assumed. The assets, liabilities and results of operations for FMI
are included with those of the Group as of October 2, 1998 and for the nine
months then ended.
The excess of the purchase price over the net assets acquired and
liabilities assumed, of $2,767,000, is being amortized over 15 years.
Amortization of goodwill for the nine months ended October 2, 1998 amounted to
$135,000.
In April 1998, the Group acquired 100% of the issued and outstanding
shares of Skylock Industries (Skylock) by paying $956,000 in cash, retiring
$101,000 in Skylock debt and issuing 60,019 common shares of FASI. In April
1998, $756,000 of the cash amount was paid and 48,015 common shares were issued
at closing. The remainder will be paid in one year, with the cash amount to be
paid and the number of shares to be issued based on Skylock's customer order
volume between April 28, 1998 and April 27, 1999.
The total cost of acquisition was approximately $1,556,000. This
acquisition was accounted for as a purchase. The purchase price was allocated to
the assets acquired based on their fair market values and liabilities assumed.
The assets, liabilities and results of operations for Skylock are included with
those of the Group as of October 2, 1998 and for the nine months then ended.
The excess of the purchase price over the net assets acquired and
liabilities assumed of approximately $674,000 is being amortized over 15 years.
Amortization of goodwill for the nine months ended October 2, 1998 amounted to
$20,000.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
QUARTERS ENDED OCTOBER 2, 1998 AND SEPTEMBER 30, 1997
On March 30, 1998 the Company changed its fiscal year to a 52- 53 week
year ending on the Friday of the calendar week which contains the last business
day of December. This report contains financial information for the third
quarter of the fiscal year consisting of the period from July 4, 1998 to October
2, 1998. The comparable period for the prior year is the calendar quarter ended
September 30, 1997.
The Company and its subsidiaries for the quarter ended October 2, 1998
generated income from operations of $829,000, compared to operating income of
$475,000 for the comparable period of 1997, an increase of approximately 75%.
The increase in income for the current quarter is attributable to an increase in
sales resulting in an increase in the dollar amount of gross profit.
Net sales for the quarter ended October 2, 1998 were $6,120,000
compared to $3,414,000 for the comparable period of 1997. This increase in net
sales of $2,706,000 or approximately 79%, was across the broad range of the
Company's products including approximately $1,532,000 as a result of the
inclusion of sales of Flightways Manufacturing, Inc ("Flightways"), a
wholly-owned company acquired in January 1998, and approximately $521,000 as a
result of the inclusion of sales of Skylock Industries, Inc. ("Skylock"), a
wholly-owned company acquired in April 1998.
Cost of sales for the quarters ended October 2, 1998 and September 30,
1997 were $4,028,000 and $2,148,000 respectively (approximately 66% and 63%
respectively). The reduction in gross margin percentage is a result of a change
in the product mix of the Company and also the inclusion of the results of
Flightways and Skylock which, as manufacturing entities, have a higher cost of
goods sold percentage than parts distribution.
Operating expenses increased to $1,263,000 for the quarter ended
October 2, 1998 from $791,000 for the quarter ended September 30, 1997. This was
principally attributable to the inclusion of the results of the newly acquired
companies.
Interest expense increased to $585,000 from $307,000 in the quarters
ended October 2, 1998 and September 30, 1997, respectively. This was
attributable to interest on increased debt amounts outstanding to finance both
growth and the acquisitions of Flightways and Skylock.
As a result of the foregoing, the Company had net income for the
quarter ended October 2, 1998 of $242,000 as compared to net income of $161,000
for the comparable period in 1997, an increase of $81,000. Net income for the
current period was $.08 per share diluted ($.10 per share basic) compared to an
income of $.07 per share diluted ($.08 per share basic) in the comparable period
of 1997.
21
<PAGE>
NINE MONTHS ENDED OCTOBER 2, 1998 AND SEPTEMBER 30, 1997
On March 30, 1998, the Company changed its fiscal year to a 52- 53-
week year ending on the Friday of the calendar week which contains the last
business day of December. This report contains financial information for the
first nine months of the fiscal year consisting of the period from January 1,
1998 to October 2, 1998. The comparable period for the prior year is the nine
months ended September 30, 1997.
Operations of the Company and its subsidiaries for the nine months
ended October 2, 1998 generated income of $2,036,000, compared to operating
income of $880,000 for the comparable period of 1997, an increase of 131%. The
increase in income for the current nine months is attributable to an increase in
sales resulting in an increase in the dollar amount of gross profit.
Net sales for the nine months ended October 2, 1998 were $17,510,000
compared to $8,444,000 for the comparable period of 1997. This increase in net
sales of $9,066,000 or approximately 107%, was across the broad range of the
Company's products including approximately $4,520,000 as a result of the
inclusion of sales of Flightways, and approximately $1,023,000 as a result of
the inclusion of sales of Skylock.
Cost of sales for the nine months ended October 2, 1998 and September
30, 1997 were $11,593 000 and $5,136,000 respectively (approximately 66% and 61%
of sales respectively). The reduction in gross margin percentage is a result of
a change in the product mix of sales of the Company and also the inclusion of
the results of Flightways and Skylock which, as manufacturing entities, have a
higher cost of goods sold percentage than parts distribution.
Operating expenses increased to $3,881,000 for the nine months ended
October 2, 1998 from $2,428,000 for the nine months ended September 30, 1997.
This was principally attributable to the inclusion of the results of Flightways
and Skylock.
Interest expense, including the amortization of debt issuance costs,
increased to $1,530,000 from $1,249,000 in the nine months ended October 2, 1998
and September 30, 1997 respectively. This increase was attributable to interest
on increased debt amounts outstanding to finance both growth and the
acquisitions of Flightways and Skylock and was offset by a reduction in overall
interest rates and a non-recurring $340,000 accelerated write-off of loan costs
and other fees in the 1997 period.
The Company took a non-recurring charge to income in the nine months
period ended October 2, 1998 of $1,200,000 to reflect non-recurring expenses
relating to the acquisition of a new facility, relocation costs and the initial
expansion of the newly acquired manufacturing operations.
As a result of the foregoing, the Company had a net loss for the nine
months ended October 2, 1998 of $703,000 as compared to a net loss of $376,000
for the comparable period in 1997, an increase in net loss of $327,000. This was
entirely attributable to the one-time charge of $1,200,000. The net loss for the
current period
22
<PAGE>
was $.15 per share diluted ($.31 per share basic) compared to a loss of $.19
diluted ($.22 per share basic) in the comparable period of 1997.
LIQUIDITY
As at October 2, 1998, the Company had working capital (current assets in
excess of current liabilities) of $19,183,000 compared to working capital of
$17,740,000 at December 31, 1997. Although the net result was a relatively small
reduction of $1,443,000, there were factors of substantial amounts affecting
this, the largest being the acquisitions of Flightways and Skylock.
The cost of the acquisition of Flightways was approximately $2,866,000
with a further approximately $1,100,000 being used to retire debt. The
acquisition was partially funded by an issue of common shares (see Capital
Resources) which produced net cash proceeds of $1,798,000, an increase in
borrowing under the Company's line of credit with NationsCredit of approximately
$1,000,000 and cash. The total cost of acquisition of Skylock was approximately
$1,556,000 which was financed by a combination of cash of approximately $950,000
drawn from the Company's credit line with Nationscredit, an issue of common
stock (see Capital Resources) and a vendor deferred note conditional upon
certain targets being met.
Operating activities used $6,162,000 and $1,629,000 of the Company's cash
flow for the nine months ended October 2, 1998 and September 30, 1997,
respectively. There were increases in all non-cash current assets. These
increases were mostly as a result of the two acquisitions. Accounts receivable
increased by $3,608,000 entirely as a result of the acquisitions while inventory
increased by $5,835,000 of which $1,889,000 was represented by the acquisitions.
The balance of the increase in inventory was as a result of an expansion in the
Company's after-market aircraft inventory management and supply program, first
introduced in 1997.
There were increases in accounts payable of $2,215,000 of which the
acquisitions accounted for $881,000. Accrued liabilities increased by $937,000
which was as a result of the one-time charge of $1,200,000 taken in this period.
CAPITAL RESOURCES
On February 20, 1998, the Company completed a private placement to
non-United States persons pursuant to Regulation S of the Securities Act of
1933, as amended. The Company issued 26,333 units consisting of 210,664 common
shares and warrants to acquire 52,666 common shares at $13 per share (the
"Warrants"). The units were sold for $2,053,974. The warrants are exercisable at
any time prior to the second anniversary of their issuance. Etablissement Pour
le Placement Prive, Zurich, Switzerland, ("EPP") acted as the Company's
placement agent in connection with the offering. After brokerage and issuance
costs, the sale resulted in a net infusion of capital of approximately
$1,798,000. For financial accounting purposes an additional $600,000 was offset
against
23
<PAGE>
the proceeds of the placement as additional costs in connection with the
issuance of securities.
In April 1998, the Company acquired 100% of the issued and outstanding
shares of Skylock by paying approximately $950,000 in cash, retiring
approximately $100,000 in Skylock debt and issuing 60,019 common shares of the
Company. Of these amounts $200,000 in cash and 12,004 common shares remain to be
paid over in one year, with the cash amount to be paid and the number of shares
to be issued based on Skylock's customer order volume between April 1, 1998 and
March 31, 1999.
In April, July and August 1998, warrants, originally issued in 1996, were
exercised to purchase 93,413, 12,118 and 30,000 shares of common stock for $6.25
per share. The net proceeds were $450,000, $72,000 and $178,000 after deducting
costs of $134,000, $4,000 and $9,000 respectively for underwriting and issuance.
The Company will continue to actively seek debt and/or equity capital
infusions. The Company intends to use a substantial portion of any additional
capital to pursue potential acquisitions and the purchase of inventory. There is
no assurance the Company will be successful in securing additional debt and/or
capital.
YEAR 2000 ISSUE
The YEAR 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable rule. The Company is
addressing any possible liability related to this issue on its computer systems
by making system changes now and does not expect any material financial impact
to its consolidated financial position, results of operations or cash flows as a
result of making these changes.
There can be no assurance that the Company's suppliers or vendors will
be Year 2000 compliant and that their failure or any other third-party
enterprise with which the Company interacts to achieve that compliance could
have a material adverse effect on the Company, its financial condition and
results of operations.
Forward-Looking Statements
Statements regarding the Company's expectations as to its capital
resources, its use of additional capital raised and certain other information
presented in this Form 10- QSB constitute forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934, as amended. Although the Company believes
that its expectations are based on reasonable assumptions within the bounds of
its knowledge of its business and operations, there can be no assurance that
actual results will not differ from its expectations. In addition to matters
affecting the economy and the Company's industry generally, factors that could
cause actual results to differ from expectations include, but are not limited
to, the following: (i) the Company's ability to obtain future financing may be
adversely affected by its past technical defaults on its debt financing and its
uncertainty of future profitability; (ii) the Company's ability to acquire other
businesses in
24
<PAGE>
similar or allied businesses may be adversely affected if the Company is not
able to raise additional capital or locate other suitable businesses and obtain
any necessary debt financing; (iii) the Company's ability to raise additional
capital may be adversely affected by its lack of trading volume and the
Company's uncertainty of future profitability; (iv) regulation by governmental
authorities, (v) growth or lack of growth of the commercial aviation industry,
(vi) the price and availability of aircraft parts and other materials, (vii) the
Company's ability to maintain existing customer or vendor relationships, (viii)
successful execution of the Company's expansion plans, (ix) the Company's
ability to service its debt financing and (x) competitive and pricing pressures.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently not a party to any material known litigation.
ITEM 2. CHANGES IN SECURITIES.
Issuance of Shares Without Registration
During the quarter ended October 2, 1998, the Company issued the follow
securities without registration under the Securities Act of 1933:
In July and August 1998, warrants, originally issued in the Company's
Units offering in 1996 and 1997, were exercised to purchase 42,118 common shares
for $6.25 per share. The warrants were exercised by non-United States persons
pursuant to Regulation S of the Securities Act of 1933. The net proceeds to the
Company were $250,000 after deducting accumulated offering costs of $13,000.
These costs include underwriting commissions paid to Etablissement Pour le
Placement Prive, Zurich, Switzerland.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders
during the quarter ended October 2, 1998.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Those exhibits previously filed with the Securities
and Exchange Commission as required by Item 601 of
Regulation S-K, are incorporated herein by reference
in accordance with the provisions of Rule 12b-32.
Exhibit 10.1 Sublease, dated for reference
purposes April 28, 1998, between
Sunrise Medical HHG Inc., a
California corporation, as
Sublandlord and Fields Aircraft
Spares, Incorporated, a California
corporation, as Subtenant,
26
<PAGE>
including Consent of Master Landlord
and First Amendment to Sublease, and
Master Lease, dated for reference
purposes only, September 15, 1992,
by and between La Canada Flintridge
Development Corporation, LCF Income
Group, Jerve M. Jones and Peppertree
Corporate Business Park, Ltd., as
landlord, and Guardian Products,
Inc., as tenant, as amended by First
Amendment to Lease dated March 31,
1993. Exhibits referred to in the
Master Lease are omitted. The
Company agrees to furnish
supplementally a copy of any such
Exhibit to the Commission upon
request.
Exhibit 10.2 Guaranty of Sublease, made and
effective as of April 28, 1998, by
Fields Aircraft Spares, Inc., a Utah
corporation, in favor of Sunrise
Medical HHG Inc., a California
corporation.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the
quarter ended October 2, 1998.
27
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 16, 1998
FIELDS AIRCRAFT SPARES, INC.
By: /s/ Alan M. Fields
------------------------------
Alan M. Fields, President and
Principal Executive Officer
By: /s/ Lawrence J. Troyna
------------------------------
Lawrence J. Troyna, Principal
Financial Officer
28
SUBLEASE
BASIC SUBLEASE INFORMATION
DEFINED TERMS
- - - --------------
Building: The industrial building consisting of approximately
122,484 square feet located at 4175 Guardian Street,
Simi Valley, California.
Real Property: The land legally described in Exhibit A to the Master
Lease, the Site Plan of which is depicted on Exhibit B
to the Master Lease.
Project: Peppertree South Business Park.
Effective Date: One (1) business day after Master Landlord's written
consent to the fully executed and delivered Sublease.
Rent Commencement July 5, 1998.
Date:
Master Landlord: All of the Tenants in Common listed on Exhibit D hereto.
Master Landlord's c/o Michael Milam
Address: LCF Group
311 South Spring Street, Suite 1200
Los Angeles, California 90013
Master Lease: Lease dated September 15, 1992, by and between La Canada
Flintridge Development Corporation, a California
corporation, LCF Income Group, a California general
partnership, Jerve M. Jones, an individual, and Pepper
Tree Corporate Business Park, Ltd., a California limited
partnership (collectively, "Original Landlord"), as
landlord and Guardian Products, Inc., a California
corporation ("Original Tenant"), as tenant,
as previously modified by that certain First Amendment
to Lease dated March 31, 1993.
Permitted Uses: Manufacture, warehouse and distribution of aircraft
parts and related services, manufacturing and
distribution.
Premises: The Real Property and all improvements located thereon
or to be constructed thereon, including, without
limitation, the Building.
Initial Base Rent: Annually: Seven hundred fifty-six thousand dollars
($756,000.00). Monthly: Sixty-three thousand dollars
($63,000.00).
Security Deposit: Four Hundred Fifty Thousand Dollars ($450,000.00)
Subtenant: Fields Aircraft Spares, Incorporated, a California
corporation.
i
<PAGE>
Subtenant's Address: 2551 Ward Avenue, #1
Simi Valley, California 93065
Attn: Alan Fields, President
(With a copy of any notice of Subtenant's default to the
Lender under the Sublandlord's Waiver pursuant to
Article 12)
Sublandlord: Sunrise Medical HHG Inc., a California corporation
Sublandlord's c/o Sunrise Medical Inc.
Address for Notice: 2382 Faraday Avenue, Suite 200
Carlsbad, California 92008
Attn: Steven A. Jaye, Esq.
Sublandlord's Sunrise Medical HHG Inc.
Address for 7030 Collection Center Drive
Payments: Chicago, Illinois 60693
Term: The term ("Term") of this Sublease shall be for
approximately one hundred twenty-three (123) months and
twenty-six (26) days commencing on the Rent Commencement
Date and expiring October 31, 2008. The Term shall cease
upon, and shall not refer to any period of time after,
termination of this Sublease (whether pursuant to the
terms of the Sublease, by operation of law, or
otherwise).
Brokers: CB Commercial Real Estate Group, Inc.
DAUM Commercial Real Estate Services
Exhibits: Exhibit A - Master Lease
Exhibit B - Office Furniture
Exhibit C - Landlord's Agreement
Exhibit D - Consent of Master Landlord
ii
<PAGE>
SUBLEASE
THIS SUBLEASE ("Sublease"), dated for reference purposes April 28,
1998, is entered into by and between Sublandlord and Subtenant.
THE PARTIES ENTER this Sublease on the basis of the following facts,
understandings and intentions:
A. Sublandlord is successor-in-interest to Original Tenant, and is
presently lessee of the Premises pursuant to the Master Lease. Master Landlord
is successor-in-interest to Original Landlord as the lessor under the Master
Lease. A copy of the Master Lease, with all amendments, exhibits and addenda
thereto, is attached hereto as Exhibit A.
B. Sublandlord desires to sublease the Premises to Subtenant and
Subtenant desires to sublease the Premises from Sublandlord on all of the terms,
covenants and conditions set forth herein.
C. All of the terms and definitions in the Defined Terms of the Basic
Sublease Information of this Sublease are incorporated herein by this reference.
Unless otherwise defined herein or the context otherwise requires, all
capitalized terms shall have the meanings given them in the Master Lease.
NOW, THEREFORE, in consideration of the mutual covenants and promises
of the parties, the parties hereto agree as follows:
ARTICLE 1
PREMISES: USE
-------------
Sublandlord hereby subleases to Subtenant and Subtenant hereby
subleases from Sublandlord the Premises. The Premises shall be used by Subtenant
for manufacture, warehouse and distribution of aircraft parts and related
services, manufacturing and distribution. The Premises constitutes all of the
Sublandlord's leased space under the Master Lease.
ARTICLE 2
TERM
----
2.1 Term. The term of this Sublease shall be for the Term set forth in
the Basic Sublease Information, commencing July 5, 1998, ("Rent Commencement
Date").
2.2 Delay in Possession. Notwithstanding the Rent Commencement Date, if
for any reason Sublandlord cannot deliver possession of the Premises to the
Subtenant on said date, Sublandlord shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Sublease or the
obligations of Subtenant hereunder or extend the term hereof, but in such case,
Subtenant shall not be obligated to pay rent or perform any other obligation of
Subtenant
<PAGE>
under the terms of this Subtenant, except as may be otherwise provided in this
were Sublease, until possession of the Premises is tendered to Subtenant;
provided, however, that if Sublandlord shall not have delivered possession of
the Premises within forty-five (45) days from said Rent Commencement Date,
Subtenant may, at Subtenant's option, by notice in writing to Sublandlord within
ten (10) days thereafter, cancel this Sublease, in which event the parties shall
be discharged from all obligations hereunder; provided further, however, that if
such written notice of Subtenant is not received by Sublandlord within in said
10-day period, Subtenant's right to cancel this Sublease hereunder shall
terminate and be of no further force of effect. Prior to May 31, 1998,
Sublandlord shall provide Subtenant with Sublandlord's good faith estimate of
the timing of Sublandlord's delivery of the Premises to Subtenant. In the event
of Subtenant's cancellation of this Sublease pursuant to this Section 2.2,
Sublandlord shall, within five (5) business days thereafter, return to Subtenant
the Security Deposit under Section 3.6, below.
2.3 Early Possession. From and after June 1, 1998, Sublandlord may, in
its sole discretion, elect to allow Subtenant to occupy, from time to time,
various portions of the Premises. If Subtenant occupies the Premises, or any
portion thereof, prior to said Rent Commencement Date, such occupancy shall be
subject to all provisions of this Sublease, such occupancy shall not advance the
expiration date, and Subtenant shall pay rent for such period at the Monthly
Base Rent set forth in the Basic Sublease Information, prorated to relate to the
proportion of square footage of the Building occupied from time to time by
Subtenant, as reasonably determined by Sublandlord. In addition, with prior
written consent of Sublandlord, Subtenant may, prior to the Rent Commencement
Date, enter upon and install such trade fixtures and equipment in the Premises
as Sublandlord may approve in accordance with any and all related requirements
in the Master Lease. Prior to any early occupancy by Subtenant under this
Section 2.3, Subtenant shall have previously provided Sublandlord and Master
Landlord with proof of Subtenant's insurance coverage as set forth in Section 8
of the Master Lease, such early occupation shall not interfere with
Sublandlord's business. All materials, work, installations and decorations of
any nature brought upon or installed in the Premises prior to the Rent
Commencement Date shall be at the risk of Subtenant. Neither Sublandlord nor any
party acting on Sublandlord's behalf shall be responsible for any damage, loss
or destruction of such items brought to or installed in the Premises by
Subtenant prior to the Rent Commencement Date, except in the event of the gross
negligence or willful misconduct of Sublandlord. Subtenant's access to the
Premises prior to the Rent Commencement Date, as provided herein, shall be
subject to such reasonable safety, security and insurance (including, without
limitation, builder's risk insurance for any alterations to the Premises)
requirements and procedures as may be established by Sublandlord from time to
time. Prior to Subtenant's occupancy of the Premises, and at Subtenant's sole
cost and expense, Subtenant shall rekey all doors of the portion of the Premises
so occupied by Subtenant and shall provide Sublandlord and Master Landlord with
duplicate keys for all such doors.
ARTICLE 3
RENT
----
3.1 Base Rent. The Annual Base Rent shall be the amount set forth in
the Basic Sublease Information payable in equal monthly installments of Monthly
Base Rent in accordance with the schedule as set forth in the Basic Sublease
Information. Subtenant shall pay to
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Sublandlord, at the Address for Payment in the Basic Sublease Information, the
Monthly Base Rent for the Premises as set forth in the Basic Sublease
Information in advance of or before the first day of each month, beginning on
the Rent Commencement Date. Rent shall be payable to Sublandlord, without
further notice or demand and without deduction or offset, in lawful money of the
United States of America at the address specified in the Basic Sublease
information or at such other address as Sublandlord may from time to time
designate in writing. If the Term shall end on a day other than the last day of
a calendar month, then Subtenant shall Pay, upon the first day of the last
calendar month, a pro rata portion of the Monthly Base Rent, prorated on a per
diem basis, with respect to the portion of the fractional calendar month
included in the Term.
3.2 Conditional Abatement of Base Rent. The Monthly Base Rent (but no
other amounts due hereunder) for all of August and September, 1998, and one-half
(1/2) of the Monthly Base Rent (but no other amounts due hereunder) for the
month of December, 2000 shall be abated, subject to the terms and conditions of
this Section 3.2. The Sublandlord's agreement to abate Base Rent hereunder is
conditioned upon Subtenant's full and faithful performance of all of the terms,
covenants and conditions of the Sublease to be performed or observed by
Subtenant. Should Subtenant, at any time during the term of the Sublease, be in
default of this Sublease, which default is not cured within the applicable
period following notice thereof, then the total sum of Base Rent so
conditionally excused shall be immediately due and payable by Subtenant to
Sublandlord. If, at the date of expiration of the Sublease, Subtenant has not
been, after notice and the applicable cure period, in default hereunder,
Sublandlord shall waive any payment of such Monthly Base Rent so conditionally
excused.
