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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-24395
BEBE STORES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2450490
(STATE OR JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
380 VALLEY DRIVE
BRISBANE, CALIFORNIA 94005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE: (415) 715-3900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, PAR VALUE OF $0.001 PER SHARE, 23,944,064 SHARES OUTSTANDING
AS OF JANUARY 20,1999.
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BEBE STORES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
December 31, 1998 (unaudited), June 30, 1998 and
December 31, 1997 (unaudited) 3
Condensed Consolidated Statements of Operations (unaudited)
Three months ended December 31, 1998 and 1997 and
Six months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows (unaudited)
Three months ended December 31, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BEBE STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, AS OF JUNE 30, DECEMBER 31,
1998 1998 1997
---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and equivalents $55,166,161 $36,651,617 $22,112,142
Receivables (net of allowance of $94,273,
$51,785 and $88,970) 202,856 256,567 114,561
Inventories, net 14,148,061 14,405,213 9,964,480
Deferred income taxes 842,835 842,835 674,447
Prepaid and other 283,213 134,760 56,966
-------- ------- ------
Total current assets 70,643,126 52,290,992 32,922,596
Equipment and improvements, net 11,554,916 9,213,358 8,367,425
Deferred income taxes 1,811,126 1,811,126 1,527,595
Other assets 1,351,883 893,252 744,981
---------- ------- -------
Total other assets 3,163,009 2,704,378 2,272,576
---------- --------- ---------
Total assets $85,361,051 $64,208,728 $43,562,597
------------ ----------- -----------
------------ ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $8,856,084 $6,921,981 $5,369,305
Accrued liabilities 11,062,805 8,470,623 8,883,553
Current portion of long-term debt 105,410 104,286 127,835
Income taxes payable 1,859,643 890,258 1,536,198
---------- ------- ---------
Total current liabilities 21,883,942 16,387,148 15,916,871
Long-term debt 17,213 82,218 125,598
Deferred rent 2,500,494 2,475,883 2,473,276
---------- --------- ---------
Total liabilities 24,401,649 18,945,249 18,515,745
Commitments and contingencies 0 0 0
Shareholders' equity:
Preferred stock-authorized 1,000,000 shares at $0.001 par
value per share: no shares issued and outstanding
Common stock-authorized 40,000,000 shares at $0.001 par
value per share; issued and outstanding 23,944,064 shares 23,944 23,890 22,640
Additional paid-in capital 17,359,090 17,078,200 5,205,610
Deferred compensation (1,628,964) (2,061,227) (2,305,579)
Retained earnings 45,205,332 30,222,616 22,124,181
---------- ---------- ----------
Total shareholders' equity 60,959,402 45,263,479 25,046,852
----------- ---------- ----------
Total liabilities and shareholders' equity $85,361,051 $64,208,728 $43,562,597
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
3
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BEBE STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 30, SIX MONTHS ENDED DECEMBER 30,
------------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $59,491,380 $43,558,084 $101,043,712 $74,775,621
Cost of sales, including buying and occupancy 27,215,360 21,145,190 47,016,054 36,709,630
---------- ---------- ---------- ----------
Gross profit 32,276,020 22,412,894 54,027,658 38,065,991
Selling, general and administrative expenses 16,306,630 13,182,460 29,507,167 22,565,225
---------- ---------- ---------- ----------
Income from operations 15,969,390 9,230,434 24,520,491 15,500,766
Other expense (income):
Interest expense 2,419 2,999 4,768 7,801
Interest income (556,038) (190,880) (1,043,801) (343,143)
Other (288) 44,062 1,003 23,319
----- ------- ----- ------
Earnings before income taxes 16,523,297 9,374,253 25,558,521 15,812,789
Provision for income taxes 6,871,365 3,851,495 10,575,805 6,492,434
---------- ---------- ---------- ---------
Net earnings $9,651,932 $5,522,758 $14,982,716 $9,320,355
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Basic earnings per share $0.40 $0.24 $0.63 $0.41
Diluted earnings per share $0.38 $0.23 $0.59 $0.39
Basic weighted average shares outstanding 23,894,384 22,639,997 23,895,289 22,639,997
Diluted weighted average shares outstanding 25,508,278 23,661,667 25,449,588 23,608,149
</TABLE>
See accompanying notes to financial statements.
4
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BEBE STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31,
-------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $14,982,716 $9,320,355
Adjustments to reconcile net earnings to cash provided
(used) by operating activities:
Non-cash compensation expense 240,851 434,421
Depreciation and amortization 1,384,896 1,039,189
Tax benefit from options exercised 106,620
Net loss on disposal of property 142,506 119,307
Store closing reserve (34,989) 626,618
Deferred income taxes (619,199)
Deferred rent (32,497) (215,777)
Changes in operating assets and liabilities:
Receivables 55,350 (51,105)
Inventories 257,153 (502,782)
Other assets (502,890) 6,970
Prepaid expenses (148,453) 29,934
Accounts payable 1,934,102 304,675
Accrued liabilities 2,592,183 2,953,372
Income taxes payable 969,385 1,005,843
-------- ---------
Net cash provided by operating activities 21,946,933 14,451,821
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and improvements (4,188,303) (1,834,889)
Proceeds from sales of equipment 9,700 1,040
Proceeds from tenant allowance 446,000 290,240
Proceeds from sale of marketable securities 77,883
---------- ------
Net cash used by investing activities (3,732,603) (1,465,726)
Cash flows from financing activities:
Borrowings from (repayments to) shareholder (1,639) 538
Repayments on capital leases & other (38,237) (38,261)
Repayments of investment note (25,645) (28,150)
Issuance of common stock 365,736
------- -------
Net cash used by financing activities 300,215 (65,873)
Net increase in cash 18,514,545 12,920,222
CASH:
Beginning of year 36,651,616 9,191,919
----------- ----------
End of year $55,166,161 $22,112,141
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 4,768 $ 7,801
------------ ------------
Cash paid for income taxes $ 9,499,800 $ 6,143,790
------------ ------------
</TABLE>
See accompanying notes to financial statements.
5
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BEBE STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTERIM FINANCIAL STATEMENTS
The accompanying Condensed Consolidated Balance Sheets of bebe stores,
inc. (the "Company") as of December 31, 1998 (the "current period") and
December 31, 1997 (the "prior period") and the interim Condensed Consolidated
Statements of Operations and Cash Flows for the three months and six months
ended December 31, 1998 and December 31, 1997 have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The Consolidated Balance Sheet at June 30,
1998 was derived from audited financial statements. The Company's business is
affected by the pattern of seasonality common to most retail apparel
businesses. The results for the current and prior periods are not necessarily
indicative of future financial results.
Certain notes and other information have been condensed or omitted from
the interim condensed Consolidated Financial Statements presented in this
Quarterly Report on Form 10-Q. Therefore, these Condensed Consolidated
Financial Statements should be read in conjunction with the Company's Fiscal
1998 Annual Report on Form 10-K.
EARNINGS PER SHARE
Under SFAS No. 128, the Company provides dual presentation of EPS on a
basic and diluted basis. The Company's granting of certain stock options
resulted in potential dilution of basic EPS. The following table summarizes the
difference between basic weighted average shares outstanding and diluted
weighted average shares outstanding used to compute diluted EPS.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Basic weighted average number of
Shares outstanding 23,894,384 22,639,997 23,895,289 22,639,997
Incremental shares from assumed
Issuance of stock options 1,613,894 1,021,680 1,554,299 968,152
--------- --------- --------- ----------
Diluted weighted average number of
Shares outstanding 25,508,278 23,661,677 25,449,588 23,608,149
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The number of incremental shares from the assumed issuance of stock options
is calculated applying the treasury stock method.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risks That May Affect Results"
in this section.
The Company's fiscal year ends on June 30 of each calendar year.
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RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
STATEMENTS OF OPERATIONS DATA: 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy (1)........ 45.7 48.5 46.5 49.1
---- ---- ---- ----
Gross profit............................................. 54.3 51.5 53.5 50.9
Selling, general and administrative expenses (2)......... 27.5 30.3 29.2 30.2
---- ---- ---- ----
Income from operations................................... 26.8 21.2 24.3 20.7
Interest and other expenses (income), net................ (1.0) (0.3) (1.0) (0.4)
----- ----- ----- -----
Earnings before income taxes............................. 27.8 21.5 25.3 21.1
Provision (benefit) for income taxes..................... 11.6 8.8 10.5 8.7
---- --- ---- ---
Net earnings............................................. 16.2% 12.7% 14.8% 12.4%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
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(1) Cost of sales includes the cost of merchandise, store occupancy costs
and buying costs.
(2) Selling, general and administrative expenses primarily consist of
non-occupancy store costs, corporate overhead and advertising costs.
NET SALES. Net sales increased to $59.5 million during the three months
ended December 31, 1998 from $43.6 million in the same period of the prior year,
an increase of $15.9 million, or 36.5%. Of this increase, $10.8 million was
attributable to the 27.7% increase in comparable store sales, and $5.1 million
was attributable to on-line sales and stores not included in the comparable
store sales base. For the six months ended December 31, 1998, net sales
increased to $101.0 million from $74.8 million in the same six-month period of
the prior year, an increase of $26.2 million, or 35.0%. Of this increase, $18.7
million was attributable to the 27.4% increase in comparable store sales for the
six-month period, and $7.5 million was attributable to on-line sales and stores
not included in the comparable store sales base. The increase in comparable
store sales was attributable to a broader product line offering, strong consumer
acceptance of the product line and improvements in the operational aspects of
the Company's business. While the Company is experiencing comparable store sales
growth increases to date that are consistent with those experienced in the
quarter ended December 31, 1998, the Company believes that such increases may be
lower in the future. The Company operated 91 stores at December 31, 1998
compared to 85 stores at December 31, 1997. The Company also sells product
through its on-line store which can be found at www.bebe.com. Sales generated by
the on-line store were significantly less than sales generated by any one store
during the quarter.
GROSS PROFIT. Gross profit, which includes the cost of merchandise, buying
and occupancy, increased to $32.3 million during the three months ended December
31, 1998 from $22.4 million for the same three-month period of the prior year,
an increase of $9.9 million, or 44.2%. As a percentage of net sales, gross
profit increased to 54.3% for the three-month period ended December 31, 1998
from 51.5% in the same three-month period of the prior year. For the six months
ended December 31, 1998, gross profit increased to $54.0 million from $38.1
million for the same six-month period of the prior year, an increase of $15.9
million, or 41.7%. As a percentage of net sales, gross profit increased to 53.5%
for the six-month period from 50.9% in the same six-month period of the prior
year. The increase in gross profit as a percentage of net sales resulted from
higher initial markups and lower markdowns associated with higher sell-through
rates, as well as reduced occupancy costs as a percentage of net sales resulting
from higher average store sales. The Company believes that the gross margins
attained during this most recent quarter are not sustainable and that gross
margins in the current and future periods will likely be lower than those
experienced in the quarter ended December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, which primarily consist of non-occupancy store costs,
corporate overhead and advertising costs, increased to $16.3 million during the
three months ended December 31, 1998 from $13.2 million in the same period of
the prior year, an increase of $3.1 million, or 23.5%. As a percentage of net
sales, these expenses decreased to 27.5% during the three-month period from
30.3% in the same period of the prior year. For the six months ended December
31, 1998, expenses increased to $29.5 million from $22.6 million in the same
six-month period of the
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prior year, an increase of $6.9 million, or 30.5%. As a percentage of net
sales, these expenses decreased to 29.2% during the six-month period from
30.2% in the same period of the prior year. This decrease as a percentage of
net sales was largely a result of decreased compensation costs.
INTEREST AND OTHER EXPENSE (INCOME), NET. The Company generated $554,000
of interest and other income (net of other expenses) during the three months
ended December 31, 1998 as compared to $144,000 in the same three-month
period of the prior year. For the six months ended December 31, 1998, the
Company generated $1.0 million of interest and other income (net of other
expenses) as compared to $312,000 in the same six-month period of the prior
year. The Company had no significant borrowings under its line of credit
during the period ended December 31, 1998. The increase of interest and other
income is a result of higher cash balances generated from operating results
and proceeds from the Company's initial public offering of stock in June 1998.
PROVISION (BENEFIT) FOR INCOME TAXES. The effective tax rate for the
three months ended December 31, 1998 was 41.6%. The rate for the six months
ended December 31, 1998 was 41.4% and for the three months ended September
30, 1998 was 41.0%.
LIQUIDITY AND CAPITAL RESOURCES
During the three fiscal years ended June 30, 1998, bebe has satisfied its
cash requirements principally through cash flow from operations, borrowings
under its revolving lines of credit and term loans. Primary uses of cash have
been to purchase merchandise inventory, to fund the construction of new stores
and to remodel and renovate stores.
The Company's working capital requirements vary widely throughout the year
and generally peak in the first and second fiscal quarters. At December 31,
1998, the Company had approximately $55.2 million of cash and cash equivalents
on hand of which $11.9 million was derived from the Company's initial public
offering in June 1998. In addition, the Company had a revolving line of credit,
under which it could borrow or issue letters of credit up to a combined total of
$5.0 million. As of December 31, 1998, there were no borrowings under the line
of credit, and letters of credit outstanding totaled $1.5 million.
Net cash provided by operating activities for the six months ended December
31, 1998 was $21.9 million. Cash provided by operating activities for the period
was primarily generated by income from operations and changes in working
capital.
Net cash used by investing activities for the six-month period was $3.7
million. The primary use of these funds was for the opening of new stores and
the implementation of new computer systems within the stores and the corporate
office.
The Company expects to make substantial capital expenditures in connection
with the opening and expansion of stores, the implementation of new systems to
support store and corporate office functions and the expansion or relocation of
its corporate offices and distribution center. The Company estimates that
capital expenditures will be between $9.0 million and $11.0 million in fiscal
1999, of which $4.2 million had been spent during the six months ended December
31, 1998. The Company expects to open approximately 10 additional stores in the
remainder of fiscal 1999 and approximately 15 stores in fiscal 2000. The Company
opened four new stores during the three months ended December 31, 1998.
Net cash provided by financing activities was $300,000 for the six months
ended December 31, 1998. The Company believes that its cash on hand, together
with its cash flow from operation, will be sufficient to meet its capital and
operating requirements through fiscal 1999. The Company's future capital
requirements, however, will depend on numerous factors, including without
limitation, the size and number of new and expanded stores, investment costs for
management information systems, potential acquisitions and/or joint ventures,
and future results of operations.
SEASONALITY OF BUSINESS AND QUARTERLY RESULTS
The Company's business varies with general seasonal trends that are
characteristic of the retail and apparel industries. As a result, net of the
impact of new store openings, the Company generates a disproportionate amount of
its annual net sales in the first half of its fiscal year (which includes the
fall and holiday selling seasons) compared to the second half of its fiscal
year. If for any reason the Company's sales were below seasonal norms during the
first half of its fiscal year, the Company's annual operating results would be
affected
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adversely. Because of the seasonality of the Company's business,
results for any quarter are not necessarily indicative of results that may be
achieved for a full fiscal year.
INFLATION
The Company does not believe that inflation has had a material effect on
the results of operations in the recent past. There can be no assurance that the
Company's business will not be affected by inflation in the future.
