<PAGE>
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A-1
------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Date of Report (Date of earliest event reported): August 8, 1997
--------------------
LITHIA MOTORS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0572810
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
360 E. Jackson Street, Medford, Oregon 97501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541)776-6899
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<PAGE>
LITHIA MOTORS, INC.
FORM 8-K/A-1
INDEX
Item Description Page
- ---- ----------- ----
Item 2. Acquisition or Disposition of Assets 2
Item 7. Financial Statements and Exhibits 3
Signatures 4
1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On August 8, 1997, Lithia Motors, Inc. (the "Company"), acquired the
inventories, operating assets and intangible assets of Sun Valley Ford,
Inc., a California corporation, dba "Sun Valley Ford Volkswagen Hyundai"
("Sun Valley Ford" or the "Seller"), located in Concord, California,
pursuant to an Agreement for Purchase and Sale of Business Assets (the
"Agreement") dated April 2, 1997. Pursuant to the Agreement, the total
purchase price was $17.9 million, consisting of $5.3 million in cash from
the Company's existing cash balances, $4.2 million in notes to the Seller
and $8.4 million financed through the Company's flooring line of credit.
The Company has assumed the leases of the land and facilities.
There was no previous relationship between the Company and Sun Valley Ford,
nor any of the Company's and Sun Valley Ford's affiliates, officers or
directors.
(b) The Company acquired vehicle and parts and supplies inventories, as well as
other assets used in the business of vehicle sales, service and support.
The Company intends to utilize the purchased assets in the same capacity.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS
(a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED
The financial statements required by this item begin on page F-1.
(b) PRO FORMA FINANCIAL INFORMATION
The Pro Forma financial information required by this item begins on page
PF-1.
(c) EXHIBITS
The exhibits filed as a part of this report are listed below and this list
constitutes the exhibit index.
2.1 Agreement for Purchase and Sale of Business Assets, by and between
Sun Valley Ford, Inc., a California corporation, dba Sun Valley Ford
Volkswagen Hyundai, and the Company, dated April 2, 1997, previously
filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and filed with the Securities Exchange
Commission on August 12, 1997, and is incorporated herein by
reference.
10.1 Promissory Note for Leasehold Improvements by and between Lithia
Motors, Inc. and Sun Valley Ford, Inc., dated August 8, 1997,
previously filed with the Company's report of Form 8-K dated August
8, 1997 and filed with the Securities Exchange Commission on August
21, 1997, and is incorporated herein by reference.
10.2 Promissory Note for Intangible Assets by and between Lithia Motors,
Inc. and Sun Valley ford, Inc., dated August 8, 1997, previously
filed with the Company's report of Form 8-K dated August 8, 1997 and
filed with the Securities Exchange Commission on August 21, 1997,
and is incorporated herein by reference.
10.3 Standard Industrial Lease, as amended, and assignment thereof, by
and between Lithia Motors, Inc., Edmund C. Bartlett, Jr. and Anna
Bartlett and Sun Valley Ford, Inc., dated July 16, 1997.
10.4 Lease Agreement, and assignment thereof, by and between Lithia
Motors, Inc., George Valente and Lena E. Valente and Sun Valley
Ford, Inc., dated August 4, 1997.
23 Consent of Moss Adams LLP
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 6, 1997 LITHIA MOTORS, INC.
By /s/ SIDNEY B. DEBOER
---------------------
Sidney B. DeBoer
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By /s/ BRIAN R. NEILL
-------------------
Brian R. Neill
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
4
<PAGE>
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SUN VALLEY FORD
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
DECEMBER 31, 1996
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F-1
<PAGE>
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CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . 1
FINANCIAL STATEMENTS
Balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of income and retained earnings . . . . . . . . . . . . . . . . . 4
Statements of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to financial statements. . . . . . . . . . . . . . . . . . . . . . . . 7
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F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sun Valley Ford
We have audited the accompanying balance sheet of Sun Valley Ford, as of
December 31, 1996, and the related statements of income and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sun Valley Ford as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
\s\ Moss Adams LLP
Santa Rosa, California
June 24, 1997
F-3
<PAGE>
SUN VALLEY FORD
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30, 1997 June 30, 1996
1996 (unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 54,600 $ 16,500 $ 775,800
Receivables 3,435,000 4,390,500 4,048,000
Current portion of notes receivable
from stockholders 288,400 401,500 144,600
Inventories 5,621,700 10,587,100 6,262,100
Prepaid expenses 81,400 98,400 85,600
--------------- --------------- ----------------
Total current assets 9,481,100 15,494,000 11,316,100
--------------- --------------- ----------------
PROPERTY AND EQUIPMENT 858,200 970,300 964,100
--------------- --------------- ----------------
OTHER ASSETS
Notes receivable from stockholders, net of
current portion - - 286,500
Deposits 45,700 45,700 45,700
--------------- --------------- ----------------
45,700 45,700 332,200
--------------- --------------- ----------------
$ 10,385,000 $ 16,510,000 $ 12,612,400
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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F-4 PAGE 2
<PAGE>
SUN VALLEY FORD
BALANCE SHEETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30, 1997 June 30, 1996
1996 (unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES
Outstanding checks in excess of bank balance $ 227,800 $ 74,300 $ -
Floor plan note payable 5,350,800 12,397,500 7,799,300
Accounts payable 619,000 773,000 706,100
Accrued liabilities and other payables 927,200 792,800 1,187,900
Income taxes payable 4,600 - 2,000
Current maturities of notes payable to
related parties 1,360,000 1,075,000 287,000
Current maturities of long-term debt 103,100 103,100 109,000
--------------- --------------- ----------------
Total current liabilities 8,592,500 15,215,700 10,091,300
--------------- --------------- ----------------
LONG-TERM LIABILITIES
Notes payable to related parties, net of
current maturities - - 475,000
Long-term debt, net of current maturities 241,500 189,900 293,100
--------------- --------------- ----------------
241,500 189,900 768,100
--------------- --------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, $100 par value; 1,500
shares authorized, 536.9 shares issued
and outstanding 53,700 53,700 53,700
Retained earnings 1,497,300 1,050,700 1,699,300
--------------- --------------- ----------------
1,551,000 1,104,400 1,753,000
--------------- --------------- ----------------
$ 10,385,000 $ 16,510,000 $ 12,612,400
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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F-5 PAGE 3
<PAGE>
SUN VALLEY FORD
STATEMENTS OF INCOME AND RETAINED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Six Months Ended June 30,
December 31, 1997 1996
1996 (unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES
New vehicles $ 25,591,300 $ 13,929,200 $ 11,406,400
Fleet 19,272,700 11,259,800 9,519,600
Used vehicles 12,023,900 4,856,900 6,444,800
Service, body and parts 10,456,000 5,127,200 5,184,500
Used wholesale 2,506,300 922,800 1,361,800
Warranty 1,887,000 890,800 902,000
Finance and insurance 489,600 257,800 273,000
Other 174,200 52,200 92,000
--------------- --------------- ----------------
72,401,000 37,296,700 35,184,100
--------------- --------------- ----------------
COST OF SALES
New vehicles 23,671,700 13,163,200 10,628,600
Fleet 18,240,000 10,473,800 9,008,400
Used vehicles 10,823,700 4,181,500 5,775,400
Service, body and parts 6,894,200 3,464,300 3,425,700
Used Wholesale 2,501,000 922,400 1,359,300
Warranty 914,700 441,300 450,200
Finance and insurance 240,100 97,100 130,300
Other 89,200 26,000 48,000
--------------- --------------- ----------------
63,374,600 32,769,600 30,825,900
--------------- --------------- ----------------
GROSS PROFIT 9,026,400 4,527,100 4,358,200
SELLING, GENERAL AND ADMINISTRATIVE 8,564,900 4,155,100 3,891,200
--------------- --------------- ----------------
INCOME FROM OPERATIONS 461,500 372,000 467,000
--------------- --------------- ----------------
OTHER INCOME (EXPENSE)
Interest expense (116,000) (124,800) (131,900)
Interest income 25,600 - -
Miscellaneous 59,000 12,000 42,100
--------------- --------------- ----------------
(31,400) (112,800) (89,800)
--------------- --------------- ----------------
INCOME BEFORE INCOME TAXES 430,100 259,200 377,200
PROVISION FOR INCOME TAXES 8,900 5,800 4,000
--------------- --------------- ----------------
NET INCOME 421,200 253,400 373,200
RETAINED EARNINGS, beginning of period 1,378,100 1,497,300 1,378,100
DISTRIBUTIONS PAID (302,000) (700,000) (52,000)
--------------- --------------- ----------------
RETAINED EARNINGS, end of period $ 1,497,300 $ 1,050,700 $ 1,699,300
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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F-6 PAGE 4
<PAGE>
SUN VALLEY FORD
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Six Months Ended June 30,
December 31, 1997 1996
1996 (unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 421,200 $ 253,400 $ 373,200
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 304,800 123,800 109,700
Loss on disposal of assets 106,600 66,900 54,300
Allowance for doubtful accounts 23,700 47,000 120,700
Changes in:
Receivables (14,400) (1,002,500) (724,400)
Inventories 3,210,100 (4,965,400) 2,569,700
Prepaid expenses 68,300 (17,000) 64,100
Deposits (45,700) - (45,700)
Accounts payable 230,600 245,200 408,900
Accrued liabilities and other payables 77,800 (225,600) 247,300
Income taxes payable 4,600 (4,600) 2,000
--------------- --------------- ----------------
Net cash provided (used) by operating
activities 4,387,600 (5,478,800) 3,179,800
--------------- --------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (221,600) (302,800) (80,100)
Loan to stockholder (82,000) (115,000) (82,000)
Repayment on notes receivable from stockholders 146,500 1,900 3,800
--------------- --------------- ----------------
Net cash used by investing activities (157,100) (415,900) (158,300)
--------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable to related parties 975,000 325,000 275,000
Outstanding checks in excess of bank balance 227,800 (153,500) -
Net borrowings (payments) on floor plan note payable (4,763,500) 7,046,700 (2,315,000)
Principal repayments on notes payable to related
parties (358,200) (610,000) (256,200)
Distributions paid (302,000) (700,000) (52,000)
Principal repayments on long-term debt (114,300) (51,600) (56,800)
--------------- --------------- ----------------
Net cash provided (used) by financing
activities (4,335,200) 5,856,600 (2,405,000)
--------------- --------------- ----------------
NET CHANGE IN CASH (104,700) (38,100) 616,500
CASH, beginning of period 159,300 54,600 159,300
--------------- --------------- ----------------
CASH, end of period $ 54,600 $ 16,500 $ 775,800
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
F-7 PAGE 5
<PAGE>
SUN VALLEY FORD
STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Six Months Ended June 30,
December 31, 1997 1996
1996 (unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH-FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 1,000 $ 12,000 $ -
Interest $ 713,700 $ 439,200 $ 386,672
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
F-8 PAGE 6
<PAGE>
SUN VALLEY FORD
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF OPERATIONS - Sun Valley Ford, (the Company), engages in retail
sales of new Ford, Hyundai, and Volkswagen vehicles obtained through dealership
agreements, used vehicles, parts and service. The Company sells to individuals
and commercial businesses located primarily in the Concord, California area.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the Company
considers all highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
CONCENTRATION OF RISK - Financial instruments potentially subjecting the Company
to concentrations of credit risk consist primarily of bank demand deposits in
excess of FDIC insurance thresholds and receivables. Credit risk related to
receivables is mitigated through ongoing credit evaluations of its customers and
a large, diversified customer base. Historically, the Company has not
experienced significant losses on trade receivables.
INVENTORIES - New vehicle, used vehicle, and parts and accessories inventories
are stated at the lower of cost or market. Cost for new vehicles is determined
by using the last-in, first-out (LIFO) method. Cost for used vehicles is based
on the specifically identified amounts. For parts inventories, cost is based on
current catalog prices, which approximates cost determined using the first-in,
first-out method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
depreciated or amortized using straight-line and accelerated methods over the
following estimated useful lives:
Leasehold improvements 5 - 24 years
Machinery and equipment 5 years
Furniture and fixtures 5 - 7 years
Company vehicles 3 - 5 years
Leased vehicles 5 years
INCOME TAXES - The Company is taxed under the provisions of Subchapter S of the
Internal Revenue Code and Chapter 4.5 of the California Revenue and Taxation
Code. Under this election, income taxes are paid by the stockholders on their
respective shares of corporate taxable income. The provision for income taxes
consists of a franchise tax required by the California Revenue and Taxation Code
equal to the greater of $800 or 1.5% of taxable income.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company make estimates and
assumptions affecting the reported amounts of assets, liabilities, revenues and
expenses, and the disclosure of contingent assets and liabilities. The amounts
estimated could differ from actual results.
ADVERTISING COSTS - Advertising costs are expensed as incurred and were $650,000
for the year ended December 31, 1996. Advertising expense for the six months
ended June 30, 1997 and 1996 were $401,000 (unaudited) and $285,000 (unaudited),
respectively.
REVENUE RECOGNITION - Revenues from vehicle and parts sales and from service
operations are recognized at the time the vehicle is delivered to the customer
or service is completed.
- --------------------------------------------------------------------------------
F-9 PAGE 7
<PAGE>
SUN VALLEY FORD
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
RECOGNITION OF FINANCE FEES AND INSURANCE COMMISSIONS - The Company arranges
financing for its customers' vehicle purchases and arranges insurance in
connection therewith. The Company receives a fee from the financial institution
for arranging the financing and receives a commission for the sale of an
insurance policy. The Company is charged back for a portion of this fee should
the customer terminate the finance or insurance contract before its scheduled
term or before specified dates under arrangements with such institutions.
Finance revenues are fees due to the Company from financial institutions for
fees on contracts arranged to finance vehicle purchases.
MAJOR SUPPLIER AND DEALER AGREEMENT - The Company purchases substantially all of
its new vehicles and inventory from automakers at the prevailing prices charged
by the automakers to all franchised dealers. The Company's overall sales could
be impacted by the automaker's ability or unwillingness to supply the dealership
with an adequate supply of popular models. The Dealer Agreement generally limits
the location of the dealership and retains automaker approval rights over
changes in dealership management and ownership. The automaker is also entitled
to terminate the agreement if the dealership is in material breach of the terms.
INTERIM FINANCIAL STATEMENTS - The accompanying unaudited financial statements
for the six months ended June 30, 1997 and 1996 have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information set forth therein.
NOTE 2 - RECEIVABLES
DECEMBER 31, JUNE 30, 1997 JUNE 30, 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------ ------------
Vehicle $ 2,484,200 $ 3,411,500 $ 3,005,100
Manufacturer 613,300 714,000 644,700
Parts and service 184,000 203,600 306,500
House contracts 106,300 94,400 117,600
Finance and insurance 59,900 61,100 94,400
Stockholders 37,900 - 17,800
Other 28,400 31,900 37,900
------------ ------------ -----------
3,514,000 4,516,500 4,224,000
Less allowance for
doubtful accounts 79,000 126,000 176,000
------------ ------------ -----------
$ 3,435,000 $ 4,390,500 $4,048,000
------------ ------------ -----------
------------ ------------ -----------
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F-10 PAGE 8
<PAGE>
SUN VALLEY FORD
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 3 - NOTES RECEIVABLE FROM STOCKHOLDERS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997 JUNE 30, 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------- -------------
<S> <C> <C> <C>
Note receivable from a stockholder, with
interest at the prime rate; principal
and accrued interest due December 1997;
unsecured $ 206,500 $ 321,500 $ 300,800
Non-interest bearing notes receivable from
stockholders; due on demand 81,900 80,000 130,300
---------- ---------- ----------
$ 288,400 $ 401,500 $ 431,100
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Interest received from a stockholder was $23,600, for the year ended December
31, 1996. No interest was received from stockholders for the six months ended
June 30, 1997 and 1996.
NOTE 4 - INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997 JUNE 30, 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------- -------------
<S> <C> <C> <C>
New vehicles $ 5,930,600 $ 10,848,900 $ 6,698,000
Used vehicles 1,891,800 1,967,000 1,952,000
Parts, accessories and other 845,400 933,900 685,200
------------ ------------- ------------
8,667,800 13,749,800 9,335,200
Less LIFO reserve for new vehicle inventories 3,046,100 3,162,700 3,073,100
------------ ------------ ------------
$ 5,621,700 $ 10,587,100 $ 6,262,100
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
If the specific identification and the first-in, first-out (FIFO) methods had
been used in the accompanying financial statements, net income would have
decreased $48,400, to net income of $372,800, for the year ended December 31,
1996. Net income would have increased $116,500 (unaudited) and decreased $21,400
(unaudited) to net income of $369,900 (unaudited) and $351,800 (unaudited), for
the six months ended June 30, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
F-11 PAGE 9
<PAGE>
SUN VALLEY FORD
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 5 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997 JUNE 30, 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------- -------------
<S> <C> <C> <C>
Leasehold improvements $ 1,538,700 $ 1,704,100 $ 1,538,600
Machinery and equipment 1,358,000 1,452,000 1,326,600
Leased vehicles 217,800 187,500 223,400
Company vehicles 146,200 131,100 155,700
Furniture and fixtures 92,300 92,300 92,300
------------ ------------ ------------
3,353,000 3,567,000 3,336,600
Less accumulated depreciation and
amortization 2,494,800 2,596,700 2,372,500
------------ ------------ ------------
$ 858,200 $ 970,300 $ 964,100
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE 6 - FLOOR PLAN NOTE PAYABLE
The Company has available a $13,000,000 flooring credit line with variable
interest based on the Bank's prime rate. The line is due on demand and is
secured by substantially all assets of the Company.