3.3 CPI Adjustments. Commencing July 1, 1999, and each July 1
thereafter ("Effective Dates") during the initial term, the Base Rent shall be
adjusted in accordance with the Consumer Price Index. The base for computing
such adjustment shall be the Consumer Price Index--Urban Wage Earners and
Clerical Workers (Los Angeles-Anaheim-Riverside, CA. All Items, Base 1982-84 =
100) ("Index") as published by the United States Department of Labor Bureau
Statistics which is in effect the April preceding the Rent Commencement Date
("Beginning Index"). The Index published and in effect for the April preceding
each Effective Date of the initial term ("Extension Index") shall be used in
determining the amount of such adjustment. Beginning with the Base Rent due on
and after each Effective Date of the Initial Term, the Base Rent shall be
increased in the same proportion as the annual increase in the Index; provided,
however, that no single increase shall be less than two and one-half percent
(2.5 %) or more than five percent (5%).
3.4 Additional Rent. All costs and expenses of every kind and nature
which may be imposed, at any time, on Sublandlord pursuant to the Master Lease
(except for Sublandlord's "Rent," as defined in Section 4 of the Master Lease)
including, but not limited to, all real property tax, personal property taxes,
utilities charges, insurance, expenses and maintenance and repair expenses,
shall be paid by Subtenant to Sublandlord hereunder as additional Rent. As used
herein, "Rent" shall include Base Rent and all additional amounts and charges to
be paid by Subtenant pursuant to this Sublease.
3.5 Late Payment Charges and Interest. If any installment of Rent is
not paid promptly on the first of the month or otherwise when due, the unpaid
amounts shall bear interest at the maximum lawful rate from the date due to the
date of payment. In addition, Subtenant
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acknowledges that the late payment of any installment of Rent will cause
Sublandlord to incur certain costs and expenses not contemplated under this
Sublease, the exact amount of which are extremely difficult or impractical to
fix. These costs and expenses will include, without limitation, administrative
and collection costs and processing and accounting expenses. Therefore, if any
installment of Rent is not received by Sublandlord from Subtenant within ten
(10) days after the installment is due, Subtenant shall immediately pay to
Sublandlord a charge for administration, collection and accounting expenses
equal to five percent (5%) of the amount of such delinquent amounts due in
addition to the installment of Rent then owing with interest at the maximum,
lawful rate, regardless of whether or not a notice of default or notice of
termination has been given by Sublandlord. Sublandlord and Subtenant agree that
the late payment charge represents a reasonable estimate of Sublandlord's costs
and expenses and is fair compensation to Sublandlord for its loss suffered by
Subtenant's nonpayment of any amounts when due and payable pursuant to this
Sublease. This provision shall not relieve Subtenant from payment of Rent at the
time and in the manner herein specified.
3.6 Security Deposit. Upon the execution of this Sublease, Subtenant
shall deposit with Sublandlord a Security Deposit in the amount set forth in
Basic Sublease Information. Sublandlord may, but shall not be required to, apply
all or part of the Security Deposit to any unpaid rent or other charges due from
Subtenant or to cure any other defaults of Subtenant. If Sublandlord uses any
part of the Security Deposit for such purposes, Subtenant shall deposit
additional funds to restore the Security Deposit to its full amount within ten
(10) days after Sublandlord's written request. Subtenant's failure to do so
shall be a material default under this Sublease. Sublandlord may intermingle the
Security Deposit with its other funds, and, except as expressly set forth
herein, shall owe no obligation to pay interest thereon. $54,871.00 of the
Security Deposit shall be applied by Sublandlord to Monthly Base Rent for July 5
through July 31, 1998. Provided that Subtenant is not then in default hereunder,
$63,000 of the Security Deposit shall be applied to Monthly Base rent for each
of the months of May and June, 1999, which would leave $269,129 as the balance
of the Security Deposit as of July 1, 1999. From and after July 1, 1999, the
entire Security Deposit shall accrue simple interest at an annual rate of six
percent (6%), which interest shall become a part of the Security Deposit.
Provided that Subtenant is not then in default hereunder, a portion of the
Security Deposit shall be applied to cover the last two installments of Monthly
Base Rent due hereunder.
ARTICLE 4
TENANT IMPROVEMENTS
-------------------
4.1 Sublessor Improvements. Prior to July 10, 1998 Sublandlord shall,
at its expense, cause the following work to be performed on the office portions
of the interior of the Building: (a) repair holes in walls as needed; (b)
touch-up/repaint where needed; (c) replace any damaged and/or stained ceiling
tiles; (d) clean all restrooms and, as needed, paint restrooms; and (e) clean or
replace dirty/damaged carpets as needed. On or before the Rent Commencement
Date, Sublandlord shall cause the following work to be performed to the
warehouse portion of the interior of the Building: (i) repair holes in walls as
needed; (ii) touch-up/repaint where needed; (iii) repair floors where needed;
(iv) wash all floors; (v) repair and secure electrical distribution system; (vi)
touch-up/repaint restrooms as needed; and (vii) clean all restrooms. All work
performed by Sublandlord under this Section 4.1 shall be done in a good and
workmanlike
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manner, with commercially appropriate materials. The determinations of what work
is necessary and appropriate in various portions of the Building shall be made
by Sublessor, in its reasonable discretion. After Sublandlord has substantially
completed the improvement work set forth in this Section 4.1, Sublandlord and
Subtenant shall jointly inspect the Premises and prepare a " punchlist" of any
items of improvement required hereunder which have not been completed. As soon
as reasonably practicable after the preparation of such punchlist, but in no
event more than thirty (30) days thereafter, Sublandlord shall complete the
correction of the punchlist items.
4.2 Alterations. Subtenant shall not make or cause to be made any
alterations or improvements to the Premises except in accordance with the Master
Lease. To the extent that alterations or improvements require the Master
Landlord's consent and/or Master Landlord is to receive copies of certain items
pursuant to the provisions of the Master Lease, Subtenant shall obtain the prior
written consent and/or deliver such items, as appropriate, to both Master
Landlord and Sublandlord. Except as expressly set forth in Section 4.1,
Subtenant will protect, defend, indemnify and hold harmless Sublandlord from all
liabilities, including restoration charges, which may be imposed by Master
Landlord or other parties due to Subtenant's alterations, improvements and
tenant improvements.
4.3 Condition of Premises.
4.3.1 Subtenant Inspection. Subtenant represents and warrants
to Sublandlord that, as of the Effective Date, Subtenant shall have examined and
inspected all matters with respect to taxes, income and expense data, insurance
costs, bonds, permissible uses, the Master Lease, zoning, covenants, conditions
and restrictions and all other matters which in Subtenant's judgment bear upon
the value and suitability of the Premises for Subtenant's purposes. Subtenant
has and will rely solely on Subtenant's own inspection and examination of such
items and not on any representations of Sublandlord or Sublandlord's agents,
express or implied. By entering this Lease, Subtenant shall be deemed to accept
the Premises in its condition existing as of the date of such entry and subject
to all applicable municipal, county, state and federal statutes, laws,
ordinances, including zoning ordinances, regulations and/or recorded
restrictions governing and relating to the use, occupancy or possession of the
Premises.
4.3.2 Physical Condition. Sublandlord represents and warrants
that, as of the Effective Date, the Premises, without regard to the purpose for
which Subtenant will use them, do not violate any existing covenant or
restriction of record or any applicable government requirement. Sublandlord
shall deliver the Premises broom-clean and free of debris, with the plumbing,
lighting, heating, ventilating and air conditioning and all loading doors in
good operating condition. With the exception of such specified matters and
subject to Sublandlord's correction of the punchlist items pursuant to Section
4.2 above, by taking possession of the Premises, Subtenant shall be deemed to
have acknowledged that (i) it has inspected the Premises, (ii) it accepts the
Premises, (iii) the Premises is in good and sanitary order, and (iv) all work to
be performed by Sublandlord for the Premises has been satisfactorily completed.
Subtenant acknowledges that Subtenant has conducted Subtenant's own
investigation of the Premises and the physical condition thereof including,
without limitation, accessibility and location of utilities, improvements
existence of hazardous materials and earthquake preparedness, which in
Subtenant's judgment affect or influence Subtenant's use of the Premises and
Subtenant's willingness to enter this Sublease.
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4.3.3 No Representations. Subtenant recognizes that
Sublandlord is subleasing the Premises on an "as is" basis, and that, except as
expressly set forth herein, Sublandlord has made no representations of any kind
in connection with improvements to or physical conditions of, or bearing on, the
use of the Premises. Subtenant shall rely solely on Subtenant's own inspection
and examination of such items and not on any representations of Sublandlord,
express or implied. Subtenant further recognizes and agrees that neither
Sublandlord nor Master Landlord shall be required to perform any work of
construction, alteration or maintenance of or to the Premises; provided,
however, Sublandlord shall deliver the Premises to Subtenant in broom clean
condition and in the same arrangement and condition as the Premises now is,
reasonable wear and tear and casualty excepted.
ARTICLE 5
RIGHTS AND DUTIES OF SUBTENANT
------------------------------
5.1 Sublease Subject to Master Lease. It is expressly understood,
acknowledged and agreed by Subtenant that this Sublease shall incorporate by
reference the terms, conditions and covenants of the Master Lease, except as
excluded in Section 5.2 herein, modified as appropriate in the circumstances so
as to make such Sections, applicable only to the subleasing hereunder by
Sublandlord of the Premises covered hereby. Subtenant shall be subject to, bound
by and comply with all of said Sections of the Master Lease with respect to the
Premises and shall satisfy all applicable terms and conditions of the Master
Lease for the benefit of both Sublandlord and Master Landlord, it being
understood and agreed that wherever in the Master Lease the word "Tenant"
appears, for the purposes of this Sublease, the word "Subtenant" shall be
substituted, and wherever the word "Landlord" appears, for the purposes of this
Sublease, the word "Sublandlord" shall be substituted; and that upon the breach
of any of said terms, conditions or covenants of the Master Lease by Subtenant
or upon the failure of Subtenant to pay Rent or comply with any of the
provisions of this Sublease, Sublandlord may exercise any and all rights and
remedies granted to Master Landlord by the Master Lease. Subtenant expressly
acknowledges, notwithstanding anything to the contrary in this Sublease, that
Subtenant's duty to defend, indemnify, protect, defend and hold Sublandlord
harmless from and against any and all claims, liabilities, penalties, losses or
expenses (including attorneys' fees and costs) pursuant to this Sublease, and as
more specifically set forth in the Master Lease, shall include Sublandlord's
duty to defend, indemnify, protect and hold Master Landlord harmless from and
against any and all claims, liabilities, penalties, forfeitures, losses or
expenses (including attorneys' fees and costs).
It is further understood and agreed that Sublandlord has no duty or
obligation to Subtenant under the aforesaid Articles and Sections of the Master
Lease other than to maintain the Master Lease in full force and effect during
the term of this Sublease; provided, however, that (a) Sublandlord shall use its
reasonable and good faith efforts to cause Master Landlord to perform its
obligations under the Master Lease, and (b) Sublandlord shall not be liable to
Subtenant for any earlier termination of the Master Lease which is not due to
the fault of Sublandlord. In the event of any conflict between this Sublease and
the Master Lease, the terms of this Sublease shall control. Whenever the
provisions of the Master Lease incorporated as provisions of this Sublease
require the written consent of Landlord, said provisions shall be construed to
require the written consent of both Master Landlord and Sublandlord. Subtenant
hereby acknowledges that it has
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read and is familiar with all the terms of the Master Lease, and agrees that
this Sublease is subordinate and subject to the Master Lease and that any
termination thereof shall likewise terminate this Sublease.
5.2 Exclusions. The terms and provisions of the following Sections of
the Master Lease are not incorporated into this Sublease: Master Lease Sections
1 (Parties), 2 (Lease of Premises), 3 (Term), 4 (Rent), 5 (Tenant's
Participation), 15 (Broker's Fee), 18 (Option to Extend) 21 (Tenant's Prior
Occupancy), 22.8 (Notices), 22.20 (Guarantor) and Exhibit "C" (Work Letter).
Notwithstanding the exclusion of the applicability of Section 5 (Tenant's
Participation) of the Master Lease, the parties acknowledge and agree that the
provisions of Section 5 of the Master Lease relating to the sharing and net
profit from sale of the Premises, as defined therein, shall apply with respect
to Subtenant's purchase of the Premises pursuant to the provision of Section 19
of the Master Lease.
5.3 Time for Notice. The time limits provided for in the provisions of
the Master Lease for the giving of notice, making of demands, performance of any
act, condition or covenant, or the exercise of any right, remedy or option, are
amended for the purposes of this Sublease by lengthening or shortening the same
in each instance by five (5) days, as appropriate, so that notices may be given,
demands made, or any act, condition or covenant performed, or any right, remedy
or option hereunder exercised, by Sublandlord or Subtenant, as the case may be,
within the time limit relating thereto contained in the Master Lease. If the
Master Lease allows only five (5) days or less for Sublandlord to perform any.
act or to undertake to perform such act or to correct any failure relating to
the Premises or this Sublease, then Subtenant shall nevertheless be allowed
three (3) days to perform such act, undertake such act and/or correct such
failure.
5.4 Master Landlord's Obligations. It shall be the obligation of Master
Landlord (i) to provide or cause to be provided all services to be provided by
Master Landlord under the terms of the Master Lease and (ii) to satisfy all
obligations and covenant of Master Landlord made in the Master Lease. Subtenant
acknowledges that Sublandlord shall be under no obligation to provide any such
services or satisfy any such obligations or covenants; provided, however, that
Sublandlord agrees to use its reasonable and good faith efforts to cause. Master
Landlord to perform its obligations under the Master Lease.
ARTICLE 6
INSURANCE
---------
Subtenant covenants to name both Master Landlord and Sublandlord as
insured parties as their interests may appear in the insurance policies required
under Section 8 of the Master Lease, to the same extent that under the Master
Lease, Master Landlord is to be named an insured party; to provide Sublandlord
with an affidavit of delivery of such required insurance policies or
certificates to Master Landlord; and not to allow reduction in coverage,
cancellation or termination of such required insurance policies without giving
at least thirty (30) days prior written notice to Sublandlord and Master
Landlord. Subtenant shall deliver to Sublandlord, prior to the Rent Commencement
Date and from time to time, certificates of insurance indicating that the
required policies of insurance are in full force and effect throughout the
entire term of this
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Sublease. All insurance policies required to be carried by Sublandlord, pursuant
to the Master Lease, shall be carried by Subtenant covering all improvements to
the Premises and covering Subtenant's liability and all such policies shall be
written in accordance with the requirements for such insurance set forth in
Section 8 of the Master Lease; provided, however, that Subtenant shall only be
required to maintain in effect a course of construction endorsement pursuant to
Section 8.3(a)(i) of the Master Lease during such times as construction work is
being performed in the Premises.
ARTICLE 7
INDEMNITY
---------
Subtenant and Sublandlord further covenant to indemnify, hold harmless
and waive rights of recovery against the other to the same extent that
Sublandlord and Master Landlord agreed to under Section 8 of the Master Lease.
ARTICLE 8
DEFAULTS AND REMEDIES
---------------------
Subject to the time for notice provisions of Section 5.3 above, in the
event of a default by Subtenant, Sublandlord shall have all of the rights and
remedies against Subtenant as are set forth in Section 13 of the Master Lease as
though Sublandlord were the landlord named therein and Subtenant was the tenant
named therein.
ARTICLE 9
NOTICES
-------
All notices or correspondence provided for herein shall be in writing
and shall be (i) personally delivered, in which event they shall be deemed
received on the date of delivery, (ii) sent by certified mail, postage prepaid,
return receipt requested, or by a professional courier company which provides a
receipt evidencing delivery, in which event they shall be deemed received on the
date of delivery as evidenced by the receipt; or (iii) sent by telecopy. Any
notice, request, demand, direction or other communication sent by cable, telex
or telecopy must be confirmed within two (2) business days by letter mailed or
delivered in accordance with the foregoing. The Master Landlord's, Sublandlord's
and Subtenant's addresses for written notices required to be given hereunder
shall be the addresses set forth in the Basic Lease Information, or at such
other place designated by advance written notice delivered in accordance with
the foregoing; provided, however, that after July 5, 1998 Subtenant's address
shall be at the Premises.
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ARTICLE 10
TAXES AND ASSESSMENTS
---------------------
Should Subtenant fail to pay any taxes, assessments, fees, or charges
required to be paid under the Master Lease, and as a result thereof. Sublandlord
is required to do so, any such amount so paid by Sublandlord shall become
immediately due and payable as Rent by Subtenant to Sublandlord together with
interest thereon at the highest legal rate, from the date of payment by
Sublandlord until paid by Subtenant. Any such payment by Sublandlord shall not
be deemed to be a waiver of any other rights which Sublandlord may have under
the provisions of this Sublease or as provided by law, it being expressly
understood that failure of Subtenant to pay such taxes. assessments, fees or
charges may at the option of the Sublandlord be treated as a default in the
performance of the terms of this Sublease. Should Subtenant fail to pay any
taxes or assessments above described prior to the delinquency date thereof, and
should any interest or penalties become due as a result of failure to pay said
taxes or assessments prior to the delinquency date thereof, such interest and
penalties shall also be payable by Subtenant. If the right is given to pay any
of the taxes, assessments or other impositions which Subtenant is herein
obligated to pay either in one sum or in installments, Subtenant may elect
either mode of payment.
ARTICLE 11
OFFICE FURNITURE
----------------
Sublandlord shall leave in the Building for the use of Subtenant all
of the furniture listed on Exhibit B hereto ("Furniture"). Subtenant hereby
agrees to purchase the Furniture from Sublandlord on the following terms and
conditions. All of the Furniture shall be accepted in its as-is condition,
without any representation or warranty whatsoever by Sublandlord. Commencing on
the Rent Commencement Date and, thereafter, on the first of each month of the
Term, the Subtenant shall pay Sublandlord Five Thousand Dollars ($5,000) per
month for a total of fifty-nine (59) payments, with a final payment the
following month in the amount of Five Thousand One Dollars ($5,001). Upon
receipt of all such payments, Sublandlord shall provide to Subtenant a bill of
sale with respect to the Furniture.
ARTICLE 12
SUBLANDLORD'S WAIVER
--------------------
Sublandlord agrees to execute and deliver to Subtenant a waiver of
Sublandlord's rights with respect to personal property located in the Building
substantially in the form of the agreement attached hereto as Exhibit C;
provided, however, that Sublandlord's obligations under this Article 12 are
conditioned upon the delivery of a comparable agreement from Master Landlord
with respect to Master Landlord's rights under the Master Lease. In the event
that Sublandlord is unable to execute and deliver to Subtenant the waiver of
Sublandlord's rights pursuant to this Article 12, this Sublease shall be
terminated and the Security Deposit under Section 3.6 above shall be returned to
Subtenant within five (5) business days.
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ARTICLE 13
REPAIRS AND MAINTENANCE
-----------------------
With the exception of Master Landlord's obligations pursuant to
Section 7.4 of the Master Lease, which shall be performed at Landlord's sole
expense, Subtenant shall, at Subtenant's sole expense, keep the entire Premises
in good order and sanitary condition, and repair any damage thereto caused by
Subtenant or Subtenant's agents, employees or contractors. Subtenant
acknowledges that Sublandlord is under no duty to make repairs or improvements
to the Premises, and Subtenant hereby waives any right it may have at law or in
equity to enforce the same. Notwithstanding the foregoing, Sublandlord shall be
responsible for cost of any improvements or modifications to the portion of the
Premises outside the Building in order to comply with the Americans with
Disabilities Act, except to the extent such matters are caused by Subtenant's
use. Further, Sublandlord shall warrant that all mechanical, air conditioning,
electrical and plumbing shall be in good working condition for the first twelve
(12) months of the Term, with the exception of any matters caused by the
negligence or willful misconduct of Subtenant.
ARTICLE 14
HAZARDOUS MATERIALS
-------------------
14.1 Compliance with Master Lease Requirements. Subtenant shall
strictly comply with all sections in Section 20 ("Toxic or Hazardous
Substances") of the Master Lease. Subtenant, at its sole expense, shall be fully
responsible for the storage, handling and disposal of all Toxic or Hazardous
Substances used or allowed in or on the Premises by the Subtenant.
14.2 Sublandlord's Representations and Warranties. Sublandlord hereby
represents and warrants to the best of its current actual knowledge, without
inspection, that the Premises are free from any Toxic or Hazardous Substances in
violation applicable laws. Sublandlord shall protect, defend, indemnify and hold
Subtenant harmless from and against any and all claims, costs, liabilities or
damages arising out of or relating to any breach of the representations and/or
warranties of this Section 14.2.
ARTICLE 15
SURRENDER OF PREMISES
---------------------
Subtenant shall peaceably surrender the Premises to Sublandlord upon
expiration or earlier termination of this Sublease, in broom-clean condition and
in as good condition as when Subtenant took possession, except for (i)
reasonable wear and tear, (ii) loss by fire or other casualty, and (iii) loss by
condemnation. Subtenant shall on Sublandlord's request, remove Subtenant's
personal property upon the expiration or earlier termination of this Sublease
and promptly repair all damage to the Premises or Building caused by such
removal.
If Subtenant abandons the Premises, any of Subtenant's personal
property left on the Premises shall be deemed to be abandoned, and, at
Sublandlord's option, and subject to the provisions of Article 12 above, title
shall pass to Sublandlord under this Sublease as by a bill of sale. If Subtenant
abandons the Premises and Sublandlord elects to remove all or any part
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of Subtenant's Property, the reasonable cost of removal, including repairing any
damage to the Premises or Building caused by such removal, shall be paid by
Subtenant. Upon the expiration of the Term or earlier termination of the
Sublease, Subtenant shall surrender all keys and security access cards to the
Premises.
ARTICLE 16
TERMINATION RIGHT
-----------------
Sublandlord agrees, for so long as Subtenant has not been in default
under this Sublease after notice of such default and the expiration of the
applicable cure period, that Sublandlord shall not exercise its right to
terminate the Master Lease pursuant to Section 3.3 thereof
ARTICLE 17
SUBLEASING
----------
Master Landlord and Sublandlord agree to consent to the Sublease of
all or a portion of the Premises to one or more wholly-owned subsidiaries
("Subsidiary(ies)") of Fields Aircraft Spares, Inc., a Utah corporation
("Parent"), provided that each such Subsidiary agrees to comply with all terms
and conditions of the Sublease, and to be jointly and severally liable with
Subtenant for all obligations of Subtenant under the Lease. At such time as any
such Subsidiary(ies) are no longer owned, in whole or in part, directly or
indirectly, by Parent, and such Subsidiary(ies) no longer occupy any portion of
the Premises, such Subsidiary(ies) shall be released from any and all liability
arising under this Sublease thereafter.
ARTICLE 18
MISCELLANEOUS
-------------
18.1 Entire Agreement. This Sublease and the applicable portions of
the Master Lease contained by reference herein, contain all of the covenants,
conditions and agreements between the parties concerning the Premises, and shall
supersede any and all prior correspondence, agreements and understandings
concerning the Premises, both oral and written. No addition or modification of
any term or provision of this Sublease shall be effective unless set forth in
writing and signed by both Sublandlord and Subtenant.
18.2 Captions. All captions and headings in this Sublease are for the
purposes of reference and convenience and shall not limit or expand the
provisions of this Sublease.