YEAR 2000 DATE CONVERSION
The Company has created a Year 2000 task force that is implementing a
six-phase plan with the objective of ensuring that its management information
systems will record, store, process, calculate and present calendar dates
falling on or after (and if applicable, spans of time including) January 1,
2000 in the same manner, and with the same functionality as it has in years
prior to 2000 (collectively, "Year 2000 Compliant"). As part of this
six-phase plan, the Company has completed a comprehensive review of its
information systems and is involved in a program to update computer systems
and applications in preparation for the year 2000. The Company currently
believes that this six-phase plan will be completed by July 31, 1999;
however, the Company has intentionally planned its completion date well in
advance of January 1, 2000 to allow adequate time to further test and modify
all mission critical applications should such further work be necessary.
Total expenditures related to identification, testing, conversion,
contingency, replacement and upgrading system applications are expected to
range from $400,000 to $600,000 during fiscal 1999 and 2000. As of December
31, 1998, the Company's expenditures were below the expectations for such
six-month period. In certain cases, the conversions to applications that are
year 2000 compliant will be made in conjunction with planned business system
upgrades or enhancements. In the most reasonably likely worst case scenario,
the Company's store operating and back end inventory management systems could
fail. The consequence of such failure could include the inability to record
sales transactions in the Company's stores and a breakdown in the supply
chain. Such occurrence would likely result in a loss of revenue; it is not
possible to quantify the possible range of such loss. This would necessitate
reverting to a number of manual systems for recording sales, ordering product
and replenishing the Company's stores.
The Company is attempting to contact vendors and others on whom it
relies to assure that their systems will be converted before January 1, 2000.
However, there can be no assurance that the systems of other companies on
which the Company's systems rely will be year 2000 compliant by December 31,
1999. Any such failure to convert by another company may have an adverse
effect on the Company's systems. In the most reasonably likely worst case
scenario, one or more significant supplier could be unable to continue to
adequately supply the Company after 1999. The Company's fallback position
would be to seek an alternative source of supply. However, there can be no
assurance that such alternative sources of supply would be available on
reasonable terms or at all. Such a contingency plan will be in place by the
end of fiscal year 1999. It is not practical for management to estimate the
range of financial loss, if any, which could result from the negative effect
that a disruption in supply would have on the Company's business.
Furthermore, no assurance can be given that any or all of the Company's
systems are or will be year 2000 compliant, or that the ultimate costs
required to address the year 2000 issue or the impact of any failure to
achieve substantial year 2000 compliance will not have a material adverse
effect on the Company's financial condition.
RISKS THAT MAY AFFECT RESULTS
FASHION AND APPAREL INDUSTRY RISKS. The apparel industry is subject to
rapidly evolving fashion trends, shifting consumer demands and intense
competition. The Company believes that its future success will be dependent,
in part, on its ability to anticipate, identify and capitalize upon emerging
fashion trends, including products, styles, fabrics and colors, and to
distinguish itself within the women's apparel market. If, for any reason, the
Company misinterprets the current fashion trends or consumer tastes shift and
the Company fails to respond, consumer demand for bebe products and the
Company's profitability and brand image could be significantly impaired.
Additionally, there can be no assurance that competitors of the Company will
not carry similar designs, thus undermining bebe's distinctive image and
potentially having an adverse effect on the Company's financial condition and
results of operations.
MANAGEMENT OF INVENTORY. Success in the apparel industry is dependent on a
company's ability to manage its inventory of merchandise in proportion to the
demand for such merchandise. If bebe miscalculates the consumer demand for its
products it may be faced with significant excess inventory and excess fabric for
some
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products and missed opportunities for others. Weak sales and resulting
markdowns and/or write-offs could cause the Company's profitability to be
significantly impaired and may have a material adverse effect on the Company's
financial condition and results of operations.
RISKS OF GROWTH STRATEGY. The Company's continued growth is dependent,
to a significant degree, on its ability to identify sites and open and
operate new stores on a profitable basis. bebe opened 24 stores in fiscal
1995, 18 stores in fiscal 1996, 10 stores in fiscal 1997, seven stores in
fiscal 1998 and five stores in the six-month period ended December 31, 1998.
The Company expects to open approximately 10 additional stores in the
remainder of fiscal 1999 and an additional 15 stores in fiscal 2000. Such
expansion may include the opening in selected markets of flagship stores that
will be larger and more expensive to operate than existing stores. If the
Company does not generate sufficient revenues from these flagship stores to
cover their higher costs, the Company's financial results could be negatively
affected. The success of this expansion plan is dependent upon a number of
factors, including the availability of desirable locations, the successful
negotiation of acceptable leases for such locations, the ability to manage
the expansion of the store base, the ability to source inventory adequate to
meet the needs of new stores, the ability to operate stores profitably once
opened, the development of adequate management information systems to support
expanded activity, the ability to recruit and retain new employees, the
availability of capital, and general economic and business conditions
affecting consumer confidence and spending. There can be no assurance that
the Company will be able to achieve its planned expansion on a timely and
profitable basis, if at all. In addition, a majority of the Company's new
store openings in the remainder of fiscal 1999 and fiscal 2000 will be in
existing markets. There can be no assurance that these openings will not
result in reduced net sales volumes and profitability in existing stores in
those markets.
FUTURE RESULTS OF OPERATIONS. Although the Company has been profitable
on an annual basis for each of the past five fiscal years, profitability
rates have varied widely from quarter-to-quarter and from year-to-year. In
particular, in fiscal 1996, the Company experienced a significant financial
downturn due to, among other things, a significant disruption in supply of
the Company's key fabrication, difficulty in obtaining a replacement
fabrication, certain related fashion misjudgments, failure to obtain product
deliveries in a timely manner, rapid expansion of the Company's store base,
and lack of sufficient controls and personnel to support such expanded
activity. There can be no assurance that the Company will remain profitable
in the future. Future results of operations will depend on, among other
things, the number and timing of new store openings and the Company's ability
to identify and capitalize upon changing fashion trends, hire and retain
qualified management and other personnel, maintain appropriate inventory
levels, obtain needed raw materials, identify and negotiate favorable leases
for successful store locations, reduce shrinkage and control operating costs.
Future results of operations will also depend on factors outside of the
Company's control, such as general economic conditions, availability of third
party sourcing and raw materials, and actions of competitors.
The Company believes that the rate of comparable store sales growth
achieved in recent periods is not sustainable and expects that such growth,
if any, in the current and future periods will be more moderate. Furthermore,
during these recent periods of relatively high comparable store sales growth,
the Company has experienced favorable merchandise margins due to strong
sell-through rates and attendant low markdown rates coupled with favorable
occupancy expense leverage. As comparable store sales growth moderates, the
Company anticipates a decline in merchandise margins and, accordingly, a
reduction in gross margins.
RELIANCE ON MANAGEMENT INFORMATION SYSTEMS. In the past, the Company's
investments in information systems have focused on its core store,
merchandise and financial accounting systems. Currently, the Company's focus
is on upgrading its capabilities and systems associated with its production,
merchandise allocation and distribution functions, which have not kept pace
with the Company's growth. The Company intends to make significant
investments to improve existing management information systems and implement
new systems in these areas and to implement them during fiscal 1999 and
beyond. There can be no assurance that these enhancements will be
successfully implemented. Failure to implement and integrate such systems
could have a material adverse effect on the Company's business, financial
condition and results of operations.
NEW MANAGEMENT TEAM; DEPENDENCE ON KEY PERSONNEL. The Company is
dependent upon the efforts of its key employees, particularly Manny Mashouf,
the founder, Chairman, President and Chief Executive Officer. In addition,
most of the Company's officers and other key personnel have joined the
Company since the middle of fiscal 1996 and, therefore, have relatively
little experience with the Company. None of the Company's executive officers
is bound by an employment agreement, and the relationships of such officers
with the Company are, therefore, at will. With the exception of Mr. Mashouf,
the Company does not have "key person" life insurance policies on any of its
employees. The loss of the services of Mr. Mashouf or any of its key
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officers or employees could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, the
Company will need to hire experienced executive personnel to support the
planned improvements and expansions of its business; however, there can be no
assurance that the Company will be successful in hiring such personnel in a
time frame necessary to manage and support its expansion plans.
The Company's success also depends to a significant degree on its ability
to attract and retain experienced employees. There is substantial competition
for experienced personnel, which the Company expects to continue. Many of the
companies with which bebe competes for experienced personnel have greater
financial resources than the Company. In the past, the Company has experienced
significant turnover of its retail store personnel. The Company's failure to
attract, motivate and retain qualified personnel could have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON INDEPENDENT MANUFACTURING FACILITIES AND RAW MATERIAL
SUPPLIERS. The Company does not own any production facilities and therefore
is dependent on third parties for the manufacturing of its products. Company
merchandise designed by the bebe in-house design team is manufactured by
independent manufacturers with raw materials purchased from independent mills
and other suppliers. The Company places all of its orders for production of
merchandise and raw materials by purchase order and does not have any
long-term contracts with any manufacturer or supplier. The Company competes
with other companies for production facilities and raw materials. In the
past, particularly in fiscal 1996, the Company had difficulty obtaining
needed quantities of raw materials on a timely basis because of competition
with other apparel vendors for raw materials. Such failure to obtain
sufficient quantities of raw materials has had an adverse effect on the
Company's financial condition in the past and may in the future. Furthermore,
the Company has received in the past, and may receive in the future,
shipments of products from manufacturers that fail to conform to the
Company's quality control standards. In such event, unless the Company is
able to obtain replacement products in a timely manner, the Company may lose
sales. The Company's failure to maintain favorable relationships with these
production facilities and to obtain an adequate supply of quality raw
materials on commercially reasonable terms could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The violation of labor or other laws by an independent manufacturer of
the Company, or the divergence of an independent manufacturer's labor
practices from those generally accepted as ethical in the United States,
could have a material adverse effect on the Company's business, financial
condition, results of operations and brand image. While the Company recently
adopted a policy to monitor the operations of its independent manufacturers
by having an independent firm inspect these manufacturing sites, the Company
cannot control the actions of such manufacturers, and there can be no
assurance that these manufacturers will conduct their businesses using
ethical labor practices.
DEPENDENCE ON THIRD PARTY APPAREL MANUFACTURERS. A significant portion
of the Company's merchandise is developed in conjunction with third party
apparel manufacturers and, in some cases, selected directly from these
manufacturers' lines. The Company does not have long-term contracts with any
third party apparel manufacturers and purchases all of the merchandise from
such manufacturers by purchase order. Furthermore, the Company has received
in the past, and may receive in the future, shipments of products from
manufacturers that fail to conform to the Company's quality control
standards. In such event, unless the Company is able to obtain replacement
products in a timely manner, the Company may lose sales. There can be no
assurance that third party manufacturers will not supply similar products to
the Company's competitors, will not cease supplying products to the Company
completely or will supply products that satisfy the Company's quality control
standards.
RISK OF FOREIGN SOURCING. The Company purchases its raw materials from
mills and other suppliers, a significant portion of which is purchased from
suppliers outside the United States, primarily in Japan. A significant portion
of the manufacturing of its merchandise is sourced outside the United States,
primarily in Europe and Asia.
The Company is subject to the risks associated with doing business
abroad. These risks include adverse fluctuations in currency exchange rates
(particularly those of the U.S. dollar against certain foreign currencies),
changes in import duties or quotas, the imposition of taxes or other charges
on imports, the impact of foreign government regulation, political unrest,
disruption or delays of shipments and changes in economic conditions in
countries in which the Company's suppliers are located. The occurrence of any
one or more of the foregoing could adversely affect the Company's business,
financial condition and results of operations.
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The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of
foreign countries. These agreements, which have been negotiated bilaterally
either under the framework established by the Arrangement Regarding
International Trade in Textiles, known as the Multifiber Agreement, or other
applicable treaties, impose quotas on the amounts and types of merchandise
which may be imported into the United States from these countries. These
agreements also allow the United States to impose restraints at any time on
the importation of categories of merchandise that, under the terms of the
agreements, are not currently subject to specified limits. The Company's
imported products are also subject to United States customs duties which
comprise a material portion of the cost of the merchandise. A substantial
increase in customs duties would have an adverse effect on the Company's
business, financial condition and results of operations. The United States
and the countries in which the Company's products are produced or sold may,
from time to time, impose new quotas, duties, tariffs, or other restrictions,
or adversely adjust prevailing quota, duty, or tariff levels, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, a significant portion of the Company's foreign-supplied
products is produced by manufacturing facilities in China. There have been a
number of recent trade disputes between China and the United States during
which the United States has threatened to impose punitive tariffs and duties
on products imported from China and to withdraw China's "most favored nation"
trade status. The loss of the most favored nation status for China, changes
in current tariff or duty structures or the adoption by the United States of
other trade polices or sanctions adverse to China could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON INTELLECTUAL PROPERTY. The Company believes that its
trademarks and other proprietary rights are important to its success and has
registered "bebe" and "bebe moda" in the United States and certain foreign
jurisdictions. There can be no assurance that actions taken by the Company to
establish and protect its trademarks and other proprietary rights will
prevent imitation of its products or infringement of its intellectual
property rights by others. In addition there can be no assurance that others
will not resist or seek to block the sale of the Company's products as
violative of their trademark and proprietary rights. In certain states other
entities may have rights to names that contain the word "bebe," which could
limit the ability of the Company to expand in such states.
The Company is seeking to register its trademarks in targeted
international markets that it believes represent large potential markets for
the Company's products. In some of these markets, local companies currently
have registered competing marks, and/or regulatory obstacles exist that may
prevent the Company from obtaining a trademark for the bebe name or related
names. In such countries, the Company may be unable to use the bebe name
unless it purchases the right or obtains a license to use the bebe name.
There can be no assurance that the Company will be able to register
trademarks in such international markets, purchase the right or obtain a
license to use the bebe name on commercially reasonable terms, if at all.
Failure to obtain either trademark, ownership or license rights would limit
the Company's ability to expand into certain international markets or enter
such markets with the bebe name, and to capitalize on the value of its brand.
The Company is currently evaluating its opportunities to expand its
product offering and extend its geographic reach through licensing or joint
venture arrangements. The Company has limited experience with any such
arrangements, and there can be no assurance that such arrangements will be
successful. Furthermore, while the Company intends to maintain the integrity
of the presentation of bebe merchandise through the terms of any such
agreement, there can be no assurance that any licensee or joint venture
partner will comply with such standards. Any deviation from these standards
of these contracts may have a material adverse effect on the Company's brand
image.
SEASONALITY AND QUARTERLY FLUCTUATIONS. The Company has experienced
historically, and expects to continue to experience, quarterly fluctuations
in its sales volumes and levels of profitability. Net of the impact of new
store openings, the Company tends to generate larger sales and, to an even
greater extent, profitability levels in the first and second quarters (which
include the fall and holiday selling seasons) of its fiscal year. If for any
reason sales were below seasonal norms during the first and second quarters
of its fiscal year, as they were in fiscal 1996, the Company's quarterly and
annual results of operations would be adversely affected. bebe's quarterly
financial performance may also fluctuate widely as a result of a number of
other factors such as the number and timing of new store openings, acceptance
of product offerings, timing of product deliveries, actions by competitors
and effectiveness of advertising campaigns. Due to these factors, the results
of interim periods are not necessarily indicative of the results for the year.