The Company recognized manufacturers' floor plan interest expense subsidies of
approximately $556,000, for the year ended December 31, 1996, and $335,000
(unaudited) and $226,000 (unaudited) for the six months ended June 30, 1997 and
1996, respectively.
- --------------------------------------------------------------------------------
F-12 PAGE 10
<PAGE>
SUN VALLEY FORD
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 7 - NOTES PAYABLE TO RELATED PARTIES
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997 JUNE 30, 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------- -------------
<S> <C> <C> <C>
Notes payable to majority stockholder, with
interest at 8.25% to 8.5% payable
monthly; principal repayments due at
various times through November 1997;
unsecured $ 875,000 $ 600,000 $ 275,000
Notes payable to the spouse of the majority
stockholder, with interest at 8.25% to 8.5%
payable monthly; principal repayments due
at various times through November 1997;
unsecured 275,000 275,000 275,000
Notes payable to a relative of the majority
stockholder, with interest at 8.25% to 8.5%
payable monthly; principal repayments due at
various times through September 1997;
unsecured 200,000 200,000 200,000
Note payable to a relative of the majority
stockholder, with interest at 8.75% payable
monthly; principal due January 1997;
unsecured 10,000 - 12,000
------------ ------------- -------------
1,360,000 1,075,000 762,000
Less current maturities 1,360,000 1,075,000 287,000
------------ ------------- -------------
$ - $ - $ 475,000
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Interest expense on notes payable to the various related parties was $70,700 for
the year ended December 31, 1996, and $43,400 (unaudited) and $41,800
(unaudited) for the six months ended June 30, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
F-13 PAGE 11
<PAGE>
SUN VALLEY FORD
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997 JUNE 30, 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ------------- -------------
<S> <C> <C> <C>
Note payable to bank in monthly installments
of $8,300, plus interest at the bank's prime
rate plus .25%; maturing June 2000;
secured by substantially all assets of the
Company $ 333,400 $ 283,300 $ 383,400
Non-interest bearing note payable to
manufacturer in monthly installments of
$255; maturing September 2000; secured
by equipment 11,200 9,700 12,700
Other - - 6,000
---------- ---------- ----------
344,600 293,000 402,100
Less current maturities 103,100 103,100 109,000
---------- ---------- ----------
$ 241,500 $ 189,900 $ 293,100
---------- ---------- ----------
---------- ---------- ----------
Principal maturities for succeeding years are as follows:
Year Ending December 31,
------------------------
1997 $ 103,100
1998 103,100
1999 103,100
2000 35,300
----------
$ 344,600
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
F-14 PAGE 12
<PAGE>
SUN VALLEY FORD
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 9 - EMPLOYEE BENEFIT PLANS
The Company provides a 401(k) plan covering substantially all nonunion employees
meeting minimum service and age requirements. The Company matches employee
contributions up to $600 per year. In addition, the Company may make additional
discretionary contributions. Employer contributions were approximately $119,000,
for the year ended December 31, 1996, and $19,600 (unaudited) and $10,900
(unaudited) for the six months ended June 30, 1997 and 1996, respectively.
The Company also contributes to a union-sponsored pension plan under a
collective bargaining agreement. Contributions to the union plan were $134,000,
for the year ended December 31, 1996, and $71,100 (unaudited) and $65,100
(unaudited) for the six months ended June 30, 1997 and 1996, respectively.
NOTE 10 - COMMITMENTS
The Company rents it's primary facility under an operating lease expiring in
June 2007. The monthly lease payment, currently $28,200, is adjusted annually
based on the lesser of increases in the Consumer Price Index or 7%, as defined
in the agreement. The Company is responsible for substantially all costs
associated with repairs, maintenance, taxes, and insurance. An option exists to
extend the lease to March 2016.
The Company rents a second facility, used for it's body shop, pre-delivery
center, used car reconditioning, and vehicle storage, from The Bartlett Family
Partnership, a related limited partnership controlled by the majority
stockholder, under an operating lease expiring November 2008. The monthly lease
payment is $20,000, plus an additional amount calculated at the end of each year
equal to 10% of pre-bonus profits, as defined in the agreement. In December
1998, the base monthly rent increases to $27,600, and will be adjusted annually
based on increases in the Consumer Price Index, as defined in the agreement. No
additional rent based on profits will be paid after November 1998. An option
exists to extend the lease to November 2016.
In addition, the Company leases office equipment and a vehicle storage lot under
operating leases expiring through September 2001.
Future minimum payments under these operating leases are as follows:
Year Ending December 31,
------------------------
1997 $ 611,400
1998 613,800
1999 673,400
2000 673,400
2001 672,700
Thereafter 4,150,100
------------
$ 7,394,800
------------
------------
- --------------------------------------------------------------------------------
F-15 PAGE 13
<PAGE>
SUN VALLEY FORD
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS (Continued)
Rent expense was $651,100, for the year ended December 31, 1996. Rent to a
related party was $335,800, and includes $95,800 in accounts payable. Rent
expense for the six months ended June 30, 1997 and 1996 was $278,700 (unaudited)
and $261,100 (unaudited), respectively. Related party rent expense was $120,000
(unaudited) for the six months ended June 30, 1997 and 1996, including $95,800
(unaudited) and $30,000 (unaudited), respectively, in accounts payable
NOTE 11 - FAIR VALUE OF SIGNIFICANT FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
The carrying amount of cash equivalents, trade receivables, trade payables, and
floor plan note payable approximate fair value because of the short-term nature
of these instruments. It is not practicable to estimate the fair values of
stockholder receivables, notes receivable from stockholders, or notes payable to
related parties, as the relationship of the parties to the Company influences
the terms of the instruments, and similar instruments are not generally
available.
The carrying amounts and estimated fair values of the Company's significant
financial instruments, none of which are held for trading purposes, are as
follows:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
-------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Financial liabilities:
Floor plan note payable $ 5,350,800 $ 5,350,800 $ 12,397,500 $ 12,397,500
Note payable to bank 333,400 333,400 283,300 283,300
Long-term debt 11,200 11,200 9,700 9,700
</TABLE>
The carrying amounts shown in the above table are included in the balance sheet
under the indicated captions.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
FLOOR PLAN NOTE PAYABLE - The carrying amount approximates fair value because
the interest rate fluctuates with the lender's prime rate.
NOTE PAYABLE TO BANK - The carrying amount approximates fair value because the
interest rate fluctuates with the lender's prime rate.
- --------------------------------------------------------------------------------
F-16 PAGE 14
<PAGE>
SUN VALLEY FORD
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 12 - CONTINGENCIES
ENVIRONMENTAL - Substantially all of the Company's facilities are subject to
federal, state and local provisions regulating the discharge of materials into
the environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have, any material effect upon the capital
expenditures, net income, financial condition or competitive position of the
Company. Management believes that its current practices and procedures for the
control and disposition of such wastes comply with applicable federal and state
requirements.
LITIGATION - The Company is from time to time subject to routine litigation
incidental to the ordinary course of business. Management believes that the
probable resolution of such contingencies will not materially affect the
financial position or results of operations of the Company.
NOTE 13 - SUBSEQUENT EVENT
The Company has executed a purchase and sale agreement whereby it has agreed to
sell substantially all if its assets to Lithia Motors, Inc. The purchase price
will consist of cash consideration of approximately $6,918,000 for property,
plant and equipment and intangible assets, plus an amount for parts inventory.
In addition, the purchaser will acquire the new vehicle inventories at the cost
paid to the manufacturer and used vehicle inventories at a negotiated value. The
sale is subject to customary closing conditions and approval of the change in
ownership by the franchisers.
- --------------------------------------------------------------------------------
F-17 PAGE 15
<PAGE>
LITHIA MOTORS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Lithia Motors,
Lithia Motors, Sun Valley Inc.
Inc. Ford Adjustments Pro Forma
-------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,296 $ - $ (5,277)(a) $ 10,019
Trade receivables 3,851 - - 3,851
Notes receivable, current portion 204 - - 204
Inventories, net 42,626 10,776 - 53,402
Vehicles leased to others, current portion 859 - - 859
Prepaid expenses and other 286 115 - 401
Deferred income taxes 1,316 - - 1,316
-------------- ---------- ----------- -------------
Total Current Assets 64,438 10,891 (5,277) 70,052
Property and Equipment, net of accumulated
depreciation 8,816 1,704 - 10,520
Vehicles Leased to Others, less current portion 5,269 - - 5,269
Notes Receivable, less current portion 599 - - 599
Goodwill, net of accumulated amortization 6,808 5,288 - 12,096
Other Non-Current Assets 1,291 - - 1,291
-------------- ---------- ----------- -------------
Total Assets $ 87,221 $ 17,883 $ (5,277) $ 99,827
-------------- ---------- ----------- -------------
-------------- ---------- ----------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Flooring notes payable $ 29,146 $ - $ 8,410 (b) $ 37,556
Current maturities of long-term debt 3,975 - - 3,975
Trade payables 1,699 - - 1,699
Accrued liabilities 2,801 - - 2,801
-------------- ---------- ----------- -------------
Total Current Liabilities 37,621 - 8,410 46,031
Long-Term Debt, less current maturities 9,599 - 4,196 (c) 13,795
Deferred Revenue 2,784 - - 2,784
Other Long-Term Liabilities 175 - - 175
Deferred Income Taxes 2,753 - - 2,753
-------------- ---------- ----------- -------------
Total Liabilities 52,932 - 12,606 65,538
-------------- ---------- ----------- -------------
Shareholders' Equity
Preferred stock - no par value; authorized 15,000
shares; issued and outstanding; none - - - -
Class A common stock - no par value;
authorized 100,000 shares; issued and
outstanding 2,896 28,037 - - 28,037
Class B common stock
authorized 25,000 shares; issued and
outstanding 4,110 511 - - 511
Retained earnings 5,741 - - 5,741
-------------- ---------- ----------- -------------
Total Shareholders' Equity 34,289 - - 34,289
-------------- ---------- ----------- -------------
Total Liabilities and Shareholders' Equity $ 87,221 $ - $ 12,606 $ 99,827
-------------- ---------- ----------- -------------
-------------- ---------- ----------- -------------
</TABLE>
PF-1
<PAGE>
LITHIA MOTORS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Lithia Motors,
Lithia Motors, Sun Valley Inc.
Inc. Ford Adjustments Pro Forma
-------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Sales:
Vehicles $ 123,703 $ 40,122 $ - $ 163,825
Service, body, parts and other 19,141 32,279 - 51,420
-------------- ---------- ----------- -------------
Net Sales 142,844 72,401 - 215,245
Cost of sales
Vehicles 109,082 36,997 (266)(d) 145,813
Service, body, parts and other 9,565 26,378 - 35,943
-------------- ---------- ----------- -------------
Cost of Sales 118,647 63,375 (266) 181,756
-------------- ---------- ----------- -------------
Gross profit 24,197 9,026 (266) 33,489
Selling, general and administrative 20,277 8,565 (34)(e) 28,808
-------------- ---------- ----------- -------------
Operating income 3,920 461 300 4,681
Other income (expense)
Equity in income of affiliate 44 - - 44
Interest income 193 26 - 219
Interest expense (1,353) (116) (437)(f) (1,906)
Other, net 1,112 59 - 1,171
-------------- ---------- ----------- -------------
(4) (31) (437) (472)
-------------- ---------- ----------- -------------
Income before minority interest and income taxes 3,916 430 (737) 4,209
Minority interest (687) - 687 (g) -
-------------- ---------- ----------- -------------
Income before income taxes 3,229 430 (50) 4,209
Income tax (benefit) expense (813) 9 2,403 (h) 1,599
-------------- ---------- ----------- -------------
Net income $ 4,042 $ 421 $ (2,453) $ 2,610
-------------- ---------- ----------- -------------
-------------- ---------- ----------- -------------
Net income per share $ 0.81 $ - $ - $ 0.52
-------------- ---------- ----------- -------------
-------------- ---------- ----------- -------------
Shares used in per share calculations 4,973 - - 4,973
-------------- ---------- ----------- -------------
-------------- ---------- ----------- -------------
</TABLE>
PF-2
<PAGE>
LITHIA MOTORS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Lithia Motors,
Lithia Motors, Sun Valley Inc.
Inc. Ford Adjustments Pro Forma
-------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Sales:
Vehicles $ 104,875 $ 19,709 $ - $ 124,584
Service, body, parts and other 16,251 17,588 - 33,839
-------------- ---------- ----------- --------------
Net Sales 121,126 37,297 - 158,423
Cost of sales
Vehicles 94,049 18,267 (117)(d) 112,199
Service, body, parts and other 7,413 14,503 - 21,916
-------------- ---------- ----------- --------------
Cost of Sales 101,462 32,770 (117) 134,115
-------------- ---------- ----------- --------------
Gross profit 19,664 4,527 (117) 24,308
Selling, general and administrative 15,581 4,155 2 (e) 19,738
-------------- ---------- ----------- --------------
Operating income 4,083 372 115 4,570
Other income (expense)
Equity in income of affiliate 56 - - 56
Interest income 61 - - 61
Interest expense (651) (125) (270)(f) (1,046)
Other, net 541 12 - 553
-------------- ---------- ----------- --------------
7 (113) (270) (376)
-------------- ---------- ----------- --------------
Income before minority interest and income taxes 4,090 259 (385) 4,194
Income tax expense 1,579 6 9 (h) 1,594
-------------- ---------- ----------- --------------
Net income $ 2,511 $ 253 $ (376) $ 2,600
-------------- ---------- ----------- --------------
-------------- ---------- ----------- --------------
Net income per share $0.35 $ - $ - $ 0.36
-------------- ---------- ----------- --------------
-------------- ---------- ----------- --------------
Shares used in per share calculations 7,265 - - 7,265
-------------- ---------- ----------- --------------
-------------- ---------- ----------- --------------
</TABLE>
PF-3
<PAGE>
Lithia Motors, Inc. and Subsidiaries
Footnotes to Pro Forma Consolidated Financial Statements
(Unaudited)
(in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma financial statements have been prepared to
present the effect of the acquisition by the Company of Sun Valley Ford. The
pro forma financial statements have been prepared based upon the historical
financial statements of the Company and Sun Valley Ford as if the acquisition
had occurred at June 30, 1997 and at the beginning of the respective periods.
The Pro Forma Consolidated Balance Sheet was prepared using only those assets
and liabilities of Sun Valley Ford that were purchased by the Company.
The Pro Forma Consolidated Statements of Operations may not be indicative of the
results of operations that actually would have occurred if the transactions had
been in effect as of the beginning of the respective periods nor do they purport
to indicate the results of future operations of the Company. The pro forma
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1996 Annual Report on Form 10-K and
the audited financial statements and notes thereto for Sun Valley Ford included
elsewhere in this report of Form 8-K/A-1. Management believes that all
adjustments necessary to present fairly such pro forma financial statements have
been made based on the terms and structure of the transaction.
PF-4
<PAGE>
2. PFO FORMA ADJUSTMENTS
(a) To record cash paid for Sun Valley Ford.
(b) To record flooring notes payable incurred as part of acquisition.
(c) To record note payable to seller of Sun Valley Ford.
(d) To record the conversion from the LIFO method of inventory accounting
to the FIFO method:
12/31/96 6/30/97
-------- -------
Lithia Motors $ (314) $ -
Sun Valley Ford 48 (117)
-------- -------
$ (266) $ (117)
-------- -------
-------- -------
(e) To record amortization of intangibles associated with the purchase of
Sun Valley Ford and the elimination of certain management expenses:
12/31/96 6/30/97
-------- -------
Intangible amortization $ 132 $ 66
Elimination of expenses (166) (64)
-------- -------
$ (34) $ 2
-------- -------
-------- -------
(f) To reverse manufacturer's floor plan interest expense subsidies
received by Sun Valley Ford, lower floor plan interest expense to
reflect rates available to Lithia and to reverse related party interest
expense:
12/31/96 6/30/97
-------- -------
Reverse subsidies $ 556 $ 335
Lower interest (48) (24)
Reverse related party (71) (41)
-------- -------
$ 437 $ 270
-------- -------
-------- -------
(g) To reverse minority interest for comparability purposes.