18.3 Master Landlord's Consent. This Sublease is conditioned upon
Master Landlord's written approval of this Sublease. If Master Landlord fails to
consent to this Sublease within fifteen (15) days after the execution and
delivery hereof by Sublandlord and Subtenant, this Sublease shall terminate and
neither party shall have any continuing obligation to the other with respect to
the Premises.
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18.4 Authority. Each person executing this Sublease on behalf of a
party hereto represents and warrants that he or she is authorized and empowered
to do so and to thereby bind the party on whose behalf he or she is signing.
18.5 Attorneys' Fees. In the event either party shall bring any action
or proceeding for damages or for an alleged breach of any provision of this
Sublease to recover rents, or to enforce, protect or establish any right or
remedy hereunder, the prevailing party shall be entitled to recover reasonable
attorneys' fees and court costs as part of such action or proceeding.
18.6 Brokers. Subtenant warrants for the benefit of Sublandlord that
it has had no dealings on Subtenant's behalf with any real estate broker, agent
or finder, other than the Brokers set forth in the Basic Sublease Information,
in connection with the negotiation of this Sublease, and that it knows of no
other real estate broker or agent who is entitled to any commission or finder's
fee in connection with the Premises or this Sublease. Subtenant shall indemnify
Sublandlord and hold Sublandlord harmless from and against any and all claims,
demands, losses, liabilities, lawsuits, judgments, costs and expenses (including
without limitation attorneys' fees and costs) arising from any claim for a
leasing commission or equivalent compensation alleged to be owing on account of
Subtenant's dealings with any real estate broker or agent other than Broker in
connection with the Premises or this Sublease.
18.7 Counterparts. This Sublease may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
taken together shall comprise but a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed one (1) or more
copies of this Sublease, effective as of the Effective Date.
SUBLANDLORD: SUBTENANT:
Sunrise Medical HHG Inc., a California Fields Aircraft Spares, Incorporated,
Corporation a California corporation
By: /s/ S. Jaye By: /s/ Alan M. Fields
---------------------- ---------------------------
Name: Steven Jaye Name: Alan M. Fields
Title: Secretary Title: President and CEO
By: By: /s/ L. J. Troyna
---------------------- ---------------------------
Name: Name: L. J. Troyna
Title: Title: Chief Financial Officer
-12-
<PAGE>
CONSENT OF MASTER LANDLORD AND
FIRST AMENDMENT TO SUBLEASE
By execution of a counterpart of this Consent of Master Landlord and
First Amendment to Sublease, each tenant in common comprising Master Landlord
hereby consents to the terms and conditions of the foregoing Sublease, dated
April 28, 1998, by and between Sunrise Medical HHG Inc., as Sublandlord, and
Fields Aircraft Spares Incorporated, as Subtenant, and all parties hereto agree
to the terms and conditions hereof.
1. This consent to the Sublease shall not release Sublandlord of its
obligations or alter the liability of the Sublandlord to pay the rent and
perform and comply with all of the obligations of Sublandlord to be performed
under the Master Lease. Master Landlord does not consent or agree to any
modifications of the Master Lease, with the exception of the following
provisions of the Sublease, to which Master Landlord hereby consents:
(a) Sublandlord (and Subtenant) shall only be required to
maintain in effect a course of construction insurance endorsement pursuant to
Section 8.3(a)(i) of the Master Lease during such times as construction work is
being performed in the Premises; and
(b) Master Landlord consents to Article 17 of the Sublease,
entitled "Subleasing."
2. The acceptance of rent or any other sums by Master Landlord from
Subtenant and/or anyone else liable under the Master Lease shall not be deemed a
waiver by Master Landlord of any provisions of the Master Lease.
3. Except as set forth in Article 17 of the Sublease, Master Landlord's
consent to the Sublease shall not constitute a consent to any subsequent
subletting or assignment.
4. In the event of a Default of Sublandlord under the Master Lease,
Master Landlord may proceed directly against Sublandlord, the Guarantor of the
Master Lease or anyone else liable under the Master Lease or the Sublease
without first exhausting Master Landlord's remedies against any other person or
entity liable therein to Master Landlord.
5. Master Landlord does not agree to deal directly with Subtenant
respecting any matter relating to Premises.
6. Master Landlord does not agree to attorn to Subtenant upon a
termination of the Master Lease. In the event of any default by Sublandlord of
any of its obligations to be performed under the Master Lease beyond any
applicable cure period, or in the event of the bankruptcy or other disability of
the Sublandlord, then Master Landlord, at its option, and without being
obligated to do so, may require Subtenant to attorn to Master Landlord, in which
event Master Landlord shall undertake the obligations of Sublandlord under the
foregoing Sublease from the time of the exercise of said option to termination
of the Sublease, but Master Landlord shall not be liable for any prepaid rents
nor any security deposit paid by Subtenant, nor shall Master Landlord be liable
for any other default by Sublandlord of its obligations to be performed under
<PAGE>
the Sublease. Lease Guarantor agrees that any such attornment shall in no way
affect the guaranty of Lease Guarantor of its obligations pursuant to the terms
of the Lease Guarantee dated April 16, 1993, which Guarantee shall remain in
full force and effect.
7. The Sublease shall be amended to include the following provisions,
which shall supersede any inconsistent provisions thereof:
(a) Subject to Article 17 of this Sublease, without the prior
written consent of Master Landlord, Master Landlord's Mortgagee, and any other
mortgagee of the Premises (if such approval is required by mortgagee under the
loan documents), Subtenant shall not: (i) assign, or in any manner transfer the
Sublease or any estate or interest therein, or (ii) permit any assignment of the
Sublease or any estate or interest therein by operation of law, or (iii) grant
any license, concession, or other right of occupancy of any parties other than
Subtenant, its affiliates, agents and employees, or (iv) mortgage, pledge or
otherwise encumber all, or any part of, the Sublease or any interest in the
Premises.
(b) The voluntary or other surrender of the Master Lease shall
not, without the prior written consent of Landlord's Mortgagee, result in the
merger of the estate of the Sublandlord with the estate of Subtenant. Neither
the exercise of Master Landlord's rights under the Master Lease upon the
occurrence of an Event of Default by Tenant, nor the exercise of Sublandlord's
rights under the Sublease upon the occurrence of an Event of Default by
Subtenant, shall, without the prior written consent of Master Landlord's
Mortgagee, result in the merger of the estate of the Sublandlord under the
Sublease with the estate of the Subtenant hereunder. Except at the end of the
Sublease Term, Sublandlord will not, without the prior written consent of Master
Landlord's Mortgagee, accept a voluntary surrender of the Sublease or the state
created thereby and will not consent to any amendment of the Sublease.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
-2-
<PAGE>
8. This Consent of Master Landlord and First Amendment to Sublease may
be executed in any number of counterparts, each of which shall be deemed to be
an original and all of which taken together shall comprise but a single
instrument.
IN WITNESS WHEREOF, the parties hereto have executed one (1) or more
copies of this Consent of Master Landlord and First amendment to Sublease,
dated, for reference purposes, as of May 26, 1998.
SUBLANDLORD: SUBTENANT:
- - - ------------ ----------
SUNRISE MEDICAL HHG INC., a FIELDS AIRCRAFT SPARES
Delaware corporation INCORPORATED, a California Corporation
By: /s/ S. Jaye By: /s/ Alan M. Fields
-------------------------- ----------------------------------
Name: Sedela Jaye Name: Alan M. Fields
Title: Secretary Title: President and CEO
By: /s/ R. H. Chandler By: /s/ Lawrence Troyna
-------------------------- ----------------------------------
Name: Richard H. Chandler Name: Lawrence Troyna
Title: Chairman Title: Director and Chief Financial
Officer
MASTER LANDLORD:
RIDLEY BUILDING CO., LTD., a
California general partnership
By: /s/ Nancy McDonald /s/ Walter Bennett
-------------------------- ----------------------------------
Nancy McDonald WALTER BENNETT, as Trustee of the
Its: Managing Partner Walter Bennett and Betty Jean Bennett
Living Trust dated January 15, 1986
By: /s/ Cynthia Forsyth
---------------------------
Cynthia Forsyth
Its: Managing Partner
-3-
<PAGE>
/s/ Laurie Ellestad /s/ Kenneth Svendstrup Ross
- - - ---------------------------------- -----------------------------------
LAURIE ELLESTAD KENNETH SVENDSTRUP ROSS
/s/ Barbara Montgomery Ross
------------------------------------
BARBARA MONTGOMERY ROSS, as co-
Trustees of the Ross Family Trust dated
March 15, 1998
/s/ Craig M. Bennett /s/ Craig M. Bennett
- - - ---------------------------------- -----------------------------------
CRAIG M. BENNETT, as Custodian for CRAIG M. BENNETT, as Custodian for
Andrew A. Bennett under CUTMA Elizabeth J. Bennett under CUTMA
/s/ Laurie Bennett Ellestad /s/ Laurie Bennett Ellestad
- - - ---------------------------------- -----------------------------------
LAURIE BENNETT ELLESTAD, Trustee of the LAURIE BENNETT ELLESTAD, as
Laurie Bennett Ellestad Living Custodian for Jennifer J. Ellestad under
Trust dated November 3, 1992 CUTMA
/s/ Laurie Bennett Ellestad /s/ Laurie Bennett Ellestad
- - - ---------------------------------- -----------------------------------
LAURIE BENNETT ELLESTAD, as LAURIE BENNETT ELLESTAD, as
Custodian for Deanna Ellestad under Custodian for Eric Ellestad under CUTMA
CUTMA
/s/ Harold C. Bennett /s/ Harold C. Bennett
- - - ---------------------------------- -----------------------------------
HAROLD C. BENNETT, as Trustee of the HAROLD C. BENNETT, as Custodian for
Harold C. Bennett Living Trust, a Todd G. Bennett under CUTMA
restated August 20, 1993
/s/ Harold C. Bennett /s/ Craig M. Bennett
- - - ---------------------------------- -----------------------------------
HAROLD C. BENNETT, as Custodian for CRAIG M. BENNETT, as Trustee of the
Ashley C. Bennett under CUTMA Craig M. Bennett Living Trust, dated
January 6, 1998
/s/ Craig M. Bennett
- - - ----------------------------------
CRAIG M. BENNETT, as Custodian for
Katherine Bennett under CUTMA
-4-
<PAGE>
PEPPERTREE SOUTH BUSINESS PARK
SIMI VALLEY, CALIFORNIA
LEASE WITH
GUARDIAN PRODUCTS, INC.
September 15, 1992
<PAGE>
PEPPERTREE SOUTH BUSINESS PARK
SIMI VALLEY, CALIFORNIA
LEASE WITH
GUARDIAN PRODUCTS, INC.
TABLE OF CONTENTS
SECTION 1 PARTIES...................................... Page 1 of 27
SECTION 2 LEASE OF PREMISES............................ Page 1 of 27
2.1 Demise....................................... Page 1 of 27
2.2 Title of Reports ............................ Page 1 of 27
2.3 Building Area ............................... Page 1 of 27
2.4 Additional Parking........................... Page 2 of 27
SECTION 3 TERM ........................................ Page 2 of 27
3.1 Term ........................................ Page 2 of 27
3.2 Delay in Commencement........................ Page 2 of 27
3.3 Tenant's Right to Terminate Lease............ Page 3 of 27
SECTION 4 RENT ........................................ Page 4 of 27
4.0 General ..................................... Page 4 of 27
4.1 Fixed Rent October 1, 1993................... Page 4 of 27
4.2 Rent Pre-October 1, 1993..................... Page 4 of 27
4.3 Adjustments To Rent For Tenant
Improvement Work ............................ Page 4 of 27
4.4 Rent Adjustments For CPI .................... Page 4 of 27
SECTION 5 TENANT'S PARTICIPATION IN NET OPERATIONAL
CASH FLOW AND NET PROFIT FROM SALE .......... Page 6 of 27
5.1 Tenant's Participation ...................... Page 6 of 27
5.2 Subordination to Secured Leaders ............ Page 6 of 27
5.3 Tenant Not to be In Default/Limitation
of Tenant Liability ......................... Page 6 of 27
5.4 Accounting Methods and Dates Payable......... Page 6 of 27
5.5 Net Operational Cash Flow Defined ........... Page 6 of 27
5.6 Landlord's Operational Expenses Defined...... Page 6 of 27
5.7 Landlord's Secured Debt Service Defined...... Page 7 of 27
5.8 Landlord's Equity Defined.................... Page 7 of 27
5.9 Net Profit from Sale Defined ................ Page 7 of 27
5.10 Total Costs of Construction Declined ........ Page 7 of 27
SECTION 6 USE ......................................... Page 8 of 27
6.1 Use ......................................... Page 8 of 27
6.2 Compliance with Law.......................... Page 8 of 27
6.3 Condition of Premises........................ Page 9 of 27
<PAGE>
SECTION 7 MAINTENANCE, REPAIRS AND ALTERATIONS ........ Page 9 of 27
7.1 Tenant's Obligations ........................ Page 9 of 27
7.2 Surrender ................................... Page 9 of 27
7.3 Landlord's Rights ........................... Page 10 of 27
7.4 Landlord's Obligations ...................... Page 10 of 27
7.5 Alterations and Additions ................... Page 10 of 27
SECTION 8 INSURANCE INDEMNITY ......................... Page 11 of 27
8.1 Insuring Party .............................. Page 11 of 27
8.2 Liability Insurance ......................... Page 11 of 27
8.3 Property Insurance .......................... Page 11 of 27
8.4 Insurance Policies .......................... Page 11 of 27
8.5 Waiver of Subrogation ....................... Page 11 of 27
8.6 Indemnity ................................... Page 12 of 27
8.7 Exemption of Landlord from Liability......... Page 12 of 27
SECTION 9 DAMAGE OR DESTRUCTION ....................... Page 12 of 27
9.1 Partial Damage - Insured..................... Page 12 of 27
9.2 Partial Damage - Uninsured................... Page 12 of 27
9.3 Total Destruction............................ Page 12 of 27
9.4 Damage Near End of Term...................... Page 13 of 27
9.5 Abatement of Rent; Tenant's Remedies......... Page 13 of 27
9.6 Termination - Advance Payments .............. Page 13 of 27
9.7 Waiver ...................................... Page 13 of 27
SECTION 10 REAL PROPERTY TAXES ......................... Page 13 of 27
10.1 Payment of Taxes ............................ Page 13 of 27
10.2 Definition of "Real Property Tax" ........... Page 13 of 27
10.3 Joint Assessment ............................ Page 14 of 27
10.4 Personal Property Taxes ..................... Page 14 of 27
SECTION 11 UTILITIES ................................... Page 14 of 27
SECTION 12 ASSIGNMENT AND SUBLETTING ................... Page 14 of 27
12.1 Landlord's Consent Required ................. Page 14 of 27
12.2 Tenant Affiliate ............................ Page 14 of 27
12.3 No Release of Tenant ........................ Page 14 of 27
12.4 Additional Rent On Assignment................ Page 14 of 27
12.5 Attorney's Fees ............................. Page 15 of 27
SECTION 13 DEFAULTS; REMEDIES .......................... Page 15 of 27
13.1 Defaults..................................... Page 15 of 27
13.2 Remedies .................................... Page 15 of 27
13.3 Default by landlord.......................... Page 16 of 27
13.4 Late Charges................................. Page 16 of 27
SECTION 14 CONDEMNATION ................................ Page 16 of 27
SECTION 15 BROKERS'S FEE................................ Page 17 of 27
<PAGE>
SECTION 16 SUBORDINATION ............................... Page 17 of 27
16.1 Mortgage and Ground Leases .................. Page 17 of 27
16.2 Successors of Mortgage and Ground Leases..... Page 17 of 27
16.3 Non-Disturbance ............................. Page 17 of 27
SECTION 17 SIGNS AND AUCTIONS .......................... Page 18 of 27
SECTION 18 OPTION TO EXTEND ............................ Page 18 of 27
SECTION 19 OPTION TO PURCHASE AND RIGHT OF FIRST
REFUSAL ..................................... Page 18 of 27
19.1 Option Notice ............................... Page 18 of 27
19.2 Actions of Parties .......................... Page 18 of 27
19.3 Closing Date ................................ Page 18 of 27
19.4 No Contingencies to Tenant's Obligations..... Page 18 of 27
19.5 Purchase Price .............................. Page 19 of 27
19.6 Title ....................................... Page 20 of 27
19.7 Costs and Prorations ........................ Page 20 of 27
19.8 Representations ............................. Page 20 of 27
19.9 Right Of First Refusal ...................... Page 20 of 27
19.10 Termination of Lease on Purchase ............ Page 21 of 27
SECTION 20 TOXIC OR HAZARDOUS SUBSTANCES ............... Page 21 of 27
20.1 Tenant's Use ................................ Page 21 of 27
20.2 Notice or Violation ......................... Page 21 of 27
20.3 Landlord's and Tenant's Default.............. Page 21 of 27
20.4 Landlord's Representations .................. Page 21 of 27
SECTION 21 TENANT'S PRIOR OCCUPANCY .................... Page 22 of 27
SECTION 22 GENERAL PROVISIONS .......................... Page 22 of 27
22.1 Estoppel Certificate ........................ Page 22 of 27
22.2 Landlord's Liability ........................ Page 23 of 27
22.3 Severability ................................ Page 23 of 27
22.4 Interest on Past-due Obligations ............ Page 23 of 27
22.5 Time of Essence ............................. Page 23 of 27
22.6 Captions .................................... Page 23 of 27
22.7 Incorporation of Prior Agreements;
Amendments................................... Page 23 of 27
22.8 Notices...................................... Page 23 of 27
22.9 Waivers ..................................... Page 24 of 27
22.10 Recording.................................... Page 24 of 27
22.11 Holding Over................................. Page 24 of 27
22.12 Cumulative Remedies.......................... Page 24 of 27
22.13 Covenants and Conditions..................... Page 25 of 27
22.14 Binding Effect; Choice of Law................ Page 25 of 27
22.15 Attorney's Fees ............................. Page 25 of 27
22.16 Landlord's Access ........................... Page 25 of 27
22.17 Merger ...................................... Page 25 of 27
22.18 Corporate Authority ......................... Page 25 of 27
22.19 Consent/Duty to Act Reasonably............... Page 25 of 27
<PAGE>
22.20 Guarantor ................................... Page 25 of 27
22.21 Quiet Possession ............................ Page 25 of 27
22.22 Rent Defined ................................ Page 26 of 27
22.23 Furnishing of Financial Statement;
Tenant's Representations .................... Page 26 of 27
22.24 Changes Requested by Lender.................. Page 26 of 27
EXHIBITS
Exhibit "A" Legal Description
Exhibit "B" Depiction of Premises
Exhibit "C" Work Letter Agreement
{Schedule 1) Definition of Leasehold Improvements
{Schedule 2) Preliminary Budget Estimate
{Schedule 3) Final Space Plans
Exhibit "D" Guaranty of Lease
<PAGE>
PEPPERTREE SOUTH BUSINESS PARK
SIMI VALLEY, CALIFORNIA
LEASE WITH
GUARDIAN PRODUCTS, INC.
SECTION 1. PARTIES
THIS LEASE ("Lease"), dated for reference purposes only, September 15,
1992, is made by and between LA CANADA FLINTRIDGE DEVELOPMENT
CORPORATION, a California corporation, LCF INCOME GROUP, a
California general partnership, JERVE M. JONES, an individual, and
PEPPERTREE CORPORATE BUSINESS PARK, LTD., a California limited
partnership, as tenants-in-common, (collectively, "Landlord")
and
GUARDIAN PRODUCTS, INC., a California corporation, together with
any assignee approved by Landlord or otherwise permitted
hereunder, ("Tenant").
SECTION 2. LEASE OF PREMISES
2.1 Demise.
Landlord hereby leases to Tenant, and Tenant leases from Landlord for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the City of Simi Valley, County of Ventura,
State of California, the legal description of which is attached as Exhibit "A",
and the site plan of which is depicted on Exhibit "B", attached hereto and
incorporated herein by this reference (the "Real Property"), part of the
Peppertree South Business Park (the "Project"). and to be constructed as a
free-standing building comprising of approximately 120,000 gross square feet
("Building") together with a minimum of 291 parking spaces in compliance with
applicable law and other appurtenant improvements constructed or to be
constructed and located on the Real Property in accordance with the Work Letter
Agreement attached hereto as Exhibit C and incorporated herein by this
reference, excluding any such item owned by public or private utilities. The
Real Property including the land and all improvements thereon or to be
constructed thereon, are herein called "the Premises." Landlord will use its
best efforts to change the name of Brandeis Avenue to a name using the name
Guardian.
2.2 Title Reports.
Landlord owns the Real Property and the property which is the subject
of Tenant's additional parking rights as described in Section 2.4 Additional
Parking and has furnished to Tenant a copy of that certain preliminary title
report covering the Real Property and Additional Parking Site from Pacific Title
Guaranty bearing Order No. 504598-R-WBS, dated as of December 18, 1991. Landlord
shall deliver a date-down of such title report within thirty (30) days prior to
the "Commencement Date" defined in Section 3.1 below (the "Final Title Report")
(which Tenant may convert to a title policy insuring Tenant's interest, at
Tenant's sole election and expense) showing the Real Property and the Additional
Parking Site to be subject only to a lien for current taxes and to exceptions
which were in the initial title report which Tenant approved on a commercially
reasonable basis, such as easements necessary to the operation of the Building.
2.3 Building Area.
Landlord and Tenant hereby agree that the Building, which shall include
a mezzanine, shall contain a proximately 120,000 gross square fee as of the
Commencement Date. The Building will be constructed to include certain
structural supports in contemplation of an addition or additions to the
mezzanine. Landlord hereby agrees that Tenant may construct such addition or
additions, and Landlord hereby consents to the same and waives any right it
might otherwise have hereunder to require Tenant to remove any such addition at
the expiration of the term hereof provided Tenant otherwise complies with the
provisions of Sections 7.5(b) and (c) hereof and provided further, that Landlord
shall have no obligation to provide financing for such construction. If Tenant
provides such financing and proceeds to expand the mezzanine in the Building,
then, upon completion and occupancy of such mezzanine area, the rental payable
under this Lease shall not be increased and the Building shall be considered by
Landlord and Tenant to have the same number of rentable square feet which it had
prior to the expansion of such mezzanine.
<PAGE>
2.4 Additional Parking.
(a) If Tenant adds to the mezzanine area as described in Section 2.3
above, and because of such addition, additional parking spaces are required
under applicable building ordinances, or because of a change in use or change in
code or because of the needs of Tenant, its employees or invitees, Tenant shall
have the option to include as part of the Premises a portion of the land owned
by Landlord adjacent to the Premises (the "additional land").
(b) The additional land shall not exceed that necessary to provide up
to 59 additional parking spaces or in the aggregate 350 spaces (291 spaces plus
59 spaces). Landlord shall have the right to designate the additional land which
shall be within 300 feet walking distance to the Premises.
(c) Landlord shall have the right to change the additional land
designated if Landlord believes such change is reasonably necessary, provided
Landlord designates other land within 300 feet (walking distance) of the
Premises as the additional land.