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COMPETITION. The retail and apparel industries are highly competitive
and are characterized by low barriers to entry, and the Company expects
competition in its markets to increase. The primary competitive factors in
the Company's markets include brand name recognition, product styling,
product presentation, product pricing, store ambiance, customer service and
convenience. The Company competes with traditional department stores,
specialty store retailers, off-price retailers and direct marketers for,
among other things, raw materials, market share, retail space, finished
goods, sourcing and personnel. Many of these competitors are larger and have
substantially greater financial, distribution and marketing resources than
the Company. Any failure to compete would have a material adverse effect on
the Company's business, financial condition and results of operations.
SENSITIVITY TO ECONOMIC CONDITIONS AND CONSUMER SPENDING. The retail
and apparel industries historically have been subject to substantial
cyclical variation. A recession in the general economy or a decline in
consumer spending in the apparel industry could have a material adverse
effect on the Company's financial performance. Purchases of apparel and
related merchandise tend to decline during recessionary periods and may
decline at other times. There can be no assurance that a prolonged
economic downturn would not have a material adverse impact on the Company
or that the Company's customers would continue to make purchases during a
recession.
CONTROL BY PRINCIPAL SHAREHOLDER. As of December 31, 1998, Manny
Mashouf, the Chairman, President and Chief Executive Officer of the Company
beneficially owned approximately 86.7% of the outstanding shares of the
Company's Common Stock and as a result, acting alone, can control the
election of directors of the Company and the outcome of all issues submitted
to the shareholders of the Company. These factors may make it more
difficult for a third party to acquire shares, may discourage acquisition
bids for the Company and could limit the price that certain investors might
be willing to pay for shares of Common Stock. Such concentration of stock
ownership may have the effect of delaying, deferring or preventing a change
in control of the Company.
POTENTIAL ANTI-TAKEOVER EFFECTS. The Board of Directors has authority to
issue up to 1,000,000 shares of Preferred Stock of the Company, $0.001 par
value per share, and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any vote or
action by the shareholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such Preferred
Stock may have other rights, including economic rights, senior to the Common
Stock, and as a result, the issuance of such Preferred Stock could have a
material adverse effect on the market value of the Common Stock. The Company
has no present plan to issue shares of Preferred Stock.
DEPENDENCE ON SINGLE FACILITY. The Company currently operates a
corporate office and distribution center in Brisbane, California. Any serious
disruption at this facility whether due to fire, earthquake or otherwise
would have a material adverse effect on the Company's operations and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
YEAR 2000 COMPLIANCE. Many existing computer programs use only two
digits to identify a year in the date field. These programs were designed and
developed without considering the impact of the upcoming change in the
century. If not corrected, many computer applications could fail or create
erroneous results by or at the year 2000.
The Company has created a Year 2000 Task Force, which is implementing a
6-phase plan with the objective of ensuring that its management information
systems will be year 2000 compliant. The Company believes that this 6-phase
plan will be completed by July 31, 1999. There can be no assurance that this
6-phase plan will be successful or that year 2000 compliant issues will not
arise with respect to products furnished by third party manufactures or
suppliers that may result in unforeseen costs or delays to the Company and
therefore have a material adverse effect on the Company.
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE.
Prior to the Company's initial public offering on June 17, 1998, there has
been no public market for the Company's Common Stock. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market at or above the initial
public offering price. The stock market has from time to time experienced
extreme price and volume volatility. In addition, the market price of the
Company's Common Stock, like that of the stock of other retail and apparel
companies, may be highly volatile due to certain risks inherent in the
apparel industry. Factors such as quarter-to-quarter variations in the
Company's net sales and
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earnings and changes in financial estimates by equity research analysts or
other events or factors could cause the market price of the Common Stock to
fluctuate significantly. Further, due to the volatility of the stock market
and the prices of stocks of retail and apparel companies generally, the price
of the Common Stock could fluctuate for reasons unrelated to the operating
performance of the Company.
ABSENCE OF DIVIDENDS. The Company intends to retain any future earnings
for use in its business and, therefore, does not anticipate paying any cash
dividends on Common Stock in the foreseeable future. Future dividend policy
will depend on the Company's earnings, capital requirements and financial
condition as well as any restrictions imposed by existing credit agreements
and other factors considered relevant by the Board of Directors.
SHARES ELIGIBLE FOR FUTURE SALE. The Company has outstanding an
aggregate of 23,944,064 shares of Common Stock. Of these shares, 21,012,997
shares of Common Stock held by the existing shareholders are "restricted
securities," as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration
under Rule 144 promulgated under the Securities Act.
As of December 31, 1998, options to purchase 1,948,108 shares of Common
Stock were outstanding and exercisable, subject to certain vesting and
repurchase restrictions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10.6 Standard Industrial/Commercial Single Tenant Lease-Net dated November
30, 1998 between the Registrant and Far Western Land and Investment
Company, Inc., as amended (lease for 400 Valley Drive in Brisbane,
California).
10.7* Retail Store License Agreement between the Registrant and Sakal Duty
Free Ltd., a duly registered Israeli private company, and Sakal Sports
Ltd., a duly registered Israeli private company.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the quarter for which this report
is filed.
-------------------------------------
* Certain information in this exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b), 200.83 and 230.406.
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated February 16, 1999
bebe stores, inc.
/s/ Blair W. Lambert
-----------------------------------------
Blair W. Lambert, V.P. of Finance and
Chief Financial Officer
<PAGE>
Exhibit 10.6
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
November 30, 1998, is made by and between Far Western Land and Investment
Company, Inc., a California Corporation ("LESSOR") and bebe stores, inc., a
California Corporation ("LESSEE"), (collectively, the "PARTIES," or individually
a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 400 Valley Drive, located in the County of San Mateo, State of
California, and generally described as (describe briefly the nature of the
property and, if applicable, the "PROJECT", if the property is located within a
Project) all that real property including that approximate 34,725 square foot
("PREMISES"). (See also Paragraph 2).
1.3 TERM: Seven years and three months ("ORIGINAL TERM") commencing
February 1, 1999 ("COMMENCEMENT DATE") and ending April 30, 2006 ("EXPIRATION
DATE"). (See also Paragraph 3).
1.4 EARLY POSSESSION: Upon full execution of lease, payment of first
month's rent and security deposit and supplying a Certificate of Insurance to
Landlord ("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3).
1.5 BASE RENT: $17,500.00 per month ("BASE RENT"), payable on the first
(1st) day of each month commencing March, 1999. (See also Paragraph 4).
/X/ If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $17,500.00 as Base Rent for the period
February 1999.
1.7 SECURITY DEPOSIT: $21,703.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5).
1.8 AGREED USE: Offices, storage and distribution of fabric and other
legal related uses. (See also Paragraph 6).
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See also Paragraph 8).
1.10 REAL ESTATE BROKERS: (See also Paragraph 15).
<PAGE>
(a) REPRESENTATION: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction (check
applicable boxes):
/x/ Lee & Associates represents Lessor exclusively ("LESSOR'S BROKER");
/x/ West Bay Commercial represents Lessee exclusively ("LESSEE'S BROKER"); or
/ / ______________________ represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Broker the fee agreed to in their separate
written agreement.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by ________________________ ("GUARANTOR"). (See also Paragraph 37).
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 55 and Exhibit A (Improvement Plans), all of
which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean
and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation
with respect to such matter, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty within: (i) one year as to the
surface of the roof and the structural portions of the roof, foundations and
bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30)
days as to the remaining systems and other elements of the Building, correction
of such non-compliance shall be the obligation of Lessee at Lessee's sole cost
and expense.
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2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record, building
codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the
Start Date. Said warranty does not apply to the use to which Lessee will put
the Premises or to any Alterations or Utility Installations (as defined in
Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible
for determining whether or not the zoning is appropriate for Lessee's intended
use, and acknowledges that past uses of the Premises may no longer be allowed.
If the Premises do not comply with said warranty, Lessor shall, except as
otherwise provided, promptly after receipt of written notice from Lessee setting
forth with specificity the nature and extent of such non-compliance, rectify the
same at Lessor's expense WITH THE EXCEPTION OF THOSE ITEMS IDENTIFIED IN
PARAGRAPH 55. If Lessee does not give Lessor written notice of a non-compliance
with this warranty within six (6) months following the Start Date, correction of
that non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense. If the Applicable Requirements are hereafter changed (as opposed to
being in existence at the Start Date, which is addressed in paragraph 6.2(e)
below) so as to require during the term of this Lease the construction of an
addition to or an alteration of the Building, the remediation of any Hazardous
Substance, or the reinforcement or other physical modification of the Building
("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work
as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and
unique use of the Premises by Lessee (such as, governmentally mandated seismic
modifications), then Lessor and Lessee shall allocate the obligation to pay for
such costs pursuant to the provisions of Paragraph 7.1(c); provided, however,
that if such Capital Expenditure is required during the last two years of this
Lease or if Lessor reasonably determines that it is not economically feasible to
pay its share thereof, Lessor shall have the option to terminate this Lease upon
ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor,
in writing, within ten (10) days after receipt of Lessor's termination notice
that Lessee will pay for such Capital Expenditure. If Lessor does not elect to
terminate, and fails to tender its share of any such Capital Expenditure, Lessee
may advance such funds and deduct same, with Interest, from Rent until Lessor's
share of such costs have been fully paid. If Lessee is unable to finance
Lessor's share, or if the balance of the Rent due and payable for the remainder
of this Lease is not sufficient to fully reimburse
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Lessee on an offset basis, Lessee shall have the right to terminate this Lease
upon thirty (30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGMENTS. Lessee acknowledges that: (a) it has been advised
by Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use; (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises; and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease. In addition, Lessor acknowledges that:
(a) Broker has made no representations, promises or warranties concerning
Lessee's ability to honor the Lease or suitability to occupy the Premises; and
(b) it is Lessor's sole responsibility to investigate the financial capability
and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease (including, but not limited to, the obligations to pay Real Property Taxes
and insurance premiums and to maintain the Premises) shall, however, be in
effect during such period. Any such early possession shall not affect the
Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all
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obligations hereunder. If such written notice is not received by Lessor within
said ten (10) day period, Lessee's right to cancel shall terminate. Except as
otherwise provided, if possession is not tendered to Lessee by the Start Date
and Lessee does not terminate this Lease, as aforesaid, any period of rent
abatement that Lessee would otherwise have enjoyed shall run from the date of
delivery of possession and continue for a period equal to what Lessee would
otherwise have enjoyed under the terms hereof, but minus any days of delay
caused by the acts or omissions of Lessee. If possession of the Premises is not
delivered within four (4) months after the Commencement Date, this Lease shall
terminate unless other agreements are reached between Lessor and Lessee, in
writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence,
Lessee shall be required to perform all of its obligations under this Lease from
and after the Start Date, including the payment of Rent, notwithstanding
Lessor's election to withhold possession pending receipt of such evidence of
insurance. Further, if Lessee is required to perform any other conditions prior
to or concurrent with the Start Date, the Start Date shall occur but Lessor may
elect to withhold possession until such conditions are satisfied.
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
Rent for any period during the term hereof which is for less than one (1) full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at its address stated herein or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise
Defaults under this Lease, Lessor may use, apply or retain all or any portion of
said Security Deposit for the payment of any amount due Lessor or to reimburse
or compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional monies with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should the
Agreed Use be amended to accommodate a
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material change in the business of Lessee or to accommodate a sublessee or
assignee, Lessor shall have the right to increase the Security Deposit to the
extent necessary, in Lessor's reasonable judgment, to account for any increased
wear and tear that the Premises may suffer as a result thereof. If a change in
control of Lessee occurs during this Lease and following such change the
financial condition of Lessee is, in Lessor's reasonable judgment, significantly
reduced, Lessee shall deposit such additional monies with Lessor as shall be
sufficient to cause the Security Deposit to be at a commerically reasonable
level based on said change in financial conditions. Lessor shall not be
required to keep the Security Deposit separate from its general accounts.
Within fourteen (14) days after the expiration or termination of this Lease, if
Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise
within thirty (30) days after the Premises have been vacated pursuant to
Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit
not used or applied by Lessor. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment for any
monies to be paid by Lessee under this Lease. SECURITY DEPOSIT TO BE RETURNED
TO LESSEE AFTER THE END OF FIRST YEAR (APRIL 30, 2000), UNLESS LESSEE IS THEN IN
DEFAULT UNDER LEASE.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed
Use, or any other legal use which is reasonably comparable thereto, and for
no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage OR waste. Lessor shall not
unreasonably withhold or delay its consent to any written request for a
modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which
notice shall include an explanation of Lessor's objections to the change in
use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products
or fractions thereof. Lessee shall not engage in any activity in or on the
Premises which constitutes a Reportable Use of Hazardous Substances without the
express prior written consent of Lessor and timely compliance (at Lessee's
expense) with all Applicable Requirements. "REPORTABLE USE" shall mean (i) the
installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice,
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registration or business plan is required to be filed with, any governmental
authority, and/or (iii) the presence at the Premises of a Hazardous Substance
with respect to which any Applicable Requirements requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may use any ordinary and customary
materials reasonably required to be used in the normal course of the Agreed Use,
so long as such use is in compliance with all Applicable Requirements, is not a
Reportable Use, and does not expose the Premises or neighboring property to any
meaningful risk of contamination or damage or expose Lessor to any liability
therefor. In addition, Lessor may condition its consent to any Reportable Use
upon receiving such additional assurances as Lessor reasonably deems necessary
to protect itself, the public, the Premises and/or the environment against
damage, contamination, injury and/or liability, including, but not limited to,
the installation (and removal on or before Lease expiration or termination) of
protective modifications (such as concrete encasements) and/or increasing the
Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
(provided, however, that Lessee shall have no liability under this Lease with
respect to underground migration of any Hazardous Substance under the Premises
from adjacent properties). Lessee's obligations shall include, but not be
limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease. NO TERMINATION, CANCELLATION OR
RELEASE AGREEMENT ENTERED INTO BY LESSOR AND LESSEE SHALL RELEASE LESSEE FROM
ITS OBLIGATIONS UNDER THIS LEASE WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS
SPECIFICALLY SO AGREED BY LESSOR IN WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and
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against any and all environmental damages, including the cost of remediation,
which existed as a result of Hazardous Substances on the Premises prior to the
Start Date or which are caused by the gross negligence or willful misconduct of
Lessor, its agents or employees. Lessor's obligations, as and when required by
the Applicable Requirements, shall include, but not be limited to, the cost of
investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations" as defined in Paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate
fully in any such activities at the request of Lessor, including allowing Lessor
and Lessor's agents to have reasonable access to the Premises at reasonable
times in order to carry out Lessor's investigative and remedial
responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within SIXTY (60) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the time provided, this Lease shall terminate as of
the date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise
provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten
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(10) days after receipt of Lessor's written request, provide Lessor with copies
of all permits and other documents, and other information evidencing Lessee's
compliance with any Applicable Requirements specified by Lessor, and shall
immediately upon receipt, notify Lessor in writing (with copies of any documents
involved) of any threatened or actual claim, notice, citation, warning,
complaint or report pertaining to or involving the failure of Lessee or the
Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into Premises
at any time, in the case of an emergency, and otherwise at reasonable times, for
the purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease. The cost of any such inspections shall be
paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment or facilities, such as plumbing, heating,
ventilating, air-conditioning, electrical, lighting facilities, fire protection
system, fixtures, ceilings, floors, windows, doors, plate glass, skylights,
landscaping, driveways, signs, sidewalks and parkways located in OR on, the
Premises. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices, specifically including
the procurement and maintenance of the service contracts required by
Paragraph 7.1(b) below. Lessee's obligations shall include restorations or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair. Lessee shall, during
the term of this Lease, keep the exterior appearance of the Building in a
first-class condition consistent with the exterior appearance of other similar
facilities of comparable age and size in the vicinity. SEE ADDENDUM
PARAGRAPH 54.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment (iii) fire
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extinguishing systems, including fire alarm and/or smoke detection, AND
(iv) landscaping and irrigation systems.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor,
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation),
it is intended by the Parties hereto that Lessor have no obligation, in any
manner whatsoever, to repair and maintain the Premises, or the equipment
therein, all of which obligations are intended to be that of the Lessee. It is
the intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises, and
they expressly waive the benefit of any statute now or hereafter in effect to
the extent it is inconsistent with the terms of this Lease. SEE ADDENDUM
PARAGRAPH 55.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems, communication systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.