(h) To record income tax expense at an effective rate of 38 percent.
PF-5
<PAGE>
EXHIBIT 10.3
STANDARD INDUSTRIAL LEASE -- NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, December________,
1986, is made by and between EDMUND G. BARTLETT, JR., and ANNA BARTLETT, his
wife, as their community property (herein called "Lessor") and SUN VALLEY FORD,
INC., a California corporation, (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Contra Costa, State of
California, commonly known as 1252 Diamond Way, Concord, California, and
described on Exhibit A attached hereto and incorporated herein by reference.
Said real property including the land and all improvements therein, is herein
called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for seven (7) years
commencing on December ____, 1986 and ending on November ____, 1993 unless
sooner terminated pursuant to any provision hereof. An option to extend for an
additional five-year term is provided in Clause 50 attached.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly
payments of $25,000, in advance, on the first day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof the pro rated daily
rent for each day in the period between execution and January 1, 1987. Rental
adjustments shall be made annually as provided in Clause 49 attached. 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 Lessor at the address stated herein or to such
other persons or at such other places as Lessor may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$25,000 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or
applies all or any portion of said deposit, Lessee shall within ten (10) days
after written demand therefor deposit cash with Lessor in an amount sufficient
to restore said deposit to the full amount hereinabove stated and Lessee's
failure to do so shall be a material breach of this Lease. If the monthly rent
shall, from time to time, increase during the term of this Lease, Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4 hereof. Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for any lawful
purposes or any other use which is reasonably comparable and for no other
purpose.
6.2 COMPLIANCE WITH LAW.
(a) See Clause 51.
(1)
<PAGE>
(b) Except as otherwise provided in paragraph 6.2(a), Lessee shall,
at Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covemants and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use nor permit
the use of the Premises in any manner that will tend to create waste or a
nuisance or, if there shall be more than one tenant in the building containing
the Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) See Clause 51.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto.
Lessee acknowledges that neither Lessor nor Lessor's agent has made any
representation or warranty as to the present or future suitability of the
Premises for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition
and repair the Premises and every part thereof, structural and nonstructural,
(whether or not such portion of the Premises requiring repairs or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (interior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this paragraph 7, or under any other paragraph of this Lease, Lessor may
at its option (but shall not be required to) enter upon the Premises after ten
(10) days' prior written notice to Lessee (except in the case of an emergency,
in which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate then allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
paragraph 9 (relating to destruction of the Premises) and under paragraph 14
(relating to condemnation of the Premises), it is intended by the parties hereto
that Lessor have no obligation, in any manner whatsoever, to repair and maintain
the Premises nor the building located thereon nor the equipment therein, whether
structural or nonstructural, all of which obligations are intended to be that of
the Lessee under paragraph 7.1 hereof, Lessee expressly waives the benefit of
any statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the premises in good order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility Installations In, or on or
about the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of 42,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this paragraph 7.5
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or
Utility installations without the prior approval of Lessor, Lessor may require
that Lessee remove any or all of the same.
(2)
<PAGE>
(b) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein, Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall,
in good faith, contest the validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend itself and Lessor against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof against the Lessor or the Premises, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in paragraph
7.5(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this paragraph 7.5(d), Lessee'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
Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the property
insurance required hereunder. The insuring party shall be designated in
paragraph 46 hereof. Whether the insuring party is the Lessor or the Lessee,
Lessee shall, as additional rent for the Premises, pay the cost of all insurance
required hereunder, except for that portion of the cost attributable to Lessor's
liability insurance coverage in excess of $1,000,000 per occurrence. If Lessor
is the insuring party, Lessee shall, within ten (10) days following demand by
Lessor, reimburse Lessor for the cost of the insurance so obtained. See Clause
52.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and Property Damage Insurance Insuring Lessor and Lessee against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $500,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
paragraph 8. the limits of said insurance shall not, however, limit the
liability of Lessee hereunder. See Clause 53.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, in the amount of the full replacement value thereof, as the same
may exist from time to time, which replacement value is now $940,000.00, but in
no event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on the Premises. The insuring party shall, in
addition, obtain and keep in force during the term of this Lease a policy of
rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all real estate taxes and insurance
costs for said period. A stipulated value or agreed amount endorsement deleting
the coinsurance provision of the policy shall be procured with said insurance as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. If the insuring party
shall fail to procure and maintain said insurance the other party may, but shall
not be required to, procure and maintain the same, but at the expense of Lessee.
If such insurance coverage has a deductible clause, the deductible amount shall
not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount.
(b) If the Premises are part of a larger building, or if the
Premises are part of a group of buildings owned by Lessor which are adjacent to
the Premises, then Lessee shall pay for any increase in the property insurance
of such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(3)
<PAGE>
(c) If the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party, Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders' thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in
paragraph 8.3. If Lessee does or permits to be done anything which shall
increase the cost of the insurance policies referred to in paragraph 8.3, then
Lessee shall forthwith upon Lessor's demand reimburse Lessor for any additional
premiums attributable to any act or omission or operation of Lessee causing such
increase in the cost of insurance.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, or on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor 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.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contracts, or employees,
and from and against all costs, attorney's 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 Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, ware, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee'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, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OR DESTRUCTION
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less than
50% of the then replacement cost of the Premises. "Premises Building Partial
Damage" shall herein mean damage or destruction to the building of which the
Premises are a part to the extent that the cost of repair is less than 50% of
the then replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is 50% or more of
the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction which
was caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is an Insured Loss and which falls into the classification of
Premises
(4)
<PAGE>
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements unless the same have become a part of the Premises pursuant
to paragraph 7.5 hereof as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the above, if the Lessee is
the insuring party, and if the insurance proceeds received by Lessor are not
sufficient to effect such repair, Lessor shall give notice to Lessee of the
amount required in addition to the insurance proceeds to effect such repair.
Lessee shall contribute the required amount to Lessor within ten (10) days after
Lessee has received notice from Lessor of the shortage in the insurance. When
Lessee shall contribute such amount to Lessor, Lessor shall make such repairs as
soon as reasonably possible and this Lease shall continue in full force and
effect. Lessee shall in no event have any right to reimbursement for any such
amounts so contributed. See Clause 54.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an insured loss and which falls within the classification
of Premises Partial Damage or Premises Building Partial Damage, unless caused by
a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of the occurrence of such damage. In the event Lessor elects to give such
notice of Lessor's intention to cancel and terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee 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.
9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease
there is damage, whether or not an Insured Loss, (including destruction required
by any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this
Lease there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all, no later than 20 days after the occurrence of an
Insured Loss falling within the classification of Premises Partial Damage during
the last six months of the term of this Lease. If Lessee duly exercises such
option during said 20-day period, Lessor shall, at Lessor's expense, repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option during said 20-day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said 20-day period by giving written notice to Lessee of
Lessor's election to do so within 10 days after the expiration of said 20 day
period, notwithstanding any term or provision in the grant of option to the
contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this paragraph 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 Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice. See Clause 55.
9.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor, Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
(5)
<PAGE>
10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as
defined in paragraph 10.2, 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. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes paid by
Lessee shall cover any period of time prior to or after the expiration of the
term hereof, Lessee'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 Lessor shall reimburse Lessee to the extent required. If
Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the
same, in which case Lessee shall repay such amount to Lessor with Lessee's next
rent installment together with interest at the maximum rate then allowable by
law.
10.2 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfer hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included with the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof in good faith shall be
conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within 10 days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor 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
Lessee or any successor of Lessee, in the
(6)
<PAGE>
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or their
consent thereto and such action shall not relieve Lessee of liablity under this
Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
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 Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors: (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee) the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessor's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(d) is
contrary to any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice of demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee'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 attorney's fees,
and any real estate commission actually paid; 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 Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor'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 Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
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 Lessee in
writing, specifying wherein Lessor has failed to perform such obligation:
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently prosecutes the same to completion.
(7)
<PAGE>
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding paragraph 4
or any other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance moneys paid to Lessor under this paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a default in the obligations of Lessee to perform under this Lease,
then any balance remaining from funds paid to Lessor under the provisions of
this paragraph may, at the option of Lessor, be applied to the payment of any
monetary default of Lessee in lieu of being applied to the payment of real
property tax and insurance premiums.
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
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
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 Lessor, 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 Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. BROKER'S FEE. Not applicable.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days'
prior written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (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 (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor 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) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except
(8)
<PAGE>
as may be represented by Lessor, (ii) that there are no uncured defaults in
Lessor's performance, and (iii) that not more than one month's rent has been
paid in advance or such failure may be considered by Lessor as a default by
Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises,
or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such Lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a Lessee's interest
in a ground lease of the Premises, and except as expressly provided in paragraph
15, in the event of any transfer of such title or interest Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations (thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. 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, Lessee
hereby acknowledges that neither the real estate broker listed in paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee. See Clause 56.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
(9)
<PAGE>
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground Lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate
an attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure
to execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein 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 attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 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 Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
(10)
<PAGE>
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and such execution
is binding upon all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. Not applicable.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) continuing until
the obligation is paid, or (iii) at any time after an event of default described
in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to
give notice of such default to Lessee), or (iv) in the event that Lessor has
given to Lessee three or more notices of default under paragraph 13.1(b), where
a late charge has become payable under paragraph 13.4 for each of such defaults,
or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month
period prior to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee) or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each such default, or paragraph
13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. Not applicable.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
(11)
<PAGE>
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, each individual executing this
Lease on behalf of such entity represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of said entity. If
Lessee is a corporation, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor evidence of such authority satisfactory to
Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions. See Clause 57.
46. INSURING PARTY. The insuring party under this Lease shall be the Lessee.
47. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs
48 through 57 which constitutes a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO. THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
Executed at
------------------------ ---------------------------------------
on By /S/ EDMUND G. BARTLETT, JR.
--------------------------------- -------------------------------------
Address 40 WILDWOOD GARDENS By /S/ ANNA BARTLETT
---------------------------- -------------------------------------
PIEDMONT, CA 94611
- -----------------------------------
Executed at SUN VALLEY FORD, INC.
------------------------ ----------------------------------------
on DECEMBER , 1986 By /S/ J. L. WAGNER
--------------------------------- -------------------------------------
Address 2285 DIAMOND BOULEVARD Its PRESIDENT
---------------------------- ------------------------------------
CONCORD, CA 94520
- -----------------------------------
(12)
<PAGE>
For these forms, write or call the American Industrial Real Estate Association,
350 S. Figueroa Street, Suite 275, Los Angeles, CA 90071 (213) 687-8777
1980 Form #204N780
(13)
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL
LEASE -- NET
BETWEEN EDMUND G. BARTLETT AND ANNA BARTLETT, AS LESSORS
AND
SUN VALLEY FORD, INC., AS LESSEE
Lessors and Lessee further covenant and agree as follows:
48. Lessors are acquiring these premises from Coca Cola Bottling Company of
California ("CCBC") concurrently with execution of this lease. This Lease shall
be subject in all respects to Lessors acquiring the Premises in such
transaction. It is also understood and agreed, as a condition to Lessee's
rights under this Lease, that Lessee will concurrently with commencement of this
Lease, sublease the Premises back to CCBC, for a term not to exceed twenty-four
(24) months, at a "net" rent of $12,886.51 per month for use primarily for
CCBC's warehousing and distribution of beverage products, on terms otherwise
consistent with the terms of this Lease. CCBC shall have the right to quiet
enjoyment of the Premises under such sublease notwithstanding a default by
Lessee under this lease so long as (1) CCBC is not in default under the sublease
and (2) so long as the full rent due under this Lease is paid to Lessors
(whether by Lessee or directly by CCBC).
49. COST-OF-LIVING ADJUSTMENT. The minimum monthly rent provided for in
paragraph 5 shall be subject to adjustment at the commencement of the second
year of the term and each year thereafter ("the adjustment date") as follows:
(a) The base for computing the adjustment is the Consumer Price
Index for Labor for San Francisco, all items (using 1967 = 100), published by
the United States Department of Labor, Bureau of Labor Statistics ("Index"),
which is in effect on the date of the commencement of the term ("Beginning
Index"). The Index published most immediately preceding the adjustment date in
question ("Extension Index") is to be used in determining the amount of the
adjustment. If the Extension Index has increased over the Beginning Index, the
minimum monthly rent for the following year (until the next rent adjustment)
shall be set by multiplying the minimum monthly rent set forth in paragraph 5 by
a fraction, the numerator of which is the Extension Index and the denominator of
which is the Beginning Index.
(b) In no case shall the minimum monthly rent be less than the
minimum monthly rent set forth in paragraph 5. On adjustment of the minimum
monthly rent as provided in this lease, the parties shall immediately execute an
amendment to this lease stating the new minimum monthly rent.
If the Index is changed so that the base year differs from that in effect when
the term commences, the Index shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau of
Labor Statistics. If the Index is discontinued or revised during the term, such
other government index or computation with which it is replaced shall be used in
order to obtain substantially the same result as would be obtained if the Index
had not been discontinued or revised.
50. OPTION TO EXTEND TERM.
(a) Lessee is given the option to extend the initial term of the
provisions contained in this lease, except for minimum monthly rent, for a five
(5) year period ("extended term") following expiration of the initial term, by
giving notice of exercise of the option ("option notice") to Lessors at least
six (6) months but not more than twelve (12) months before the expiration of the
initial term. Provided that, if Lessee is in default on the date of giving the
option notice, the option notice shall be totally ineffective, or if Lessee is
in default on the date the extended term is to commence, the extended term shall
not commence and this lease shall expire at the end of the initial term.
(b) The parties shall have thirty (30) days after Lessors receive
the option notice in which to agree on minimum monthly rent during the extended
term. If the parties agree on the minimum monthly rent for the extended term
during that period, they shall immediately execute an amendment to this lease
stating the minimum monthly rent.
If the parties are unable to agree on the minimum monthly rent for the extended
term within that period, the option notice shall be of no effect and this lease
shall expire at the end of the term. Neither party to this Lease shall have the
right to have court or other third party set the minimum monthly rent.
(c) The initial minimum monthly rent during the option term shall
be subject to annual adjustment in accordance with the provisions of clause 49,
beginning in the second year and continuing each year thereafter.
Tenant shall have no other right to extend the term beyond the extended term.
(14)
<PAGE>
51. Lessee is leasing said Premises "AS IS with all defaults" and Lessors shall
have no obligation or responsibility to Lessee for the condition, repair or
suitability of such Premises or for compliance of the Premises with applicable
provisions of Codes, laws and regulations, including, but not limited to, those
pertaining to environmental protection, health and safety matters. In this
regard, Lessee shall indemnify and hold harmless Lessors from any and all
liability, risk and cost arising out of or in any way resulting from the
Premises from any cause during the lease term, whether due to acts or omissions
of Lessee or other parties, including Lessors (except only for sole negligent or
willful acts) and its agents, servants, and contractors. Lessee further
represents, warrants and agrees that all permits and approvals necessary for
activities conducted or to be conducted by Lessee and/or its sublessees and
assigns have been obtained (or will be obtained prior to commencement of such
activities) and will, during the course of such activities, be maintained in
full force and effect.
52. The "$1,000,000" amount of insurance referred to in line 6 of clause 8.1 of
the Lease is amended to read $2,000,000".
53. The "$500,000" amount of insurance referred to in line 4 of clause 8.2 of
the Lease is amended to read "$2,000,000".
54. Lessors shall not be required to repair any Premises Partial Damage
pursuant to paragraph 9.2 of this Lease unless insurance proceeds together with
amounts provided by Lessee are available to Lessors in an amount sufficient to
cover the entire cost of effecting such repair. moreover, if the cost of
repairing any Premises Partial Damage pursuant to paragraph 9.2 exceeds
$200,000, Lessors' obligation to repair shall be conditioned upon there
remaining at least _____________ months of the initial term (or of the option
term under clause 50, if such option has been exercised).
55. As a precondition of any termination permitted under clause 9.6(b) of the
Lease, Lessee shall give thirty (30) days written notice to Lessors, and Lessors
shall have failed to commence the required repairs within such thirty (30) day
period.
56. A duplicate copy of any notice delivered or sent to Lessors pursuant to
paragraph 23 shall be concurrently delivered or sent to:
Lempres & Wulfsberg
Professional Corporation
300 Lakeside Drive, 18th Floor
Oakland, CA 94612
Attention: Daniel N. Lempres
57. Capitalized terms used in this Addendum and not otherwise expressly defined
here shall have the meanings given them in the main body of the lease. In the
event of any conflict between the provisions of this Addendum and the provisions
found in the main body of the Lease, this Addendum shall be controlling.
IN WITNESS WHEREOF, the parties have executed this Addendum
simultaneously with their execution of the Lease.