(d) The rent for the additional parking spaces shall be $37.00 per
space, payable monthly, and shall be in addition to Rent otherwise payable. Such
rent shall be subject to adjustment in accordance with the CPI as set forth in
Section 4.4 and subject to the limitations contained therein (commencing with
the fifty-fifth (55th) month following the Commencement Date, defined in Section
3.1 below, and on each thirtieth (30th) month thereafter). The rent for
additional parking spaces, in the amount of $37.00 per space, is subject to a
decrease if the actual construction costs are less than estimated.
(e) The unexercised option hereunder shall expire when Landlord
delivers to Tenant a factually correct written notice that within sixty (60)
days following the date of such notice, Landlord shall no longer own any
adjacent property, or shall have leased all such adjacent property for more than
three (3) years.
(f) Landlord shall pay for all costs of construction of the parking
spaces, including site preparation, excavation, striping, landscaping, and fees
for consultants, engineers, architects, and building permits. The design and
construction shall be subject to Tenant's reasonable approval.
(g) Following the completion of the additional parking spaces and
delivery to Tenant, Tenant shall pay all costs of maintenance, operation and
repair of the parking area on the additional land.
SECTION 3. TERM
3.1 Term.
The term of this Lease shall be for approximately fifteen (15) years
commencing on the date which is on or after July 1, 1993 and fifteen (15)
business days following the date upon which the Tenant Improvements (as defined
in Section 3 of Exhibit C, the Work Letter Agreement) have been substantially
completed, as certified by Landlord's architect in accordance with Section 5 of
the Work Letter Agreement ("Commencement Date") plus any period prior to October
1, 1993. The term of the Lease shall end on the later of: September 30, 2008, or
the last day of the month in which the fifteenth (15th) anniversary of the
Commencement Date occurs.
3.2 Delay in Commencement.
(a) Landlord shall use commercially reasonable efforts to cause the
Commencement Date to occur on or prior to October 1, 1993, provided, however,
that the Commencement Date shall be extended for up to two (2) months to the
extent of any "Force Majeure Delay" as to Section 3.2(b)(i) and up to five (5)
months to the extent of Section 3.2(b)(ii) "Force Majeure Delay" or for the
period of any "Tenant Delay", as those terms are defined in this Section 3. To
the extent the Commencement Date has been delayed because Landlord has been
delayed in substantially completing any work to be performed by Landlord
pursuant to the Work Letter Agreement as a result of a Tenant Delay, then as
soon as reasonably possible following the Commencement Date, Landlord shall
provide to Tenant a reasonably particularized statement of the net number of
Tenant Delays which actually delayed Landlord, and Tenant shall pay to Landlord
as additional rent under the Lease, the product of the per diem Rent times the
number of days that such net Tenant delays caused the Commencement Date to be so
delayed, such payment to be made within thirty (30) days after Tenant's receipt
of the invoice from Landlord together with said particularized statement.
(b) The term "Force Majeure Delay" shall mean any delay in the
substantial completion of the Tenant Improvements which is attributable to any:
(i) delay or failure to perform attributable to civil
disturbance, future order claiming jurisdiction, act of the public enemy, war,
riot, sabotage, blockade, embargo, inability to secure customary materials,
supplies or labor through ordinary sources by reason of regulation or order of
any government or regulatory body; or
(ii) delay attributable to lightning, earthquake, fire, storm,
hurricane, tornado, flood, washout or
Page 2 of 27
<PAGE>
explosion.
Any prevention, delay or stoppage due to any Force Majeure Delay shall excuse
the performance of the Landlord for a period of time equal to the period of any
such prevention, delay or stoppage, up to a maximum of two (2) months, as to
Section 3.2(b)(i) items and five (5) months as to Section 3.2(b)(ii) items.
(c) "Tenant Delay" shall mean any delay in the substantial completion
of the Tenant Improvements which is due to any act or omission of Tenant
(wrongful, negligent or otherwise), its agents, employees, contractors,
subcontractors or licensees. The Tenant Delay shall include, but shall not be
limited to, any;
(i) delay in the delivery by Tenant of authorizations,
approvals or disapprovals within the time frame therefor specified herein or, if
no such time frame is so specified, within seven (7) business days of Tenant's
receipt of a written request for approval from Landlord;
(ii) delays due to changes by Tenant in the Tenant Improvements
as defined in the Work Letter;
(iii) delays due to postponement of any Tenant Improvements at the
request of Tenant; and
(iv) delays due to the failure of Tenant to grant its approval of
any Tenant Improvement plans for unreasonable reasons.
Any prevention, delay or stoppage due to any Tenant delay shall excuse
performance of Landlord for a period of time equal to any such prevention, delay
or stoppage.
(d) If for any reason the Commencement Date does not occur on or prior
to October 1, 1993 plus the period of any Tenant delays as defined in Section
3.2(c) plus two months of Force Majeure Delay as defined in Section 3.2(b)(i)
and five (5) months of Force Majeure Delay as defined by Section 3.2(b)(ii),
Landlord shall be liable to Tenant for a per diem late performance penalty as
follows:
(i) 50% of the then current per diem rent for the first sixty days.
(ii) 75% of the then current per diem rent for the next thirty
days.
(iii) 150% of the then current per diem rent for any remaining
delay.
Such penalty shall be payable in arrears on or before the last day of each
calendar month. Tenant shall not be obligated to pay rent until fifteen (15)
business days following the date that possession of the Premises is tendered to
Tenant. If Landlord shall not have delivered possession of the Premises to
Tenant by March 1, 1994 extended by the number of days constituting Tenant
Delays and by the number of days constituting Force Majeure Delays limited to
two (2) months as defined by Section 3.2(b)(i) and by five (5) months as defined
by Section 3.2(b)(ii), Tenant may, at Tenant's option, by notice in writing to
Landlord within ten (10) days thereafter, cancel this Lease.
3.3 Tenant's Right to Terminate Lease.
(a) Tenant shall have a one-time right to terminate this Lease
effective the later of: September 30, 2003, or the last day of the month in
which the tenth (10th) anniversary of the Commencement Date occurs, by payment
to Landlord an amount of $700,000 (the cancellation sum) in cash.
(b) The option to cancel shall be effective only by delivering to
Landlord, written notice on or before that date which is the later of December
31, 2002, or nine (9) months prior to the last day of the month in which the
tenth (10th) anniversary of the Commencement Date occurs, and by payment of the
cancellation sum, in the form of a cashier's or certified check no later than
September 30, 2003, or the last day of the month in which the tenth (10th)
anniversary of the Commencement Due occurs.
(c) Tenant shall pay all other sums required under this Lease for the
remaining period of the term, without credit or offset of the cancellation sum.
(d) Commencing thirty (30) days after execution of this Lease, Landlord
shall furnish Tenant a written monthly report on the status of the construction
and permanent financing. On or before December 31, 1992, Landlord shall provide
evidence satisfactory to Tenant, in the form of a commitment or otherwise, that
the construction and permanent financing necessary to complete construction in
accordance with the provisions of the Work Letter Agreement will be in place by
April 1, 1993. If Landlord cannot provide such evidence to Tenant by such date,
then Tenant shall have the right to terminate the Lease.
(e) On or before March 1, 1993. Landlord shall provide evidence
satisfactory to Tenant that it has obtained all necessary public and private
consents, permissions and approvals, including, without limitation, zoning
variances, conditional use permits, building permits and sewer hookup permits,
necessary to construct the Project Shell and Tenant Improvement Work in
accordance with the terms of this Lease and in strict compliance with all
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applicable, federal, state and local laws, ordinances, rules and regulations. If
Landlord cannot provide such evidence to Tenant by such date, then Tenant shall
have the right to terminate the Lease.
SECTION 4. RENT
4.0 General.
Tenant shall pay to Landlord rent ("Rent") for the Premises pursuant to
the provisions of this Section in advance, on the 1st day of each month of the
term hereof. Rent for any period during the term hereof which is for less than
one month shall be a pro rata portion of the monthly installment. Rent shall be
payable in lawful money of the United States to Landlord at LCF Group, 311 S.
Spring Street, Suite 1200, Los Angeles, CA 90013, or to such other persons or at
such other places as Landlord my designate in writing; provided, however,
Landlord my not designate more than one person or more than one address for the
delivery of Rent.
4.1 Fixed Rent October 1, 1993.
Tenant shall pay Rent to Landlord during the initial term commencing
the later of October 1, 1993, or the Commencement Date of the Lease in
accordance with the following schedule, subject to the limitations and
adjustments provided for in Section 4.2 below:
Monthly Installment Monthly Rent Per
Month of Term of Rent Gross Square Foot
1-24 $56,400.00 $O.47
25-54 $66,000.00 $0.55
4.2 Rent Pre-October 1, 1993.
Tenant shall pay per diem Rent to Landlord for any period of the term
prior to October 1, 1993 in an amount equal to i) 50% for July and August 1993
and ii) 75% for September 1993 based on the monthly Rent per gross square foot
for the first twenty-four (24) months ($O.47 per month, multiplied by 120,000
square feet, divided by 365 days, which yields a per diem rate of $1,854.25).
Such Rent shall be payable in arrears on or before the last day of each calendar
month.
4.3 Adjustments To Rent For Tenant Improvement Work.
Rent shall be adjusted as of the Commencement Date in accordance with
Section 3 of Exhibit C, the Work Letter Agreement, relating to Tenant
Improvement Work.
4.4 Rent Adjustments For CPI
(a) Commencing with the later of April 1, 1998 or the fifty-fifth
(55th) month following the Commencement Date and on each thirtieth (30th) month
thereafter ("Effective Dates") during the initial term of the Lease, the Rent
shall be adjusted in accordance with the Consumer Price Index. The base for
computing such adjustment shall be the Consumer Price Index--Urban Wage Earners
and Clerical Workers (Los Angeles-Anaheim Riverside, CA. All Items, Base 1982-84
= 100) ("Index") as published by the United States Department of Labor Bureau
Statistics ("Bureau") which is in effect the later of June 30, 1995, or the
third (3rd) month preceding the twenty-fifth (25th) month following the
Commencement Date ("Beginning Index"). The index published and in effect for the
third (3rd) month preceding each Effective Date of the initial term of the Lease
("Extension Index" shall be used in determining the amount of such adjustment
from one period of the initial term of the Lease to the next. Beginning with the
Rent due on and after each Effective Date of the initial term of the Lease, the
Rent shall be adjusted to equal the product achieved by multiplying the Rent due
with respect to the month immediately preceding such Effective Date by the
fraction described below, provided, however, in no event shall;
(i) any such increase be greater than a 5% per annum increase,
cumulative (subject, however, to the 5% per annum increase) and non-compounded,
{As an example:
CPI Rent
4% 4%
7% 5%
4% 5%
0% 1%
35% 5%
0% 5%
0% 5%}
and;
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(ii) the Rent as of any Effective Date exceed the then current
"Fair Market Rental Rate" of the Premises (defined in Section 4.4 (b) below):
provided further, however, that in no event shall such adjusted Rent be less
than the Rent payable the later of March 1, 1998 or the fifty-fourth (54th)
month following the Commencement Date. On the first Effective Date of the
initial term of the Lease, the numerator of the fraction shall be the Extension
Index and the denominator shall be the Beginning Index. On the second and any
subsequent Effective Date, the numerator of the fraction shall be the
then-current Extension Index and the denominator shall be the Extension Index
used to calculate the previous Rent adjustment. Landlord shall use its best
efforts to calculate and give Tenant written notice of any such adjustment in
the Rent prior to each Effective Date, and Tenant shall pay the adjusted Rent so
noticed commencing on each Effective Date. Should the Bureau discontinue the
publication of the Index, or publish the same less frequently or on a different
schedule, or alter the same in some other manner including, but not limited to
changing the name of the Index or the geographic area covered by the Index, the
Landlord, in its discretion, shall adopt a substitute index of procedure which
reasonably reflects and monitors consumer prices. In the event the provisions of
this Section 4.4 are partially or totally suspended as a result of governmental
regulation, they shall be reinstated upon termination or expiration of such
regulation. Furthermore, upon termination or expiration of such regulation, the
Rent shall be adjusted, commencing with the next regular monthly rent payment,
to the amount that it would have been had the governmental regulation not been
imposed.
(b) The "Fair Market Rental Rate" shall mean and refer to the rate then
being charged by owners of buildings of comparable age, type and quality located
in the vicinity of the Building, for non-renewal, non-expansion, non-sublease,
single-tenant, non-equity space, similarly improved, taking into consideration
the existing tenant improvements constructed at the expense of Landlord or, if
no such improvements exist, allowances provided or to be provided for such
comparable space, rental abatement concessions, if any, the length of the
relevant term, the extent of services to be provided to the premises, the date
as of which the fair market rental rate is to become effective, and any other
relevant term or conditions. Landlord shall provide written notice of the Fair
Market Rental Rate not later than four months prior to the then applicable
Effective Date. Tenant shall have fifteen (15) days ("Tenant's Review Period")
after receipt of Landlord's notice of the Fair Market Rental Rate within which
to accept such fair market rental rate or to reasonably object thereto in
writing. Failure of Tenant to so object to the Fair Market Rental Rate submitted
by Landlord in writing within such period shall conclusively be deemed its
approval thereof. In the event Tenant objects to the Fair Market Rental Rate
submitted by Landlord, Landlord and Tenant shall attempt in good faith to agree
upon such Fair Market Rental Rate using their best good faith efforts. If
Landlord and Tenant fail to reach agreement on such Fair Market Rental Rate
within fifteen (15) days following Tenant's Review Period (the "Outside
Agreement Date"), then Tenant shall notify Landlord of its Fair Market Rental
Rate and each party's determination shall be submitted to arbitration in
accordance with Section 4.4(b)(i) below.
(i) Landlord and Tenant shall each appoint one (1) independent
arbitrator who shall by profession be a real estate professional who shall have
been active over the five (5) year period ending on the date of such appointment
in the appraisal and/or leasing of similar properties in the vicinity of the
Building. The determination of the arbitrators shall be limited solely to the
issue of whether Landlord's or Tenant's submitted Fair Market Rental Rate is the
closest to the actual Fair Market Rental Rate as determined by the arbitrators,
taking into account the requirements of this Section 4.4(b) above regarding
same. Such decision shall be based upon the projected prevailing Fair Market
Rental Rate as of the then applicable Effective Date. Each such arbitrator shall
be appointed within fifteen (15) days after the Outside Agreement Date.
(ii) The two (2) arbitrators so appointed shall within fifteen
(15) days of the date of the appointment of the last appointed arbitrator agree
upon and appoint a third arbitrator who shall be qualified under the same
criteria set forth hereinabove for qualification of the initial two (2)
arbitrators.
(iii) The three (3) arbitrators shall within thirty (30) days of
the appointment of the third arbitrator reach a decision as to whether the
parties shall use Landlord's or Tenant's submitted Fair Market Rental Rate, and
shall notify Landlord and Tenant thereof.
(iv) The decision of the majority of the three (3) arbitrators
shall be binding upon Landlord and Tenant. If either Landlord or Tenant fails to
appoint an arbitrator within the time period specified in Section 4.4(b)(i)
hereinabove, the arbitrator appointed by one of them shall reach a decision
based upon the same procedures as set forth above (i.e., by selecting either
Landlord's or Tenant's submitted Fair Market Rental Rate), and shall notify
Landlord and Tenant thereof, and such arbitrator's decision shall be binding
upon Landlord and Tenant.
(v) If the two (2) arbitrators fail to agree upon and appoint a
third arbitrator, both arbitrators shall be dismissed and the matter to be
decided shall be forthwith submitted to arbitration under the provisions of the
American Arbitration Association based upon the same procedures as set forth
above (i.e., by selecting either Landlord's or Tenant's submitted Fair Market
Rental Rate).
(vi) The cost of arbitration shall be paid by the losing party.
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SECTION 5. TENANT'S PARTICIPATION IN NET OPERATIONAL CASH FLOW AND NET PROFIT
FROM SALE.
5.1 Tenant's Participation.
During the term of this Lease, Tenant shall be entitled to: 25% of
the Net Operational Cash Flow and 25% of the Net Profit from Sale of the
Premises, as defined in this Section.
5.2 Subordination to Secured Lenders.
Any amounts due to Tenant under this Section shall be subordinate
to the rights of secured lenders.
5.3 Tenant Not to be in Default/Limitation of Tenant Liability.
(a) Any amount due to Tenant under this Section shall be payable only
with respect to the period or periods when Tenant is not in default under this
Lease in the payment of rent, or any other sums. The Tenant's participation
under this Section may not be used by Tenant as an offset to rent and related
amounts due to Landlord.
(b) Tenant shall not be liable for payment of any negative amount of
Net Operational Cash Flow.
5.4 Accounting Methods and Dates Payable.
(a) Net Operational Cash Flow shall be determined on an accrual basis
in accordance with the provisions of this paragraph, and where not specifically
provided for, in accordance with generally accepted accounting principles.
(b) Net Operational Cash Flow shall be determined on a calendar year
basis with appropriate pro rata adjustments for periods of less than a full
calendar year.
(c) Tenant's participation in Net Operational Cash Flow shall be
payable on a quarterly basis ending March 31, June 30, September 30, and
December 31, not later than thirty (30) days following the end of such quarter.
(d) Net Profit from Sale of the Premises shall be determined in
accordance with the provisions of this Section and where not specifically
provided for, in accordance with generally accepted accounting principles.
(e) Tenant's participation in Net Profit from Sale of the Premises
shall be payable at the close of the sale, provided:
(i) If any such profit is from a sale to other than Tenant, and
is payable in an asset other than cash, Tenant's participation may be evidenced
by in interest in such asset.
(ii) Landlord may reserve a reasonable portion of the profit for
a period not to exceed sixty (60) days from the date of close, if necessary for
accounting purposes.
5.5 Net Operational Cash Flow Defined.
Net Operational Cash Flow means the difference between:
(a) Rent and other sums payable by Tenant to Landlord hereunder (other
than pursuant to Section 19), and,
(b) The sum of the following:
(i) Landlord's operational expenses;
(ii) Landlord's secured debt service;
(iii) Ten percent (10%) per annum of Landlord's equity; and
(iv) The cumulative amount, if any, by which ten percent (10%)
per annum of Landlord's equity exceeds the cumulative net operational cash flow
from the Commencement Date to the beginning of the then current calendar year.
5.6 Landlord's Operational Expenses Defined.
Landlord's operational expenses means the sum of the following:
(a) Repairs and maintenance to the Premises not payable by Tenant;
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<PAGE>
(b) Property taxes on the Premises not payable by Tenant;
(c) Management fees to Landlord equal to one percent (1%) of Rent;
(d) Other reasonable expenses directly attributable to the Premises not
payable by Tenant.
5.7 Landlord's Secured Debt Service Defined.
Landlord's secured debt service means the total payments of interest,
principal, and related charges, required to be paid on secured debt on the
Premises, subject to the following:
(a) The amount shall not exceed that necessary to service secured debt
in a principal amount equal to the total costs of construction.
(b) The amount shall not exceed a constant payment of principal and
interest of twelve percent (12%) per annum multiplied by the total costs of
construction.
(c) If the total principal amount of secured debt is less than the
total costs of construction, the difference shall be considered additional
Landlord's equity, and secured debt service shall include ten percent (10%) per
annum of such additional Landlord's equity.
5.8 Landlord's Equity Defined.
Landlord's equity means the agreed value of the land area included
within the Premises, as follows:
(a) Land area means the number of square feet of land included within
the Premises, as it may exist from time to time, excluding the land underlying
Brandeis Avenue, and excluding the slope area beyond the top of slope, but
including all easement areas and parking areas within the Premises.
(b) For the purpose of computing Net Operational Cash Flow, the agreed
value of the land area is ten dollars ($10.00) per square foot.
(c) For the purpose of computing Net Profit from Sale, the agreed value
of the land area is twelve dollars ($12.00) per square foot.
5.9 Net Profit from Sale Defined.
Net Profit from Sale of the Premises (including a sale to Tenant)
shall mean:
(a) The gross sales price, plus
(i) The cumulative amount by which the amount of secured debt
service, deducted in computing net operational cash flow, has been applied to
reduce the principal amount of secured debt, less;
(ii) The expenses of sale, including brokers' commissions, title
policy costs, documentary stamp tax, escrow fees, attorneys' fees, prepayment
penalties and financing expenses and related expenses of sale, less;
(b) The sum of the following:
(i) The total costs of construction, without any deduction for
depreciation;
(ii) The agreed value of the land area at twelve dollars ($12.00)
per square foot;
(iii) The cumulative amount, if any, by which ten percent (10%)
per annum of Landlord's equity (the agreed value of the land area at ten dollars
($10.00) per square foot) exceeds the cumulative Net Operational Cash Flow from
the Commencement Due to the date of closing of the sale; and
(iv) Any other reasonable costs directly involving the Premises
not included in Sections 5.9(b)(i) or (ii) above and not deducted in computing
Net Operational Cash Flow.
5.10 Total Costs of Construction Defined.
(a) Total costs of construction shall mean the sum of the following:
(i) Payments made to contractors or subcontractors performing
construction work in connection with the building and other improvements to be
constructed on the Real Property that is a part of the Premises;
(ii) Other costs of on-site and off-site improvements directly
attributable to the Premises;
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<PAGE>
(iii) Commissions payable by Landlord to real estate brokers in
connection with this Lease;
(iv) Fees for building permits, licenses, and inspection;
(v) Fees of engineers, surveyors, architects, attorneys, and
others providing professional or extra services in connection with the
construction of the Building and other improvements that are a part of the
Premises, or the supervision of the construction;
(vi) Insurance premiums paid by Landlord during the construction
period that are not payable by Tenant under this Lease;
(vii) Premiums for contractor's faithful performance and for
mechanics' lien bonds;
(viii) Costs of bringing utilities from the street to the
Premises, including, without limitation, connection service fees;
(ix) Interest paid by Landlord on interim financing for the
construction until minimum monthly Rent commences under the Lease;
(x) Lenders' fees for interim and permanent financing, including
without limitation, takeout and standby fees with respect to permanent
financing;
(xi) Costs to Landlord for mortgage brokerage fees in connection
with interim and permanent financing;
(xii) Recording costs and filing fees;
(xiii) Fees for foundation and engineering reports reasonably
necessary for construction on the real property that is a part of the Premises
and topographic survey;
(xiv) Costs of grading and filling directly attributable to the
Premises; and
(xv) Such other costs as reasonably may be incurred by Landlord in
connection with the construction on the Real Property that is a part of the
Premises.
(b) Total costs of construction shall include such costs incurred prior
to the Commencement Date, during the Lease term, and any time prior to the
closing of the sale; but shall exclude the cost of warranty items.
SECTION 6. USE.
6.1 Use.
The Premises once completed pursuant to the approved Final Plans
described in Exhibit "C" to this Lease, shall be used and occupied only for the
legally permitted uses and uses permitted by the CC&R's (as defined in Section
6.2(c) below) subject to the provisions of Section 20 below, and to the
structural and other physical characteristics of the Building, which shall not
be denigrated by an otherwise permitted use and for no other purpose.
6.2 Compliance with Law.
(a) Landlord warrants to Tenant that the Premises, once completed
pursuant to the approved Final Plans described in Exhibit "C" to this Lease, for
which Tenant will use the Premises shall not violate any applicable building
code regulation or ordinance at the time of the Commencement Date. In the event
that it is determined that this warranty has been violated, then it shall be the
obligation of the Landlord, after written notice from Tenant, to promptly, at
Landlord's sole cost and expense, rectify any such violation.