The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can
be removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be
deemed conditioned upon Lessee's: (i) acquiring all applicable governmental
permits, (ii) furnishing Lessor with copies of both the permits and the plans
and specifications prior to commencement of the work, and (iii) compliance with
all conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and
specifications.
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(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished to Lessee at or for use on the Premises, which
claims are or may be secured by any mechanic's or materialmen's lien against the
Premises or any interest therein. Lessee shall give Lessor not less than ten
(10) days' notice prior to the commencement of any work in, on or about the
Premises, and Lessor shall have the right to post notices of non-responsibility.
If Lessee shall contest the validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend and protect itself, Lessor and the
Premises against the same and shall pay and satisfy any such adverse judgment
that may be rendered thereon before the enforcement thereof.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal as
hereinafter provided, all Alterations and Utility Installations made by Lessee
shall be the property of Lessee, but considered a part of the Premises. Unless
otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations
and Utility Installations shall, at the expiration or termination of this Lease,
become the property of Lessor and be surrendered by Lessee with the Premises.
LESSEE AND LESSOR AGREE THAT COMPUTER, COMPUTER NETWORK, TELEPHONE AND
WORKSTATIONS AND RELATED EQUIPMENT SHALL REMAIN AT ALL TIMES THE PROPERTY OF
LESSEE AND CAN BE REMOVED FROM THE PREMISES AT ANY TIME.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not
earlier than ninety (90) and not later than thirty (30) days prior to the end of
the INITIAL term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of THE INITIAL TERM OF this Lease. Lessor may require the removal at any time
of all or any part of any Lessee Owned Alterations or Utility Installations made
without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice.
Lessee shall repair any damage occasioned by the installation, maintenance or
removal of Trade Fixtures, Lessee Owned Alterations and/or Utility
Installations, furnishings, and equipment as well as the removal of any storage
tank installed by or for Lessee, and the removal, replacement, or remediation of
any soil, material or groundwater contaminated by Lessee. Trade Fixtures shall
remain the property of Lessee and shall be removed by Lessee. The failure by
Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without
the express written consent of Lessor shall constitute a holdover under the
provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per
occurrence. Premiums for policy periods
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commencing prior to or extending beyond the Lease term shall be prorated to
correspond to the Lease term
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000 per
occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an 'insured contract' for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable to
Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party,
however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and
Lessee's personal property shall be insured by Lessee under Paragraph 8.4 rather
than by Lessor. If the coverage is available and commercially appropriate, such
policy or policies shall insure against all risks of direct physical loss or
damage (except the perils of flood and/or earthquake) including coverage for
debris removal and the enforcement of any Applicable Requirements requiring the
upgrading, demolition, reconstruction or replacement of any portion of the
Premises as the result of a covered loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has
a deductible clause, Lessee shall be liable for such deductible amount in the
event of an Insured Loss.
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(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force
a policy or policies in the name of Lessor with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one (1) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee
shall be liable for any deductible amount in the event of such loss. SAID
INSURANCE SHALL NOT COST LESSEE MORE THAN $500.00 PER YEAR.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property, Trade Fixtures and Lessee Owned
Alterations and Utility Installations. Lessee shall provide Lessor with written
evidence that such insurance is in force.
(b) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor and LESSEE makes
no representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issue of "Best's
Insurance Guide," or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited
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by the amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which can reasonably be repaired in six (6) months or less from
the date of the damage or destruction. Lessor shall notify Lessee in writing
within thirty (30) days from the date of the damage or destruction as to whether
or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which cannot reasonably be repaired in six (6) months or less
from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations
and Trade Fixtures,
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which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefore. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i) make
such restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall
not be entitled to reimbursement of any funds contributed by Lessee to repair
any such UNINSURED damage or destruction. Premises Partial Damage due to flood
or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may
be some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall
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be effective sixty (60) days following the date of such notice. In the event
Lessor elects to terminate this Lease, Lessee shall have the right within ten
(10) days after receipt of the termination notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within thirty (30) days after making such
commitment. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
after the required funds are available. If Lessee does not make the required
commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of
(i) the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period
and provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee falls to exercise such
option and provide such funds or assurance during such period, then this Lease
shall terminate on the date specified in the termination notice and Lessee's
option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
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(b) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within FORTY-FIVE (45) days after such obligation shall accrue,
Lessee may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice, of Lessee's election to terminate this Lease on a date not less than
FORTY-FIVE (45) days following the giving of such notice. If Lessee gives such
notice and such repair or restoration is not commenced within thirty (30) days
thereafter, this Lease shall terminate as of the date specified in said notice.
If the repair or restoration is commenced within said thirty (30) days, this
Lease shall continue in full force and effect. "COMMENCE" shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of assessment; real estate, general,
special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, WITH THE EXCEPTION OF a change in the ownership of the
Premises DURING INITIAL TERM OF LEASE.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to
Paragraph 10.2(b), all such payments shall be made at least ten (10) days prior
to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to the period that
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this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment.
If Lessee shall fail to pay any required Real Property Taxes, Lessor shall have
the right to pay the same, and Lessee shall reimburse Lessor therefor upon
demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any
Rent payment, Lessor may, at Lessor's option, estimate the current Real Property
Taxes, and require that such taxes be paid in advance to Lessor by Lessee,
either: (i) in a lump sum amount equal to the installment due, at least twenty
(20) days prior to the applicable delinquency date, or (ii) monthly in advance
with the payment of the Base Rent. If Lessor elects to require payment monthly
in advance, the monthly payment shall be an amount equal to the amount of the
estimated installment of taxes divided by the number of months remaining before
the month in which said installment becomes delinquent. When the actual amount
of the applicable tax bill is known, the amount of such equal monthly advance
payments shall be adjusted as required to provide the funds needed to pay the
applicable taxes. If the amount collected by Lessor is insufficient to pay such
Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such
additional sums as are necessary to pay such obligations. All monies paid to
Lessor under this Paragraph may be intermingled with other monies of Lessor and
shall not bear interest. In the event of a Breach by Lessee in the performance
of its obligations under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, at the option of Lessor, be treated
as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all or any part of
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Lessee's interest in this Lease or in the Premises without Lessor's prior
written consent WHICH WILL NOT BE UNREASONABLY WITHHELD.
(b) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable
Breach without the necessity of any notice and grace period. If Lessor elects
to treat such unapproved assignment or subletting as a noncurable Breach, Lessor
may either: (i) terminate this Lease, or (ii) upon thirty (30) days written
notice, increase the monthly Base Rent to one hundred ten percent (110%) of the
Base Rent then in effect. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(c) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease;
(ii) release Lessee of any obligations hereunder; or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a fee of $1,000 as
consideration for Lessor's considering and processing said request.
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Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed to have
assumed and agreed to conform and comply with each and every term, covenant,
condition and obligation herein to be observed or performed by Lessee during the
term of said assignment or sublease, other than such obligations as are contrary
to or inconsistent with provisions of an assignment or sublease to which Lessor
has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(b) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent WHICH WILL NOT BE
UNREASONABLY WITHHELD.
(c) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "BREACH" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises
without providing a commercially reasonable level of security, or where the
coverage of the property insurance described in Paragraph 8.3 is jeopardized as
a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any Security
Deposit required to be made by Lessee hereunder, whether to Lessor or to a third
party, when due, to provide reasonable evidence of insurance or surety bond, or
to fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) business days
following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts (SEE
PARAGRAPH 7.1(b)),
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(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information which
Lessor may reasonably require of Lessee under the terms of this Lease, where any
such failure continues for a period of TWENTY (20) days following written notice
to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph 13.1(e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or given to
Lessor was materially false.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or
obligations, within TWENTY (20) days after written notice, Lessor may, at its
option, perform such duty or obligation on Lessee's behalf, including but not
limited to the obtaining of reasonably required bonds, insurance policies, or
governmental licenses, permits or approvals. The costs and expenses of any such
performance by Lessor shall be due and payable by Lessee upon receipt of invoice
therefor. If any check given to Lessor by Lessee shall not be honored by the
bank upon which it is drawn, Lessor, at its option, may require all future
payments to be made by Lessee to be by cashier's check. IN THE EVENT OF A
BREACH, LESSOR SHALL GIVE NOTICE OF SUCH BREACH TO LESSEE. IF THE BREACH IS NOT
CURED WITHIN TWENTY (20) DAYS LESSOR MAY, WITH OR WITHOUT FURTHER NOTICE OR
DEMAND, EXERCISE ANY RIGHT OR REMEDY WHICH THE LESSOR MAY HAVE BY REASON OF SUCH
BREACH, WITHOUT LIMITATION.
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award
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of the amount by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that the Lessee proves could have been reasonably avoided; (iii) the worth at
the time of award of the amount by which the unpaid Rent for the balance of
the term after the time of award exceeds the amount of such rental loss that
the Lessee proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Lessor for all the detriment proximately caused by
the Lessee's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom, including
but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of the District within which the Premises are located at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the
right to recover in such proceeding any unpaid Rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or any
part thereof in a separate suit. If a notice and grace period required under
Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to
perform or quit given to Lessee under the unlawful detainer statute shall
also constitute the notice required by Paragraph 13.1. In such case, the
applicable grace period required by Paragraph 13.1 and the unlawful detainer
statute shall run concurrently, and the failure of Lessee to cure the Default
within the greater of the two such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws
or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
(d) IF LESSEE'S BREACH IS SUCH THAT MORE THAN THIRTY (30) DAYS ARE
REASONABLY REQUIRED FOR ITS CURE, THEN IT SHALL NOT BE DEEMED A BREACH IF LESSEE
COMMENCES SUCH CURE WITHIN SAID THIRTY (30) DAY PERIOD AND DILIGENTLY PROSECUTES
SUCH CURE TO COMPLETION. THIS SECTION 13.2(d) SHALL NOT APPLY TO THE PAYMENTS
OF RENTS, WHICH SHALL ONLY BE DEEMED CURED IF PAID CURRENT WITHIN TWENTY DAYS OF
WRITTEN NOTICE TO LESSEE.
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13.3 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any
Rent shall not be received by Lessor within SEVEN (7) days after such amount
shall be due, then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor (IN ADDITION TO THE OVERDUE RENT) a one-time late charge equal to
SEVEN PERCENT (7%) of each such overdue amount. The Parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of such late payment. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding any provision of this Lease to
the contrary, Base Rent shall, at Lessor's option, become due and payable
quarterly in advance.
13.4 INTEREST. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to scheduled payments (such as Base
Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("INTEREST") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due but shall not exceed the maximum rate allowed by law. Interest is
payable in addition to the potential late charge provided for in Paragraph 13.4.
13.5 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and any Lender whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days are
reasonably required for its performance, then Lessor shall not be in breach if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning
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authority takes title or possession, whichever first occurs. If more than ten
percent (10%) of any building portion of the Premises, or more than twenty-five
percent (25%) of the land area portion of the Premises not occupied by any
building, is taken by Condemnation, Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in proportion to the reduction in
utility of the Premises caused by such Condemnation. Condemnation awards and/or
payments shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold, the value of the part
taken, or for severance damages; provided, however, that Lessee shall be
entitled to any compensation for Lessee's relocation expenses, loss of business
goodwill and/or Trade Fixtures, without regard to whether or not this Lease is
terminated pursuant to the provisions of this Paragraph. All Alterations and
Utility Installations made to the Premises by Lessee, for purposes of
Condemnation only, shall be considered the property of the Lessee and Lessee
shall be entitled to any and all compensation which is payable therefor. In the
event that this Lease is not terminated by reason of the Condemnation, Lessor
shall repair any damage to the Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force
and effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's
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performance, and (iii) if Lessor is the Requesting Party, not more than one
month's Rent has been paid in advance. Prospective purchasers and encumbrancers
may rely upon the Requesting Party's Estoppel Certificate, and the Responding
Party shall be estopped from denying the truth of the facts contained in said
Certificate.
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including, but not limited to,
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor. Except as provided in Paragraph 15,
upon such transfer or assignment and delivery of the Security Deposit, as
aforesaid, the prior Lessor shall be relieved of all liability with respect to
the obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined. Notwithstanding the above, and subject to the provisions
of Paragraph 20 below, the original Lessor under this Lease, and all subsequent
holders of the Lessor's interest in this Lease shall remain liable and
responsible with regard to the potential duties and liabilities of Lessor
pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each
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represents and warrants to the Brokers that it has made, and is relying solely
upon, its own investigation as to the nature, quality, character and financial
responsibility of the other Party to this Lease and as to the nature, quality
and character of the Premises. Brokers have no responsibility with respect
thereto or with respect to any default or breach hereof by either Party. The
liability (including court costs and Attorneys' fees), of any Broker with
respect to negotiation, execution, delivery or performance by either Lessor or
Lessee under this Lease or any amendment or modification hereto shall be limited
to an amount up to the fee received by such Broker pursuant to this Lease;
provided, however, that the foregoing limitation on each Broker's liability
shall not be applicable to any gross negligence or willful misconduct of such
Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by courier) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notices. Either Party may by written
notice to the other specify a different address for notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail the notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of monies or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions
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shall be of no force or effect whatsoever unless specifically agreed to in
writing by Lessor at or before the time of deposit of such payment.
25. 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. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device.
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30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disclosure Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees.
Such fees may be awarded in the same suit or recovered in a separate suit,
whether or not such action or proceeding is pursued to decision or judgment.
The term, "PREVAILING PARTY" shall include, without limitation, a Party or
Broker who substantially obtains or defeats the relief sought, as the case may
be, whether by compromise, settlement, judgment, or the abandonment by the other
Party or Broker of its claim or defense. The attorneys' fees award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor
shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or
about the Premises any ordinary "FOR SUBLEASE" sign.