LESSOR LESSEE
SUN VALLEY FORD, INC., a
California corporation
/S/ EDMUND G. BARTLETT, JR. By /S/ J. L. WAGNER
- ----------------------------------- -----------------------------------
/S/ ANN BARTLETT Its: VICE PRESIDENT
- ----------------------------------- -----------------------------------
(15)
<PAGE>
FOUNDERS TITLE COMPANY
Order No. 433650
EXHIBIT "A" to
Standard Industrial Lease - Net
Between
EDMUND G. BARTLETT, JR. and ANNA BARTLETT, Lessors
and
SUN VALLEY FORD, INC., Lessee
PARCEL ONE:
Commencing at the southerly corner of the parcel of land described as Parcel Two
in the deed from Pleasant Hill Investment Company to The Diamond Match Company,
recorded September 6, 1957 in Book 3040 of Official Records, at Page 380; thence
from said point of commencement, south 32DEG. 42' 53" east 10.50 feet; thence
southerly and southwesterly on the arc of a curve to the right tangent to the
last said course, with a radius of 105 feet, through an angle of 70DEG. 12' 43"
an arc distance of 120.67 feet to the point of beginning of the parcel of land
herein described; thence from said point of beginning continuing southwesterly
along said curve through an angle of 13DEG. 49' 15" an arc distance of 25.33
feet; thence south 51DEG. 19' 05" west 209.40 feet; thence south 38DEG. 40'
55" east 371.50 feet; thence north 51DEG. 19' 05" east; 234.45 feet to a line
drawn south 38DEG. 40' 55" east from the point of beginning; thence north
38DEG. 40' 55" west 374.62 feet to the point of beginning.
PARCEL TWO:
Portion of Lot 26, as shown on the Map of Tract 2588, (Concord Industrial Park)
filed on June 8, 1961, in Book 82 of Maps, Page 42, in the office of the County
Recorder of Contra Costa County, described as follows:
Beginning on the southeast line of said Lot 26, distant thereon south 20DEG.
41' 22" west, 272.46 feet from the most easterly corner thereof; thence form
said point of beginning along the exterior lines of said Lot 26 as follows:
North 20DEG. 41' 22" east, 272.46 feet; north 38DEG. 40' 55" west, 165.31
feet; and south 51DEG. 19' 05" west, 224.45 feet to the most northerly corner
of the parcel of land described as Parcel Two in the deed from first Windsor
corporation, et al, to Longdale Realty Company, recorded May 22, 1964, in Book
4623 of Official Records at Page 512; thence along the northwest and southeast
lines of said Longdale Realty Company Parcel Two (4623 OR 512), south 38DEG.
40' 55" east, 110.37 feet and south 51DEG. 19' 05" west, 10.00 feet; thence
south 38DEG. 40' 55" east, parallel with the northwest line of said Lot 26,
193.78 feet to the point of beginning.
EXCEPTING THEREFROM:
"All oil, gas, casinghead gas, asphaltum, and other hydrocarbons, and all
chemical gas, now or hereafter found, situated or located in all or any part of
portion of the lands herein described lying more than five hundred feet (500')
below the surface thereof, together with the right to slant drill for and remove
all or any of said oil, gas, casinghead gas, asphaltum and other hydrocarbons
and chemical gas lying below a depth of more than five hundred feet (500') below
the surface thereof; but without any right whatsoever to enter upon the surface
of said land or upon any part of said lands within five hundred feet (500')
vertical distance below the surface thereof."
(16)
<PAGE>
EXHIBIT "B"
MAY 1, 1993 LETTER AGREEMENT
To: Ed and Ann Bartlett
From: Larry Wagner
Date: May 1, 1993
Subject: Lease Agreement, 1260 Diamond Way
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This will confirm our intent to exercise Sun Valley Ford's option to extend our
lease on the subject property for five years beginning December 1, 1993, and
ending November 30, 1998. All terms and conditions stated in the original lease
and addendum to same dated December 1986 shall apply with the following
exceptions:
A. Clause 49. COST OF LIVING ADJUSTMENT. This adjustment shall not
apply during the term of this option period ending November 30,
1998.
B. Paragraph 4. RENT. the base rent during the option period
beginning December 1993 shall be $20,000 per month in advance on the
first day of each month of the term of this option.
4.1 Additional rent: Additional rent shall be paid annually based
on Sun Valley Ford's profits. The additional rent shall be
calculated at 10% of the "Before Bonus" profits. If the profits are
less than $500,000 there shall be no additional rent. The
additional rent shall be calculated as part of the auditors
adjustments at the end of each year.
In Witness Whereof, the parties agree to the terms of these options to extend as
outlined above.
LESSEE LESSOR
SUN VALLEY FORD, INC., a
California corporation.
/S/ EDMUND G. BARTLETT, JR. By: /S/ J. L. WAGNER
- ------------------------------------ -----------------------------------
/S/ ANN BARTLETT Its: PRESIDENT
- ------------------------------------ ----------------------------------
(17)
<PAGE>
LEASE AGREEMENT
This Lease Agreement ("Lease") is entered into by and between GEORGE
VALENTE and LENA E. VALENTE as Trustees of GEORGE AND LENA E. VALENTE TRUST,
(collectively, "Landlord"), whose address is 44165 El Macero Drive, El Macero,
California 94619, and SUN VALLEY FORD, INC., a California Corporation
("Tenant"), whose principal place of business is 2285 Diamond Blvd., Concord,
California 94520, to be effective as of June ____, 1992.
W I T N E S S E T H:
WHEREAS, Landlord is the owner of that certain property located in the City
of Concord, County of Contra Costa, State of California, as more particularly
described in that certain preliminary report from Chicago Title Company dated
September 17, 1992 attached hereto as Exhibit "A" and incorporated herein by
this reference (the "Property"); and
WHEREAS, Landlord is the assignee of that certain lease entered into on
March 16, 1965 by and between Arthur J. Brabant and Lionel G. Sullivan, as
Lessees, and the County of Contra Costa, as Lessor, as amended by that certain
First Addendum to Lease, dated as of March 1, 1967 (together the "County
Lease"), a copy of which are attached hereto at Exhibit B and incorporated
herein by reference, whereby the County leased that certain property as more
particularly described on Exhibit B (the "Leased Property"); and
WHEREAS, pursuant to a Lease Agreement dated May 21, 1980 ("Lease
Agreement") Landlord leased the Property and the Leased Property to Tenant, and
pursuant to a Supplement to and Modification of Lease Agreement dated August 29,
1980 ("Supplement") Landlord and Tenant amended the Lease Agreement; and
WHEREAS, Landlord wishes to cancel and terminate the Lease Agreement and
the Supplement and Tenant wishes to surrender its leasehold interest in and to
the Lease Agreement and the Supplement; and
WHEREAS, Landlord wishes to lease to Tenant the Property and the Leased
Property, and grant Tenant certain options to lease relating thereto, and Tenant
wishes to lease these parcels from Landlord and receive the benefit of the
options to lease relating thereto, all pursuant to the terms and conditions
hereafter set forth.
January 13, 1992
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NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other valuable consideration, the receipt and adequacy of
which is hereby acknowledged, Landlord and Tenant covenant and agree as follows:
ARTICLE 1. CERTAIN PRIOR LEASE AGREEMENTS.
1.1 CANCELLATION OF LEASE AGREEMENT AND SUPPLEMENT. Landlord hereby
cancels and terminates, and Tenant hereby surrenders its leasehold interest in
and to, the Lease Agreement and the Supplement, to be effective as of the
Commencement Date (as hereinafter defined).
1.2 LANDLORD'S TITLE TO DEMISED PREMISES. Landlord represents to Tenant
that Landlord has full authority to enter into this Lease and that Landlord has
fee title to the Property and the Improvements (as defined below) located
therein or thereon, and leasehold title to the Leased Property and the
Improvements located therein or thereon, subject only to the liens, charges,
claims, actions, encumbrances or title conditions or exceptions (herein called
"Exceptions") referred to in Exhibits "A" and "B", which are attached hereto.
Landlord further represents and warrants to Tenant that the leasehold interest
of Ford Leasing Development Company in and to the Demised Premises is terminated
as of the Commencement Date.
ARTICLE 2. DEMISED PREMISES.
2.1. DESCRIPTION OF DEMISED PREMISES. For and in consideration of the
payments and of the performance of Tenant of the covenants and undertakings
hereinafter set forth, Landlord hereby leases to Tenant (with the Options
[as hereinafter defined]) and Tenant leases from Landlord the following
property (herein collectively called the "Demised Premises"):
A. The Property and the Leased Property (collectively, the "Land");
and
B. All buildings, structures, and improvements located or erected on
the Land and all fixtures, equipment, and articles of personal property (if any)
installed upon or located in and used or useful in the maintenance and operation
of such buildings, structures, and improvements, other than Tenant's trade
fixtures, and removable equipment and articles of personal property (the
"Improvements").
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ARTICLE 3. TERM.
3.1. INITIAL TERM. The initial term ("Initial Term") of this Lease shall
be for a period of five (5) years, subject to the extension rights set forth in
Article 5 hereof. The "Commencement Date" of this Lease shall be July 1, 1992
and the initial term shall continue until midnight of June 30, 1997. As used
hereafter, the term "Lease Term" shall include the Initial Term and the term of
any option properly exercised pursuant to Article 5 hereof, unless this Lease is
terminated or canceled earlier as provided herein, in which case "Lease Term"
shall include only the abbreviated period.
ARTICLE 4. RENT.
4.1 BASIC RENT. Tenant covenants to pay Landlord a net monthly payment
("Basic Rent") during the Initial Term in an amount equal to Twenty Three
Thousand One Hundred Eighty Eight and 88/100 Dollars ($23,188.88). This payment
shall be remitted to Landlord by check in advance on or before the first (1st)
day of each and every calendar month during the Initial Term without notice or
demand.
4.2 ADDITIONAL RENT. Tenant covenants to pay to Landlord during the
Lease Term an amount equal to the amounts set forth in Articles 6 and 7 of this
Lease on terms and conditions stated therein ("Additional Rent").
ARTICLE 5. OPTIONS.
5.1 GRANT OF OPTIONS AND CONDITIONS FOR EXERCISE. Landlord hereby
grants to Tenant the options ("Options" and each an "Option") to lease the
Demised Premises specified in Sections 5.3 and 5.4 hereof. Tenant's right to
exercise each Option shall be conditioned upon the occurrence of each and all of
the following conditions precedent:
A. Landlord shall receive from Tenant written notice of the exercise
of each of the Options no earlier than twelve (12) months and no later than six
(6) months prior to the expiration of the Initial Term or the then-current term,
time being of the essence in the exercise of the Options. If notification of
the exercise of any Option is not so received, that Option and any remaining
Options shall automatically expire and this Lease shall terminate on the
expiration of the Initial Term or the then-current term.
B. This Lease shall be in full force and effect at the time notice
of exercise is given and on the last day of the Initial Term or the then-current
term.
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C. There shall not be a default (as defined in Section 18.1) by
Tenant from the time notice of exercise is given until the last day of the
Initial Term or the then-current term.
5.2 EFFECT OF EXERCISE OF OPTION. If the Options granted in Sections
5.3 and 5.4 hereof is or are properly exercised, each and every term and
condition of this Lease shall apply during the term of each of the Options which
are exercised except as specifically provided herein.
5.3 OPTION TO EXTEND. Landlord grants to Tenant the Option to extend
the term of this Lease from July 1, 1997 through June 30, 2007. The Basic Rent,
over and above the Additional Rent, during each annual period commencing July 1,
1997 and ending June 30, 2007 shall be a monthly amount equal to the monthly
Basic Rent paid during the immediately preceding annual period plus a percentage
of Twenty-Three Thousand One Eighty Eight and 88/100 Dollars ($23,188.88), said
percentage to be the lesser of (i) seven percent (7%) or (ii) the percentage
increase in the CPI for the month most recently preceding the adjustment date
over the CPI for the same month of the immediately preceding calendar year. As
used in this Lease, the term "CPI" shall mean the United States Department of
Labor's Bureau of Labor Statistics' Consumer Price Index, All Urban Consumers,
All Items, San Francisco-Oakland-San Jose, California (1982-84 equals 100), or
the successor of such index. If such index is changed so that the base period
shall be other than 1982-84 equals 100, then such index shall be subject to
conversion in accordance with the conversion factor published by the United
States Bureau of Labor Statistics. If such index is discontinued or revised,
the index designated as the successor or substitute index by the government of
the United States shall be substituted. If no index is so designated, Landlord
shall designate an index prepared by an appropriate governmental entity,
corporation or other entity.
5.4 SECOND OPTION TO EXTEND. Landlord grants to Tenant the Option to
extend the term of this Lease from July 1, 2007 through March 15, 2016. The
Basic Rent, over and above the Additional Rent, during each annual period
commencing June 29, 2007 and ending March 15, 2016 shall be a monthly amount
equal to the monthly Basic Rent paid during the immediately preceding annual
period plus a percentage of the monthly Basic Rent paid during the immediately
preceding annual period, said percentage to be the lesser of (i) seven percent
(7%) or (ii) the percentage increase in the CPI for the month most recently
preceding the adjustment date over the CPI for the same month of the immediately
preceding calendar year.
5.5 PAYMENT OF BASIC RENT. The Basic Rent shall be remitted to Landlord
by check in advance on or before the first (1st) day of each and every calendar
month during the Lease Term without notice or demand.
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5.6 LATE PAYMENT PENALTY. Tenant's failure to remit the Basic Rent to
Landlord with fifteen (15) days of the date due shall result in the imposition
of a five percent (5%) of the amount overdue as a late payment penalty as
additional rent to be paid by Tenant to Landlord. This late payment penalty
rent shall be in addition to any other and all remedies of Landlord hereunder.
ARTICLE 6. COUNTY LEASE PAYMENTS.
6.1 COUNTY LEASE PAYMENTS. Subject to Landlord maintaining the County
Lease as set forth in Article 24, below, Tenant covenants to pay as Additional
Rent directly to Landlord in advance, on or before the first (1st) day of each
and every calendar month during the Lease Term and any extension thereof,
without notice or demand, an amount equal to the monthly lease payment due by
Landlord to the County of Contra Costa ("County") under the County Lease for the
following month. Tenant acknowledges that the monthly amount of the County
Lease payments is currently Three Thousand One Hundred Dollars ($3,100.00).
Tenant agrees and acknowledges that the amount of the County Lease payments
shall be revalued pursuant to the terms of the County Lease, which revaluations
shall be effective as of March 16, 1995, March 16, 2005, and March 16, 2015.
Tenant further acknowledges the Landlord has made no representations to Tenant
regarding the prospective amounts of such increases in the County Lease
payments. Tenant hereby acknowledges receipt of the copy of the County Lease
and agrees to all of its covenants and conditions and accepts the Leased
Property subject to all of its terms, covenants, and conditions.
6.2 TENANT'S RIGHT OF PARTICIPATION. Landlord agrees to give Tenant or
its designee timely notice of, and any opportunity to participate in, all
hearings and negotiations regarding increases in the County Lease payments.
Upon written request of Tenant or its designee, Landlord will arrange a meeting
or meetings with officials of the County for the purpose of negotiating the
amount of any increase in the County Lease payments, and will extend to Tenant
or its designee a timely opportunity to participate in all such negotiations.
6.3 TENANT'S RIGHT TO CONTEST COUNTY LEASE RENT. Tenant or its designee
shall have the unrestricted right at its sole costs and expense and in its name,
or in the name of Landlord if required, to pursue such administrative and
judicial procedures as may be necessary to contest and appeal the amount of any
increase in the County Lease payments. At no cost to Landlord, Landlord agrees
to cooperate in all reasonable ways to further any such procedure by Tenant or
its designee.
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ARTICLE 7. TAXES.
7.1 APPLICABLE TAXES DEFINED. For the purposes of this Lease,
"Applicable Taxes" shall mean all general real property taxes and general
assessments, transit charges, fees or assessments, payments in lieu of taxes,
and any tax, fee or excise levied or assessed on the Demised Premises, any
portion thereof, or Landlord's interest therein, hereafter levied or assessed by
the United States of America, the State of California or any political
subdivision, public corporation, district or other political or public entity.
Notwithstanding anything herein to the contrary, Applicable Taxes shall not
include any portion of the foregoing which are due solely to reassessments due
to death or the transfer of the Demised Premises (or any part thereof).
7.2 TENANT TO PAY APPLICABLE TAXES. As Additional Rent and in addition
to all other sums to be paid by Tenant under this Lease, Tenant shall pay to
Landlord an amount equal to the Applicable Taxes which become due and payable
during each fiscal year during the Lease Term. Tenant shall pay all Applicable
Taxes to Landlord within thirty (30) days of Landlord's invoice to Tenant.