(b) Except as provided in Section 6.2 (a), Tenant shall, at Tenant's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders and restrictions of record existing as of the date hereof,
including, without limitation, the CC&R's as hereafter defined. If any such
compliance shall require capital expenditures to the Premises or the Building,
the cost of said compliance shall be Tenant's sole responsibility, but only to
the extent that such compliance shall affect or be applicable to Tenant's
special, unusual and unique use of the Premises (as opposed to a general,
customary and typical use thereof, consistent with that generally undertaken by
other tenants of similar buildings). Otherwise, such capital expenditures shall
be advanced by Landlord and amortized over the useful life of such capital
improvements at the market cost of money interest factor in effect as of the
date the capital expenditure is required, with Tenant paying only for the
portion of such amortization payments falling within the then remaining portion
of the term of this Lease. Tenant shall not use nor permit the use of the
Premises in any manner that will tend to create waste or a nuisance.
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<PAGE>
(c) Tenant hereby acknowledges and agrees that Tenant's use and
occupancy of the Premises and this Lease are subject to that certain Declaration
of Covenants, Conditions and Restrictions of Peppertree Corporate Business Park
recorded July 15, 1988 as Document No. 88-099984 in the Official Records of
Ventura County, California, which encumbers the Premises (the "CC&R's"). Tenant
further acknowledges that the terms of the CC&R's include, among other things,
(i) provisions for certain common area, street and other typical
common development area assessments for completed portions of the Project only,
to be levied on the Premises on a pro rata basis and to be paid by Tenant as
additional rent and each parcel subject to the CC&R's (but not including bonds
relative to the amortization of the costs of the initial installation of the
infrastructure or improvements within the Project) and,
(ii) restrictions on use, construction, alterations, landscaping,
modifications, decoration or reconstruction which can be commenced or maintained
on any parcel subject to the CC&R's. The CC&R's may be amended in a commercially
reasonable and non-discriminatory manner during the term of this Lease, but
Landlord shall indemnify Tenant from the effect of any such amendment which is
discriminatorily applied against Tenant or which negatively affects the use or
value of the Premises.
6.3 Condition of Premises.
Except as provided in Section 6.2(a), Tenant hereby accepts the
Premises in their condition existing as of the date of the Commencement Date
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations, the CC&R's and all other matters of record set forth in the
Final Title Report and accepts this Lease subject thereto and to all matters
disclosed thereby and by any exhibits attached hereto. Tenant acknowledges that
neither Landlord nor Landlord's agent has made any representation or warranty as
to the suitability of the Premises for the conduct of Tenant's business, except
that Landlord hereby represents that when completed pursuant to the approved
Final Plans described in Exhibit "C" to the Lease, the Premises shall be
suitable for the conduct of the business of Tenant, as well as general
warehouse, distribution and light manufacturing and related office purposes.
SECTION 7. MAINTENANCE, REPAIRS AND ALTERATIONS
7.1 Tenant's Obligations.
(a) Subject to the provisions of Section 7.1(c) and Section 9.
Tenant shall keep in good order, condition and repair the
non-structural portions of the Premises and every part thereof, including,
without limitation, all plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities and equipment within the Building or the
Premises, fixtures, walls (interior and exterior, but not the structural
elements thereof), ceilings, roofs (interior and exterior, but not the
structural elements thereof), floors (but not the structural elements thereof),
windows, doors, plate glass and skylights located within the Building or the
Premises, and all landscaping, driveways, parking lots, fences and signs located
on the Premises.
(b) All repairs, alterations and/or maintenance of the Building or the
Premises pursuant to this Lease by Tenant shall be performed in a first class
and workmanlike manner in compliance with all federal, state and local laws and
regulations having jurisdiction thereover.
(c) Notwithstanding the provisions of Section 7.1(a), Landlord shall
enforce all warranties relative to the construction of the Premises for the
benefit of Tenant, at Landlord's expense, which warranties shall include all
those customarily issued for the type of construction contemplated by Exhibit
"C" to this Lease. In addition, Landlord warrants to Tenant that the Premises,
and every part thereof, shall be in good order, condition and repair as of the
Commencement Date and for the period up to but not including the first
anniversary thereof. Landlord shall correct any defect thereto or failure
thereof not caused by Tenant and noticed to Landlord prior to such anniversary
date. In addition, if at any time during the term hereof, or the term hereof as
extended, Tenant is required in order to fulfill Tenant's obligations hereunder
to incur any capital expenditure in excess of $100,000, the same shall be
amortized over the estimated useful life thereof, and promptly following
Tenant's completion thereof in accordance with the provisions of this Lease,
Landlord shall pay to Tenant that portion of the cost thereof attributable to
the period following the expiration of this Lease, taking into account any
option to extend the term hereof. For purposes of this Section (c), such amount
shall be amortized using the prime interest rate of Bank of America in effect as
of the date of the completion of such capital expenditure.
7.2 Surrender.
On the last day of the term hereof, or on any sooner termination,
Tenant shall surrender the Premises to Landlord in the same condition as when
received, broom clean, ordinary wear and tear excepted. Tenant shall repair any
damage to the Premises occasioned by the removal of Tenant's trade fixtures,
furnishings and equipment pursuant to Section 7.5(d), which repair shall include
the patching and filling of holes and repair of structural damage.
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7.3 Landlord's Rights.
If Tenant fails to perform Tenant's obligations under this Section 7,
Landlord may at its option (but shall not be required to) enter upon the
Premises, after ten (10) days' prior written notice to Tenant, and put the same
in good order, condition and repair, and the cost thereof together with interest
thereon at the rate of 10% per annum shall become due and payable as additional
rental to Landlord together with Tenant's next rental installment.
7.4 Landlord's Obligations.
Landlord shall keep in good order, condition and repair the structural
elements of the Premises and every part thereof, including the structural
portions of the roof, the foundations, the floors and the bearing walls of the
Building, promptly upon notice of the need thereof from Tenant, such work to be
performed in a first class workmanlike manner in compliance with all federal,
state and local laws and regulations having jurisdiction thereover. Except for
the obligations of Landlord set forth in the preceding sentence and under
Sections 6.2(a) and (b), Section 7.1(c) and Section 22.21 (relating to
Landlord's warranty), Section 9 (relating to destruction of the Premises),
Section 14 (relating to condemnation of the Premises) and the Work Letter
Agreement attached hereto as Exhibit "C", it is intended by the parties hereto
that Landlord have no obligation, in any manner whatsoever, to repair and
maintain the non-structural elements of the Premises nor the equipment therein,
all of which obligations are intended to be that of the Tenant under Section 7.1
(a) hereof. To the extent specifically dealt with in this Lease to the contrary,
Tenant expressly waives the benefit of any statute now or hereinafter in effect
which would otherwise afford Tenant the right to make repairs at Landlord's
expense or to terminate this Lease because of Landlord's failure to keep the
Premises in good order, condition and repair.
7.5 Alterations and Additions.
(a) Tenant shall not, without Landlord's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural, non-building system alterations not
exceeding $100,000.00 in cost. As used in this Section 7.5 the term "Utility
Installation" shall mean all air lines, electrical communications systems,
lighting fixtures and fencing in, on or about the Premises, power panels,
wiring, fluorescent fixtures, space heaters, conduits, heating, ventilating and
air conditioning equipment and plumbing. Landlord may require as a condition to
its consent that Tenant remove any or all of said alterations, improvements,
additions or Utility Installations which require its consent at the expiration
of the term, and restore the Premises to their prior condition. Should Tenant
make any alterations, improvements, additions or Utility Installations without
the prior written approval of Landlord, Landlord may require that Tenant remove
any or all of the same at any time.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises that Tenant shall desire to make and which requires the
consent of the Landlord shall be presented to Landlord in written form, with
proposed detailed plans. Tenant shall provide Landlord with "as-built" drawings
of any alterations, improvements, additions or Utility Installations in or about
the Premises which cost in excess of $100,000, whether or not Landlord's consent
is required under this Lease. If Landlord shall give its consent the consent
shall be deemed conditioned upon Tenant acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Landlord
prior to the commencement of the work and the compliance by Tenant of all
conditions of said permit in a prompt and expeditious manner. All repairs,
alterations and or maintenance of the Building or the Premises pursuant to the
Building or the Premises by Tenant shall be performed in a first class and
workmanlike manner in compliance with all federal, state and local laws and
regulations having jurisdiction thereover.
(c) Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Premises, which claims am or my be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Tenant shall
give Landlord not less than ten (10) days' notice prior to the commencement of
any work in the Premises, and Landlord shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Tenant shall, in
good faith, contest the validity of any such lien, claim or demand, then Tenant
shall, at its sole expense, defend itself and Landlord against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof against the Landlord or the Premises, upon the
condition that if Landlord shall require, Tenant shall furnish to Landlord a
surety bond satisfactory to Landlord in an amount equal to such contested lien,
claim or demand indemnifying Landlord against liability for the same and holding
the Premises free from the effect of such lien or claim. In addition, Landlord
may require Tenant to pay Landlord's attorneys' fees and costs in participating
in such action if Landlord shall decide it is to its best interest to do so.
(d) Unless Landlord requires their removal, as set forth in Section
7.5(a), all alterations, improvements, additions and base building Utility
Installations (i.e., excluding Utility Installations which constitute trade
fixtures of Tenant), which my be made on the Premises, shall become the property
of Landlord and remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this Section 7.5(d),
Tenant's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
shall remain the property of Tenant and may be removed by Tenant subject to the
provisions of Section 7.2.
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SECTION 8. INSURANCE INDEMNITY
8.1 Insuring Party.
Tenant as the "insuring party" under this Lease, shall pay the cost of
all insurance required hereunder. The insurance required by this Lease or as
carried by Tenant shall not however, limit the liability of Tenant nor relieve
Tenant of any obligation hereunder.
8.2 Liability Insurance.
Tenant agrees to maintain in full force and effect at all times during
the term of this Lease as it may be extended, at its own expense, for the
protection of Tenant and Landlord, as their interests may appear, policies of
insurance issued by a carrier or carriers reasonably acceptable to Landlord and
with a rating consistent with the requirements of Section 8.4 of the Lease,
commercial general liability insurance including broad-form contractual
liability, broad-form property damage, personal injury and fire damage of not
less than Two Million Dollars ($2,000,000.00) combined single limit for both
bodily injury and property damage with Landlord, Landlord's agents and
Landlord's mortgagee named as additional insureds as their respective interests
may appear, with such insurance to contain cross-liability or separability of
limits, to be primary for the purpose of meeting Tenant's obligations under this
Lease, and not contributory with any insurance carried by Landlord whose
insurance shall be considered excess of Tenant's insurance.
8.3 Property Insurance.
(a) Tenant agrees to maintain in full force and effect at all times
during the term of this Lease as it may be extended, at its own expense, for the
protection of Tenant and Landlord, as their interests my appear, policies of
insurance issued by a carrier or carriers reasonably acceptable to Landlord and
with a rating consistent with the requirements of Section 8.4 of the Lease, the
following policies of property insurance:
(i) "All Risk" property insurance (including, without limitation,
vandalism, malicious mischief, water damage, course of construction endorsement,
sprinkler leakage endorsement, debris removal and demolition coverage on the
Building and the Leasehold Improvements, Alterations and Tenant's personal
property located on or in the Building, (provided, however, that Tenant may
self-insure, with full waiver of subrogation, such Alterations and personal
property), which shall be in a form providing coverage comparable to the
coverage provided in the standard ISO All-Risk form and in an amount equal to
the full amount of the replacement cost of the insured items, as the same may
from time to time increase as a result of inflation or otherwise.
(ii) boiler and machinery insurance including but not limited to
steam pipes, pressure pipes, condensation return pipes and other pressure
vessels and HVAC equipment, with limits per accident of not less than the
replacement cost of all Leasehold Improvements, or Utility Installations and of
all boilers, pressure valves, HVAC equipment and miscellaneous electrical and
mechanical equipment in the premises.
(b) All insurance to be carried by Tenant shall be primary to and not
contributory with any similar insurance carried by Landlord whose insurance
shall be considered excess insurance only. Said insurance shall provide for
payment of loss thereunder to Landlord or to the holders of mortgages or deeds
of trust on the Premises. If Tenant shall fail to procure and maintain said
insurance, Landlord may, but shall not be required to, procure and maintain the
same, but at the expense of Tenant. If such insurance coverage has a deductible
clause, Tenant shall be liable for the deductible amount.
8.4 Insurance Policies.
Insurance required hereunder shall be in companies holding a "General
Policyholders Rating" of B+:X or equivalent as set forth in the most current
issue of "Best's Insurance Guide". Tenant shall deliver to Landlord copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with loss payable clauses satisfactory to Landlord. No such
policy shall be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days' prior written notice to Landlord.
Tenant shall, within thirty (30 days prior to the expiration of such policies,
furnish Landlord with renewals or "binders" thereof, or Landlord may order such
insurance and charge the cost thereof to Tenant, which amount shall be payable
by Tenant upon demand. Tenant shall not do or permit to be done anything which
shall invalidate the insurance policies referred to in Section 8.3.
8.5 Waiver of Subrogation.
Tenant and Landlord each hereby waive any and all rights of recovery
against the other, or against the officers, employees, agents and
representatives of the other, for loss of or damage to such waiving party or its
Property or the property of others under its control. The insuring party shall,
upon obtaining the policies of insurance required hereunder, give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation is
contained in this Lease.
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8.6 Indemnity.
Tenant shall indemnify and hold harmless Landlord and its agents,
partners and mortgagee from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, permits, attorneys' and
consultants' fees, expenses and liabilities arising out of, involving, or in
dealing with Tenant's, its agents, contractors, employees or invitees use or
occupancy of the Premises, or from the conduct of Tenant's business or from any
activity, work or things done, permitted or suffered by Tenant in or about the
Premises or elsewhere and shall further indemnify and hold harmless Landlord
from and against any and all claims, loss of rents and/or damages, costs, liens,
judgments, penalties, permits, attorneys' and consultants' fees, expenses and
liabilities arising out of, involving, or in dealing with any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any negligence of the Tenant, or any of
Tenant's agents, contractors, or employees, and from and against all costs,
attorneys' fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon; and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord.
8.7 Exemption of Landlord from Liability.
Except for the breach of any representation or warranty contained
within this Lease, but after applying insurance proceeds from policies required
to be carried under this Lease, Tenant hereby agrees that Landlord shall not be
liable for injury to Tenant's business or any loss of income therefrom or for
damage to the goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers, or any other person in or about the Premises,
nor shall Landlord be liable for injury to the person of Tenant, Tenant's
employees, agents or contractors, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures.
SECTION 9. DAMAGE OR DESTRUCTION
9.1 Partial Damage - Insured.
Subject to the provisions of Sections 9.3 and 9.4, if the Premises are
partially damaged (meaning that Landlord's general contractor in charge of
construction certifies to the parties that the Premises can be repaired in 180
days or less) and such damage was caused by a casualty covered under an
insurance policy required to be maintained pursuant to Section 8.3, Landlord
shall at Landlord's expense promptly upon receipt of the insurance proceeds for
such damage repair such damage but not Tenant's fixtures, equipment or tenant
improvements unless the same have become a part of the Premises pursuant to
Section 7.5 hereof as soon as reasonably possible and this Lease shall continue
in full force and effect. Notwithstanding the above, if the insurance proceeds
received by Landlord are not sufficient to effect such repair, Landlord shall
give notice to Tenant of the amount required in addition to the insurance
proceeds to effect such repair. Tenant shall contribute the required amount to
Landlord within ten days after Tenant has received notice from Landlord of the
shortage in the insurance. When Tenant shall contribute such amount to Landlord,
Landlord shall make such repairs as soon as reasonably possible and this Lease
shall continue in full force and effect. Tenant shall in no event have any right
to reimbursement for any such amount so contributed.
9.2 Partial Damage - Uninsured.
Subject to the provisions of Sections 9.3 and 9.4, if at any time
during the term hereof the Premises are partially damaged, except by a negligent
or willful act of Tenant (in which event Tenant shall make the repairs, at its
expense) and such damage was caused by a casualty not covered under an insurance
policy required to be maintained pursuant to Section 8.3, Landlord may, at
Landlord's option, either
(i) repair such damage as soon as reasonably possible at
Landlord's expense, in which event this Lease shall continue in full force and
effect, or
(ii) give written notice to Tenant within thirty (30) days after
the date of the occurrence of such damage of Landlord's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Landlord elects to give such notice of Landlord's intention to cancel and
terminate this Lease, Tenant shall have the right within ten (10) days after the
receipt of such notice to give written notice to Landlord of Tenant's intention
to repair such damage at Tenant's expense, without reimbursement from Landlord,
in which event this Lease shall continue in full force and effect, and Tenant
shall proceed to make such repairs as soon as reasonably possible. If Tenant
does not give such notice within such 10-day period this Lease shall be canceled
and terminated as of the date of the occurrence of such damage.
9.3 Total Destruction.
If at any time during the Lease hereof the Premises are totally
destroyed (meaning that Landlord's general contractor in charge of construction
certifies to the parties that the Premises cannot be repaired in 180 days
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or less) from any cause whether or not covered by the insurance required to be
maintained pursuant to Section 8.3 (including any total destruction required by
any authorized public authority) this Lease shall automatically terminate as of
the date of such total destruction; provided that Tenant shall have the option,
exercisable within ten (10) days after receipt of such certificate, to cause
Landlord to repair an insured loss even if it qualifies as Total Destruction.
9.4 Damage Near End of Term.
If the Premises are partially destroyed or damaged during the last six months
of the term of this Lease, Landlord may, at Landlord's option, cancel and
terminate this Lease as of the date of occurrence of such damage by giving
written notice to Tenant of Landlord's election to do so within 30 days after
the date of occurrence of such damage.
9.5 Abatement of Rent; Tenant's Remedies.
(a) If the Premises are partially destroyed or damaged and Landlord or
Tenant repairs or restores them pursuant to the provisions of this Section 9,
the rent payable hereunder for the period during which such damage, repair or
restoration continues shall be abated in proportion to the degree to which
Tenant's use of the Premises is impaired; provided, however, that the aggregate
amount of abatement hereunder shall not exceed the total of rent payable under
Section 4 for a period of six months. Except for abatement of rent, if any,
Tenant shall have no claim against Landlord for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Landlord shall be obligated to repair or restore the Premises
under the provisions of this Section 9 and shall not commence such repair or
restoration within thirty (30) days after such obligation shall accrue, Tenant
may, at Tenant's option, cancel and terminate this Lease by giving Landlord and
any mortgagees written notice of Tenant's election to do so at any time prior to
the commencement of such repair or restoration. In such event, this Lease shall
terminate thirty (30) days following the date of such notice if Landlord or any
mortgagees have not commenced such repair or restoration of the Premises.
9.6 Termination - Advance Payments.
Upon termination of this Lease pursuant to this Section 9, an equitable
adjustment shall be made concerning advance rent and any advance payments made
by Tenant to Landlord.
9.7 Waiver.
Tenant waives the provisions of California Civil Code Sections 1932(2)
and 1933(4) which relate to termination of leases when the thing leased is
destroyed and agrees that such event shall be governed by the terms of this by
the terms of this Lease.
SECTION 10. REAL PROPERTY TAXES.
10.1 Payment of Taxes.
Tenant shall pay all real property taxes applicable to the Premises
during the term of this Lease. All such payments shall be made at least ten (10)
days prior to the delinquency date of such payment. Tenant shall promptly
furnish Landlord with satisfactory evidence that such taxes have been paid. If
any such taxes paid by Tenant shall cover any period of time prior to or after
the expiration of the term hereof, Tenant's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
during which this Lease shall be in effect, and Landlord shall reimburse Tenant
to the extent required. If Tenant shall fail to pay any such taxes, Landlord
shall have the right to pay the same, in which case Tenant shall repay such
amount to Landlord with Tenant's next rent installment together with interest at
the rate of 10% per annum.
10.2 Definition of "Real Property Tax."
As used herein, the term "real property tax" shall include any form of
assessment, generals, special, ordinary or extraordinary, license fee,
commercial rental tax, improvement bond or bonds, levy, penalty, or tax (other
than income, inheritance or estate taxes), imposed by any authority having the
direct or indirect power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
district thereof, as against my legal or equitable interest of Landlord in the
Premises or in the real property of which the Premises are a part, as against
Landlord's right to rent or other income therefrom, or as against Landlord's
business of leasing the Premises or any tax imposed in substitution, partially
or totally, of any tax previously included within the definition of real
property tax, or any additional tax the nature of which was previously included
within the definition of real property tax. Notwithstanding anything to the
contrary contained in this Lease, Tenant shall not be liable for any increases
in real property taxes resulting from a sale or transfer of ownership or
possession of all or any part of the Building or Premises during the first
twenty-four (24) months of the initial term of the Lease, nor shall Tenant be
liable for payment of any portion of any real property tax, such as, for
example, Mello-Roos bonds, created for the purpose of financing the
infrastructure or any other portion of the Project. Beginning with the
twenty-fifth (25th) month of the initial term of the Lease, Tenant shall be
liable for all real property taxes thereafter attributable to the Building or
the Premises.
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10.3 Joint Assessment.
If the Premises are not separately assessed, Tenant's liability shall
be an equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Landlord from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Landlord's
reasonable determination thereof, in good faith, shall be conclusive.
10.4 Personal Property Taxes.
(a) Tenant shall pay prior to delinquency all taxes assesed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the premises or elsewhere. When possible, Tenant
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of
Landlord.
(b) If any of Tenants said personal property shall be assesed with
Landlord's real property, Tenant shall pay Landlord the taxes attributable to
Tenant within 10 days after receipt of a written statement setting forth the
taxes applicable to Tenant's property.
SECTION 11. UTILITIES
Tenant shall pay for all water, gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any taxes
thereon.
SECTION 12. ASSIGNMENT AND SUBLETTING
12.1 Landlord's Consent Required.
Tenant shall not voluntarily or by operation of law assign, transfer,
mortgage, sublet, or otherwise transfer or encumber all or any part of Tenant's
interest in this Lease or in the Premises, without Landlord's prior written
consent, which Landlord shall not unreasonably withhold. Any attempted
assignment, transfer, mortgage, encumbrance or subletting without such consent
shall be void, and shall constitute a breach of this Lease.
12.2 Tenant Affiliate.
Notwithstanding the provisions of Section 12.1 hereof, Tenant may
assign or sublet the Premises, or any portion thereof, without Landlord's
consent, to any corporation which controls, is controlled by or is under common
control with Tenant, or to any corporation resulting from the merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant as a going concern of the business that is being conducted on
the Premises, provided that said assignee assumes, in full, the obligations of
Tenant under this Lease. As used herein, the term "control" shall mean a 50% or
greater interest in the assets, income or voting power of such entity. Any such
assignment following which the original Tenant continues to legally exist shall
not, in any way, affect or limit the liability of Tenant under the term of this
Lease even if after such assignment or subletting the terms of this Lease are
materially changed or altered without the consent of Tenant, the consent of whom
shall not be necessary.
12.3 No Release of Tenant.
Regardless of Landlord's consent, no subletting or assignment shall
release Tenant of Tenant's obligation or alter the primary liability of Tenant
to pay the rent and to perform all other obligations to be performed by Tenant
hereunder. The acceptance of rent by Landlord from any other person shall not be
deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by any assignee of Tenant or
any successor of Tenant in the performance of any of the term hereof, Landlord
may proceed directly against Tenant or any guarantor without the necessity of
exhausting remedies against said assignee. Landlord may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Tenant, without notifying Tenant, or any successor of
Tenant, and without obtaining its or their consent thereto and such action shall
not relieve Tenant of liability under this Lease.