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33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such consent
shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (including, but not limited to, architects', attorneys', engineers'
and other consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including, but not limited to,
consents to an assignment, a subletting or the presence or use of a Hazardous
Substance, shall be paid by Lessee upon receipt of an invoice and supporting
documentation therefor. Lessor's consent to any act, assignment or subletting
shall not constitute an acknowledgment that no Default or Breach by Lessee of
this Lease exists, nor shall such consent be deemed a waiver of any then
existing Default or Breach, except as may be otherwise specifically stated in
writing by Lessor at the time of such consent. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the imposition
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given. In the event that either Party disagrees with any determination made by
the other hereunder and reasonably requests the reasons for such determination,
the determining party shall furnish its reasons in writing and in reasonable
detail within ten (10) business days following such request.
37. GUARANTOR.
Intentionally omitted
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term hereof.
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39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the
period commencing with the giving of any notice of Default and continuing until
said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option, if, after such
exercise and prior to the commencement of the extended term, (i) Lessee fails to
pay Rent for a period of thirty (30) days after such Rent becomes due (without
any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee
three (3) or more notices of separate Default during any twelve (12) month
period, whether or not the Defaults are cured, or (iii) if Lessee commits a
Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
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
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shall have no obligation whatsoever to provide same. Lessee assumes all
responsibility for the protection of the Premises, Lessee, its agents and
invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
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.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each Party
shall, within thirty (30) days after request, deliver to the other Party
satisfactory evidence of such authority.
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.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers.
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE 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.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Chico, California Executed at: Brisbane, California
on: 12-11-98 on: 12-11-98
----------------------------------- -----------------------------------
By LESSOR: By LESSEE:
Far Western Land and Investment bebe stores, inc., a California
Company, Inc., a California Corporation
Corporation
By: /s/ Geoffrey A. Farrar By: /s/ Manny Mashouf
----------------------------------- ------------------------------------
Name Printed: Geoffrey A. Farrar Name Printed: Manny Mashouf
Title: President Title: CEO
By: By: /s/ Blair W. Lambert
----------------------------------- ------------------------------------
Name Printed: Name Printed: Blair W. Lambert
------------------------- --------------------------
Title: Title: CFO
-------------------------------- --------------------------------
Address: P.O. Box 1701 Address: 380 Valley Drive
Chico, California 95927 Brisbane, California
94005
Telephone: (530) 893-1277 Telephone: (415) 715-3900
Facsimile: (530) 891-6238 Facsimile: (415) 715-3939
Federal ID No. Federal ID No.
------------------------- ------------------------
NOTE: These forms are often modified to meet the changing requirements of
law and industry needs. Always write or call to make sure you are
utilizing the most current form: AMERICAN
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INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los
Angeles, California 90017, (213) 687-8777, Fax No. (213) 687-8616
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ADDENDUM NO. 1
This is an Amendment No. 1 ("Amendment") dated November 30, 1998, by and between
Far Western Land and Investment Company, Inc., a California Corporation
("Landlord") and bebe stores, inc., a California Corporation ("Tenant") to the
Lease dated November 30, 1998 for the space located at 400 Valley Drive,
Brisbane, California. For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree to amend
the Lease as follows:
50. RENT SCHEDULE:
Tenant shall pay to Landlord on the first day of each month, without offset
or deduction, except as may be otherwise provided for in this Lease, the
base monthly rent as follows:
February 1, 1999 to April 30, 1999: $17,500.00 per month
May 1, 1999 to April 30, 2000: $21,703.13
Beginning May 1, 2000 and each year thereafter during initial lease term,
rent shall increase annually by the increase in the Consumer Price Index
("CPI") - All Urban Consumers: San Francisco - Oakland - San Jose with a
2% minimum and 3 1/2% maximum.
51. OPTION TO EXTEND:
Provided no Event of Default has occurred and is then continuing under the
Lease, either at the time the option is exercised or at the time the
extension of the term takes effect, Tenant shall have an option to extend
the Lease term for an additional five (5) year period ("Extended Term")
commencing May 1, 2006. Tenant shall give notice of its exercise of the
option to extend the term, by giving written notice to Landlord no later
than one hundred twenty (120) days prior to the end of the Lease term
(April 30, 2006). This option shall be at then fair market rental value
for the Premises. The fair market rental shall also include increases
during the extended Lease term whether the increase is fixed or tied to the
annual change or a percentage thereof of the Consumer Price Index
("CPI") - All Urban Consumers: San Francisco - Oakland - San Jose. Upon
Tenant's request, Landlord shall, within 30 days after receipt of Tenant's
request, advise Tenant as to the fair market rental value of the Premises.
If Tenant disputes Landlord's determination, within 30 days after Tenant
notifies Landlord of such dispute, each party shall appoint a licensed real
estate appraiser (or real estate agent) having at least five (5) years'
experience in commercial real estate in San Mateo County, California, and
if, within 30 days after their appointment, such representatives cannot
reach agreement, said representatives shall jointly select a third
licensed, independent real estate appraiser or real estate agent having
similar or higher qualifications to themselves, and such third party shall,
within 30 days thereafter, determine the fair market rental value of the
Premises, which determination (i) shall be final and binding on all
parties. Each party
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shall bear the fees and expenses of its own representative, and the fees
and expenses of the third party shall be shared equally by Landlord and
Tenant.
52. NET CHARGES:
Notwithstanding any other term of this Lease, Tenant shall pay in addition
to all rent and related charges to be paid by Tenant under this Lease, to
Landlord on a monthly basis an amount equal to $0.075 p.s.f. for the net
charges which include real estate taxes, insurance and roof, parking and
truck yard, HVAC repair/replacement.
Tenant's net charges shall be adjusted annually for increases in taxes and
insurance and any service contracts that Landlord carries instead of
Tenant.
53. TENANT IMPROVEMENTS:
A. Landlord shall provide Twenty Thousand and No/100 Dollars ($20,000.00)
to Tenant to be used by Tenant to pay for Tenant Improvements.
Landlord shall build exterior ADA ramp from parking lot to front of
office, repair parking and truck yard area, landscape upgrade, and
will split (50/50) with Tenant, the reasonable cost of a new front
entry to office.
B. Tenant shall be responsible for all Tenant Improvements to Building
constructed with or during the term of this Lease, including any
required building upgrades except those Tenant Improvements that are
Landlord's responsibility listed above. All Tenant Improvements shall
be built in accordance to approved plans meeting all applicable City,
Local, State, and Federal Laws and Codes and shall be built in a good
and workmanlike manner.
C. Tenant, upon Landlord's request, shall be responsible to remove any
additional office space built by Tenant unless Tenant exercises its
option as set forth in Paragraph 51.
D. Landlord reserves the right to file a notice of non-responsibility
regarding any Tenant Improvement work it Premises.
E. The final approved tenant improvement plans for the building signed by
both Landlord and Tenant shall be included with the Lease as
Exhibit A. Landlord and Tenant agree that such plans will reflect an
increase of existing office space to approximately 10,000 to 12,000
square feet.
54. TENANT OBLIGATIONS:
Notwithstanding the terms of Paragraphs 7.1 or 52, Tenant shall not be
responsible to repair, maintain or replace warehouse walls (interiors and
exterior), exterior office wall, foundations, parking lot and truck yard,
exterior plumbing to the Premises, boilers, pressure vessels, and fences.
Tenant shall be solely responsible for the first $1,000.00 per year during
the lease term for the repair and maintenance of the roof. Landlord shall
be
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responsible for the costs of repair and maintenance of the roof in excess
of $1,000.00 per year.
55. LANDLORD'S OBLIGATION:
Landlord obligations as outlined in Paragraph 7.2 of the lease shall be
modified to the extent that Landlord is responsible to maintain and/or
replace warehouse walls (interior and exterior), exterior office wall,
foundations, parking lot and truck yard, exterior plumbing from the street
and grounds to the building. Landlord shall be responsible for the
maintenance and repair of the roof, after Tenant's payment of the first
$1,000.00 in roof maintenance and repair expense annually, as provided in
Paragraph 54.
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Exhibit 10.7
RETAIL STORE LICENSE AGREEMENT
BETWEEN
BEBE STORES, INC.,
A CALIFORNIA CORPORATION
AND
SAKAL DUTY FREE LTD., A DULY REGISTERED ISRAELI PRIVATE COMPANY,
AND
SAKAL SPORTS LTD., A DULY REGISTERED ISRAELI PRIVATE COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 1. Term.............................................................................................2
1.1 Initial Term................................................................................2
1.2 Renewal Term................................................................................2
Section 2. License..........................................................................................3
2.1 Grant and Territory.........................................................................3
2.2 No Sublicenses..............................................................................3
2.3 Use of Licensed Rights......................................................................3
2.4 Relationship of Parties.....................................................................3
Section 3. Approval of Stores...............................................................................4
3.1 Retail Stores...............................................................................4
3.2 Store Location..............................................................................4
3.3 Store Design and Construction...............................................................4
3.4 Store Ownership.............................................................................4
3.5 Store Leases/Termination of Agreement/Lease Continuation....................................4
3.6 Termination of Lease/Closure of Store.......................................................5
3.7 Risk........................................................................................5
3.8 Inspection Prior to Opening.................................................................5
3.9 Photographs of Store Upon Opening...........................................................5
Section 4. Operation of Stores..............................................................................7
4.1 Quality Standards...........................................................................7
4.2 Signs, Packaging, Etc.......................................................................7
4.3 Sequential Invoicing........................................................................7
4.4 Internal Transactions.......................................................................7
4.5 Seconds.....................................................................................7
Section 5. Advertising......................................................................................7
5.1 Contract Year Marketing Plan................................................................7
5.2 Prior Approval..............................................................................7
Minimum Advertising Expenditures. ..................................................................8
Section 6. Insurance........................................................................................8
Section 7. Additional Covenants of Licensee.................................................................9
7.1 Staffing and Notice of Internal Changes.....................................................9
</TABLE>
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<TABLE>
<CAPTION>
PAGE
<S> <C>
7.2 Financial Standing..........................................................................9
7.3 Customer Relations..........................................................................9
7.4 Scope of Obligations........................................................................9
7.5 Change in Form of Business.................................................................10
7.6 Current Ownership..........................................................................10
7.7 Notice of Proceedings......................................................................10
7.8 Records....................................................................................10
7.9 Audits.....................................................................................11
7.10 Financial Statements.......................................................................11
7.11 Periodic Reports...........................................................................11
7.12 Product Purchase Terms.....................................................................12
7.13 Minimum Product Sales......................................................................12
Section 8. Ownership of the Licensed Rights................................................................12
8.1 Ownership..................................................................................12
8.2 Property...................................................................................12
8.3 No Use of Name.............................................................................12
8.4 Registration...............................................................................12
8.5 No Challenge...............................................................................13
8.6 Infringement Suits.........................................................................13
8.7 Quitclaim of Rights........................................................................13
8.8 Copyrights.................................................................................14
8.9 Power of Attorney..........................................................................14
8.10 Confidential Information...................................................................13
8.11 Disclaimer of Validity.....................................................................14
8.12 Survival...................................................................................15
Section 9. Termination.....................................................................................15
9.1 Termination For Cause......................................................................15
9.2 Grounds For Termination For Cause..........................................................15
9.3 Bankruptcy, Insolvency or Dissolution......................................................16
9.4 Termination Option/No Cure Possible/Additional Causes......................................16
9.5 Substantial Change in Ownership, Management or Control of
Licensee or Commission of Crime............................................................16
9.6 Liability After Termination................................................................17
9.7 Effects of Termination.....................................................................17
9.8 Inventory: Right to Purchase...............................................................18
9.9 Remaining Products.........................................................................18
Section 10. Indemnification and Limitation on Liability....................................................19
10.1 Indemnification............................................................................19
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
10.2 Defense Counsel............................................................................19
10.3 No Representation or Warranty By bebe......................................................19
10.4 Limitation of Liability....................................................................19
Section 11. General........................................................................................20
11.1 Approval Procedures........................................................................20
11.2 Equitable Relief...........................................................................20
11.3 Assignments, Successors and Assigns.................................................................20
11.4 Notices.............................................................................................20
11.5 Number and Gender; Headings................................................................21
11.6 Severability...............................................................................21
11.7 Amendment and Modification.................................................................21
11.8 Governing Law and Choice of Forum..........................................................22
11.9 Taxes......................................................................................22
11.10 Entire Agreement...........................................................................22
11.11 Government Approvals and Remittances.......................................................22
11.12 Joint and Several Liability; Affiliates....................................................22
11.13 Authority to Make Agreement................................................................23
11.14 No Waiver..................................................................................23
11.15 Remedies Not Exclusive.....................................................................23
11.16 Official Language of Agreement.............................................................23
11.17 Definitions................................................................................24
</TABLE>
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<PAGE>
RETAIL STORE LICENSE AGREEMENT
THIS RETAIL STORE LICENSE AGREEMENT ("Agreement") is made and
entered into effective as of November 1, 1998, between bebe stores, inc., a
California corporation having its principal place of business at 380 Valley
Drive, Brisbane, California 94005 ("bebe"), and Sakal Duty Free Ltd., a duly
registered Israeli private company, and Sakal Sports Ltd., a duly registered
Israeli private company, each having their principal place of business at lev
Magor Building, 6 Hamachtesh Street, Holon Industrial Area, 58810 Israel
(individually and collectively, "Licensee").
RECITALS
1. A glossary of terms used with initial capital letters and
other terms defined for purposes of this Agreement is set forth in Exhibit "A"
at the end of this Agreement.
2. bebe is the owner the Marks and the Marks represent the
substantial goodwill created by bebe through the sale of high quality products
and by distributing its products only through retail outlets that conform to
bebe's strict standards for appearance, image, customer service and overall high
quality.
3. Licensee has represented to bebe that it is experienced in
the operation of high quality retail apparel stores that feature high quality
store design and fixtures and in the retail sale of high quality designer
clothing and related accessories.
4. Licensee desires to secure the right and license to use the
Marks solely in connection with the establishment and operation of a store or
stores for retail sale of the products of bebe and bebe is willing to grant
Licensee a license on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the recitals, premises and
mutual covenants contained in this Agreement, the parties agree as follows:
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SECTION 1. TERM
1.1 INITIAL TERM. The term of this Agreement shall commence on
August 1, 1998 and shall continue until July 31, 2003, unless sooner terminated
in accordance with this Agreement ("Initial Term").
1.2 RENEWAL TERM. Licensee shall have the option to renew this
Agreement for a three (3) year term through July 31, 2006 ("Renewal Term"), if
Licensee:
(a) requests renewal in writing at least one hundred
eighty (180) days but not more than two hundred seventy (270) days
before the expiration of the Initial Term;
(b) at the time it requests renewal and as of the
expiration of the Initial Term, is in compliance with all the terms of
any and all agreements between Licensee and bebe;
(c) Licensee shall have renewed or have the right to
renew the lease for its existing Store(s) for a term equal to or
greater than the Renewal Term;
(d) Licensee shall have opened at least [* * *]
and shall have done any renovation required to bring the existing
Stores in compliance with Section 3 of this Agreement; and
(e) Licensee shall have complied with the minimum
Product sales set forth in Section 7.13.