Tenant or its designee shall bear the expense of Applicable Taxes for whole
fiscal years during the Lease Term and, additionally, the expense thereof for
the fiscal years in which the Lease Term begins or terminates in the proportion
that the number of days the Lease Term exists within each of such fiscal years
bears to the total number of days in such fiscal year. Notwithstanding anything
herein to the contrary, Tenant shall pay all Applicable Taxes prior to the date
upon which a penalty shall be assessed by the respective taxing authorities for
the delinquent payment of any Applicable Taxes. Further, Tenant hereby agrees
to pay any penalties which may result from the delinquent payment of any
Applicable Taxes within 10 days of written demand for payment thereof by
Landlord to Tenant.
7.3 SPECIAL ASSESSMENTS. As Additional Rent and in addition all other
sums to be paid by Tenant under this Lease, Tenant shall pay to Landlord an
amount equal to any special assessments applicable to the Demised Premises, but
only to the extent that such assessments become due and payable in full or in
installments during the Lease Term. Special assessments for the fiscal years in
which the Lease Term begins or terminates shall be prorated between Landlord and
Tenant in the proportion that the number of days the Lease Term (or Tenant
occupies the Demised Premises, whichever is longer) exists within each of such
fiscal years bears to the total number of days in such fiscal year. For
purposes of this Section 7.3, payment in installments over the longest possible
term shall be deemed to have been elected in any instance where a determinable
option so to pay existed, notwithstanding that an assessment may have been, or
may hereafter be, paid in full, and Tenant shall bear the expense of only such
installments as would have become due and payable during the Lease Term had the
installment option been
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elected.
7.4 SPECIAL ASSESSMENT PARTICIPATION RIGHTS OF TENANT. Landlord agrees
to give Tenant timely notice of, and the opportunity to participate in, all
hearings and negotiations regarding special assessments affecting the Demised
Premises. Upon written request of Tenant, Landlord will arrange with proper tax
officials meeting(s) for the purposes of negotiating real estate tax assessments
against the Demised Premises, and Landlord will extend to Tenant timely notice
of, and the opportunity to participate in, all such negotiations.
7.5 TENANT'S RIGHT TO CONTEST TAXES. Tenant shall have the unrestricted
right and in its name, or in the name of Landlord if required, to pursue such
administrative and judicial procedures as may be necessary to contest and appeal
from any assessment or valuation, provided that Tenant shall post an appropriate
bond or pay under protest any billing or real estate taxes or assessments all or
part of which are borne by Tenant under the terms of this Lease as a condition
to Tenant's rights under this Section 7.5. At no cost to Landlord, Landlord
agrees to cooperate in all reasonable ways to further any such procedure by
Tenant; provided that benefits and expenses resulting from any contest with
respect to Applicable Taxes or special assessments for fiscal years in which the
Lease Term begins or terminates shall be borne ratably by Tenant and Landlord in
proportion to the amount of the reduction of the tax required to be borne by
each pursuant to the terms of this Lease in the absence of a contest thereof.
ARTICLE 8. TENANT'S TAXES.
8.1 TENANT'S TAXES GENERALLY. In addition to all other sums to be paid
by Tenant under this Lease, Tenant shall pay, before delinquency, any and all
taxes levied or assessed during the Lease Term, whether or not now customary or
within the contemplation of the parties hereto, (a) on Tenant's improvements,
equipment, furniture, fixtures and other personal property located in or on the
Demised Premises; (b) upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Demised Premises or any portion thereof; (c) upon, measured by or
reasonably attributable to the cost or value of Tenant's equipment, furniture,
fixtures and other personal property located in or on the Demised Premises or by
the cost or value of any leasehold improvements made in or to the Demised
Premises, regardless of whether title to such improvements shall be in Tenant or
Landlord; (d) upon any document to which Tenant is a party creating or
transferring an interest or an estate in the Demised Premises; and (e) all and
any other taxes which exist as of the Commencement Date and those which may be
levied and/or assessed during the Lease Term. Tenant shall reimburse Landlord
for any and all such taxes paid or payable by Landlord
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within thirty (30) days of Tenant's receipt of an invoice from Landlord.
ARTICLE 9. USE Of DEMISED PREMISES.
9.1 USE OF DEMISED PREMISES. Tenant shall use the Demised Premises as
an automobile dealership and other purposes related or incidental to an
automobile sales, leasing and service establishment. Tenant may use the Demised
Premises for purposes other than an automobile dealership and related and
ancillary uses if Tenant obtains Landlord's prior written consent which will not
be unreasonably withheld. Any change in use must comply with all zoning and
land use laws and regulations. No change of use shall be made which would
prevent, upon the termination of the Lease, the Demised Premises from
immediately being used as an automobile dealership without the necessity of
Landlord seeking a zoning change or a use permit.
ARTICLE 10. REPAIRS
10.1 ALTERATIONS. Any alterations shall remain on and be surrendered
with the premises on expiration or termination of the Lease Term, except that
Landlord can elect within thirty (30) days before expiration of the Lease Term,
or within five (5) days after the termination of the Lease Term, to require
Tenant to remove any alterations that Tenant has made to the premises. If
Landlord so elects, Tenant, at Tenant's sole cost and expense, shall restore the
premises to the condition designated by Landlord in its election, before the
last day of the Lease Term, or within 30 days after Notice of Election is given,
whichever is later. Except as herein provided, Tenant shall not, before or
during the Lease Term, make or allow to be made any alterations, physical
additions or improvement in or to the Demised Premises without First obtaining
Landlord's prior written consent, which consent shall not be unreasonably
withheld.
10.2 MAINTENANCE OF DEMISED PREMISES. Tenant shall at all times during
the Lease Term maintain the Demised Premises in good, clean and sanitary
condition at Tenant's sole cost and expense.
10.3 TENANT'S REPAIRS. Tenant shall, at its sole cost and expense,
maintain, repair, and replace the following: (a) the structural parts of the
building and other improvements that are part of the Demised Premises, which
structural parts include the foundations, bearing and exterior walls, glass and
doors, subflooring and roof; (b) the unexposed electrical, plumbing and sewage
systems, including, without limitation those portions of the systems lying
outside the premises; (c) window frames, gutters, and downspouts on the building
and other improvements that are part of the premises; (d) the entire interior
structures; (e) exterior
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landscaping and vegetative matter in and around the leased premises; (f) any and
all infrastructure, parking areas, curbs, gutters, sidewalks, and any other
structures in and about the Demised Premises. Tenant, upon demand by Landlord,
will assign and transfer to Landlord any warranty or guaranty received by Tenant
from any party who may have supplied labor, services and/or materials with
respect to any portion of the Demised Premises which Tenant is required to
repair or replace pursuant to this Lease.
10.4 MECHANIC'S LIENS. Tenant shall keep the Demised Premises free from
any liens arising out of any (a) work performed or material furnished to or on
behalf of Tenant to or for the Demised Premises for or during the Lease Term or
(b) obligations incurred by or for Tenant or any person claiming through or
under Tenant before or during the Lease Term. In the event that Tenant shall not
within thirty (30) days following the imposition of any such lien, cause same to
be released of record by payment or posting of a bond, reasonably satisfactory
to Landlord in form and substance, Landlord shall have, in addition to all other
remedies provided herein and by law, the right (but not the obligation) to cause
the lien to be released by such means as Landlord shall deem proper, including
payment of the claim giving rise to such lien. All such sums paid by Landlord
and all reasonable expenses incurred by it in connection therewith shall be
considered Additional Rent and shall be payable by Tenant within thirty (30)
days after demand. Landlord shall have the right at all times to post and keep
posted on the Demised Premises any notices permitted or required by law or that
Landlord shall reasonably deem proper for the protection of Landlord, the
Demised Premises and any other party having any interest therein, from
mechanics, materialmen and other liens. In addition to all other requirements
contained in this Lease, Tenant shall give to Landlord at least ten (10)
business days' prior written notice of commencement of any construction on the
Demised Premises.
10.5 STANDARDS FOR REPAIRS. All repairs, replacements and reconstruction,
including any alterations made pursuant to this Article 10, made by or on behalf
of Tenant or Landlord, or any person claiming through or under them, shall be
made and performed (a) in accordance with all applicable laws and regulations of
governmental authorities having jurisdiction over the Demised Premises, (b) in
accordance with such reasonable requirements as Landlord or Tenant may impose
with respect to insurance and bonds to be obtained by the other party in
connection with the proposed work, and (c) in compliance with such other
reasonable requirements as Landlord or Tenant may impose.
10.6 LANDLORD'S REPAIRS. Landlord shall make at its sole cost and
expense only those repairs necessitated by Landlord's acts or negligence of its
agents, employees or contractors.
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10.7 TENANT'S REMEDIES FOR LANDLORD'S REPAIRS. It is understood and
agreed that Landlord shall be under no obligation to make any repairs,
alterations, renewals, replacements or improvements to and upon the Demised
Premises at any time except as this Lease expressly provides. Anything to the
contrary notwithstanding contained in this Lease, Landlord shall not in any way
be liable to Tenant for failure to make repairs as herein specifically required
of it unless Tenant has previously notified Landlord in writing of the need for
such repairs and Landlord has failed to commence and complete such repairs
within a reasonable period of time following receipt of Tenant's written
notification. The cost of said repairs made by Tenant shall be Tenant's sole
and exclusive remedy against Landlord for the failure of Landlord to perform the
repairs required pursuant to this Lease.
10.8 SURRENDER OF DEMISED PREMISES. Any alteration, physical addition or
improvement in or to the Demised Premises before or during the Lease Term shall
become the property of the Landlord, and shall be surrendered to the Landlord
upon the expiration or earlier termination of this Lease; provided, however,
that this provision shall not apply to moveable equipment, trade fixtures or
furniture owned by Tenant. At Landlord's sole election, any or all of the
alterations made by or on behalf of Tenant shall be removed from the Demised
Premises at Tenant's sole cost and expense at the expiration or earlier
termination of this Lease and the Demised Premises shall be restored at Tenant's
sole cost and expense to their condition before the making of such alterations.
Tenant shall repair at its sole cost and expense all damage caused to the
Demised Premises by removal of Tenant's moveable equipment, trade fixtures or
furniture or such other alterations as Tenant shall be allowed or required to
remove from the Demised Premises by Landlord. Any of Tenant's moveable
equipment, trade fixtures or furniture not removed from the Demised Premises
within five (5) days following the expiration or earlier termination of this
Lease shall at Landlord's option become the property of Landlord or Landlord may
remove them and Tenant shall pay to Landlord the cost of removal.
ARTICLE 11. COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS
11.1 COMPLIANCE WITH LAWS. Tenant, at Tenant's sole cost and expense,
shall comply during the Lease Term with all laws, orders and regulations of
federal, state, county and municipal authorities relating to Tenant's use or
occupancy of the Demised Premises or Tenant's operations thereon.
11.2. HAZARDOUS MATERIALS. Landlord acknowledges that Tenant from time to
time may use, generate, or store hazardous materials and contaminants (as
defined hereinbelow) on or about the Demised Premises as part of the normal
operation of Tenant's business and use of the Demised Premises as set forth in
Article 9. Tenant
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agrees at its sole cost and expense to comply with Federal, State and local
laws, ordinances, and regulations and all rules, licenses, permits, orders
relating to Tenant's use, generation, storage or disposal of such hazardous
materials or contaminates. Except as provided above, Tenant shall not cause or
permit the use, generation, storage or disposal on or about the Demised Premised
of any substances, materials or waste subject to regulation under any federal,
state or local laws from time to time in effect concerning hazardous, toxic or
radioactive materials unless Tenant shall have received Landlord's prior written
consent therefore, which Landlord may withhold or revoke at any time in its sole
discretion. In addition to and notwithstanding any other rights and remedies of
Landlord under this Lease and without any grace periods, Landlord shall have the
right, in its sole discretion to require Tenant (i) to cease and desist all
activities on the Demised Premises directly or indirectly resulting in a
violation of this Section 11.2 immediately upon notice of such violation from
Landlord, and (ii) to immediately commence cure of such violation at Tenant's
expense.
11.3 COMPLIANCE WITH INSURANCE POLICIES. Tenant shall not do anything or
permit anything to be done in or about the Demised Premises that shall
invalidate or be in conflict with the provisions of any fire or other insurance
policies covering the Demised Premises or any property located therein. Tenant,
at Tenant's expense, shall comply with all rules, orders, regulations or
requirements of any Board of Fire Underwriters or other similar body.
ARTICLE 12. SUBORDINATION
12.1 SUBORDINATION GENERALLY. Tenant agrees that this Lease shall be
subject and subordinate at all times to (a) all ground leases or underlying
leases that now exist as set forth in Exhibit A and B or hereafter may be
executed with the consent of Tenant affecting the Demised Premises or any
portion thereof, including without limitation the County Lease; (b) the lien of
any mortgage or deed of trust or other security instrument (and any advances
thereunder) that may now exist or hereafter be executed in any amount for which
the Demised Premises or any portion thereof, any ground leases or underlying
leases, or Landlord's interest or estate therein is specified as security; and
(c) all modifications, renewals, supplements, consolidations and replacements
thereof, provided in all cases that Landlord shall have obtained and delivered
to Tenant, in form and content acceptable to Tenant, the written agreement of
the mortgagees or beneficiaries named in the mortgages or deeds of trust
hereafter executed to recognize the interest and not disturb the possession, use
and enjoyment of Tenant under this Lease in the event of foreclosure of
mortgage, deed of trust or other security interest, provided that Tenant is not
in default under the terms and conditions of this Lease. Subject to the
foregoing, Landlord shall have the right to
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subordinate this Lease, or cause this Lease to be subordinated, to any such
ground leases, underlying leases or liens. If any ground lease or underlying
lease terminates for any reason, or any mortgage, deed or trust or other
security agreement is foreclosed or a conveyance in lieu of foreclosure is
made for any reason, Tenant shall, notwithstanding any subordination, attorn
to and become the Tenant of the successor-in-interest to Landlord at the option
of such successor-in-interest to Landlord provided, however, that such
successor-in-interest shall recognize the leasehold estate of Tenant and not
disturb the possession, use and enjoyment and all rights of Tenant under all the
terms, covenants and conditions of the Lease for the remaining balance of the
lease Term, with the same force and effect as if such successor-in-interest were
the Landlord under the Lease. Tenant covenants and agrees to execute and
deliver upon demand by Landlord and in the form reasonably requested by
Landlord, but subject to the reasonable approval of Tenant, any additional
documents evidencing the priority or subordination of this Lease with respect to
any such ground leases, underlying leases, mortgages or deeds of trust or other
security instruments, or such other attornment and nondisturbance agreement.
ARTICLE 13. ASSIGNMENT AND SUBLETTING.
13.1 LANDLORD'S CONSENT TO ASSIGNMENT AND SUBLEASE. Subject to the
rights provided in Section 13.2, neither Tenant nor any sublessee or assignee of
Tenant shall, directly or indirectly, voluntarily or by operation of law, sell,
assign, encumber, pledge or otherwise transfer or hypothecate all or any part of
the Demised Premises or Tenant's leasehold estate hereunder, or sell or
transfer, whether pursuant to one or more transactions, including without
limitation, by consolidation, merger or reorganization, a majority of the voting
stock of Tenant if Tenant is a corporation, or a majority of the general
partnership interest of Tenant if Tenant is a partnership (each such act is
referred to herein as an "Assignment"), or sublet the Demised Premises or any
portion thereof or permit the Demised Premises to be used or occupied by anyone
other than Tenant (each such act is referred to herein as a "Sublease"), without
the prior written consent of a Landlord, which consent shall not be arbitrarily
or unreasonably refused. Landlord shall have ninety (90) days from the time
Landlord receives written notice from Tenant of its request for Landlord to
approve or disapprove of the proposed subtenant or assignee. In the event
Landlord withholds its consent to the Assignment or Sublease, Landlord shall set
forth the reasons for its withholding of consent. The failure of Landlord to
give notice of its refusal within ninety (90) days of its receipt of Tenant's
notice of Assignment or Sublease, shall be deemed an approval of the Assignment
or Sublease. Any Assignment or Sublease shall be void and, at the option of
Landlord, shall constitute a material default by Tenant under this Lease. The
acceptance of Basic Rent or Additional Rent by Landlord from a proposed
assignee, sublessee, or
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occupant of the Demised Premises shall not constitute consent to such Assignment
or Sublease by Landlord. If Tenant requests Landlord to consent to an
Assignment or Sublease, Tenant shall pay to Landlord, whether or not consent is
ultimately given, Landlord's reasonable expenses incurred in connection with
such request, including reasonable attorney's fees.
13.2 PERMITTED ASSIGNMENTS AND SUBLEASES. Notwithstanding anything in
Section 13.1 or in this Lease to the contrary, but subject to any restrictions
in the County Lease applying to the Leased Property, Tenant shall have the
right, without Landlord's consent, to make an Assignment or Sublease of the
Lease and its rights in the Demised Premises, or any portion thereof, to a
corporation which is a wholly owned subsidiary of Tenant or as part of a change
of ownership, the sale or transfer to a transferee of all or a part of the
capital stock of Tenant; provided, however that any transferee of said stock
other than Edmund G. Bartlett, Larry Wagner, and/or Donald Ludwig, or their
respective spouses or estates who has not been previously approved in writing by
Ford Motor Company to be an authorized dealer, shall execute a Personal
Guarantee of Tenant's obligation hereunder in a manner and form reasonably
acceptable to Landlord.