12.4 Additional Rent On Assignment.
Notwithstanding anything to the contrary in this Lease, if for any
proposed assignment or sublease Tenant receives rent or other consideration,
either initially or over the term of the assignment or sublease, in excess of
the Rent payable under the Lease, or, in case of the sublease of a portion of
the Premises, in excess of such Rent fairly allocable to such portion, Tenant
shall pay to Landlord as additional rent under the Lease, without reducing or
effecting any other obligations of Tenant hereunder, twenty-five percent (25%)
of the excess of any sums or other economic consideration received by Tenant
from any assignee or subtenant other than a Tenant Affiliate less;
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(i) Rent otherwise payable hereunder.
(ii) Rent payable hereunder during the period when, and with
respect to the portion of, the Premises are vacant following the date Tenant
determined to assign this Lease or sublet all or a portion of the Premises,
(iii) Tenant improvement allowances,
(iv) Advertising fees,
(v) Brokerage commissions,
(vi) Legal fees and
(vii) Such other costs as may be incurred by Tenant in connection
with any assignment or sublease promptly after its receipt. Tenant understands,
acknowledges and agrees that Landlord's right to receive any consideration paid
in connection with an approved assignment or subletting is a material inducement
for Landlord's agreement to lease the Premises to Tenant upon the terms and
conditions set forth herein.
12.5 Attorney's Fees.
In the event Tenant shall assign or sublet the Premises or request the
consent of Landlord to any assignment or subletting or if Tenant shall request
the consent of Landlord for any act that Tenant proposes to do then Tenant shall
pay Landlord's reasonable attorneys' fees incurred in connection therewith.
SECTION 13. DEFAULTS; REMEDIES
13.1 Defaults.
The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Tenant:
(a) The failure by Tenant to make any payment of Rent or any other
payment required to be made by Tenant hereunder, as and when due, or the failure
by Tenant to provide Landlord with reasonable evidence of insurance or surety
bond required under this Lease where such failure shall continue for a period of
ten (10) days after written notice thereof from Landlord to Tenant.
(b) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than described in Section (a) above, unless specifically stated to the
contrary herein, where such failure shall continue for a period of thirty (30)
days after written notice hereof from Landlord to Tenant; provided, however,
that if the nature of Tenant's default is such that more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commenced such cure within said 30-day period and thereafter
diligently pursues such cure to completion. Such thirty (30) day notice shall be
in lieu of and not in addition to any notice required under Section 1161 of the
California Code of Civil Procedure.
(c) (i) The making by Tenant of any general assignment, or general
arrangement for the benefit of creditors; (ii) the filing by or against Tenant
of a petition to have Tenant adjudged a bankrupt or a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant, the same is dismissed within sixty
(60) days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.
(d) The discovery by Landlord that any financial statement given to
Landlord by Tenant, any assignee of Tenant, any subtenant of Tenant, any
successor in interest of Tenant or any guarantor of Tenant's obligations
hereunder, and any of them, was materially false.
13.2 Remedies.
In the event of any such material default or breach by Tenant, Landlord
may at any time thereafter, with or without notice or demand and without
limiting Landlord in the exercise of any right or remedy which Landlord may have
by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Premises by any
lawful means, in which can this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
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Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord proximately caused by reason of Tenant's default including, but not
limited to, the cost of recovering possession of the Premises; expenses of
reletting, including necessary renovation and alteration of the Premises,
reasonable attorneys' fees, and the then unamortized balance of any real estate
commission actually paid; the worth at the time of the award of the unpaid rent
which had been earned at the time of termination; the worth at the time of award
by the court having jurisdiction thereof of the amount by which the unpaid rent
for the balance of the term after the time of such award exceeds the amount of
such rental loss for the same period that Tenant proves could be reasonably
avoided; and that portion of the leasing commission paid by Landlord pursuant to
Section 15 applicable to the unexpired term of this Lease. The worth at the time
of award of the amounts referred to above shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of the award plus one percent (1%).
(b) Maintain Tenant's right to possession (under California Civil Code
Section 1951.4) in which case this Lease shall continue in effect whether or not
Tenant shall have abandoned the Premises. In such event, Landlord shall be
entitled to enforce all of Landlord's rights and remedies under this
Lease, including the right to recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the State in which the Premises are
located.
(c) The expiration or termination of this Lease and/or the termination
of Tenant's right to possession shall not relieve Tenant from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Tenant's occupancy of the Premises.
13.3 Default by Landlord.
Landlord shall not be in default unless Landlord fails to perform
obligations required of Landlord within a reasonable time, but in no event later
than thirty (30) days after written notice by Tenant to Landlord and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address shall have theretofore been furnished to Tenant in writing,
specifying wherein Landlord his failed to perform such obligations; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for performance then Landlord shall not be in
default if Landlord commences performance within such 30-day period and
thereafter diligently prosecutes the same to completion. Tenant agrees to send
by certified or registered mail to any mortgagee or deed of trust beneficiaries
of the Premises whose address has been furnished to Tenant (provided, however,
not more than two (2) at any one time) a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided, however, that if
such default cannot reasonably be cured within that thirty (30) day period, then
such mortgagee or beneficiary shall have such additional time to cure the
default as is reasonably necessary under the circumstances, provided such
mortgagee or beneficiary commences the cure of such default within said thirty
(30) day period and diligently pursues the same to completion.
13.4 Late Charges.
Tenant hereby acknowledges that late payment by Tenant to Landlord of
rent and other sums due hereunder will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Landlord by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Tenant shall not be received by
Landlord or Landlord's designee within ten (10) days after such amount shall be
due, Tenant shall pay to Landlord a late charge equal to 1% of such overdue
amount for the first such incident in any calendar year, and three percent (3%)
for any additional such incident in any calendar year. The parties hereby agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of late payment by Tenant. Acceptance of such late
charge by Landlord shall in no event constitute a waiver of Tenant's default
with respect to such overdue amount, nor prevent Landlord from exercising any of
the other rights and remedies granted hereunder.
SECTION 14. CONDEMNATION
If the Premises or any portion thereof are taken under the power of
eminent domain, or sold under the threat of the exercise of said power (all of
which are herein called "condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than 10% of the floor area of the improvements
on the Premises, or more than 25% of the land area of the Premises which is not
occupied by any improvements, is taken by condemnation, Tenant may, at Tenant's
option, to be exercised in writing only within ten (10) days after Landlord
shall have given Tenant written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Tenant does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the rent shall be reduced in the proportion
that the floor area taken bears to the total
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floor area of the building situated on the Premises. Any award for the taking of
all or any part of the Premises under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of
Landlord, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Tenant shall be entitled to any award for loss of or
damage to Tenant's trade fixtures and removable personal property. In the event
that this Lease is not terminated by reason of such condemnation, Landlord
shall, to the extent of severance damages received by Landlord in connection
with such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Tenant has been reimbursed therefor by
the condemning authority. Tenant shall pay any amount in excess of such
severance damages required to complete such repair.
SECTION 15. BROKERS'S FEE.
Landlord shall pay to Metrospace Corporation a fee as set forth in a
separate agreement between Landlord and Metrospace Corporation. Tenant warrants
and represents that it has not dealt with any real estate broker or agent in
connection with this Lease or its negotiation except for Metrospace Corporation.
Tenant shall indemnify and hold Landlord and the Premises harmless from any
cost, expense or liability (including costs of suit and attorneys' fees and
costs) for any compensation, commission, or fees claimed by any other real
estate broker or agent in connection with this Lease or its negotiation based
upon any act or statement of Tenant. Landlord warrants and represents to Tenant
that it has not dealt with any real estate broker or agent in connection with
this Lease or its negotiation except for Metrospace Corporation. Landlord shall
indemnify and hold Tenant harmless from any cost, expense, or liability
(including without limitation, costs of suit and attorneys' fees and costs) for
any compensation, commission or fees claimed by any other real estate broker or
agent in connection with this Lease or its negotiation based upon any act or
statement of Landlord.
SECTION 16. SUBORDINATION
16.1 Mortgage and Ground Leases.
There are no mortgages or ground leases presently affecting the
Premises. However, subject to the conditions set forth in Section 16.3 below,
Tenant agrees to cause this Lease, at Landlord's request, to become subject and
subordinate to (a) all future ground or underlying leases affecting all or any
part of the Premises and all amendments, renewals, modifications, supplements
and extensions; of the leases, and (b) all future deeds of trust or mortgages
affecting or encumbering all or any part of the Premises and/or any ground or
underlying leasehold estate; provided, however, that if after having affected
such subordination, Landlord changes its position in the matter and elects to
have Tenant's interest in the Lease reinstated as superior, senior or prior to
any such instrument, then upon receipt by Tenant of written notice of such
election, Tenant shall execute all necessary subordination instruments or other
documents confirming the subordination of such mortgage, dead of trust, ground
or underlying lease to the Lease. Tenant further agrees, subject to the
conditions set forth in Section 16.3 below, to execute any documents required to
effectuate an attornment or subordination of this Lease. Tenant's failure to
execute any such properly conditioned document within ten (10) business days
after written demand shall constitute a material default by Tenant hereunder.
16.2 Successors of Mortgage and Ground Leases.
In the event of the cancellation or termination of any or all ground or
underlying leases affecting all or any part of the Premises in accordance with
its terms or by the surrender thereof, whether voluntary, involuntary or by
operation of law, or by summary proceedings, or in the event of any foreclosure
of any or all mortgages or deeds of trust encumbering the Premises by trustee's
sale, voluntary agreement, deed in lieu of foreclosure, or by the commencement
of any judicial action seeking foreclosure, Tenant, at the request of the then
Landlord under the Lease, shall, subject to the conditions set forth in Section
16.3 below, attorn to and recognize:
(a) the ground or underlying Landlord under the ground or underlying
lease being terminated or canceled, or
(b) the beneficiary or purchaser at the foreclosure sale, as Tenant's
landlord under the Lease, and Tenant agrees to execute and deliver at any time
upon request of such ground or underlying Landlord, beneficiary, purchaser, or
their successors, any instrument to further evidence such attornment. Tenant
hereby waives its right, if any, to elect to terminate the Lease or to surrender
possession of the Premises in the event of any such ground or underlying lease
cancellation or termination or mortgage or deed of trust foreclosure.
16.3 Non-Disturbance.
Landlord shall provide to Tenant a commercially reasonable
non-disturbance agreement properly executed by Landlord (or the then Landlord,
as the case may be, and its mortgagee or ground Landlord, as the case may be) in
consideration of, and as a condition precedent to, Tenant's agreement to be
bound by Sections 16.1 and 16.2 above.
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SECTION 17. SIGNS AND AUCTIONS
Landlord hereby agrees that Tenant, at Tenant's sole cost and expense,
shall have the right during the term of the Lease to have installed on the
exterior face of the Premises, one (1) identity sign identifying Tenant's name
and/or logo (the "Building Identity Sign"). The graphics, materials, color,
design, lettering, size, quality, specifications and exact location of any other
signage visible outside of the Building shall be subject to the prior written
approval of Landlord, which shall not be unreasonably withheld or delayed, and
shall also comply with all other applicable laws, statutes, ordinances, rules,
regulations, permits, approvals, including, but not limited to, that certain
Specific Plan for property of which the Premises are a part entitled
Brandeis-Bardin Institute Specific Plan adopted December 3, 1984 and revised as
of November 18, 1991, and the CC&R's. The Building Identity Sign shall be
installed by Tenant, and Tenant shall pay the costs incurred in the design,
construction and installation of the Building Identity Sign using any available
portion of the "Allowance" described in Section 3.5 of Exhibit "C" to this
Lease, at Tenant's election. At the expiration or earlier termination of the
Lease, Tenant shall, at Tenant's sole cost and expense, cause (a) the Building
Identity Sign to be removed from the Building and (b) any damage to the Building
to be repainted to match the Building's then existing paint. This Section shall
survive the termination of this Lease.
SECTION 18. OPTION TO EXTEND
Tenant shall have two (2) consecutive options (collectively, "Options")
to extend the Term of this Lease for additional periods of five (5) years each
(collectively, "Option Terms") for the entire Premises as the Premises exist at
the end of the Original Term of the Lease, or at the end of the first Option, as
the case may be. The then next maturing Option must be exercised, if at all, by
written notice ("0ption Notice") delivered by Tenant to Landlord not later than
nine (9) months prior to the end of the then current term of the Lease. Further,
any Option shall not be deemed to be properly exercised if, as of the date of
the Option Notice or at the end of the then current term, Tenant is in default
following the expiration of any applicable cure periods under the Lease.
Provided Tenant has properly and timely exercised the Option(s), the Term of
this Lease shall be extended by the applicable Option Term, and all terms,
covenants and conditions of the Lease shall remain unmodified and in full force
and effect, except for the Rent, which shall be adjusted to the lesser of;
(i) the initial Rent set forth in Section 4.1 and Section 4.3 of
the Lease, increased at a non-compounded rate of 8% per annum accruing from the
later of October 1, 1993, or the Commencement Date through and including the
commencement of the applicable Option Term (a rent, which is 220% of the Section
4.1 and Section 4.3 rent payable in the first twenty-four (24) months of the
term), or
(ii) 95% of the "Fair Market Retail Value" of the Premises,
determined pursuant to the procedures set forth in Section 4.4(b) above.
SECTION 19. OPTION TO PURCHASE AND RIGHT OF FIRST REFUSAL
19.1 Option Notice.
Notwithstanding anything to the contrary set forth in the Lease,
following the twenty-fourth (24th month of the initial Term of the Lease, and so
long as Tenant shall not be in default, after the expiration of all applicable
cure periods as set forth in Section 13 of the Lease, Tenant shall have the
right and option to purchase the Premises (the "Option") on the terms set forth
herein by delivering written notice, if at all, to Landlord (the "Option
Notice") not later than nine (9) months prior to the end of the then current
term of the Lease.
19.2 Actions of Parties.
Within thirty (30) business days following Landlord's receipt of the
Option Notice, the parties shall proceed to open an escrow for the purchase and
sale of the Premises ("Escrow") with an escrow company reasonably acceptable to
both Landlord and Tenant ("Escrow Holder"), by delivering to Escrow Holder a
fully executed copy of this Lease and Joint Escrow Instructions prepared by
Landlord (the "Purchase Agreement") consistent with this Section 19 and
otherwise as mutually approved by the parties.
19.3 Closing Date.
The close of Escrow shall occur on the date (the "Closing Date") which
is as soon as practicable; but in no event later than the later of sixty (60)
days after the date of Landlord's receipt of the Option Notice or sixty (60)
days after the determination of the purchase price.
19.4 No Contingencies to Tenant's Obligations.
After Tenant's delivery of the option Notice, there shall be no
contingencies or conditions precedent to Tenant's obligations to close the
Escrow except for;
(i) Landlord's ability to transfer full and marketable title to
the Premises to Tenant as of the Closing
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Date,
(ii) the agreement by a title company reasonably acceptable to
Tenant to deliver to Tenant the Title Policy described hereinbelow,
(iii) material damage to the Building due to a casualty, which
condition Tenant may elect to waive in which event all insurance proceeds shall
be paid to Tenant upon receipt, subject to any rights which, under the terms of
the then existing first deed of trust encumbering the Building, if any, the
holder thereof may hold such proceeds for disbursement to the mortgagor over the
course of its repair of the Premises. Landlord agrees to cooperate, at Tenant's
expense, with Tenant's reasonable requests regarding inspections concerning the
Premises so that prior to Tenant's delivery of the Option Notice, Tenant may
satisfy itself as to the condition of the Premises.
19.5 Purchase Price.
(a) If the option to purchase the Premises is properly exercised, the
purchase price shall be the greater of:
(i) The minimum price requirement, or
(ii) The price set by appraisal,
(b) The minimum price requirement shall mean;
(i) The total costs of construction (ss.5.10), without any
deduction for depreciation, plus
(ii) The agreed value of the land area (ss.5.8(a)) at twelve
dollars ($12) per square foot, plus
(iii) The expenses of sales, including broker's commissions, if
any, title policy costs, documentary stamp taxes, escrow fees, prepayment
penalties and expenses of financing, attorney's fees and related expenses of
sale, less
(iv) The cumulative amount by which the amount of secured debt
service deducted in computing net operational cash flow has been applied to
reduce the principal amount of secured debt.
(c) The price set by appraisal shall be determined as follows:
(i) The parties shall have sixty (60) days after Landlord receives
the option notice in which to agree on the purchase price.
(ii) If the parties are unable to agree on the purchase price
within that period, then within thirty (30) days after the expiration of that
period each party, at its respective cost and by giving notice to the other
party, shall appoint a qualified real estate appraiser, with at least five years
full-time commercial appraisal experience in the area in which the Premises are
located, to appraise and set the purchase price of the Premises.
(iii) If a party does not appoint an appraiser within thirty (30)
days after the other party his given notice of the name of its appraiser, the
single appraiser appointed shall be the sole appraiser and shall set the
purchase price of the Premises. If the two appraisers are appointed by the
parties as stated in this paragraph, they shall meet promptly and attempt to set
the purchase price of the Premises.
(iv) If they are unable to agree on the purchase price within
thirty (30) days after the second appraiser has been appointed, they shall
attempt to elect a third appraiser meeting the qualifications stated in this
paragraph within thirty days after the last day the two appraisers are given to
set the purchase price.
(v) If they are unable to agree on the third appraiser, either of
the parties to this Lease by giving thirty (30) days notice to the other party
can apply to the then president of the county real estate board of the county in
which the Premises are located, or to the presiding judge of the superior court
of that county, for the selection of a third appraiser who meets the
qualifications stated in this paragraph.
(vi) Each of the parties shall bear one half (1/2) of the cost of
appointing the third appraiser and of paying the third appraiser's fee. The
third appraiser, however selected, shall be a person who has not previously
acted in any capacity for either party.
(vii) Within thirty (30) days after the selection of the third
appraiser, a majority of the appraisers shall set the purchase price of the
Premises. If a majority of the appraisers are unable to set the purchase price
within the stipulated period of time, the three appraisals shall be added
together and their total divided by three (3); the resulting quotient shall be
the purchase price of the Premises.
(viii) In appraising the Premises as provided in this paragraph,
the appraisers shall not take into consideration the existence of this Lease
beyond the existing term, shall disregard any option to extend, but shall take
into consideration this Lease for the remainder of the unexpired term.
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19.6 Title.
As of the Closing Date, title to the Premises shall be evidenced by a
standard CLTA Owner's Form Policy of Title Insurance issued by a title company
reasonably acceptable to Tenant ("Title Policy") in the amount of the purchase
price, showing title to the Premises vested in Tenant subject only to all
matters of record set forth in the Title Policy and other exceptions in the
Final Title Report and as otherwise approved by Tenant. Tenant shall have the
option to obtain an ALTA Title Policy (and in that context, Tenant may use any
existing Landlord-owned survey without charge) by agreeing to pay the additional
costs thereof; provided, however, the availability of an ALTA Title Policy shall
in no event constitute a condition to Tenant's obligations to close the Escrow.
19.7 Costs and Prorations.
All costs and expenses shall be apportioned between Landlord and Tenant
in accordance with the customary practice for comparable real estate
transactions in the County where the Premises are located, except as otherwise
mutually agreed to by the parties herein.
19.8 Representations.
Tenant acknowledges that the Option has been granted by Landlord to
Tenant based on the understanding that exercise of the Option is entirely
voluntary by Tenant, and that the conveyance of the Premises by Landlord to
Tenant is and shall be in its then "As-Is" condition, with absolutely no
representations or warranties, express or implied, regarding the condition or
nature of the Premises and any improvements thereon, except for the following:
(a) Landlord and Tenant each represent to the other that they have the
legal power, right and authority to enter into the Lease and the instruments
referenced herein;
(b) Landlord and Tenant each represent to the other that neither the
execution of the Lease and the instruments referenced therein, nor the
incurrence of the obligations set forth herein, nor the consummation of the
transaction herein contemplated conflict with or result in the material breach
of any terms, conditions or provisions of, or constitute a default under any
agreement or instrument to which Landlord or Tenant, as applicable, is a party;
and
(c) Any representations and warranties set forth in the Lease.
The parties hereby agree to indemnify each other and hold each other harmless
from and against any and all losses, damages, costs, and liability (including
actual attorneys' fees and costs, and court costs) arising from a breach of the
foregoing representations. Such representations shall survive, and shall not
merge into, the close of Escrow and the recordation of any grant deed for the
Premises.
19.9 Right Of First Refusal
(a) Landlord shall not sell the Premises or sell or lease an adjacent
Parcel, or any interest as in any thereof, without first offering Tenant the
opportunity to purchase or lease the same, as the case may be, upon the same
terms and conditions as are offered to Landlord by, or solicited by Landlord
from, a third party; provided, however, that the foregoing right shall not apply
to (i) a sale and concurrent leaseback of a Parcel, (ii) a lease of a parcel
coupled with an obligation on the part of Landlord to develop the Parcel, (iii)
the grant of an easement or other interest in a Parcel for the benefit of other
property where such grant does not materially interfere with the use or
potential use of such Parcel, or (iv) a sale of the Premises or a sale or lease
of an adjacent Parcel, or any interest in any thereof, to an entity controlling,
controlled by or under common control with Landlord, or to a constituent member
of Landlord, but in the event of any such related party sale or lease, the right
of first refusal granted hereunder shall survive such transfer and be binding
upon the successor of Landlord resulting from such transfer.
(b) The foregoing right of first refusal shall be exercised, if at all,
by notice from Tenant to Landlord of such exercise within thirty (30) days
following receipt by Tenant of a notice from Landlord specifying the terms and
conditions upon which Landlord intends to sell the Premises or sell or lease the
adjacent Parcels or such interest, or solicit agreements to do so. All such,
notices shall be given in the manner specified in the Lease. If Tenant fails to
exercise such right within such thirty-day period, such right shall expire and
be of no further force and effect unless Landlord fails to consummate a sale or
lease upon substantially the same terms and conditions as were set forth in its
notice to Tenant within one hundred eighty (180) days of the date of such
notice, in which event such right shall be reinstated and shall be deemed to
have remained in full force and effect throughout such period.
(c) Landlord represents and warrants that the right of first refusal
contained herein, will be prior to any and all liens on the Premises and each
adjacent Parcel other than a lien for non-delinquent taxes and assessments.
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(d) Landlord shall use its best efforts to require its lender(s) to the
Premises to (a) grant to Tenant similar right of first refusal with respect to
their loans and (b) enable Tenant to acquire the Premises subject to such loans.
19.10 Termination of Lease on Purchase.
If Tenant purchases the Premises, this Lease shall terminate on the
date title vests in Tenant.