The terms of the renewal, other than new Store requirements
which are set forth in Section 3.1, shall be negotiated between bebe and
Licensee six months prior to the expiration of the Initial Term. If bebe and
Licensee do not reach an agreement in writing by three (3) months prior to the
expiration of the Initial Term, then the Agreement will expire without renewal.
If Licensee breaches the Agreement in any respect, then its option to renew the
Agreement will automatically lapse. Neither party has an obligation to renew
this Agreement at the end of the Renewal Term and Licensee expressly waives any
rights it may have under state, federal or other law to be compensated in any
way, including for goodwill, if the Agreement terminates either at the end of
the Initial Term or the Renewal Term.
* * * Confidential Treatment Requested.
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SECTION 2. LICENSE
2.1 GRANT AND TERRITORY. For the Term and subject to the other
terms and conditions of this Agreement, bebe hereby grants to Licensee a
limited, exclusive, nontransferable right and license to use the Licensed Rights
solely on or in connection with the promotion and Retail Sale of the Products
and the operation of the Stores in the Territory. The Licensed Rights may not be
used in connection with the design, manufacture, advertisement, promotion or
distribution at wholesale of any of the Products or in connection with any other
product or service. Licensee does not have the right to use any variation of the
Marks that now exist or hereafter are developed by bebe, Licensee or any other
person without the prior written consent of bebe.
2.2 NO SUBLICENSES. This Agreement does not confer upon
Licensee a right to sublicense or grant any concession in respect to any of the
rights or licenses granted to Licensee under this Agreement. Such rights may be
granted at bebe's sole discretion and only in writing from bebe to Licensee.
2.3 USE OF LICENSED RIGHTS. Licensee acknowledges that it may
be difficult for bebe to obtain registered title to all of its Licensed Rights
in the Territory and that the rights and licenses granted under this Agreement
only exist to the extent that bebe owns such Licensed Rights. Licensee shall not
use the Licensed Rights in any manner that conflicts with the rights of any
third party. If Licensee's use of the Licensed Rights infringes the rights of
any third party or weakens or impairs bebe's rights in the Licensed Rights, as
determined solely by bebe, then Licensee shall immediately terminate or modify
such use in accordance with bebe's instructions, and Licensee shall have no
right of damages, offset or termination in connection with this Agreement.
2.4 RELATIONSHIP OF PARTIES. The relationship between bebe and
Licensee is that of licensor and Licensee of intellectual property rights. In
its capacity as Licensee, Licensee shall be acting only as an independent
contractor, and not as a partner, co-venturer, agent, employee or representative
of bebe. Accordingly, Licensee shall have no authority, either express or
implied, to make any commitment or representation on behalf of bebe or incur any
debt or obligation on behalf of bebe. To the extent that Licensee purchases any
Products from bebe, it will do so for its own account and for resale in the
Territory, and not under consignment or representation. The parties acknowledge
that Licensee is not a commercial agent of bebe and further acknowledge this
Agreement does not constitute a franchise under United States federal or state
law or under any law of the Territory or any sovereignty within the Territory
and does not create a fiduciary relationship between the parties.
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SECTION 3. APPROVAL OF STORES
3.1 RETAIL STORES. Licensee shall open at least [* * *]
Before establishing any Store, Licensee shall submit to Bebe for approval any
and all information reasonably requested by bebe, using the RETAIL STORE
LOCATION APPROVAL FORM (Exhibit "B") and/or the IN-STORE SHOP LOCATION APPROVAL
FORM (Exhibit "C"), and shall comply with all of the other obligations set forth
in this Section 3.
3.2 STORE LOCATION. The Stores must be located in areas in the
Territory that are consistent with the reputation for high quality associated
with the Licensed Rights and the Products. The Stores may be independently
located or may form a corner or in-store shop, but in all cases the choice of
location requires the written prior approval of bebe.
3.3 STORE DESIGN AND CONSTRUCTION. The Stores must be
designed, constructed and furnished in all respects in accordance with any
plans, standards and specifications required by bebe. In particular, all
fittings, fixtures, furnishings, signs, equipment and methods of exterior and
interior design must conform to bebe's specifications, including the manner of
use of the Marks and other Licensed Rights. Licensee shall submit the original
design construction plans as well as any changes that Licensee wishes to make to
any approved Store design to bebe in advance for written approval, using (1) the
RETAIL STORE LOCATION APPROVAL FORM (Exhibit "B") and/or the IN-STORE SHOP
LOCATION APPROVAL FORM (Exhibit "C") and (2) the RETAIL STORE MATERIAL AND
FIXTURE LAYOUT APPROVAL FORM (Exhibit "D") and/or the IN-STORE SHOP MATERIAL AND
FIXTURE LAYOUT APPROVAL FORM (Exhibit "E"). If any regulation, ordinance or law
prevents Licensee from complying with any signage specification, Licensee shall
submit a photograph or drawing of the proposed sign that complies with such
regulation, ordinance or law to bebe for its prior written approval.
3.4 STORE OWNERSHIP. Unless expressly permitted
otherwise by bebe, the business conducted at any Store shall be entirely owned
by Licensee.
3.5 STORE LEASES/TERMINATION OF AGREEMENT/LEASE CONTINUATION.
The Store premises may be leased by Licensee provided that the terms of any
lease contract are acceptable to bebe. Each lease must contain a provision,
satisfactory to bebe, granting bebe, at no expense to bebe, the option, but not
the obligation, at its sole
* * * Confidential Treatment Requested.
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<PAGE>
discretion, to assume the lease if this Agreement expires or terminates for any
reason prior to the expiration of the lease.
3.6 TERMINATION OF LEASE/CLOSURE OF STORE. In the event a
lease for a Store terminates, with or without fault of Licensee, or if a Store
is destroyed, condemned or otherwise rendered unusable, or if the landlord for
said premises requires a Store to be moved within a mall or shopping center,
bebe may in its sole discretion withhold permission for relocation of the Store,
and if such permission is withheld, the rights granted o Licensee under this
Agreement shall terminate as to that Store.
3.7 RISK. BEBE'S APPROVAL OF A LOCATION FOR A STORE DOES NOT
CONSTITUTE A WARRANTY OR GUARANTY THAT A STORE OPERATED AT THAT LOCATION WILL BE
SUCCESSFUL. Licensee assumes all risks associated with the selection of the
location, and the operation and profitability, or lack thereof, of any Store.
3.8 INSPECTION PRIOR TO OPENING. Licensee shall notify bebe at
least twenty (20) days in advance of the proposed opening date of each Store.
bebe shall have the right to inspect the Store at any time prior to its opening.
No Store shall commence operation until any deficiencies noted by bebe are
remedied to the complete satisfaction of bebe.
3.9 PHOTOGRAPHS OF STORE UPON OPENING. Within ten (10) days
after the opening of each Store, Licensee shall deliver to bebe two (2) sets of
photographs of the Store, each set consisting of one (1) 8 inch x 10 inch
photograph that shows the interior and one (1) 8 inch x 10 inch photograph that
shows the exterior, of the Store.
SECTION 4. OPERATION OF STORES
4.1 QUALITY STANDARDS. Licensee acknowledges that bebe has
made a substantial investment in developing and manufacturing Products of high
quality and design and developing and fostering an image and reputation of high
quality, design, prestige and integrity under its Marks and that the consuming
public and industry now associate the Marks with products of consistently high
quality and design. Licensee further acknowledges that the terms and conditions
of this Agreement are reasonable and necessary to assure that the Store premises
are maintained and the Stores are operated in a manner that is consistent with
bebe's image and reputation. Licensee shall comply with the standards of
operations and merchandising established by bebe from time to time. bebe may
change, review, amend or extend such standards, in its sole discretion, upon
reasonable notice to Licensee. Without limitation to the foregoing, Licensee
agrees to the following:
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(a) to stock at each of the Stores the minimum
variety of the Products in commercial quantities of styles and sizes
specified by bebe after consultation with Licensee from time to time,
but not less than those quantities sufficient to meet the demands of
customers of the Stores;
(b) to follow and adhere to the standards,
requirements, systems, training, procedures and forms dictated by bebe;
(c) not to sell at the Stores, without the prior
written approval of bebe, products not purchased from bebe or its other
licensees or products bearing any trademark other than the bebe Marks;
(d) not to use or associate the Marks or other
Licensed Rights with any other name, corporate name, store name,
trademarks, character or personality;
(e) to maintain the interior and exterior of the
Stores and the surrounding premises in safe, good, clean and attractive
condition, equal to the standards of the stores operated by bebe in the
United States of America;
(f) that all products offered for sale by Licensee in
the Stores must bear tags, labels or other items incorporating the
Marks;
(g) to comply with all applicable laws, regulations,
ordinances, zoning codes, orders and the like as they pertain to the
construction, appearance, and operation of the Stores;
(h) to notify bebe immediately of any orders or
regulations directed at, or affecting, the Stores, the reasons
therefor, and the responsive actions taken and/or planned to be taken
by Licensee in connection therewith;
(i) to operate the Stores continuously on such days
and during such minimum hours as are required by the commercial
district or other development within which each Store is located, or,
if there are no such requirements, on such days and during such minimum
hours as are customary for similar businesses in the community within
which that Store is located;
(j) not to conduct any liquidation sales,
going-out-of business sales, auctions or other sales that are not in
the ordinary course of business or
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that do not conform to the marketing standards of bebe, without the
prior written consent of bebe; and
(k) not to permit any lien or other encumbrance to be
placed on the Stores or their inventory, without prior approval by
bebe.
4.2 SIGNS, PACKAGING, ETC. Licensee shall submit to Bebe for
prior written approval all interior and exterior display signs, hangers, price
tags, shopping bags, gift boxes, stationery, forms of invoices and receipts, and
similar items using the LICENSED RIGHTS APPROVAL FORM (Exhibit "F").
4.3 SEQUENTIAL INVOICING. All sales of the Products at
the Stores shall be documented on sequentially numbered sales slips.
4.4 INTERNAL TRANSACTIONS. All transactions between
Licensee's wholesale manufacturing business, if any, and the Stores shall be
arm's length transactions recorded on the books and records in the same manner
as sales to other parties. Upon request, Licensee shall forward to bebe copies
of all documents incidental to such transactions including orders, invoices and
packing slips.
4.5 SECONDS. Licensee shall not sell any damaged, imperfect,
substandard quality or defective goods ("Seconds") under the Marks without the
prior written approval of bebe. All Seconds approved for sale shall be marked "B
Grade," "Seconds" or "Irregular" and all Seconds not approved shall be
destroyed.
SECTION 5. ADVERTISING
5.1 CONTRACT YEAR MARKETING PLAN. Licensee shall prepare a
marketing plan for each Contract Year, including planned sales presentations,
fashion shows, special events and special promotions and other advertising, with
a budget and specifying the media, the date and the time of publication of each
planned advertisement or promotional event, which shall be suitable for the
Territory and be based upon bebe's marketing program. Licensee shall submit such
plan to bebe by no later than thirty (30) days following the date of the
Agreement, and thereafter by no later than 30 days prior to the first day of
each Contract Year of the Agreement. Licensee shall support any marketing
program for the Stores that bebe may develop.
5.2 PRIOR APPROVAL. Licensee shall submit to bebe, for its
prior approval, samples of all advertising and other promotional plans and
materials, including media placement and scheduling, that Licensee desires to
use to promote the Stores or the Marks that have not been prepared or previously
approved by bebe,
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including without limitation, press releases and interviews for publication in
any media. All requests for approval shall be submitted on an ADVERTISING
APPROVAL FORM in the form of Exhibit "G" hereto, as modified by bebe from time
to time.
5.3 MINIMUM ADVERTISING EXPENDITURES. During the first
Contract Year, Licensee shall spend on advertising, public relations for the
bebe Marks and brand name promotion a minimum of [* * *] of Licensee's
purchases of Products ("Minimum Advertising Expenditure"). During each
subsequent Contract Year, the Minimum Advertising Expenditure shall be [* * *]
of Licensee's purchases of Products. [* * *] Not later than thirty (30) days
after the end of each calendar quarter, Licensee shall submit a report (using
bebe's Advertising Expenditure Form, as modified from time to time, in the
form of Exhibit "M") showing Licensee's actual advertising expenditures
during the preceding calendar quarter, together with advertising tear sheets
for such quarter. If Licensee's actual advertising expenditures during any
Contract Year are less than the Minimum Advertising Expenditure, then, at the
option of bebe, Licensee shall either pay bebe the difference or shall expend
the difference on advertising during the current Contract Year in such manner
as is directed by bebe.
SECTION 6. INSURANCE
Upon execution of this Agreement and throughout the Term,
Licensee, at its sole cost and expense, shall obtain and maintain in full force
and effect policies of insurance insuring against those risks customarily
insured under broad form comprehensive general liability policies, including
without limitation, product liability, completed operations, advertising injury,
and contractual liability for Licensee's obligations under this Agreement,
substantially in the forms attached hereto as Exhibit "N". Such policies of
insurance shall have endorsements or coverage with combined single limits of not
less than Three Million Dollars ($3,000,000) plus defense costs and shall name
bebe as an additional insured thereunder. Such insurance policy shall provide
that it cannot be canceled, modified or not renewed without thirty (30) days'
prior written notice to bebe, the "other insurance" clause, if any, will be
deleted from such policy, the insurance under such policy shall be primary, and
any other insurance in force shall be neither primary nor contributing. The
policy shall provide that the insurer waives its right of subrogation in favor
of bebe. Within thirty (30) days of the date of execution of this Agreement,
Licensee shall furnish to bebe current certificates of insurance issued by the
insurer and showing bebe as an additional insured. During the Term, Licensee may
not engage in the sale or promotion of any Product or the operation of Stores
unless the required insurance coverage is in full force and effect.
* * * Confidential Treatment Requested.
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SECTION 7. ADDITIONAL COVENANTS OF LICENSEE
7.1 STAFFING AND NOTICE OF INTERNAL CHANGES. In granting the
license to Licensee, bebe is relying upon the personal skills, judgment,
abilities and attributes of the persons named in Exhibit "H" as principals of
Licensee and upon their personal involvement in the business. Licensee
represents and agrees that these named individuals are and will continue to be
dedicated to the full time executive management and operation of Licensee's
business. Licensee shall employ at each Store: (1) an individual or individuals
with suitable qualifications and experience in the high quality retail apparel
industry to manage the business and operations of the Store; (2) a merchandiser
or merchandisers, I.E., a person or persons responsible for creating and
maintaining visual displays, training sales personnel with respect to the sale
and promotion of the Products, and monitoring the Store to ensure that the
merchandising standards and programs of bebe are maintained, and (3) a staff of
trained employees sufficient to operate each of the Stores in accordance with
this Agreement and bebe's specifications.
Licensee shall immediately notify bebe of (i) any change in
the activities of Licensee; (ii) the termination of employment for any reason of
a store manager or merchandiser; and (iii) any transaction affecting ownership
or control of Licensee, including without limitation, any transaction affecting
(a) beneficial or record ownership of its capital stock, if a corporation, (b)
the respective interests of its partners, if a partnership, or (c) ownership of
any part of the business, if a sole proprietorship.