13.3 ALLOCATION OF SUBLEASE RENT OR ASSIGNMENT CONSIDERATION. If Tenant
receives any excess rental (Bonus Payments) from a subtenant or other payment as
consideration for assigning the Lease as part of a Sublease or Assignment, after
reimbursement of Tenant's reasonable costs, Landlord shall receive one-half
(1/2) and Tenant shall receive one-half (1/2) of such Bonus Payments.
ARTICLE 14. FIRE AND OTHER CASUALTY.
14.1 TOTAL LOSS. If the Demised Premises shall be damaged by fire,
casualty or act of God, or if any lawful authority shall order demolition or
removal (or non-use) of any structure or part thereof being a part of the
Demised Premises so as to render the Demised Premises substantially in their
entirety unfit for any of Tenant's uses referred to in Article 9 hereof (except
as a result of an act or omission of Tenant or its agents, employees,
contractors or anyone claiming under or through Tenant, or as a result of the
failure of Tenant to perform its obligations hereunder,) then Tenant, in its
reasonable discretion, shall have the right by giving written notice to landlord
within thirty (30) days after any such happening to terminate this Lease as of
the time of such happening; and Tenant's obligation to pay rent shall cease; and
rent paid shall be apportioned and the unearned portion thereof shall be
refunded to Tenant. If Tenant does not elect to terminate this Lease, Landlord
shall expeditiously rebuild and restore the Demised Premises and Basic Rent will
abate during the period that Tenant does not use the Demised Premises by reason
of such happening and the rebuilding and restoration of the Demised
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Premises.
14.2 PARTIAL LOSS. If the Demised Premises shall be damaged by any
aforesaid happening to an extent which does not render the Demised Premises
substantially in their entirety unfit for any of Tenant's such uses, then
Landlord shall expeditiously rebuild and restore the Demised Premises and Basic
Rent shall abate pro rata in the proportion of the diminution in usefulness of
the Demised Premises for the uses set forth in Article 9 hereof during the
period that Tenant is deprived of the use of the entire Demised Premises by
reason of such happening and the rebuilding and restoration of the Demised
Premises.
14.3 LOSS COVERED BY INSURANCE. Upon the completion of any rebuilding
and restoration of the Demised Premises and the receipt by Tenant of a certified
statement of the cost thereof, Tenant shall reimburse Landlord for the portion
of such costs that would have been covered by the fire and extended coverage
insurance obtained by Tenant under Section 16.2 hereof but for any deductible
permitted under that Section.
14.4 TERMINATION OF RIGHTS. If Landlord fails in any of the foregoing
events expeditiously to rebuild and restore the Demised Premises, Tenant will
have the alternative right to terminate this Lease as of the date of the
happening (if the Demised Premises substantially in their entirety have become
unfit for Tenant's use) or (if the Premises have not become unfit to that
extent) ten (10) days after the giving of such termination notice by Tenant by
serving written notice upon Landlord; provided that if Landlord notifies Tenant
within such ten (10) day period of Landlord's intention to rebuild and restore
the Demised Premises, Tenant shall not have the right to terminate this Lease
during such period if Landlord diligently pursues the rebuilding and restoration
of the Demised Premises. The rights of the Tenant to terminate pursuant to this
paragraph 14.4 shall be the Tenant's sole and exclusive remedy in the event of
Landlord's failure to rebuild and restore the Demised Premises as a result of
the foregoing events.
14.5 LOSS DURING LAST PART OF TERM. If the Demised Premises are
destroyed or damaged during the last twenty-four (24) months of the lease Term
and the estimated cost of repair exceeds ten percent (10%) of the Basic Rent
payable during the remainder of the Lease Term, either party may at its option
cancel and terminate this Lease as of the date of occurrence of such damage by
giving written notice to the other party of its election to do so within fifteen
(15) days after the date of occurrence of such damage; provided, however, that
if Tenant has the Option to extend the then-current term pursuant to Article 5
hereof, Tenant shall have the right to exercise such Option for thirty (30) days
after receipt of such notice from Landlord. If either party shall not so elect
to terminate this Lease, the repair of such damage shall be governed by the
provisions of this Article 14.
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ARTICLE 15. INDEMNIFICATION.
15.1 INDEMNIFICATION BY TENANT. To the fullest extent permitted by law
and without limitation to Landlord's rights and remedies in the event of a
breach of this Lease by Tenant, Tenant shall indemnify Landlord, and its
employees, servants, and agents against and save Landlord harmless from and
defend Landlord through attorneys satisfactory to Landlord from and against any
and all claims, loss, cost, liability, damage and expense including, without
limitation, penalties, fines and reasonable attorneys' fees, court costs,
expenses and other costs of investigation and preparation for trial (including
without limitation attorneys' fees, court costs, expenses and other costs of
investigation and preparation incurred in connection with any appeal), incurred
in connection with or arising in whole or in part from (a) any default by Tenant
in the observance or performance of any of the terms, covenants, conditions or
other obligations of this Lease to be observed or performed by tenant, or the
failure of any representation made by Tenant in this Lease, (b) the use or
occupancy or manner of use or occupancy of the Demised Premises by Tenant or any
person claiming through or under Tenant, (c) the condition of the Demised
Premises or any occurrence or happening on the Demised Premises between the
Commencement Date and the time Landlord has accepted the surrender of the
Demised Premises after the expiration or termination of the Lease Term, (d) any
acts, omissions or negligence of Tenant or any person claiming through or under
Tenant, or of the contractors, agents, servants, employees, visitors in the
Demised Premises or licensees of Tenant or any person claiming through or under
Tenant, in, on or about the Demised Premises, or (e) any and all liability
related in any way to claims based on contamination in or on the ground or
groundwater underlying the Demised Premises, or any other claims based on the
release or releases of contaminants from the Demised Premises, which are
attributed to or caused by Tenant or any other employee, agent, supplier or
customer of Tenant or anyone claiming through or under Tenant during the Lease
Term and any prior lease and/or sublease between Tenant and Landlord concerning
the Demised Premises or any part thereof.
15.2 INDEMNIFICATION BY THE LANDLORD. To the fullest extent permitted by
law and without limitation to Tenant's rights and remedies in the event of a
breach of this Lease by Landlord, Landlord shall indemnify Tenant and its
employees, servants and agents against and save Tenant harmless from and defend
Tenant through attorneys satisfactory to Tenant from and against any and all
claims, loss, cost, liability, damage and expense, including, without
limitation, penalties, fines and reasonable attorneys fees, court costs,
expenses and other costs of investigation and preparation for trial (including
without limitation attorneys fees, court costs, expenses and other costs of
investigation and preparation incurred in connection with any appeal), incurred
in connection with or arising in whole or in part from (a) any default
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by Landlord in the observance or performance of any of the terms, covenants,
conditions or other obligations of this Lease to be observed or performed by
Landlord, or the failure of any representation made by Landlord in this Lease,
(b) any intentional acts or omissions of the Landlord or any representative or
agent of the Landlord.
15.3 CONTAMINATION DEFINED. For the purposes of this Lease,
"contaminants" and "contamination" shall mean:
"(i) Any substance, product, waste or other material of any nature
whatsoever which is or becomes listed, regulated, or addressed pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. Section 9601, ET SEQ. ("CERCLA"); the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, ET SEQ.; the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ. ("RCRA"); the
Toxic Substances Control Act, 15 U.S.C. Sections 2601 ET SEQ.; the clean
Water Act, 33 U.S.C. Sections 1251 ET SEQ.; the California Hazardous
Waste Control Act, Health and Safety Code Sections 25100 ET SEQ.; the
California Hazardous Substance Account Act, Health and Safety Code Sections
25330 ET SEQ.; the California Safe Drinking Water and Toxic Enforcement
Act, Health and Safety Code Sections 25249.5 ET SEQ.; the California Health
and Safety Code Sections 25280 ET SEQ. (Underground Storage of Hazardous
Substances); the California Hazardous Waste Management Act, Health and
Safety Code Sections 25270.1 ET SEQ.; California Health and Safety Code
Sections 25501 ET SEQ.; (Hazardous Materials Release Response Plans and
Inventory); or the California Porter-Cologne Water Quality Control Act,
Water Code Sections 13000 ET SEQ., all as amended, (collectively referred
to as "the State Toxic Substances Laws") or any other federal, state or
local statute, law, ordinance, resolution, code, rule, regulation, order or
decree regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance or
material, as now or at any time hereafter in effect, (ii) any substance,
product, waste or other material of any nature whatsoever which may give
rise to liability under any of the above statutes or under any statutory or
common law theory based on negligence, trespass, intentional tort, nuisance
or strict liability or under any reported decisions of a state or federal
court, (iii) petroleum or crude oil other than petroleum and petroleum
products which are contained within regularly operated motor vehicles, and
(iv) asbestos.
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15.4 SURVIVAL; EFFECT OF INSURANCE. The indemnification obligation of
this Article 15 shall survive the expiration of earlier termination of this
Lease. The indemnification obligations of a party under this Article shall be
limited to the sum that such obligation exceeds the amount of insurance
proceeds, if any, receivable to the party being indemnified.
15.5. CONDITION OF PREMISES UPON TERMINATION. Tenant hereby agrees to
deliver the premises free of all Contamination as defined hereinabove at the
termination of the Lease Term or upon vacation of the Demised Premises whichever
shall first occur.
ARTICLE 16. INSURANCE.
16.1 PUBLIC LIABILITY INSURANCE. Tenant shall maintain in full force
and effect during the Lease Term commercial general liability insurance against
claims for bodily injury or death and property damage occurring on, in or about
the Demised Premises and the streets and alleys adjoining the Demised Premises
affording protection with respect to bodily injury or death of at least Five
Million Dollars ($5,000,000.00) for any one person and at least Five Million
Dollars ($5,000,000.00) for any one occurrence and protection with respect to
property damage of at least Three Million Dollars ($3,000,000,00). Upon sixty
(60) days prior written notice, Landlord shall have the right, in its reasonable
discretion, to increase the minimum insurance required to be maintained by
Tenant under this Section 16.1 from time to time during the Lease Term, provided
such increase is consistent with the insurance typically maintained for
comparable properties.
16.2 PROPERTY DAMAGE INSURANCE. Tenant shall maintain during the term
of this Lease fire and extended coverage insurance (a) in an amount not less
than 90% of the then full replacement cost of the Improvements, full replacement
cost being the cost of replacing the Improvements exclusive of the cost of
excavation, foundations and footings below the lowest basement floor, and (b)
subject to a maximum deductible of the higher of $1,000.00 per occurrence or
commercially reasonable standards. Without limitation of the scope of insurance
required under this Article 16, such insurance shall specifically carry an
endorsement covering any plate glass windows located on the Demised Premises.
16.3 STANDARDS FOR INSURANCE. All insurance policies required to be
carried by Tenant under this Lease shall (i) be written by companies rated A/VII
or better in "Best's Insurance Guide" and authorized to do business in
California (if and as such policies with such insurers are available on
commercially reasonable terms after reasonable efforts), (ii) with respect to
Tenant liability and umbrella policies, name Landlord and any other parties
reasonably designated by landlord as additional insureds, (iii) with respect to
Tenant property and liability policies,
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contain loss payable clauses reasonably satisfactory to Landlord, including,
without limitation, clauses providing for payment of insurance proceeds, as
their interest may appear, to Tenant or to Landlord, (iv) provide coverage on an
occurrence basis (if and as available on commercially reasonable terms after
reasonable efforts), and (v) provide (to the extent obtainable after reasonable
efforts) that Landlord shall receive thirty (30) days notice from the insurer
before any cancellation or change in coverage, and ten (10) days notice from the
insurer of cancellation for non-payment of premiums. In the event that any of
the foregoing requirements or standards, or any other requirements or standards
herein pertaining to insurance policies required to be carried by Tenant
under the Lease, cannot be satisfied or are not available on commercially
reasonable terms after reasonable effort by Tenant, then commercially reasonable
terms for insurance policies applying to comparable properties at the time shall
apply under this Lease.
16.4 INSURANCE CERTIFICATES. Tenant shall deliver policies of such
insurance or certificates thereof to Landlord on or before the Commencement
Date, and thereafter at least thirty (30) days before the expiration dates of
expiring policies; and, in the event Tenant shall fail to procure such insurance
or to deliver such policies or certificates, Landlord may, at its option and in
addition to Landlord's other remedies in the event of a default by Tenant
hereunder, procure same for the account of Tenant, and the cost thereof shall be
paid by Tenant to Landlord as Additional Rent within thirty (30) days of written
notice by Landlord to Tenant.
16.5 WAIVER OF SUBROGATION. Tenant shall obtain and maintain, if
reasonably possible, throughout the Lease Term, in the insurance policies
provided for in this Article 16, provisions to the effect that such policies
shall not be invalidated should the insured waive, in writing, before a loss,
any or all right of recovery against any party for any loss which is an insured
loss under such policies. As long as such or similar provisions are included in
such insurance policies then in force, to the extent of such insurance, Landlord
and Tenant hereby each waive any right of recovery against the other and any
lessors under any ground leases, any mortgagee of Landlord's interest in all or
any portion of the Demised Premises, and any servant, agent, employee or
contractor of the other for any insured risk covered under such policies.
ARTICLE 17. CONDEMNATION
17.1 DEFINITIONS. The term "Taking" shall mean a taking or condemnation
for public or quasi-public use during the Lease Term of all or part of the
Demised Premises, or any transfer of the Demised Premises in avoidance of an
exercise of the power of condemnation or eminent domain proceedings, or damage
to all or any part of them as the result of condemnation or eminent domain
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proceedings, or damage incidental to a public work. The term "Date of Taking"
shall mean the date on which the condemning authority is entitled to possession
or the damage is imposed, as the case may be.
17.2 NOTICE OBLIGATIONS. Forthwith upon the receipt by Landlord or
Tenant of any notice of the institution of any proceeding for the Taking of the
Demised Premises, or any part thereof, or for any street widening (other than a
Taking) or any change of grade affecting the Demised Premises or any part
thereof, the party receiving such notice shall promptly give written notice
thereof to the other party to this Lease.
17.3 TOTAL TAKING. In the event of a Taking of either the fee of, or
the use for more than twelve (12) months of, or a perpetual or temporary
easement upon, all of the Demised Premises, the term of this Lease shall
automatically expire as of the Date of Taking.
17.4 PARTIAL TAKING. In the event of a Taking of either the fee of, or
the use for more than twelve (12) months of, or a perpetual easement upon, less
than all of the Demised Premises, if Tenant, in its reasonable discretion, shall
determine that the remaining portions of the Demised Premises cannot be
satisfactorily used for all the specific purposes set forth in Article 9 hereof,
and shall forward a notice to Landlord of such determination within sixty (60)
days after the Date of Taking, then this Lease shall expire as of the Date of
Taking, or, if Tenant shall have remained in possession of the untaken part of
the Demised Premises after the Date of Taking, this Lease shall expire as of the
date specified in such notice by Tenant to Landlord; provided that such date
shall be no sooner than the date Tenant vacates the Demised Premises, nor later
than the one Hundred Eightieth (180th) day after the Date of Taking.
17.5 AWARD. In the event the term of this Lease shall expire in
accordance with the provisions of Sections 17.3 or 17.4 hereof or there is a
Taking for which the Lease continues for the remainder of the Demised Premises
in accordance with the provisions of Section 17.6, the aggregate of the awards
or other proceeds of the Taking (including any interest included in or paid with
respect to such award or proceeds) on account of Landlord's and Tenant's
interests in the Demised Premises shall be divided as between Landlord and
Tenant as follows:
A. Tenant shall be entitled to receive such portion of such
awards or proceeds, with the interest thereon, as shall represent compensation
for (i) compensation for the loss of business and goodwill; (ii) compensation
for Tenant's personal property; (iii) compensation for Tenant's unamortized
improvements; (iv) compensation for Tenant's relocation expense; (v) one half
(1/2) of the compensation received for loss of a
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favorable lease. Any severance damages for restoration of the Demised Premises
shall belong to Tenant if Tenant has agreed to continue as a tenant on the
remaining property and to use all the severance damage award for restoration of
the Demised Premises. Otherwise the severance award shall belong to Landlord.
B. Landlord shall be entitled to receive the balance of such
awards or proceeds, with the interest thereon.