SECTION 20. TOXIC OR HAZARDOUS SUBSTANCES
20.1 Tenant's Use.
Except as permitted herein, Tenant shall not engage in the business of
manufacturing or storing of toxic waste or other toxic or hazardous substances
or materials on the Premises during the term of this Lease. In the event Tenant
desires to so use the Premises, Tenant shall request such use in an application
to Landlord which shall explain in detail the types of chemicals/substances
which Tenant desires to manufacture or store, the proposed location and manner
of storage of same and the manner of disposition of such chemicals/substances or
by-products or remains thereof. Tenant shall deliver to Landlord copies of all
studies, reports and other information submitted by Tenant to any governmental
entity or agency regulating the use of such substances and materials,
concurrently with the delivery of same to such governmental agency or entity. In
no event shall Tenant store any chemicals/substances in underground tanks, or
otherwise use, manufacture or store toxic or hazardous substances on the
Premises except pursuant to all required permits and at all times in accordance
with all laws. In the event Tenant installs underground tanks of any type,
Tenant shall remove same at the expiration or earlier termination of the Lease
and restore the area from which the tanks shall have been removed to the
condition of such area prior to the installation of such tanks. In the event
that any such wastes, substances or materials are hereinafter found on, under or
about the Premises as a result of any act of Tenant or its customers or vendors
during the term hereof, except as permitted hereunder or expressly allowed in
writing by Landlord, Tenant shall take all necessary and appropriate actions and
shall spend all necessary sums to cause the same to be cleaned up and
immediately removed from the Premises, and Landlord shall in no event be liable
or responsible for any costs or expenses incurred in so doing; provided,
however, in no event shall Tenant be obligated under the terms of this Section
20 or otherwise for any toxic or hazardous materials or substances which were
located on the Premises prior to the date possession of the Premises is
delivered to Tenant or which migrated under the Premises from off-site during
the term of this Lease. Subject to Landlord's obligations under Section 20.4
hereof, Tenant shall at all times observe and satisfy the requirements of, and
maintain the Premises in compliance with, all federal, state and local
environmental protection, occupational, health and safety and similar laws,
ordinances, restrictions, licenses and regulations (the "Hazardous Substances
Laws") including but not limited to, the Federal Water Pollution Control Act (33
U.S.C. Section 1251 et seq.), Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.), Safe Drinking Water Act (42 U.S.C. Section 3000(f) et
seq.), Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), Clean Air
Act (42 U.S.C. Section 7401 et seq.), Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), California
Health and Safety Code (Section 25100 et seq., Section 39000 et seq.),
California Water Code (Section 13000 et seq.).
20.2 Notice of Violation.
Should Landlord or Tenant at any time receive any notice of violation
of any Hazardous Substance Laws, including those aforementioned, or be given a
citation with respect thereto, the noticed party shall immediately notify the
other party of such violation or citation and provide the other party with a
copy of same. The responsible party shall immediately cure any deficiency set
forth in the violation or citation for which such curing party is responsible
under the terms hereof within the applicable cure period set forth in such laws
and shall immediately provide the other party with proof of the curing of such
deficiency or complained of matter.
20.3 Landlord's and Tenant's Default.
Should either party at any time default in or fail to perform or
observe any of its obligations under this Section 20, the other party shall have
the right, but not the duty, without limitation upon any of the other party's
rights pursuant hereto, to perform the same, and non-performing party agrees to
pay to the performing party on demand, all costs and expenses incurred by the
performing party in connection therewith, including without limitation,
attorneys' fees, together with interest from the date of expenditure at 10% per
annum, or, if less, at the highest rate allowed by law.
20.4 Landlord's Representations.
Landlord hereby represents and warrants to Tenant that the Premises and
the Building shall be in full compliance with all governmental regulations,
ordinances and laws, including those which pertain to the use of "Hazardous
Substances", meaning those substances which are regulated by the Hazardous
Substances Laws existing at the Commencement Date, or petroleum products or
by-products, and that there are no Hazardous Substances located in, on or
underlying the Premises as of such date. Landlord will be fully responsible for
undertaking all remedial work which may be necessitated by the failure of
Landlord to comply with the Hazardous Substances
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Laws, at Landlord's sole cost and expense, except to the extent that such
expense is the obligation of Tenant under the provisions of Section 20.1
hereinabove. Landlord further represents and warrants that it has not used in
violation of the Hazardous Substances Laws, or generated, stored, transferred or
disposed of, any such Substances in or around the Premises during its ownership
of the Real Property. To Landlord's knowledge, no previous owner or occupant has
used in violation of the Hazardous Substances Laws, or generated, stored,
transferred or disposed of such substances in or around the Real Property.
Landlord shall be responsible for and shall defend, protect, indemnify and hold
Tenant harmless from and against all claims, cost and liabilities including
attorneys' fees and costs, arising out of, or in connection with;
(i) Landlord's use, generation, storage, transfer or disposal of
such Substances in or around the Premises or,
(ii) any such Substances which existed in or around the Real
Property prior to or as of the date Tenant takes possession of the Premises.
Landlord's indemnification of claims, costs and liabilities hereunder shall
include the cost or removal, cleanup and restoration work and materials
necessary to return the Premises to their condition prior to the appearance of
such Substances. In no event shall Tenant be responsible for indemnifying
Landlord or for the removal or clean-up of any such Substances which are shown
to have existed in or around the Premises prior to the date Tenant takes
possession of the Premises.
SECTION 21. TENANT'S PRIOR OCCUPANCY
Tenant, at Tenant's option, shall be permitted to enter the Building
and the Premises in coordination with the general contractor's construction
schedule prior to the estimated date of substantial completion of the Premises,
with no obligation to pay any rent or any other charge whatsoever and without
commencing any rental abatement period, for purposes of installing furniture,
fixtures and equipment and installing special Leasehold Improvements which
Tenant elects to install itself rather than through Landlord's general
contractor, including, but not limited to, special wall and floor coverings,
telephone and millwork. Such entry by Tenant for the purpose of such work
("Tenant's Finishing Work") shall be subject to all of the conditions set forth
in this Section 21. Should Tenant elect to enter the Premises under the terms of
this Section 21 for construction of Tenant's Finishing Work, it is hereby agreed
that Tenant, its employees, its agents, its independent contractors, its
suppliers and any other person under Tenant's control ("Tenant's Personnel")
installing Tenant's Finishing Work on the Premises shall be subject to and shall
work under the direction of Landlord and Landlord's general contractor for the
Leasehold Improvements; however, such direction shall not obligate Landlord or
Landlord's general contractor for the responsibility of timely or proper
installation of such Tenant's Finishing Work. If the presence of Tenant's
Personnel and the work that is being performed by Tenant's Personnel shall
detrimentally interfere with Landlord's work of construction or shall
detrimentally affect Landlord's ability to comply with its commitments for
completing its work of improvement in the Premises or cause labor difficulties,
Landlord shall have the right to order any or all of Tenant's early entry work
to cease on twenty-four (24) hours' written notice, and if Landlord so requires
in connection therewith because such items are interfering with the work of
construction of the Leasehold Improvements, Tenant shall have Tenant's Personnel
remove from the Premises all tools, equipment and materials. If Tenant desires
to exercise its right of early entry in accordance with the provisions of this
Section, Tenant further agrees to;
(i) pay for and provide certificates evidencing the existence and
amounts of liability insurance carried by Tenant, which coverage shall be
reasonably approved by Landlord and,
(ii) comply with all applicable laws, regulations, permits and
other approvals applicable to such early entry work on the Premises.
SECTION 22. GENERAL PROVISIONS
22.1 Estoppel Certificate.
(a) Tenant shall at any time upon not less than ten (10) days' prior
written notice from Landlord execute, acknowledge and deliver to Landlord a
statement in writing;
(i) certifying that, to the best of Tenant's knowledge, this Lease
is unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the Rent and other charges are paid in
advance, if any, and
(ii) acknowledging that there are not, to Tenant's knowledge, any
uncured defaults on the part of Landlord hereunder, or specifying such defaults
if any are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.
(b) If Landlord desires to finance or refinance the Premises, or any
part thereof, Tenant hereby agrees to deliver to any lender designated by
Landlord such financial statements of Tenant as may be reasonably required by
such lender. Such statements shall include the past three years' financial
statements of Tenant. All such financial statements shall be received in
confidence and shall be used only for the purposes herein set forth.
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(c) Landlord shall at any time upon not less than ten (10) days' prior
written notice from Tenant, execute, acknowledge and deliver to Tenant a
statement in writing;
(i) certifying that, to the best of Landlord's knowledge, this
Lease is unmodified and in full force and effect (or if modified, stating the
nature of such modification and certifying that this Lease, as so modified, is
in full force and effect) and the date to which the rent and other charges are
paid in advance, if any, and
(ii) acknowledging that there are not, to Landlord's knowledge,
any uncured defaults on the part of Tenant hereunder, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any third party requesting such information of Tenant.
22.2 Landlord's Liability.
The term "Landlord" as used herein shall mean only the owner or owners
at the time in question of the fee title to the Premises. Effective as of the
Commencement Date, in the event of any transfer of such title or interest,
Landlord herein named (and in case of any subsequent transfers the then grantor)
shall be relieved from and after the date of such transfer of all liability as
respects Landlord's obligations hereafter to be performed, provided that the
transferee assumes such liability in writing, and provided that any funds in the
hands of Landlord or the then grantor at the time of such transfer, in which
Tenant has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Landlord shall, subject as aforesaid,
be binding on Landlord's successors and assigns, only during their respective
periods of ownership. Effective as of the Commencement Date, in consideration of
and conditioned upon the representation of Landlord that at the time of the
recordation of the permanent financing for the Premises such financing shall not
exceed eighty percent (80%) of the then appraised value of the Premises, the
obligations of Landlord under this Lease shall not constitute personal
obligations of Landlord, the individual partners of Landlord or their partners,
tenants-in-common, directors, officers or shareholders, and Tenant shall look to
the Premises, and to no other assets of Landlord, for the satisfaction of any
liability of Landlord with respect to this Lease, and shall not seek recourse
against the individual partners, tenants-in-common, directors, officers or
shareholders, or any of their personal assets for such satisfaction; provided,
however, that until the Commencement Date, Landlord must be under the control of
the current persons, including J. M. Jones, who as of the execution of this
Lease, control the business decisions of Landlord.
22.3 Severability.
The invalidity of any provision of this Lease as determined by a court
of competent jurisdiction, shall in no way affect the validity of any other
provision hereof.
22.4 Interest on Past-due Obligations.
Except as expressly herein provided, any amount due Landlord not paid when due
shall bear interest at 10% per annum (or, if less, the maximum rate allowed by
law) from the date due. Payment of such interest shall not excuse or cure any
default by Tenant under this Lease, provided, however, that interest shall not
be payable on late charges incurred by Tenant nor on any amounts upon which late
charges are paid by Tenant.
22.5 Time of Essence.
Time is of the essence.
22.6 Captions.
Article and Section captions are not a part hereof.
22.7 Incorporation of Prior Agreements; Amendments.
This Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior agreement or understanding pertaining to any
such matter shall be effective. This Lease may be modified in writing only,
signed by the parties in interest at the time of the modification. Except as
otherwise stated in this Lease, Tenant hereby acknowledges that neither the real
estate broker listed in Section 15 hereof nor any cooperating broker on this
transaction nor the Landlord or any employees or agents of any of said persons
his made any oral or written warranties or representations to Tenant relative to
the condition or use by Tenant of said Premises and Tenant acknowledges that
Tenant assumes all responsibility regarding the Occupational Safety Health Act
or the legal use of adaptability of the Premises and the compliance thereof to
all applicable laws and regulations enforced during the term of this Lease
except as otherwise specifically stated in this Lease.
22.8 Notices.
All notices, demands or other communications given or permitted
hereunder shall be in writing (except as otherwise expressly stated herein) and
shall be given, and shall be deemed delivered on the date shown on the
applicable receipt card, by personal delivery or overnight courier or by United
States mail, registered or certified,
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return receipt requested and postage prepaid addressed as follows:
To Landlord: LCF Group
Attention: Gilbert Dreyfuss
311 South Spring Street. #1200
Los Angeles. California 90013
Fax No. (213) 687-7379
with a copy to:
Peppertree Corporate Business Park, Ltd.
10966 Wilshire Boulevard
Los Angeles, California 90024
Attention: Mr. Jerve M. Jones
Fax No. (310) 470-3175
To Tenant: Guardian Products, Inc.
Brandeis Avenue
Simi Valley, CA 93065
Attention: Robert B. Senn
or to such other address or to such other substitute person or entity as any
party shall designate to the other for such purpose in the manner hereinabove
set forth. In addition, for the purposes of the delivery of notice to the holder
of a first mortgage or deed of trust covering the Premises as provided in
Section 13.3 of the Lease, Landlord's current lender's address is as follows:
Seidler Realty Advisors
4275 Executive Square, #325
La Jolla, California 92307
Attention: Daniel J. Ryan
Such lender, and/or its address shall be subject to change by delivery of
written notice of such modification to Tenant pursuant to the terms of this
Section 22.8.
22.9 Waivers.
No waiver by Landlord of any provision hereof shall be deemed a waiver
of any other provision hereof or of any subsequent breach by Tenant of the same
or any other provision. Landlord's consent to or approval of any act shall not
be deemed to render unnecessary the obtaining of Landlord's consent to or
approval of any subsequent act by Tenant. The acceptance of rent hereunder by
Landlord shall not be a waiver of any preceding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent.
22.10 Recording.
Tenant shall not record this Lease without Landlord's prior written
consent, and such recordation shall, at the option of Landlord, constitute a
non-curable default of Tenant hereunder. Either party shall, upon reasonable
request of the other, execute, acknowledge and deliver to the other a "short
form" memorandum of this Lease and the right of first refusal on the adjacent
parcels for recording purposes.
22.11 Holding Over.
If Tenant fails to surrender the Premises upon the expiration or
earlier termination of the Lease without the express written consent of
Landlord, Tenant shall become a tenant-at-sufferance, at a rental rate equal to
one hundred fifty percent (150%) of the monthly Base Rent payable by Tenant for
the month immediately preceding such expiration or earlier termination, and
Tenant shall remain responsible for the payment of all other monetary
obligations due and payable by Tenant under the Lease. Acceptance by Landlord of
Base Rent after such expiration or earlier termination of the Term shall not
result in any renewal of the Term. The foregoing provisions are in addition to
and do not affect Tenant's right of re-entry or any other rights or remedies of
Tenant hereunder or as otherwise provided at law or in equity, or both. If
Tenant fails to surrender the Premises upon the expiration or earlier
termination of the Term despite Landlord's demand to do so, Tenant shall
indemnify and hold Landlord harmless from and against any and all losses, costs,
damages and liability (including actual attorneys' fees and costs, and court
costs), direct or indirect, which Landlord may suffer as a result of Tenant's
failure to surrender the Premises.
22.12 Cumulative Remedies.
No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative
Page 24 of 27
<PAGE>
with all other remedies at law or in equity.
22.13 Covenants and Conditions.
Each provision of this Lease performable by Tenant shall be deemed both
a covenant and a condition.
22.14 Binding Effect; Choice of Law.
Subject to any provisions hereof restricting assignment or subletting
by Tenant and subject to the provisions of Section 22.2, this Lease shall bind
the parties, their representatives, successors and assigns. This Lease shall be
governed by the laws of the State in which the Premises are located.
22.15 Attorney's Fees.
If either party brings an action to enforce the terms hereof or declare
rights hereunder, the prevailing party in any such action, on trial or appeal,
shall be entitled to his reasonable attorneys' fees to be paid by the losing
party as fixed by the court.
22.16 Landlord's Access.
Landlord and Landlord's agents shall have the right to enter the
Premises at reasonable times and in such a manner as to interfere with Tenant's
business as little as practicable, for the purpose of inspecting the same, for
ascertaining compliance by Tenant with the requirements of this Lease, for
showing the same to prospective purchasers, or lenders, or Tenants, and for
making such alterations, repairs, improvements or additions to the Premises or
to the building of which they are a part as Landlord may deem necessary or
desirable. Landlord may at any time place on or about the Premises any ordinary
"For Sale" signs and Landlord may at any time during the last one hundred twenty
(120) days of the term hereof place on or about the Premises any ordinary "For
Lease" signs, all without rebate of rent or liability to Tenant.
22.17 Merger.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, or a termination by Landlord, shall not work a merger, and
shall, at the option of Landlord, terminate all or any existing subtenancies or
may, at the option of Landlord, operate as an assignment to Landlord of any or
all of such subtenancies.
22.18 Corporate Authority.
If Tenant is a corporation, each individual executing this Lease on
behalf of said corporation represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation, in accordance with
a duly adopted resolution of the Board of Directors of said corporation or in
accordance with the Bylaws of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms. If Tenant is a corporation,
Tenant shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of a resolution of the Board of Directors of said
corporation authorizing or ratifying the execution of this Lease.
22.19 Consent/Duty to Act Reasonably.
Regardless of any reference to the words "sole" or "absolute" any time
the consent of Landlord of Tenant is required, such consent shall not be
unreasonably withheld, conditioned or delayed. Whenever the Lease grants
Landlord or Tenant the right to take action, exercise discretion, establish
rules and regulations or make allocations or other determinations, Landlord and
Tenant shall act reasonably and in good faith and take no action which might
result in the frustration of the reasonable expectations of a sophisticated
landlord and sophisticated tenant concerning the benefits to be enjoyed under
the Lease.
22.20 Guarantor.
The guarantor of this Lease shall have the same obligations as Tenant
under Sections 22.1 and 22.18 of this Lease. Concurrently with the execution and
delivery of this Lease by Tenant, and as condition to the effectiveness of this
Lease and Landlord's obligations hereunder, Tenant shall deliver to Landlord a
guaranty of Tenant's obligations hereunder duly executed by Sunrise Medical,
Inc., a Delaware corporation, in the form of Exhibit "D" attached hereto and
incorporated herein by this reference. Together with such guaranty, Tenant shall
deliver such evidence of the signing individual's authority to execute such
guaranty as Landlord may reasonably require.
22.21 Quiet Possession.
Upon Tenant paying the fixed rent reserved hereunder and observing and
performing all of the covenants, conditions and provisions on Tenant's part to
be observed and performed hereunder, Tenant shall have
Page 25 of 27
<PAGE>
quiet possession of the Premises for the entire term hereof subject to all of
the provisions of this Lease. Further, Landlord hereby warrants and represents
to Tenant that the Building, to the extent constructed by Landlord or Landlord's
contractor, and to the extent designed by Landlord or Landlord's designer, shall
be constructed and designed in a first-class manner with first class building
systems and in full compliance with all governmental regulations ordinances and
laws existing at the time of issuance of the building permits for the Building
(applicable laws), and to the extent designed and constructed by Landlord, shall
be suitable for intended uses. In addition to Landlord's repair obligations set
forth in Section 7.4 above, Landlord shall be fully responsible for making all
alterations and repairs to the Building at Landlord's sole cost and expense,
resulting from or necessitated by
(i) the failure of Landlord and/or Landlord's contractor or
designer to comply with the foregoing warranty or
(ii) the existence of any defects in the Building which are
noticed to Landlord within the applicable warranty period (which shall be at
least one (1) year) for such work.
22.22 Rent Defined.
All monetary obligations of Tenant to Landlord under the terms of this
Lease, other than the purchase price if an option or right of first refusal is
exercised, are deemed to be rent.
22.23 Furnishing of Financial Statement; Tenant's Representations.
In order to induce Landlord to enter into this Lease, Tenant agrees
that it shall promptly furnish Landlord, from time to time (but not more often
than twice per calendar year), upon Landlord's written request, with financial
statements reflecting Tenant's current financial condition. Landlord shall be
entitled to make the information contained in the financial statements available
to any potential partner or lenders of Landlord or purchasers of the Premises or
any portion thereof. Subject to the right of Landlord to distribute the
information contained in said financial statements as provided in the preceding
sentence, Landlord agrees to use commercially reasonable efforts to protect the
confidentiality of the information contained in said financial statements.
Tenant represents and warrants that all financial statements, records and
information, furnished by Tenant to Landlord in connection with this Lease are
true, correct and complete in all respects.
22.24 Changes Requested by Lender.
Neither Landlord nor Tenant shall unreasonably withhold its consent to
changes or amendments to this Lease requested by any Lender of Landlord having a
security interest in the Premises or this Lease, so long as these changes do not
increase any obligations of Tenant under this Lease or otherwise alter to
Tenant's detriment any of the basic business terms of the Lease or diminish any
rights of Tenant under this Lease.
Page 26 of 27
<PAGE>
IN WITNESS WHEREOF, the parties have executed the Lease as to the day and year
first above written.
"Landlord" LA CANADA FLINTRIDGE DEVELOPMENT CORPORATION,
a California corporation
By: /s/ Gilbert Dreyfuss
------------------------
Its: President
LCF INCOME GROUP, a California general partnership
By: /s/ Gilbert Dreyfuss
-----------------------
Its: General Partner
PEPPERTREE CORPORATE BUSINESS PARK, LTD.,
a California limited partnership
By: San Martin Investment Development Corporation,
a California Corporation
Its: General Partner
By: Its President /s/ Jerve M. Jones
-----------------------
Jerve M. Jones
JERVE M. JONES, in his individual capacity
/s/ Jerve M. Jones
----------------------
"Tenant" GUARDIAN PRODUCTS, INC., a California corporation
By: /s/ Robert B. Senn
-------------------------
Its: President
Page 27 of 27
<PAGE>
PEPPERTREE SOUTH BUSINESS PARK
SIMI VALLEY, CALIFORNIA
FIRST AMENDMENT TO LEASE
WITH
GUARDIAN PRODUCTS, INC.
This First Amendment to Lease ("this Amendment") dated this 31 day of
March 1993, is made by and among
GUARDIAN PRODUCTS, INC., a California corporation ("Tenant"),
PS GUARDIAN, a California limited partnership ("Landlord"),
and
LA CANADA FLINTRIDGE DEVELOPMENT CORPORATION,
a California corporation,
LCF INCOME GROUP, a California general partnership,
JERVE M. JONES, an individual, and
PEPPERTREE CORPORATE BUSINESS PARK, LTD., a
California limited partnership,
as tenants-in-common (collectively, "Original Landlord").
RECITALS
A. This Amendment amends the Lease ("Lease") dated September 15, 1992
between Tenant on the one hand, and Original Landlord, on the other hand.
B. Original Landlord proposes by this Amendment to convey the Lease to
Landlord.
C. GUARDIAN TRUST COMPANY ("Trust"), as corporate co-trustee for the
SHEET METAL WORKERS' PENSION PLAN OF SOUTHERN CALIFORNIA, ARIZONA AND NEVADA
("Plan"), acting through SEIDLER REALTY ADVISORS, a Division of SEIDLER AMDEC
SECURITIES, INC., the Plan's investment manager, and their successors and
assigns (all such entities being herein referred to collectively as "Lender"),
has agreed to make a loan ("Loan") to Landlord in the amount of Four Million
Seven Hundred Thousand Dollars ($4,700,000).
D. This Amendment is made for the purpose of changing and amending the
Lease to conform to requests made by Lender in accordance with Section 22.24.
NOW, THEREFORE, the parties agree that the Lease is amended as
hereinafter set forth (references are to sections and paragraphs of the Lease;
deletions are indicated by strikeouts and additions are indicated by itilics):
SECTION 1. PARTIES
A new Section 1.1 shall be add as follows:
1.1 Assignment of Lease.
Original Landlord hereby conveys all of its right, title, and interest in and to
the Lease to Landlord. Concurrently, with the effectiveness of this Amendment,
Original Landlord
Page 1 of 8
EXHIBIT A
TO FIELDS AIRCRAFT SPARES SUBLEASE
MASTER LEASE
<PAGE>
shall convey by grant deed the real property underlying the Lease. Landlord
hereby agrees to assume all liabilities, obligations, and duties of performance
imposed on original Landlord in the Lease. Notwithstanding the assignment,
Original Landlord shall remain fully responsible and liable for all obligations
and duties of performance imposed on Landlord under the Lease until full
completion of the Building and the expiration of any warranty periods with
respect to the Building.