7.2 FINANCIAL STANDING. Licensee shall maintain
reasonable financial stability and credit standing.
7.3 CUSTOMER RELATIONS. Licensee shall maintain good
customer relations in accordance with prudent and reasonable business practices.
7.4 SCOPE OF OBLIGATIONS. Licensee shall not permit or suffer
any action to be taken by or through any principal or spouse, directly or
indirectly, which would be a violation of this Agreement if carried out by
Licensee. Licensee shall not permit or suffer any substantial change in
ownership, management or control. A substantial change in ownership, management
or control of Licensee shall be deemed to have occurred if more than twenty
percent (20%) (by vote or value) of the equity securities of Licensee are
transferred to any person who did not own equity securities of Licensee at the
time of execution of this Agreement or if any person who owned or controlled
more than twenty percent (20%) (by vote or value) of the equity securities of
Licensee at the time of execution of this Agreement reduces to twenty
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percent (20%) or less any such ownership or control. For purposes of the
foregoing, a person shall not be deemed to own or control an equity security if
such person has sold, assigned, conveyed, donated or made a gift of, pledged,
hypothecated or transferred (voluntarily or by operation of law), any interest
in the equity security in question, or agreed to do any of the foregoing. A
substantial change in ownership, management or control of Licensee also shall be
deemed to have occurred if for any reason any of the individuals identified as
principals at the time of execution of this Agreement are not involved in the
day to day management of Licensee or do not personally manage and control
Licensee's relationship with bebe and its activities under this Agreement. The
foregoing is not intended to be an exhaustive list of what constitutes a
substantial change in ownership, management or control of Licensee.
Notwithstanding the foregoing, Licensee shall be permitted to enter into a
written partnership agreement for the ownership, management or control of any of
the Stores with the prior written approval of bebe, which approval shall not be
unreasonably withheld so long as Licensee maintains fifty-one (51%) or such
other voting rights required under the partnership agreement to control all
activities of the partnership with respect to the Store. As a condition to such
approval, any proposed partner of Licensee shall execute and deliver to bebe a
written affirmance of, and joinder in, the obligations of Licensee and all terms
hereunder in form acceptable to bebe.
7.5 CHANGE IN FORM OF BUSINESS. Licensee may change its form
of business (for example, from partnership to corporation) only after obtaining
the prior written approval of bebe. No such change shall release Licensee, any
principal of Licensee or any other person from any liability or obligation under
this Agreement.
7.6 CURRENT OWNERSHIP. Licensee warrants and represents that
Exhibit "I" sets forth completely and accurately all ownership and control of
all equity ownership of Licensee as of the date of this Agreement and that
Exhibit "H" identifies all of the principals of Licensee.
7.7 NOTICE OF PROCEEDINGS. Licensee shall notify bebe in
writing within five (5) days of the commencement or threat of any action, suit,
proceeding or investigation or the issuance of any order, writ, injunction,
award, judgment or decree before or of any court, tribunal, arbitration panel,
agency or governmental instrumentality that may adversely affect the Products or
the operations or financial condition of Licensee.
7.8 RECORDS. Licensee shall maintain in reasonable detail and,
where applicable, in accordance with international generally accepted accounting
principles, consistently applied, separate books of account and records with
respect to the sale of all Products at each of the Stores; records of
advertising and promotional campaigns
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with respect to the Products; records of all inventory of the Products; orders,
inquiries, complaints, requests for service and other correspondence with
respect to the Products; employment records with respect to persons who carry
out activities of Licensee pursuant to this Agreement; and records of other
services, activities and transactions of Licensee with respect to the Products.
These records shall be retained and shall be open for inspection, copying,
extracting and audit by bebe or its employees, agents or representatives during
normal business hours during the Term and for at least three years following
termination or expiration of this Agreement. Licensee shall inform bebe of any
relocation of the books and records in writing. Licensee shall not relocate the
books and records outside the Territory without bebe's prior written consent.
7.9 AUDITS. bebe and its employees, agents, representatives or
independent auditors certified under Israeli law shall have the right, at
reasonable times and without undue disruption of Licensee's normal business, to
conduct audits with respect to the books, records, and all other documents and
material in the possession or under the control of Licensee relating to this
Agreement. bebe shall bear the cost of all audits and shall provide a copy of
any written audit report to Licensee. If any such audit, however, discloses that
Licensee has violated any provision of this Agreement or that payments due to
bebe under this Agreement exceed the amount of payments actually made to bebe by
an amount greater than three percent (3%) of the payments made, Licensee shall
immediately pay the cost of the audit and each unpaid payment discovered in the
audit plus interest at a rate of ten percent (10%) per annum calculated from the
date such payment was actually due until the date such payment is, in fact,
actually paid.
7.10 FINANCIAL STATEMENTS. No later than ninety (90) days
after the close of Licensee's fiscal year, Licensee shall provide to bebe in
English annual financial statements of Licensee, which shall be audited or
unaudited on a review basis, prepared by an independent certified accountant of
Licensee's choice and acceptable to bebe, which statements shall include an
income statement and a balance sheet of Licensee prepared in accordance with
generally accepted accounting principles, consistently applied. If unaudited, an
officer of Licensee shall certify under penalty of perjury that the financial
statements are true and correct, and have been prepared in accordance with
generally accepted accounting principles, consistently applied.
7.11 PERIODIC REPORTS. Licensee shall submit to bebe the
following reports, at the intervals indicated:
(a) thirty (30) days after the end of each month the
bebe MONTHLY RETAIL STORE REPORT (Exhibit "J"), for each Store;
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(b) each April 1, and at such other times as bebe may
reasonably request, a list of the addresses of all of the Stores as
well as photographs of each Store that accurately show its current
condition;
(c) any other information relating to the operation
of the Stores and the sale of the Products that bebe may reasonably
request from time to time, including, without limitation, photographs
of the Stores and daily sales reports.
7.12 PRODUCT PURCHASE TERMS. Licensee shall purchase Products
from bebe in accordance with the terms set forth on Exhibit "M" hereto.
7.13 MINIMUM PRODUCT SALES. Licensee shall sell monthly from
each Store a minimum of [* * *].
SECTION 8. OWNERSHIP OF THE LICENSED RIGHTS
8.1 OWNERSHIP. Licensee acknowledges that (i) the Licensed
Rights are owned solely and exclusively by bebe, (ii) nothing contained in this
Agreement shall give to Licensee any right, title or interest in the Licensed
Rights, other than the express license granted in Section 2.1 of this Agreement,
and (iii) Licensee's use of the Licensed Rights shall inure only to the benefit
of bebe.
8.2 PROPERTY. Licensee shall not use any Licensed Rights
except for the purpose of fulfilling its duties under this Agreement and in a
manner authorized in writing by bebe.
8.3 NO USE OF NAME. Licensee shall not use any of the Licensed
Rights as a store name, trade name, service mark, corporate name, business name,
trade style, fictitious business name or d.b.a. Any authorized or unauthorized
use shall inure solely to the benefit of bebe, and authorized or unauthorized
use by Licensee shall not confer on Licensee any right, title or interest in the
Licensed Rights except as granted in Section 2.1 of this Agreement.
8.4 REGISTRATION. Licensee shall not seek or obtain any
registration of the Marks (including any colorable imitations, translations or
transliterations thereof) in any name or participate directly or indirectly in
such registration anywhere in the world without bebe's prior written consent. If
Licensee has obtained or obtains in the future, in any country, possession or
territory in the world, any right, title or interest in the Marks (including any
colorable imitations, translations or transliterations thereof), or in any marks
which are confusingly similar to the Marks (including any colorable imitations,
translations or transliterations thereof)
* * * Confidential Treatment Requested.
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or in any other trademark or service mark owned by bebe, Licensee has so acted
or will act as an agent and for the benefit of bebe for the limited purpose of
obtaining such registrations and assigning them to bebe. Licensee shall execute
any and all instruments deemed by bebe, or its respective attorneys or
representatives, to be necessary to transfer such right, title or interest to
bebe. If the laws of the Territory require or permit the registration of any
Marks, Licensee shall assist bebe in obtaining such registration in a timely and
effective manner; provided, however, that the failure to obtain such
registrations shall not affect the validity of this Agreement.
8.5 NO CHALLENGE. During the Term, Licensee shall not,
directly or indirectly, take any action challenging, questioning or opposing the
validity of the Marks or any other trademarks or service marks owned by bebe.
8.6 INFRINGEMENT SUITS. Licensee shall be vigilant in
detecting any possible infringements, claims or actions in derogation of any
Licensed Rights by any third parties and shall inform bebe promptly of any such
infringement, claim or action; provided, however, that bebe shall have the sole
right to determine whether any action shall be taken on account of such
infringement, claim or action and Licensee shall not take any action on account
of such infringement, claim or action without the prior written consent of bebe.
If bebe initiates any legal proceedings on account of any such infringement,
claim or action, Licensee shall cooperate with and assist bebe to the extent
reasonably necessary to protect the Licensed Rights, including without
limitation, being joined as a necessary or desirable party to such proceedings
and, sharing pro rata, with bebe, and other licensees and distributors of bebe,
if any, benefiting from the proceeding, in the expenses of such proceeding,
including attorneys' fees and legal expenses. The damages or other recovery
received from such proceedings shall be shared in proportion to the expenses
borne by the parties. Licensee shall have no claim against bebe for damages if
bebe determines, in its sole discretion, that it is not in the best interest of
bebe and Licensee to initiate any legal proceedings on account of any such
infringement, claim or action, or if bebe settles or resolves any such
proceedings which may be initiated.
8.7 QUITCLAIM OF RIGHTS. Licensee acknowledges the exclusive
right, title and interest of bebe in and to the Licensed Rights and hereby
quitclaims to bebe any right, title or interest it has or may acquire with
respect to the Licensed Rights, including without limitation any right, title or
interest it may acquire through the unauthorized use of the Licensed Rights as a
trade name, service mark, business name, trade style, fictitious business name
or d.b.a. or the use of the bebe trade name and service mark as a Store name.
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8.8 COPYRIGHTS. If Licensee, alone or with others, develops
any written material pertaining to the Products or bebe which may be
copyrighted, it hereby assigns all right to obtain such copyrights to bebe. Such
material shall be deemed "made for hire" under U.S. copyright law, thereby
vesting ownership in bebe.
8.9 POWER OF ATTORNEY. Licensee hereby irrevocably appoints
bebe as its attorney-in-fact for the limited purpose of executing any and all
documents and performing any and all other acts necessary to give effect and
legality to the provisions of Section 8 of this Agreement.
8.10 CONFIDENTIAL INFORMATION. Before or during the Term, each
party may or will be made aware of Confidential Information of the other party
relating to the Products, the Licensed Rights, the license and arrangement
created under this Agreement, present or anticipated products, processes,
know-how, customers, sales, business affairs, contractual arrangements,
identities of employees, agents or representatives or similar information.
Information shall be considered Confidential Information if the delivering party
so informs the receiving party or if the receiving party knew or reasonably
should have known that the information was confidential. Information shall not
be considered confidential if the information is in the public domain or if a
party can demonstrate that it acquired the information from another source
without the source or such party breaching a confidentiality agreement or other
confidentiality obligation. During and after the Term, each party shall maintain
in strict confidence and shall not disclose, except to its employees who must
have access to it in order to exercise its rights and license under this
Agreement, or as expressly permitted by any written agreement between Licensee
and bebe, or as required by law, any Confidential Information. Each party shall
take every reasonable precaution to protect the confidentiality of the
Confidential Information, consistent with the higher of the standard of care
that such party exercises with respect to its own confidential information or
the standard of care that an ordinarily prudent business would exercise to
protect its own confidential information.
8.11 DISCLAIMER OF VALIDITY. bebe makes no representation or
warranty as to the validity or enforceability of the Licensed Rights nor as to
whether the Marks infringe upon or interfere with any property rights of third
parties. bebe is not certain if it will be successful in obtaining or
maintaining registration of the Marks in the Territory. Licensee acknowledges
that applications for registration of the Marks are pending. Licensee and bebe
shall cooperate with each other in order to prosecute bebe's applications. If it
is determined at any time that bebe does not have the right to use the Licensed
Rights, or any portion thereof, within the Territory, Licensee shall immediately
refrain from using the Licensed Rights and selling the Products in the
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Territory and shall have no claims against bebe for damages caused by such
cessation or termination or otherwise caused.
8.12 SURVIVAL. Notwithstanding anything in this Agreement to
the contrary, this Section 8 shall survive termination or expiration of this
Agreement.
SECTION 9. TERMINATION
9.1 TERMINATION FOR CAUSE. In the event Licensee breaches this
Agreement, bebe may give written notice of the nature of the breach to Licensee
and Licensee shall have ten calendar days to cure the breach. If Licensee does
not cure the breach within the ten calendar days then bebe may terminate this
Agreement effective upon written notice to Licensee. Failure of bebe to give
such written notice will not in any event constitute a waiver of such breach.
Upon the giving of a notice of breach for the third time during the Term, for
any reason, Licensee shall no longer have the right to cure any violation, and
termination shall be effective upon the giving of said third notice.
9.2 GROUNDS FOR TERMINATION FOR CAUSE. Set forth below is a
nonexhaustive list of breaches by Licensee that would entitle bebe to terminate
this Agreement and the rights and licenses granted to Licensee if the breaches
were not cured during the applicable cure period:
9.2.1 Failure of Licensee to maintain or operate the Stores in
accordance with this Agreement;
9.2.2 Commission by Licensee of a material violation of any
applicable laws in the Territory in connection with the ownership or operation
of the Store or the retail sale of the Products;
9.2.3 The making by Licensee of any warranties or
representations on behalf of bebe that have not been specifically authorized in
writing by bebe;
9.2.4 Sales by Licensee of products in the Stores other
than products purchased from bebe or its other licensees or of the Products
other than under the Marks, or the use of the Marks in any manner that violates
this Agreement;
9.2.5 Sales by Licensee of Products other than through
Stores unless expressly authorized under a separate license or distribution
agreement with bebe; or
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9.2.6 Abandonment by Licensee of its business or the
activities required under this Agreement.
9.3 BANKRUPTCY, INSOLVENCY OR DISSOLUTION. In the event of
insolvency, bankruptcy or dissolution of Licensee, bebe shall have the option to
terminate immediately this Agreement, without giving Licensee an opportunity to
cure, with the termination effective upon written notice to Licensee. The
license and rights granted herein are personal to Licensee. No assignee for the
benefit of creditors, receiver, debtor in possession, trustee in bankruptcy,
sheriff or any other officer of court charged with taking over custody of
Licensee's assets or business, shall have any right to continue performance to
exploit or in any way use the Marks or the Licensed Rights if this Agreement is
terminated, except as may be required by law.
9.4 TERMINATION OPTION/NO CURE POSSIBLE/ADDITIONAL CAUSES.
bebe may terminate this Agreement immediately, WITHOUT ANY RIGHT TO CURE BY
LICENSEE, upon the occurrence of any one or more of the following:
9.4.1 Licensee opens a Store that was not approved by bebe in
advance in writing;
9.4.2 Licensee uses or authorizes the use of signs,
construction materials, advertising or packaging materials that are not approved
by bebe in advance in writing or that bebe has disapproved;
9.4.3 Licensee sells or ships the Products to customers
outside the Territory;
9.4.4 Licensee sells products not bearing the Marks in the
Stores;
9.4.5 Licensee reports materially incorrect or false
financial information, including sales information;
9.4.6 Licensee fails to open and operate at all times during
the Term the number of Stores required by Section 3.1.