17.6 ABATEMENT OR REDUCTION OF RENT. In the event of a Taking of either
the fee of, or the use for more than twelve (12) months of, or a perpetual
easement upon, less than all of the Demised Premises, and if this Lease shall
not have terminated pursuant to the provisions of Section 17.4 hereof, this
Lease shall remain in full force and effect with respect to the remainder of the
Demised Premises, except that the monthly Basic Rent, from and after the Date of
Taking, shall he reduced pro rata in the proportion which the diminution in
usefulness of the Demised Premises bears to the usefulness of the Demised
Premises immediately before the Taking.
17.7 CERTAIN EVENTS OTHER THAN TAKING. In the event of any street
widening (other than a Taking) or change of grade affecting the Demised
Premises, the aggregate of the awards or other proceeds paid in connection
therewith (including any interest included in or paid in respect of such awards
or proceeds) shall, after deducting the reasonable expenses of Landlord and
Tenant in collecting the same, be allocated between Landlord and Tenant in the
same proportion as provided above with respect to a Taking of all of the Demised
Premises, and there shall be the same reduction in Basic Rent as recited in
Section 17.6 above.
17.8 TENANT'S PERSONAL PROPERTY. Except as provided hereinabove,
nothing contained in this Article 17 shall be deemed to give to Landlord any
interest in any award for any Taking of Tenant's property or the property of any
subtenant, and all such awards shall belong to Tenant or such subtenant, as the
case may be. All claims for any such award may be filed and prosecuted by
Tenant or any subtenant, respectively.
ARTICLE 18 REMEDIES IN CASE OF DEFAULT.
18.1 EVENTS OF DEFAULT - TENANT. The following shall constitute a
default by Tenant:
A. Failure to pay rent when due, if the failure continues for
five (5) days after notice has been given to Tenant.
B. Failure to perform any other provision of the Lease if the
failure to perform is not cured within thirty (30) days after notice has been
given to Tenant. If the default cannot be
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cured in thirty (30) days; Tenant shall not be in default of the Lease if Tenant
commences to cure the default within the thirty (30) day period and diligently
and in good faith continues to cure the default. Any notice given to Tenant
shall specify the alleged default and the provision of the Lease that applies.
18.2 EVENT OF DEFAULT - LANDLORD. The following shall constitute a
default by Landlord:
A. Failure to perform a provision of the Lease if the failure
to perform is not cured within thirty (30) days after notice has been given to
Landlord. If the default cannot be cured in thirty (30) days, Landlord shall
not be in default of the Lease if Landlord commences to cure the default within
the thirty (30) day period and diligently and in good faith continues to cure
the default. Any notice given to Landlord shall specify the alleged default and
the provision of the Lease that applies.
18.3 REMEDIES. In the event of any breach of this Lease by Tenant,
Landlord shall have the following rights and remedies in addition to all other
rights and remedies available to Landlord at law or in equity:
(i) The right to terminate this Lease by giving notice to Tenant
in accordance with applicable law. In the event of any such termination, in
addition to all other amounts Landlord may recover from Tenant as a result of
such breach, Landlord shall be entitled to recover the worth at the time of the
award of the amount by which the unpaid rent for the balance of the term after
the time of award exceeds the amount of such rental loss for the same period
that Tenant proves could be reasonably avoided. The worth at the time of award
as specified in California Civil Code Sections 1951.2 (a) (1) and 1951.2 (a) (2)
shall be computed with interest at the maximum allowable rate pursuant to
California law;
(ii) The remedy described in California Civil Code Section 1951.4
(Landlord may continue Lease in effect after Tenant's breach and abandonment and
recover rent as it becomes due, if Tenant has right to sublet or assign, subject
only to reasonable limitations). Acts of maintenance or preservation, efforts
to relet the Demised Premises or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not of themselves
constitute a termination of Lessee's right to possession;
(iii) The right and power, as attorney in fact for Tenant, to
enter the Demised Premises and remove therefrom all persons and property, to
store such property in a public warehouse or elsewhere at the cost of and for
the account of Tenant, and to sell such property and apply the proceeds
therefrom pursuant to applicable California law. In such event Landlord, as
attorney in fact for Tenant, may from time to time sublet the Demised Premises
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or part thereof for such term or terms (which may extend beyond the term of this
Lease) and at such rent and such other terms as Landlord in its sole discretion
may deem advisable, with the right to make alterations and repairs to the
Demised Premises. Upon each such subletting, rents received shall be applied by
Landlord first, to payment of any indebtedness other than rent and other charges
due under this Lease from Tenant to Landlord; second, to the payment of any
costs of such subletting (including without limitation attorneys' and
accountants' fees, costs of alterations of the Demised Premises, interest costs
and brokers' fees); third to payment of rent and other charges due and unpaid
under this Lease; and the residue, if any, shall be held by Landlord and applied
in payment of future rent and other charges as they become due under this Lease.
If the amounts actually received from any such subtenant are at any time not
sufficient to pay all unpaid rent and other charges then due under this Lease,
Tenant shall promptly pay any such deficiency to Landlord along with any other
amounts due under this Lease. No taking possession of the Demised Premises by
Landlord, as attorney in fact for Tenant, shall be construed as an election on
Lessor's part to terminate this Lease unless a written notice of such
termination is given to Tenant. Landlord's subletting the Demised Premises
without termination shall not constitute a waiver of Landlord's right to
subsequently terminate this Lease for that (or any other) breach; and
(iv) The right to have a receiver appointed for Tenant, upon
application by Landlord, to take possession of the Demised Premises, to apply
any rent collected from the Demised Premises and to exercise all other rights
and remedies granted to Lessor as attorney in fact for Lessee pursuant to
Section (iii) above.
18.4 NON-EXCLUSIVE RIGHTS. The exercise of any remedy provided by law,
including without limitation Section 1951.2 of the California Civil Code, or the
provisions of this Lease shall not exclude any other remedies unless they are
expressly excluded by this Lease. Any notice of default given or required to be
given by Landlord to Tenant hereunder may be combined with, serve as or include
any statutory notice required in connection with the exercise by Landlord or any
of its remedies.
18.5 INTEREST. Tenant shall pay interest at the rate of ten (10)
percent per annum but in no event higher than the maximum rate allowable
pursuant to California law from the due date of the rent until the rent is
actually paid whether or not Tenant is in default.
18.6 ESCROW. If there is a dispute as to the amount of additional rent
owed and the amount of the disputed additional rent is in excess of $25,000, the
disputed amount shall be held in escrow until the dispute is settled. When the
actual amount due is determined, the party who claimed an amount which was
closest to the actual amount shall be relieved from paying any escrow costs,
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and if any had been paid by such party, shall be entitled to be reimbursed by
the other party. Interest shall be paid on the amount actually due as defined
in paragraph 18.5 above.
ARTICLE 19. PRORATIONS UPON TERMINATION.
19.1 PRORATION OF CHARGES - GENERALLY. Upon any termination of this
Lease, Landlord and Tenant will prorate all Basic Rent, Additional Rent, and all
taxes, assessments, public utility charges and other charges (herein
collectively referred to as "Charges") required to be paid by Tenant hereunder
so that the Charges attributable to the periods up to and including the date of
any such termination of this Lease shall be borne by Tenant and the Charges
attributable to periods after the date of any such termination of this Lease
shall be borne by Landlord. The provisions of this Article shall survive any
termination of this Lease.
ARTICLE 20. RIGHT OF EACH PARTY TO PERFORM OTHER'S COVENANTS.
20.1 RIGHT OF PAYMENT OR PERFORMANCE. Each party shall have the right
at any time, after ten (10) days' notice to the other party (or without notice
in case of emergency or in case any fine, penalty, interest or cost may
otherwise be imposed or incurred), to make any payment or perform any act
required of such other party under any provision of this Lease and in exercising
such right, to incur necessary or incidental costs and expenses, including
reasonable attorney fees. Nothing herein shall imply any obligation on the part
of either party to make any payment or perform any act required of the other
party, and the exercise of the right so to do shall not constitute a release of
any obligation or a waiver of any default.
20.2 REIMBURSEMENT RIGHTS. All payments made and all costs and expenses
incurred in connection with any exercise of such right shall be reimbursed to
the party making such payments within ten (10) days after an invoice has been
sent to the other party, together with interest at the rate of ten percent (10%)
per annum, compounded monthly, or at such lower rate, if any, that is the
highest legal rate in the State of California from the respective dates of the
making of such payments or the incurring of such costs and expenses, to the
party making and paying the same. In addition to any other rights and remedies
available to either party, Landlord shall have, in respect of Tenant's failure
to make reimbursement of any amounts as aforesaid, the same rights and remedies
as in the case of default by Tenant in the payment of the Basic Rent.
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ARTICLE 21. ESTOPPEL CERTIFICATES.
21.1 RIGHT TO ESTOPPEL CERTIFICATE. Each party shall at any time and
from time to time within thirty (30) days after written notice from the other
party execute, acknowledge and deliver to the other party a statement in writing
(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 dates to which the
Basic Rent and Additional Rent are paid in advance, if any, (ii) acknowledging
that there are not, to their actual knowledge, any uncured defaults on the part
of the other party hereunder, or specifying such defaults if any are claimed,
(iii) acknowledging (if true) the accuracy of such other facts as are included
in a proposed statement prepared by the other party, and (iv) containing other
such reasonable provisions as the other party may determine. Any such statement
may be relied upon by any prospective purchaser or encumbrancer or assignee or
sublessee of the Demised Premises or of all or any portion of the Land.
21.2 PRESUMPTION OF ESTOPPEL CERTIFICATE. A party's failure to deliver
such statement within such time shall be conclusive upon such party (i) that
this Lease is in full force and effect, without modification except as may be
represented by the party requesting the certificate, (ii) that there are no
uncured defaults in the other party's performance, (iii) that not more than one
month Basic Rent has been paid in advance, and (iv) that any other statements of
fact included by the other party in the proposed statement are correct.
ARTICLE 22. NOTICES.
22.1 NOTICES - GENERALLY. All notices, demands, consent and requests
required or permitted to be given or made under this Lease shall be effective
only if rendered in writing and sent by registered, certified or express mail,
overnight service, facsimile mail or other electronic mail (followed by a first
class mailing within three (3) days, delivered personally or delivered by
expedited messenger service, addressed to Landlord or Tenant as follows:
To Landlord:
George and Lena E. Valente
3215 El Macero Drive
El Macero, California 94619
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To Tenant:
Sun Valley Ford
2285 Diamond Blvd.
Concord, CA 94520
Attn: Chief Executive Officer
Any such notice, demand, consent or request shall be deemed to have been
rendered or given on the date of receipt or refusal thereof. Either party may
change its address by giving notice to the other in the manner aforesaid.
ARTICLE 23. UTILITIES.
23.1 UTILITIES - GENERALLY. Tenant shall pay or cause to be paid all
charges incurred by Tenant for gas, electricity, light, heat and power and for
telephone and other communication services and for all other public or private
utility services which would be used, rendered or supplied upon, to or in
connection with the Demised Premises at any time during the Lease Term.
ARTICLE 24. COUNTY LEASE.
24.1 COUNTY LEASE. Landlord and Tenant acknowledge that the Leased
Property is leased by Landlord under and pursuant to the terms and conditions of
the County lease consisting of the documents recited in Exhibit B hereof.
Landlord represents and warrants to Tenant that as of the date of this Lease,
the County Lease is in full force and effect, that to their actual knowledge,
there are no material defaults on the part of the lessee under the County Lease,
and that the County Lease has not been modified or altered in any way except as
may be disclosed in Exhibit B hereof.
24.2 TENANT'S COMPLIANCE WITH COUNTY LEASE. Provided that Landlord is
not in material default of its obligations under this Lease, Tenant, in addition
to its covenants and obligations contained in this Lease, shall perform and
observe all the covenants and obligations of Landlord under the County Lease and
will comply with all rules and requirements of the County Lease applicable to
Landlord thereunder and Tenant will not do or cause to be done or permit to be
done any act or thing whereby any event of default shall occur under any
provision of the County Lease.
24.3 LANDLORD'S MAINTENANCE OF COUNTY LEASE. Provided that Tenant is
not in material default of its obligations under this Lease, Landlord agrees to
maintain the County Lease during the term of this Lease, and to pay all rental
provided for in the County Lease according to its terms and to comply with or
perform all obligations of the lessee under the County Lease that the Tenant is
not obligated to perform under this Lease. Landlord further agrees
25
<PAGE>
not to modify or surrender the County lease without the prior consent of the
Tenant, such modification or surrender made without the consent of Tenant shall
be null and void and shall have no effect on the rights of the Tenant under this
Lease. Landlord further covenants and agrees to exercise its best efforts to
obtain from the County from time to time as may be requested in writing by
Tenant, an Estoppel Certificate, in form and substance acceptable to Tenant,
providing that the County Lease is unmodified and in full force and effect and
that the lessee thereunder is not in default thereunder. If requested in
writing by Tenant, Landlord shall also exercise its best efforts to obtain from
the County a Non-Disturbance and Recognition Agreement, in form and content
reasonably acceptable to Tenant, providing that in the event the County lease is
terminated for any reason prior to the termination of this Lease, and the Tenant
is not then in default under the terms of this Lease, the termination shall not
effect the validity of this Lease and that the Tenant's interest in and to the
Leased Property shall be deemed automatically assigned, transferred, and
conveyed to the County under the County Lease and that the County shall
thereafter be bound on this Lease as to the Leased Property to the same extent
that the Landlord was bound and shall have all the rights that the Landlord had
under this Lease as respects the Leased Property.
24.4 RIGHT TO CURE DEFAULT. The Tenant shall the right at any time, at
the Tenant's expense, to take any action required to be taken, but not timely
taken, by the Landlord that may be necessary to prevent a default under the
terms of the County Lease. The Tenant shall have the right to exercise any and
all of the rights and privileges of the lessee under the County Lease during the
term of this Lease and the Landlord shall consult with and cooperate with the
Tenant in the exercise of any such right.
24.5 TERMINATION RIGHT. If the County Lease shall terminate for any
reason other than by an act or omission of Tenant, its agents, employees,
contractors or anyone claiming under or through Tenant, Tenant at its option
upon giving not less than thirty (30) days advance notice of Landlord, in
addition to any other remedies it may have under this Lease or at law, may
terminate this Lease (or all of this Lease that affects the Leased Premises with
Basic Rent thereafter to be equitably abated as applies to the remaining portion
of the Demised Premises), and all of Tenant's obligations and liabilities
hereunder; provided, however, that all indemnification, hold harmless and
defense obligations relating to occurrences or omissions before the date of
termination shall survive such termination.
24.6 COUNTY CONSENT. If requested in writing by Tenant, Landlord shall
at its sole cost and expense obtain the County's consent to this Lease, as may
be required under the County Lease, in form and content reasonably acceptably to
Tenant.
26
<PAGE>
ARTICLE 25. MISCELLANEOUS.
25.1 NO WAIVER. Neither this Lease nor any term or provision hereof may
be waived, and no breach thereof shall be waived, except by a written instrument
signed by the party against which the enforcement of the waiver is sought. No
failure by Landlord to insist upon the strict performance of any obligation of
Tenant under this Lease or to exercise any right, power or remedy consequent
upon a breach thereof, no acceptance of full or partial Basic Rent or Additional
Rent during the continuance of any such breach, no course of conduct between
Landlord and Tenant, and no acceptance of possession of the Demised Premises
before the termination of the Lease Term by Landlord shall constitute a waiver
of any such breach or a waiver or modification of any term, covenant or
condition of this Lease or operate as a surrender of this Lease. No waiver of
any breach shall affect or alter this Lease, but each and every term, covenant
and condition of this Lease shall continue in full force and effect with respect
to any other then-existing or subsequent breach thereof. No payment by Tenant
or receipt by Landlord of a lesser amount than the aggregate of all Basic Rent
and Additional Rent then due under this Lease shall be deemed to be other than
on account of the first items of such Basic Rent and Additional Rent then
accruing or becoming due, unless Landlord elects otherwise. No endorsement or
statement on any check and no letter accompanying any check or other payment of
Basic Rent or Additional Rent in any such lesser amount and no acceptance by
Landlord of any such check or other payment shall constitute an accord and
satisfaction. Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Basic Rent or Additional Rent or
to pursue any other legal remedy.
25.2 CORPORATE AUTHORITY. Tenant does hereby covenant and warrant that
it is a duly authorized and valid corporation under the laws of the State of
California, that it has and is qualified to do business in California, that it
has full right and authority to enter into this Lease, and that all persons
signing on behalf of Tenant are authorized to do so.
25.3 SEVERABILITY. If any provision of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
to persons or circumstance other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each provision of this Lease
shall remain in effect and shall be enforceable to the full extent permitted by
law.
25.4 INTEGRATION. The terms of this Lease (including the Exhibits
hereto) are intended by the parties as a final expression of their agreement
with respect to such terms as are included in this Lease and may not be
contradicted by evidence of any prior or
27
<PAGE>
contemporaneous agreement, arrangement understanding or negotiation (whether
oral or written). The parties further intend that this Lease constitutes the
complete and exclusive statement of its terms, and no extrinsic evidence
whatsoever may be introduced in any judicial proceeding involving this Lease.