SECTI0N 2. LEASE OF PREMISES
Section 2.2 shall read as follows:
"2.2 Title Report
Landlord owns the Real Property and has furnished to Tenant a copy
of that certain preliminary title report covering the Real Property from Pacific
Title Guaranty bearing Order No. 504598-R-WBS, dated as of December 18, 1991.
Landlord shall deliver a date-down of such title report within thirty (30) days
prior to the "Commencement Date" defined in Section 3.1 below (the "Final Title
Report") (which Tenant may convert to title policy insuring Tenant's interest,
at Tenant's sole election and expense) showing the Real Property to be subject
only to a lien for current taxes and to exceptions which were in the initial
title report which Tenant approved on a commercially reasonable basis, such as
easements necessary to the operation of the Building, and to a first deed of
trust and other liens securing Lender's Loan."
2.4 Additional Parking
Section 2.4 Additional Parking shall be deleted in its entirety.
SECTION 3. TERM
3.3 Tenants Right to Terminate Lease
Section 3.3 (a) shall read as follows:
"(a) Tenant shall have a one-time right to terminate this Lease
effective the later of: September 30, 2003, or the last day of the month in
which the tenth (10th) anniversary of the Commencement Date occurs, by payment
to Landlord an amount of $700,000 (the cancellation sum) in cash. Such payment
shall be made by deposit with an escrow holder (designated by Landlord and
approved by Lender) for the benefit of Landlord and Lender."
SECTION 5. TENANT'S PARTICIPATION IN NET OPERATION CASH FLOW AND NET PROFIT
FROM SALE.
Section 5.2 shall read as follows:
"5.2 Subordination to Secured Lenders
Any amounts due to Tenant under this Section shall be subordinate
to the rights of secured lenders, and in the event of a foreclosure by, or
delivery of a deed in lieu of foreclosure, Tenant shall no longer have right to
receive any such amounts from Lender or successor Landlord.
SECTION 7. MAINTENANCE, REPAIRS AND ALTERATIONS
7.1 Tenant's Obligations
Page 2 of 8
<PAGE>
Section 7.1(c) shall be divided into two subsections, 7.1(c) and
new 7.1(d) and shall read as follows:
"(c) Notwithstanding the provisions of Section 7.1(a),
Landlord shall enforce all warranties relative to the construction of the
Premises for the benefit of Tenant, at Landlord's expense, which warranties
shall include all those customarily issued for the type of construction
contemplated by exhibit "C" to this Lease. In addition, Landlord warrants to
Tenant that the Premises, and every part thereof, shall be in good order,
condition and repair as of the Commencement Date and for the period up to but
not including the first anniversary thereof. Landlord shall correct any defect
thereto or failure thereof not caused by Tenant and noticed to Landlord prior to
such anniversary date.
"(d) In addition, if at any time during the term hereof, or
the term hereof as extended, Tenant is required in order to fulfill Tenant's
obligations hereunder to incur any capital expenditure in excess of $100,000,
the same shall be amortized over the estimated useful life thereof, and promptly
following Tenant completion thereof in accordance with the provisions of this
Lease, Landlord shall pay to Tenant the then present value of the cost thereof
attributable to the period following the expiration of this Lease, taking into
account any option to extend the term hereof. For purposes of this Section
7.1(c), such amount shall be computed using the prime interest rate of Bank of
America in effect as of the date of the completion of such capital expenditure.
If Tenant asserts that Landlord will be required to reimburse Tenant for
expenditures under this Section 7.1(c), prior to making such expenditures,
Tenant shall give notice to Landlord and set forth in reasonable detail, the
proposed expenditures and Tenant's computation of the amount proposed to be due
from Landlord. Any amounts due to Tenant under this Section shall be subordinate
to the rights of secured Lenders, and in the event of a foreclosure by, or
delivery of a deed in lieu of foreclosure, Tenant shall no longer have right to
receive any such amounts from Lender or successor Landlord.
7.4 Landlord's Obligations
The last sentence of Section 7.4 shall read as follows:
"Except to the extent specifically dealt with in this Section
7.1(d) to the contrary, Tenant expressly waives the benefit of any statute now
or hereinafter in effect which would otherwise afford Tenant the right to make
repairs at Landlord's expense or to terminate this Lease because of Landlord's
failure to keep the Premises in good order, condition and repair."
SECTION 8. INSURANCE INDEMNITY
Section 8.3(b) shall be redesignated Section 8.4(a), the single
paragraph in Section 8.4 shall be redesignated Section 8.4(b), and Section 8.4
shall read as follows:
"8.4 Insurance Policies
(a) All liability and property insurance to be carried by Tenant
shall be primary to and not contributory with any similar insurance carried by
Landlord whose insurance shall be considered excess insurance only. Said
insurance shall provide for payment of loss thereunder to Landlord or to the
holders of mortgages or deeds of trust on the Premises. If Tenant shall fail to
procure and maintain said insurance, Landlord may, but shall not be required to,
procure and maintain the same, but at the expense of Tenant. If such insurance
coverage has a deductible clause, Tenant shall be liable for such amount. The
amount of the deductible shall not exceed an amount which is reasonable for a
company of comparable financial strength as tenant as supplemented by Guarantor.
(b) Insurance required hereunder shall be in companies holding a
"General Policyholders Rating" of B+:X or equivalent as set forth in the most
current issue of "Best's Insurance Guide". Tenant shall deliver to Landlord
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with loss payable clauses
Page 3 of 8
<PAGE>
satisfactory to Landlord. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after thirty (30) days' prior
written notice to Landlord. Tenant shall, within thirty (30) days prior to the
expiration of such policies, furnish Landlord with renewals or "binders"
thereof, or Landlord may order such insurance and charge the cost thereof to
Tenant, which amount shall be payable by Tenant upon demand. Tenant shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in Section 8.3."
Section 8.6 shall read as follows:
"8.6 Indemnity
Tenant shall indemnify and hold harmless Landlord and its agents,
and partners, and Lender from and against any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, permits, attorneys' and
consultants' fees, expenses and liabilities arising out of, involving, or in
dealing with Tenant's, its agents, contractors, employees or invitees use or
occupancy of the Premises, or from the conduct of Tenant's business or from any
activity, work or things done, permitted or suffered by Tenant in or about the
Premises or elsewhere and shall further indemnify and hold harmless Landlord
from and against any and all claims, loss of rents and/or damages, costs, liens,
judgments, penalties, permits, attorneys' and consultants' fees, expenses and
liabilities arising out of, involving, or in dealing with any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any negligence of the Tenant, or any of
Tenant's agents, contractors, or employees, and from and against all costs,
attorneys' fees, expert fees, expenses and liabilities incurred in the defense
of any such claim or any action or proceeding brought thereon; and in case any
action or proceeding be brought against Landlord by reason of any such claim,
Tenant upon notice from Landlord shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord."
SECTION 9. DAMAGE OR DESTRUCTION
Section 9.3 shall read as follows:
"9.3 Total Destruction
If at any time during the term hereof the Premises are totally
destroyed (meaning that Landlord's general contractor in charge of construction
certifies to the parties that the Premises cannot be repaired in 180 days or
less) from any cause whether or not covered by the insurance required to be
maintained pursuant to Section 8.3 (including any total destruction required by
any authorized public authority) this Lease shall automatically terminate as of
the date of such total destruction; provided that Tenant shall have the option,
exercisable within ten (10) days after receipt of such certificate, to cause
Landlord to repair an insured loss, which repair shall be made in accordance
with Section 9.1, even if it qualifies as Total Destruction, in which event this
Lease will continue in full force and effect."
SECTION 12. ASSIGNMENT AND SUBLETTING
12.4 Additional Rent On Assignment
The fifth line of Section 12.4 shall be corrected so that the
first six lines shall read as follows:
Notwithstanding anything to the contrary in this Lease, if for any
proposed assignment or sublease Tenant receives rent or other consideration,
either initially or over the term of the assignment or sublease, in excess of
the Rent payable under the Lease, or, in case of the sublease of a portion of
the Premises, in excess of such Rent fairly allocable to such
Page 4 of 8
<PAGE>
portion, Tenant shall pay to Landlord as additional rent under the Lease,
without reducing or affecting any other obligations of Tenant hereunder,
twenty-five percent (25%) of the excess of any sums or other economic
consideration received by Tenant from any assignee or subtenant other than a
Tenant Affiliate less;..."
SECTION 16. SUBORDINATION
16.2 Successors of Mortgage and Ground Leases
The first sentence of Section 16.2(b) shall read as follows:
"(b) the beneficiary or purchaser by foreclosure sale, or by deed
in lieu of foreclosure, as Tenant's landlord under the Lease, and Tenant agrees
to execute and deliver at any time upon request of such ground or underlying
Landlord, Lender, beneficiary, purchaser, or their successors, any instrument to
further evidence such attornment."
SECTION 20. TOXIC OR HAZARDOUS SUBSTANCES
20.1 Tenant's Use
A new last sentence shall be added to Section 20.1 which reads as
follows:
Tenant shall indemnify, defend and hold Landlord and Lender
harmless against any liability, loss, damages, and costs or expenses, including
attorney's fees and expert witness fees, on account of any claims of any nature
whatsoever relating to the presence or use of any such wastes, substances or
materials in or around the Premises, caused directly or indirectly by Tenants.
20.2 Notice of Violation
The first sentence of Section 20.2 shall read as follows:
"Should Landlord of Tenant at any time receive any notice of
violation of any Hazardous Substance Laws, including those aforementioned, or be
given a citation with respect thereto, the noticed party shall immediately
notify the other party and Lender of such violation or citation and provide the
other party with a copy of same."
SECTION 22. GENERAL PROVISIONS
22.1 Estoppel Certificate
Section 22.1(a)(i) shall read a follows:
"(i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the Rent and other charges are paid in advance, if any, and"
Section 22.1(a)(ii) shall read as follows:
"(ii) acknowledging that there are not, to Tenant's
knowledge, after diligent inquiry, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed. Any such statement
may be conclusively relied upon by any prospective purchaser or encumbrancer of
the Premises."
22.7 Incorporation of Prior Agreements; Amendments
The first sentence of Section 22.7 shall read as follows:
Page 5 of 8
<PAGE>
"This Lease and the exhibits contains all agreements of the
parties with respect to any matter mentioned herein. No prior agreement or
understanding pertaining to any such matter shall be effective."
EXHIBIT "C" WORK LETTER AGREEMENT
3. Tenant Improvement Work
Section 3.4 Tenant Improvement Work-Procedures
Section 3.4(b) shall read as follows:
(b) TI Contractor's Work. The TI Contractor shall prepare bid packages for
each subcontractor and/or trade to be included in the Tenant Improvement Work,
which shall, at a minimum, contain applicable portions of the final space plans,
applicable portions of the working drawings and specifications, and the form of
proposed contract that the successful subcontractor will sign. The TI Contractor
shall solicit bids from not less than three (3) responsible subcontractors,
unless Landlord and Tenant agree to the contrary. The stipulation in the
previous sentence does not apply to general conditions requirements or items of
work under $5,000. The TI Contractor shall review all subcontractor bids in its
sole discretion. If the sum of the acceptable low bids so obtained by the TI
Contractor from said subcontractors plus the TI Contractor bid for those trades
to be handled directly by the TI Contractor would result in a TI Contractor
having a guaranteed maximum costs (as defined therein) which is greater than the
Tenant Improvement Allowance, then Tenant shall have the right to: (i) reduce
the scope of the Tenant Improvement Work, and/or (ii) agree to pay the increase
in the cost of the Tenant Improvement Work (in which event a new guaranteed
maximum cost shall be determined for the TI Contract). The TI Contractor shall
enter into the approved form of contract for the Tenant Improvement Work with
the accepted subcontractors. Landlord shall then cause the TI Contractor to
construct and complete the Tenant Improvement Work in accordance with the
Approved Tenant Improvement Plans and the TI Contract.
EXHIBIT "D" GUARANTY OF LEASE
Exhibit "D" Guaranty of Lease shall be amended by substituting a new Lease
Guaranty attached hereto marked "Lease Guaranty."
Page 6 of 8
<PAGE>
In all other respects the lease and the exhibit shall remain in full force and
effect.
"Tenant" GUARDIAN PRODUCTS, INC., a California
corporation
By: /s/ Robert B. Senn
------------------------
Its: President
By: /s/ Jack D. Stewart
-------------------------
Its: Vice President
"Landlord" PS GUARDIAN, a California Limited Partnership,
PEPPERTREE GENERAL, INC.
-----------------------------------
Name of Corporation
By: /s/ Gilbert Dreyfuss
--------------------------------
President
Its: General Partner
SAN MARTIN INV. & DEV. CORP.
------------------------------------
Name of Corporation
By: /s/ Jerve M. Jones
---------------------------------
President
Its: General Partner
"Original Landlord" LA CANADA FLINTRIDGE DEVELOPMENT CORPORATION, a
California corporation,
By: /s/ Gilbert Dreyfuss
-------------------------
Its: President
LCF INCOME GROUP, a California general partnership
By: /s/ Gilbert Dreyfuss
---------------------------
Its: General Partner
Page 7 of 8
<PAGE>
"Original Landlord" PEPPERTREE CORPORATE BUSINESS PARK, LTD., a California
(continued) limited partnership
By: San Martin Investment Development Corporation,
a California corporation
Its: General Partner
By: Its: President /s/ Jerve M. Jones
----------------------
JERVE M. JONES
JERVE M. JONES, in his individual capacity
/s/ Jerve M. Jones
-------------------------
Page 8 of 8
GUARANTY OF SUBLEASE
This Guaranty of Sublease ("Guaranty") is made and effective as of
April 28, 1998, by Fields Aircraft Spares Inc., a Utah corporation ("Guarantor")
in favor of Sunrise Medical HHG Inc., a California corporation ("Sublandlord")
with reference to the facts set forth below.
RECITALS:
---------
A. Sublandlord has entered into that certain Sublease ("Sublease") of
even date herewith with Fields Aircraft Spares, Incorporated, a California
corporation ("Subtenant"), for the lease of the premises ("Premises") consisting
of an approximately 122,484 square foot industrial building, located at 4175
Guardian Street, Simi Valley, California, together with the surrounding real
property and improvements, as further described in the Sublease.
B. As a condition to entering into the Sublease, Sublandlord has
required that Guarantor execute this Guaranty guaranteeing performance of all
the covenants on Subtenant's part to be performed pursuant to the Sublease.
Guarantor's agreement to provide this Guaranty is a material consideration for
Sublandlord's decision to lease the Premises to Subtenant.
NOW, THEREFORE, to induce Sublandlord to enter into the Sublease and in
consideration thereof, Guarantor agrees as set forth below.
1. Guarantor unconditionally guarantees to Sublandlord, and to Sublandlord's
successors and assigns, the payment by Subtenant of the rental and all other
charges which accrue under the Sublease in the manner and at the time prescribed
therein, and the full and punctual performance and observance, by Subtenant, of
all the terms, covenants and conditions contained in the Sublease. Guarantor
waives notice of any breach or default by Subtenant. Guarantor's obligations
hereunder shall continue in full force and effect with respect to any of
Subtenant's obligations under the Sublease which are not performed upon the
termination of this Sublease.
2. This Guaranty is a continuing guaranty of all of Subtenant's obligations
under the Sublease, independent of and in addition to any other guaranty,
previously or subsequently given to Sublandlord, and this Guaranty shall not
affect any of said guaranties.
3. Guarantor hereby expressly waives and relinquishes any and all rights and
remedies which Guarantor may have or be able to assert by reason of the laws or
decisions of the State of California pertaining to the rights and remedies of
sureties.
4. Guarantor waives any right to require Sublandlord to (a) proceed against
Subtenant or any co-guarantor, (b) proceed against or exhaust any security
(including a security deposit) held by Sublandlord, or (c) pursue any remedy in
Sublandlord's power whatsoever. Guarantor waives any defense it may acquire by
reason of Sublandlord's election of any remedy against it or Subtenant or both,
including, but without limitation, the election by Sublandlord to exercise its
rights to occupy and operate the Premises under the Sublease.
5. Guarantor waives any defense based upon the legal disability of Subtenant, or
any discharge, release or limitation of the liability of Subtenant to
Sublandlord, or any restraint or
<PAGE>
stay applicable to actions against Subtenant, or any disaffirmance or
abandonment of the Sublease by a trustee of Subtenant whether consensual, or by
order of a court or other governmental authority, arising by operation of law or
any liquidation, reorganization, receivership, bankruptcy, insolvency or debtor
relief proceeding, or any other cause. Guarantor further waives any defense
based upon any amendment, modification, renewal, extension, assignment,
subletting or other alteration (with or without the consent of Sublandlord) of
the Sublease, or the term of the Sublease or obligation of Subtenant or
Sublandlord under the Sublease, or any other documents relating to the
transactions described therein; any defense based upon the negligence of
Sublandlord; any defense based upon the forfeiture or termination of the
Sublease by Sublandlord whether by expiration or default; any defense based upon
the failure of Sublandlord to file a claim in bankruptcy of Subtenant; all
rights of subrogation, all rights to enforce any remedy that Sublandlord may
have against Subtenant, and all rights to participate in any security held by
Sublandlord for the performance and obligations of Subtenant under the Sublease,
except to the extent such security remains after payment and performance of
Subtenant's obligations in full; any defense based upon the impairment of any
subrogation rights that Subtenant might have; any defense based upon death,
incapacity, lack of authority or termination of existence or revocation hereof
by any person or entity, or persons or entities, or the substitution of any
party hereto, and any defense based upon or related to Guarantor's lack of
knowledge as to Subtenant's financial condition, and any and all rights under
Section 2845 of the California Civil Code and any successor provision.
6. Guarantor waives all presentments, demands, protests and notices of any kind
including notice of acceptance of the Guaranty by Sublandlord. Any act of
Sublandlord, or its successors or assigns, consisting of a modification of the
Sublease, a waiver of any of the terms or conditions of the Sublease, or the
giving of any consent to any manner or thing relating to the Sublease, or the
granting of any indulgences or extensions of time to Subtenant, are hereby
deemed approved by Guarantor and may be done without notice to Guarantor and
without releasing Guarantor from any of its obligations hereunder.
7. Guarantor assumes full responsibility for keeping fully informed of the
financial condition of Subtenant and all other circumstances affecting
Subtenant's ability to perform its obligations to Sublandlord, and agrees that
Sublandlord shall have no duty to report to Guarantor any information which
Sublandlord receives about Subtenant's financial condition or any circumstances
bearing on Subtenant's ability to perform.
8. The covenants and obligations of Guarantor hereunder are independent of the
Subtenant's obligations under the Sublease and are binding upon the Guarantor
notwithstanding the fact that the Guarantor is not the signatory to the
Sublease; separate action or actions may be brought against any guarantor
hereon, whether or not action is brought against Subtenant or any co-guarantor
or Subtenant or any co-guarantor be joined in any such action or actions.
9. Any indebtedness or other obligations of Subtenant now or hereafter held by
Guarantor is hereby subordinated to Subtenant's obligations to Sublandlord, and
such indebtedness or other obligations of Subtenant to Guarantor, if Sublandlord
so request, shall be collected, enforced and received by Guarantor as Trustee
for Sublandlord and be paid over to Sublandlord on account of Subtenant's
obligations to Sublandlord, but without reducing or affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty.
-2-
<PAGE>
10. This Guaranty shall be enforceable by Sublandlord in accordance with the
laws of the State of California and shall be construed in accordance therewith,
without regard to principles of conflicts of laws. Guarantor agrees to pay
attorney's fees and all other costs and expenses which may be incurred by
Sublandlord in enforcement of this Guaranty. Until paid to Sublandlord, such
sums will bear interest from the date such costs and expenses are incurred at
the maximum rate permitted by law.
11. No delay or failure on the part of Sublandlord to pursue any right or remedy
hereunder or under the Sublease shall constitute a waiver of that right or
remedy. All remedies of Sublandlord against Guarantor are cumulative.
12. The obligations and promises set forth herein shall be joint and several
undertakings of each of the persons executing this Guaranty as a Guarantor, and
Sublandlord may proceed hereunder against any one or more of said persons
without waiving its right to proceed against any of the others. The use of the
singular herein shall include the plural.
13. Guarantor acknowledges that its undertakings given hereunder are given in
consideration of Sublandlord's entering into the Sublease and that Sublandlord
would not consummate the Sublease were it not for the execution and delivery of
this Guaranty.
14. The provisions of this Guaranty will bind and benefit the heirs, executors,
administrators, legal representatives, successors and assigns of Guarantor and
Sublandlord.
15. Guarantor individually represents and warrants that it has all requisite
power and authority to:
15.1 execute deliver, perform and be legally bound by this Guaranty on the
terms and conditions herein stated; and
15.2 transact any other business with Sublandlord as necessary to fulfill
the terms of this Guaranty.
16. No provision of this Guaranty or Sublandlord's rights hereunder can be
waived or modified nor can Guarantor be released from its obligations hereunder
except by a writing executed by Sublandlord. No such waiver shall be applicable
except in the specific instance for which given.
17. The term "Subtenant" will mean both the named subtenant and any other person
or entity at any time assuming, subleasing or otherwise becoming primarily
liable for all or any part of the subtenant's obligations. The term
"Sublandlord" will mean both the sublandlord named herein and any future owner
or holder of Sublandlord's interest in the Premises. Sublandlord may, without
notice, assign this Guaranty in whole or in part without extinguishing or
reducing the liability of the Guarantor.
-3-
<PAGE>
18. All notices or other communications required or permitted to be given
hereunder shall be in writing and shall be considered effective upon personal
delivery or upon the earlier of (i) two (2) business days after deposit in
first-class United States mail, postage prepaid, registered or certified or (ii)
actual receipt as shown by the return receipt. For purposes of notice, the
addresses of Guarantor shall be as set forth on the signature page hereof;
provided, however, that any party shall have the right to change its address for
notice hereunder to any other location by giving notice to the other party in
the manner set forth above.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of
the day and year first above written.
GUARANTOR
FIELDS AIRCRAFT SPARES INC., a
Utah corporation
Guarantor's Address:
341 A Street By: /s/ Alan M. Fields
Fillmore, CA 93015 ----------------------------
Name: Alan M. Fields
Title: President & CEO
By: /s/ L. J. Troyna
----------------------------
Name: L. J. Troyna
Title: Chief Financial Officer
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-END> OCT-02-1998
<CASH> 626,000
<SECURITIES> 0
<RECEIVABLES> 5,708,000
<ALLOWANCES> 145,000
<INVENTORY> 16,893,000
<CURRENT-ASSETS> 23,872,000
<PP&E> 5,627,000
<DEPRECIATION> 2,386,000
<TOTAL-ASSETS> 31,460,000
<CURRENT-LIABILITIES> 4,689,000
<BONDS> 19,506,000
0
0
<COMMON> 371,000
<OTHER-SE> 9,308,000
<TOTAL-LIABILITY-AND-EQUITY> 7,265,000
<SALES> 17,510,000
<TOTAL-REVENUES> 17,510,000
<CGS> 11,593,000
<TOTAL-COSTS> 11,593,000
<OTHER-EXPENSES> 5,081,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,530,000
<INCOME-PRETAX> (694,000)
<INCOME-TAX> 9,000
<INCOME-CONTINUING> (703,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (703,000)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.15)
</TABLE>