Neither Landlord nor Landlord's agents has made any representations or
warranties with respect to the Demised Premise, the Land or this Lease except
as expressly set forth herein. The language in all parts of this Lease shall in
all cases be construed as a whole and in accordance with its fair meaning and
not restricted for or against any party.
25.5 SURRENDER. Subject to the provisions of Article 18, upon the
expiration or sooner termination of the Lease Term, Tenant will quietly and
peacefully surrender to Landlord the Demised Premises in the condition in which
they are required to be kept as provided in Article 10, ordinary wear and tear
excepted. Upon expiration or earlier termination of this Lease, Tenant shall,
within ten (10) days of a written request of Landlord, execute, acknowledge and
deliver to Landlord a recordable deed quitclaiming to Landlord all interest of
Tenant in the Demised Premises, the Land and this Lease. Tenant agrees and
acknowledges that Landlord may sustain substantial damage in the event that
Tenant shall fail to provide Landlord with a quitclaim deed as provided in this
Section 25.5.
25.6 HOLDING OVER. Any holding over after the expiration of the Lease
Term with the consent of Landlord shall be construed to be a tenancy from month
to month at the same Basic Rent AND ADDITIONAL RENT payable during the last
month of the Lease Term and shall otherwise be on the terms and conditions
herein specified so far as applicable. No holding over by Tenant after the
Lease Term shall operate to extend the Lease Term. In the event of any
unauthorized holding over, Tenant shall indemnify Landlord against all claims
for damages by any other Tenant to whom Landlord may have leased all or any part
of the Demised Premises commencing upon or after the expiration of the Lease
Term. Any holding over without Landlord's consent shall entitle Landlord to
reenter the Demised Premises as provided in Article 18, and to enforce all other
rights and remedies provided by law or this Lease.
25.7 LAW APPLICABLE TO CONSTRUCTION. This Lease shall be construed and
enforced in accordance with the laws of the State of California.
25.8 LANDLORD'S CONSENT. Landlord covenants with Tenant that any
consent or approval all required of Landlord herein shall not be withheld or
delayed unreasonably.
25.9 COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. It shall not be
necessary to the validity of this Lease that any one
28
<PAGE>
counterpart be signed by all the parties so long as each party shall have signed
at least one counterpart.
25.10 TIME OF ESSENCE. Time is of the essence of each and every
provision of this Lease in which time of performance is a factor.
25.11 SURVIVAL. All of Tenant's covenants and obligations contained in
this Lease, including without limitation all indemnification, hold harmless and
defense obligations relating to occurrences or omissions before the date of
expiration or earlier termination hereof, shall survive the expiration or
earlier termination of this Lease. No provision of this Lease providing for
termination in certain events shall be construed as a limitation or restriction
of Landlord's rights and remedies at law or in equity available upon a breach by
Tenant of this Lease.
25.12 AMENDMENTS. No amendments or modifications of this Lease or any
agreements in connection therewith shall be valid unless in writing duly
executed by both Landlord and Tenant, expressly indicating their intention to
amend or modify the Lease.
25.13 HEADINGS. The headings of the Articles and Sections in this
Lease are for convenience only, and shall not be used to construe or interpret
the scope or intent of this Lease or in any way affect the same.
25.14 ATTORNEYS' FEES. If either party commences an action or proceeding
against the other party arising out of or in connection with this Lease, or
institutes any proceeding in a bankruptcy or similar court which has
jurisdiction over the other party or any or all of its property or assets, the
prevailing party in such action or proceeding and in any appeal in connection
therewith shall be entitled to have and recover from the unsuccessful party
reasonable attorneys' fees, court costs, expenses and other cost of
investigation and preparation at trial or on appeal. If such prevailing party
recovers a judgment in any such action, proceeding or appeal, such attorneys'
fees, court costs and expenses shall be included in and as a part of such
judgment.
25.15 RECORDING. Tenant at its option may record this Lease, or at
Tenant's or Landlord's request, each party shall execute a short form of lease
for recording purposes. Landlord shall cooperate with Tenant in every
reasonable way to place this Lease (or short form, if executed) in recordable
form. Landlord shall not record this Lease without Tenant's written consent,
but may record a short for hereof.
29
<PAGE>
25.16 BROKER. Each party represents that it has not had any dealings
with any real estate broker, finder or other person with respect to this Lease
in any manner. Each party shall hold harmless the other party from all
liability and damages resulting from any claims that may be asserted against the
other party by any broker, finder or other person, with whom the other party has
or purportedly has dealt.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
LANDLORD: TENANT:
- -------- ------
SUN VALLEY FORD, INC.
a California corporation
By: /s/ George Valente By: /s/ Edmund G. Bartlett
--------------------------- ---------------------------
George Valente, Trustee Edmund G. Bartlett
Its: Chairman and Chief
Executive
By: /s/ Lena E. Valente By: /s/ Larry Wagner
--------------------------- ---------------------------
Lena E. Valente, Trustee Larry Wagner
Its: President
By: /s/ Donald Ludwig
---------------------------
Donald Ludwig
Its: Vice President
30
<PAGE>
EXTENSION AND AMENDMENT OF LEASE
(1252 Diamond Way, Concord, California)
THIS EXTENSION AND AMENDMENT OF LEASE ("Amendment") is made and entered
into as of December 1, 1996, by and between THE BARTLETT FAMILY PARTNERSHIP, a
California limited partnership ("Lessor"), as the successor-in-interest by
assignment to EDMUND G. BARTLETT, JR. and ANNA BARTLETT, and SUN VALLEY FORD,
INC., a California corporation ("Lessee").
RECITALS:
This Amendment is made and entered into with reference to and in reliance
upon the following facts:
A. Lessee and the predecessors-in-interest of Lessor entered into that
certain Standard Industrial Lease -- Net, dated December, 1986, as supplemented
and added to by that certain Addendum to Standard Industrial Lease -- Net, made
concurrently therewith, respecting the lease of the premises commonly known as
at 1252 Diamond Boulevard in the City of Concord, County of Contra Costa, State
of California (the "Premises"), a copy of which lease and addendum are attached
hereto as EXHIBIT "A".
B. The lease was modified and the option to extend the lease was
exercised pursuant to that certain letter agreement regarding extension of
lease, dated May 1, 1993, a copy of which is attached hereto as EXHIBIT "B".
(Hereinafter, the lease and the addendum set forth in EXHIBIT "A", as so
extended and modified by such letter agreement set forth in EXHIBIT "B", shall
be referred to as the "Lease".)
C. The Lease expires on November 30, 1998, unless sooner terminated in
accordance with its terms.
D. The Premises have been transferred and conveyed to the Lessor, and all
of the prior landlords' right, title and interest in, to and under the Lease
have been assigned to the Lessor.
E. Lessor and Lessee desire to extend the Lease for an additional ten
(10) years, provide for an option to extend the term of the Lease for an
additional eight (8) years, amend the base monthly rental, and make certain
other alterations and modifications to the Lease, all on the terms and
conditions set forth below. Lessee further desires to acknowledge that Lessor
is the successor-in-interest by assignment to the prior landlord under the
Lease.
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
promises hereinafter set forth, Lessor and Lessee agree as follows:
1. ACKNOWLEDGMENT OF CONVEYANCE OF PREMISES TO LESSOR AND ASSIGNMENT OF
LEASE: Lessee hereby acknowledges that the Premises have been conveyed to the
Lessor, and that the right, title and interest of the prior landlord under the
Lease have been assigned to Lessor.
2. EXTENSION OF TERM. The term of the Lease shall be extended for an
additional period of ten (10) years from and after November 30, 1998, so that
the term of the Lease during such extension term shall run from December 1, 1998
and continue until November 30, 2008.
3. MINIMUM MONTHLY RENT DURING THE EXTENSION PERIOD. Commencing on
December 1, 1998 and continuing until November 30, 2008, the base monthly rent
payable under Section 4 of the Lease shall be adjusted to TWENTY-SEVEN THOUSAND
FIVE HUNDRED SIXTY FIVE DOLLARS (27,565.00) payable in accordance with Section 4
of the Lease. In accordance with Section 4 of the Lease, during such extension
period rental adjustments for cost of living adjustments shall be made annually
as provided in Clause 49 (provided that all references in such Clause 49 to "the
minimum monthly rent set forth in paragraph 5" shall mean and refer to "the
minimum monthly rent set forth in paragraph 4"). The additional rent provision
set forth in Section 4.1 of the Lease, as so added by paragraph B of the May 1,
1993 letter agreement, shall be deleted and of no force and effect during such
extension period.
4. OPTION TO EXTEND. Lessee shall have an option to extend the term of
the Lease for an additional eight (8) years, which option period shall run from
December 1, 2008 to and including November 30, 2016, which option shall be
exercised in accordance with all of the terms and conditions of Section 50 of
the Lease (including, without means of limitation, the adjustment of the minimum
monthly rent during the option term as described in subsection (c) of Section
50), provided that the term "five (5) year period" referred to such section 50
shall be modified to mean the "eight (8) year period."
5. AMENDMENT OF LEASE. Commencing on the date of this Amendment, the
Lessor and Lessee hereby agree to modify and amend the Lease as follows: (a)
Section 48 of the Lease (commencing with the words "Lessors are acquiring these
premises from Coca Cola Bottling Company ... " and ending with "... paid to
Lessors (whether by Lessee or directly by CCBC)." shall be deleted in its
entirety; and (b) Section 56 of the Lease (commencing with the words "A
duplicate copy of any notice ..." and ending with
<PAGE>
"Attention: Daniel N. Lempres") shall be deleted in its entirety.
6. CONSISTENT TERMS. In the event of any conflict between the terms of
this Amendment and terms of the Lease, the terms of this Amendment shall
control.
7. FULL FORCE AND EFFECT. Except as expressly provided in this
Amendment, all of the provisions of the Lease shall remain in full force and
effect.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Amendment as of
the day and year first above set forth.
"Lessor" THE BARTLETT FAMILY LIMITED PARTNERSHIP,
A California Limited Partnership
By: /s/ Edmund G. Bartlett, Jr.
--------------------------------
Name: Edmund G. Bartlett, Jr.
Its: General Partner
By: /s/ Anna Bartlett
--------------------------------
Name: Anna Bartlett
Its: General Partner
"Lessee" SUN VALLEY FORD, INC.
A California Corporation
By: /s/ Larry Wagner
--------------------------------
Name: Larry Wagner
Its: President
By: /s/ Thomas Moore
--------------------------------
Name: Thomas Moore
Its: Secretary
<PAGE>
EXHIBIT "A"
LEASE AGREEMENT
<PAGE>
WRITTEN CONSENT AND ASSIGNMENT FORM
Body Shop and Annex Building
1260 Diamond Way, Concord
CONSENT TO ASSIGNMENT
Edmund G. Bartlett as General Partner and the Bartlett Family Partnership,
the "Lessor", under a certain commercial lease dated December 1986 with Sun
Valley Ford, a California Corporation. Under paragraph twelve of the Commercial
Lease, the Lessor consents to the assignment of Sun Valley Ford's rights and
interests under the Commercial Lease to Lithia Motors, Inc. or its nominee, as
stated below. This consent will not be deemed a consent to any subsequent
assignment of the Commercial Lease, but rather any subsequent assignment will
require the consent of the Lessor. This consent may be executed in counterpart.
Faxed signature pages are acceptable.
Dated: July 15, 1997 /s/ Edmund G. Bartlett
------------------------------------------------
Edmund G. Bartlett, General Partner
The Bartlett Family Partnership
ASSIGNMENT
For valuable consideration, the receipt and adequacy of which are expressly
acknowledged, Sun Valley Ford assigns all of its right, title and interest in
and to that certain Commercial Lease dated December 1986 between the Bartlett
Family Partnership and Sun Valley Ford Lessee to Lithia Motors Inc which assumes
all rights and obligations under the commercial lease as set forth below.
Dated: July 16, 1997 Sun Valley Ford
By: /s/ J. Larry Wagner
------------------------------------------------
J. Larry Wagner, President
<PAGE>
ASSUMPTION OF LEASE
For value received, and in consideration of the above assignment by Sun
Valley Ford Inc and the written consent of Lessor herein, the undersigned hereby
agrees to and accepts the foregoing assignment, and expressly assumes and agrees
to keep, perform and fulfill all of the terms, covenants, conditions and
obligations required to be kept, performed and fulfilled by Sun Valley Ford as
lessee under the Commercial Lease, including the making of all payments due to
or payable on behalf of Lessor under the Lease when due and payable. Lithia
Motors, Inc. indemnifies and holds harmless Sun Valley Ford Inc its officers,
directors, employees and shareholders, of and from any and all claims arising
under the Commercial Lease on and after the effective date of this Assumption of
Lease, which shall be on the date escrow closes for Lithia Motors, Inc's
purchase of the assets of Sun Valley Ford Inc, a California Corporation.
Dated: July 21, 1997 Lithia Motors, Inc.
By: /s/ [ILLEGIBLE]
------------------------------------------------
its Pres.
---------------------------------------------
<PAGE>
CONSENT TO ASSIGNMENT OF LEASE
2285 DIAMOND BOULEVARD, CONCORD, CALIFORNIA 94520
GERALD VALENTE, individually and as Trustee of the JARED A. MONEZ 1994
TRUST (collectively "Landlord") under that certain Lease Agreement effective as
of June 1992, with SUN VALLEY FORD, INC., A California Corporation ("Tenant")
hereby consents to the assignment of Tenant's interest to LITHIA MOTORS, INC.
("Assignees"), provided said Assignee has been approved by Ford Motor Company as
an authorized dealer as of the date of the assignment of said Tenant's interest.
This consent shall not be deemed to be a consent to any subsequent assignment of
the Leasehold Estate. Faxed signature pages shall be acceptable.
Dated: August 4, 1997 /s/ Gerald Valente
--------------------------------
GERALD VALENTE, as an individual
Dated: August 4, 1997 /s/ Gerald Valente
--------------------------------
GERALD VALENTE, Trustee
<PAGE>
WRITTEN CONSENT AND ASSIGNMENT FORM
2285 Diamond Boulevard
CONSENT TO ASSIGNMENT
The Jared A. Monez 1994 Trust under a certain commercial lease dated June
30, 1992 with Sun Valley Ford, a California Corporation. Under Section 14.
Subleases and Assignments, page 7 of the Commercial Lease, the Lessor consents
to the assignment of Sun Valley Ford's rights and interests under the Commercial
Lease to Lithia Motors, Inc. or Lithia Real Estate Inc, as stated below. This
consent will not be deemed a consent to any subsequent assignment of the
Commercial Lease, but rather any subsequent assignment will require the consent
of the Lessor. This consent may be executed in counterpart. Faxed signature
pages are acceptable.
Dated: July ___, 1997
---------------------------------------------
by:
For the Jared Monez 1994 Trust
ASSIGNMENT
For valuable consideration, the receipt and adequacy of which are expressly
acknowledged, Sun Valley Ford assigns all of its right, title and interest in
and to that certain Commercial Lease dated June 30, 1992 between the Jared Monez
1994 Trust and Sun Valley Ford Lessee to Lithia Motors Inc or Lithia Real Estate
Inc which assumes all rights and obligations under the commercial lease as set
forth below.
Dated: July 31, 1997 Sun Valley Ford
By: /s/ J. Larry Wagner
---------------------------------------------
J. Larry Wagner, President
<PAGE>
ASSUMPTION OF LEASE
For value received, and in consideration of the above assignment by Sun
Valley Ford Inc and the written consent of Lessor herein, the undersigned hereby
agrees to and accepts the foregoing assignment, and expressly assumes and agrees
to keep, perform and fulfill all of the terms, covenants, conditions and
obligations required to be kept, performed and fulfilled by Sun Valley Ford as
lessee under the Commercial Lease, including the making of all payments due to
or payable on behalf of Lessor under the Lease when due and payable. Lithia
Motors, Inc. indemnifies and holds harmless Sun Valley Ford Inc its officers,
directors, employees and shareholders, of and from any and all claims arising
under the Commercial Lease on and after the effective date of this Assumption of
Lease, which shall be on the date escrow closes for Lithia Motors, Inc's
purchase of the assets of Sun Valley Ford Inc, a California Corporation.
Dated: July 31, 1997 Lithia Motors, Inc.
By: /s/ [ILLEGIBLE]
--------------------------------------------------
its V.P.
-----------------------------------------------
<PAGE>
EXHIBIT 23
Consent of Independent Public Accountants
We consent to the use of our report dated June 24, 1997, on our audit of the
financial statements of Sun Valley Ford, included in this Form 8-K/A-1, into
Lithia Motors, Inc.'s previously filed Registration Statement File No. 333-21673
on Form S-8.
/s/ MOSS ADAMS LLP
Santa Rosa, California
October 6, 1997