9.4.7 Licensee fails meet the minimum sales per square foot
per Store set forth in Section 7.13.
9.5 SUBSTANTIAL CHANGE IN OWNERSHIP, MANAGEMENT OR CONTROL OF
LICENSEE OR COMMISSION OF CRIME. In the event that any substantial change in the
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ownership, management or control of Licensee occurs or in the event that
Licensee or any of its principals commits any crime, act of dishonesty, fraud or
other act that may substantially affect the business reputation of Licensee, any
of its principals or bebe, then bebe shall have the option to terminate
immediately this Agreement effective upon written notice.
9.6 LIABILITY AFTER TERMINATION. Termination of this Agreement
for any reason shall not, unless otherwise expressly provided in this Agreement,
affect:
9.6.1 Obligations accrued prior to the effective date of
termination; or
9.6.2 Any obligations which, either expressly or from the
context of this Agreement, are intended to survive termination of this
Agreement.
9.7 EFFECTS OF TERMINATION. Upon any termination of this
Agreement:
9.7.1 Any indebtedness of Licensee to bebe shall become
immediately due and payable and bebe may retain as security or apply as payment
against any such indebtedness any Products of Licensee in the possession of
bebe.
9.7.2 bebe shall not be liable to Licensee, either for
compensation or for damages of any kind, whether on account of loss by Licensee
or any other person, of present or prospective profits on present or prospective
sales, investments or goodwill, and Licensee hereby waives any rights which may
be granted to it by sovereign entities or any political subdivision in the
Territory or otherwise which are not granted to it by this Agreement.
9.7.3 Within three (3) days after the expiration or
termination of this Agreement for any reason, Licensee shall remove and, within
fourteen (14) days after expiration or termination of this Agreement, shall
deliver to bebe, all exterior and interior Store signs and displays bearing the
Marks and Licensed Rights as well as all other Store promotional materials,
including mailers, flyers, brochures, shopping bags, tags, business cards and
letterhead, bearing, the Marks or the Licensed Rights.
9.7.4 Each party shall continue to maintain in confidence
any and all Confidential Information. Within fourteen (14) days after such
expiration or termination, Licensee will return to the bebe, at Licensee's
expense, all exterior and interiors signs and displays bearing the Marks or
other Licensed Rights, all packaging, labels, tags, promotional or advertising
materials or other materials and documents
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relating to the Products, Licensed Rights or any Confidential Information or, at
the election of bebe, destroy or otherwise dispose of such material as bebe may
direct.
9.7.5 Within five (5) days after the expiration or
termination, Licensee shall notify in writing all telephone companies, business
directories, chambers of commerce and appropriate governmental agencies of the
expiration or termination of this Agreement and terminate any listing making
reference to any of the Licensed Rights or the licensing arrangement and shall
provide copies of such notices to bebe. If Licensee fails to notify such
entities, Licensee authorizes Bebe to do so as its agent for this limited
purpose.
9.8 INVENTORY: RIGHT TO PURCHASE. Upon expiration or
termination of this Agreement for any reason, Licensee shall immediately notify
bebe of the Products remaining in Licensee's possession or under its control and
unsold on the date of termination or expiration (the "Remaining Inventory").
bebe shall have the option (but not the obligation), upon notice to Licensee
within thirty (30) days after receipt of Licensee's inventory of the Products,
to repurchase all or any part of the Remaining Inventory at a price equal to the
price paid by Licensee for the Products plus freight and duties (unless Licensee
can obtain duty reimbursement). Licensee shall deliver products purchased by
bebe within fifteen (15) days after receipt of the notice of bebe's intention to
purchase the inventory. Payment shall be due upon delivery, provided, however,
that bebe may deduct from the purchase price for such Products any mount owed to
it by Licensee.
9.9 REMAINING PRODUCTS. Products not sold by Licensee in
accordance with this Section 9 shall be destroyed or may be sold only after the
Marks and features embodying Licensed Rights have been removed therefrom (which
removal may be inspected by bebe, its agents and/or representatives) prior to
sale, unless the parties agree otherwise in writing.
(a) IF AGREEMENT EXPIRED. In the event this Agreement
has expired in accordance with its terms, as to any Products not
purchased by bebe, Licensee may sell such Products on a non-exclusive
basis in accordance with this Agreement; provided, however, Licensee
shall have only ninety (90) days after the date of expiration to sell
and ship such Products.
(b) IF AGREEMENT TERMINATED. If the rights granted to
Licensee under this Agreement have been terminated for any reason or
cause specified in Section 9.4 of this Agreement, Licensee may not sell
any Products bearing the Marks.
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SECTION 10. INDEMNIFICATION AND LIMITATION ON LIABILITY
10.1 INDEMNIFICATION. Licensee shall indemnify, hold bebe and
its officers, directors, shareholders, employees, agents, independent
contractors, representatives, and affiliates, harmless, and defend bebe and its
officers, directors, shareholders, employees, agents, independent contractors,
representatives, and affiliates, from and against any loss, damage, liability,
or expense, including attorneys' fees and disbursements, whether or not
Licensee's conduct was tortious and limited to the extent bebe's conduct
contributed to the claim, arising in connection with:
10.1.1 Any activities of Licensee or its employees,
agents, representatives or affiliates, under or in connection with this
Agreement.
10.1.2 Any breach by Licensee of this Agreement;
10.1.3 Claims or demands for injury to property or
persons, including payments made under any workers' compensation or under any
other plan for employees' disability or death benefits, made by any person in
connection with the advertising, promotion, distribution, sale or use of
Products or the operation of the Stores by Licensee or by its employees, agents,
representatives or affiliates or Licensee's customers or invitees; or
10.1.4 Claims or demands of any customer of
Licensee arising out of the operation of the Store or any sale or use of the
Products.
10.2 DEFENSE COUNSEL. Licensee shall defend bebe, with counsel
acceptable to bebe, with respect to each and every claim for which bebe is
indemnified by Licensee under this Agreement. Licensee shall pay for the
services of such counsel upon counsel's presentation of legal bills or requests
for retainer.
10.3 NO REPRESENTATION OR WARRANTY BY BEBE. Licensee
acknowledges that bebe has made no representation or warranty except as
expressly provided in this Agreement.
10.4 LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES,
INCLUDING ANY BREACH OR ALLEGED BREACH OF THIS AGREEMENT BY BEBE OR ANY OTHER
PERSON AND THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY REMEDY INTENDED TO
BENEFIT LICENSEE, SHALL BEBE OR ANY OF ITS OFFICERS, DIRECTORS, SHAREHOLDERS,
EMPLOYEES, AGENTS, INDEPENDENT CONTRACTORS, REPRESENTATIVES, OR AFFILIATES, HAVE
ANY LIABILITY OR
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OBLIGATION TO ANY CUSTOMER OF LICENSEE, OR TO LICENSEE OR TO ANY OF ITS
OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, AGENTS, INDEPENDENT CONTRACTORS,
REPRESENTATIVES, AUTHORIZED RETAILERS OR AFFILIATES, FOR ANY CONSEQUENTIAL OR
INCIDENTAL DAMAGES, LOST PROFITS, ANTICIPATED INCOME OR PROFITS, OR OTHER
SIMILAR DAMAGES.
SECTION 11. GENERAL
11.1 APPROVAL PROCEDURES. The approval of bebe or the exercise
of its discretion as to any request or proposal made by Licensee under any
section of this Agreement shall be at the absolute and sole subjective
discretion of bebe. A submission for approval shall be deemed DISAPPROVED unless
bebe delivers a notice of approval within twenty (20) business days. bebe has no
obligation to approve, review or consider any item that does not strictly comply
with the required submission procedures. bebe shall designate the procedure that
was not followed. Approval by bebe shall not be construed as a determination
that the approved matter complies with all applicable regulations and laws.
11.2 EQUITABLE RELIEF. Licensee acknowledges that there will
be no adequate remedy at law for its failure to comply with certain terms of
this Agreement, including its obligation to cease the manufacture, sale,
advertisement, promotion or distribution of the Products upon expiration or
termination, its obligations with respect to the Licensed Rights and the
obligation to maintain the confidentiality of Confidential Information.
Accordingly, if Licensee fails to comply with the terms of this Agreement, bebe
shall have the right to have any breach of this Agreement remedied by equitable
relief by way of a temporary restraining order, preliminary injunction,
permanent injunction, and such other alternative relief as may be appropriate
without the necessity of bebe posting any bond or proving any damages.
11.3 ASSIGNMENTS, SUCCESSORS AND ASSIGNS. bebe shall be
entitled to assign any or all of its rights or delegate any or all of its duties
under this Agreement. Licensee shall not assign (by operation of law or
otherwise) any of its rights or delegate any of its duties under this Agreement
without the prior written consent of bebe. All representations, warranties,
covenants and agreements of the parties shall bind their respective successors
and assignees and shall inure to the benefit of their respective successors and
permitted assignees.
11.4 NOTICES. Any notice, request, demand, or other
communication required or permitted under this Agreement, shall be deemed to be
properly given by the sender and received by the addressee (i) if personally
delivered; (ii) three (3) days
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after deposit in the mails if mailed by certified or registered air mail,
postage prepaid; (iii) twenty-four (24) hours after being sent by facsimile
with confirmation sent as provided in (ii) above; or (iv) twenty-four (24)
hours after being sent by commercial overnight mail, addressed as follows,
and in the case of facsimile transmission, to the appropriate facsimile
number shown below:
To bebe: bebe stores, inc.
380 Valley Drive
Brisbane, California 94005
Phone No.: 415-695-0185
Facsimile No.: 415-695-0387
Attention: Vice President -
Licensing
To Licensee: Sakal Duty Free Ltd.
and Sakal Sports Ltd.
lev Magor Building
6 Hamachetesh Street
Holon Industrial Area, 58810 Israel
Phone No.: 972-3-5599840
Facsimile No.: 972-3-5599846
Attention: Haim Sakal
or to such other address or facsimile number as from time to time may be given
in the manner permitted above.
11.5 NUMBER AND GENDER; HEADINGS. Each number and gender used
in this Agreement shall be deemed to include each other number and gender as the
context may require. The headings and captions contained in this Agreement shall
not constitute a part thereof and shall not be used in its construction or
interpretation.
11.6 SEVERABILITY. If any provision of this Agreement is found
by any court of competent jurisdiction to be invalid or unenforceable, such
provision shall be deemed to be modified to the minimum extent necessary to
cause it to be valid and enforceable and the invalidity or unenforceability of
such provision prior to such modification shall not affect the other provisions
of this Agreement and all provisions not affected by the invalidity or
unenforceability shall remain in full force and effect.
11.7 AMENDMENT AND MODIFICATION. This Agreement may be amended
or modified only by a writing executed by all parties.
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11.8 GOVERNING LAW AND CHOICE OF FORUM. This Agreement shall
be construed and governed in accordance with the internal laws of the State of
California. The parties agree that this Agreement is executed and delivered in
the State of California. The parties agree that the United Nations Convention on
Contracts for the International Sale of Goods shall not apply to this Agreement.
In order to expedite the resolution of legal
disputes, bebe may, at its sole option, elect to have this Agreement construed
in accordance with the laws and regulations of the Territory or any portion
thereof. All disputes arising in connection with this Agreement shall be finally
settled under the Rules of Conciliation and Arbitration of the International
Chamber of Commerce by one or more arbitrators appointed in accordance with said
Rules, whose decision shall be binding on the parties. Such arbitration shall be
conducted in the English language. bebe shall have the right to select, in its
sole discretion, the place of arbitration within California or within the
Territory.
11.9 TAXES. Licensee shall be responsible for collection,
remittance and payment of any and all taxes, charges, withholding obligations,
levies, assessments or other fees of any kind imposed by any governmental
authority with respect to the manufacture, sale, importation or other
disposition of the Products (other than taxes on the income or gross receipts of
bebe). Licensee shall provide certified proof of payment to bebe within ten (10)
days of payment thereof.
11.10 ENTIRE AGREEMENT. This Agreement covers all contracts
and agreements between the parties relating to the subject matter of this
Agreement. All other contracts and agreements between the parties which relate
thereto are hereby terminated.
11.11 GOVERNMENT APPROVALS AND REMITTANCES. In the event that
any approval with respect to this Agreement or any registration thereof will be
required, initially or at any time during the Term, in order to give the
Agreement legal effect, Licensee agrees immediately to take whatever steps may
be necessary in this respect; and any charges incurred in connection therewith
shall be borne by Licensee.
11.12 JOINT AND SEVERAL LIABILITY; AFFILIATES. Each Licensee
shall be jointly and severally liable for all duties, obligations, covenants and
restrictions of Licensee under this Agreement. In the event that any affiliate
of Licensee participates in any respect in the enjoyment of rights or the
performance of any duties of Licensee hereunder, such affiliate shall be fully
obligated under this Agreement to the same extent as Licensee.
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11.13 AUTHORITY TO MAKE AGREEMENT. Each party warrants and
represents that it has the power to enter into this Agreement and perform in
accordance with the provisions hereof and that the execution and performance of
the Agreement has been duly and validly authorized in accordance with all
applicable laws and governing instruments.
11.14 NO WAIVER. No waiver of any breach of any of the
provisions of this Agreement shall be construed to be a waiver of any succeeding
breach of the same or any other provision.
11.15 REMEDIES NOT EXCLUSIVE. No remedy conferred by any of
the specific provisions of this Agreement is intended to be exclusive of any
other remedy, except as expressly provided in this Agreement or any Exhibit
thereto, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing in law or in
equity or by statute or otherwise. The election of any one or more remedies
shall not constitute a waiver of the right to pursue other available remedies.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE
REMEDIES OF LICENSEE SHALL BE LIMITED AS PROVIDED IN
SECTION 10.4.
11.16 OFFICIAL LANGUAGE OF AGREEMENT. The parties understand
and agree that this document has been prepared only in the English language and
that the English language is the official language of this Agreement. It is
specifically understood and agreed that no party to this Agreement will assert
or allege that it did not understand each and every term and condition of this
Agreement, and each party further acknowledges that prior to entering into this
Agreement, it could have sought interpretation of the Agreement in the native
language of the persons signing the Agreement on such party's behalf, but chose
not to do so.
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11.17 DEFINITIONS. The definitions set forth in Exhibit "A"
are incorporated herein and made a part of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
"bebe":
bebe stores, inc.,
a California corporation
By: /s/ Manny Mashouf
------------------------------------
Manny Mashouf
President and Chief Executive Officer
"Licensee":
Sakal Duty Free Ltd.,
a duly registered Israeli private company
By: /s/ Solly Sakal
------------------------------------
Name: Solly Sakal
-----------------------------------
Title: CEO & Chairman of the Sakal Group
------------------------------------
Sakal Sports Ltd.,
a duly registered Israeli private company
By: /s/ Haim Sakal
------------------------------------
Name: Haim Sakal
-----------------------------------
Title: CEO
------------------------------------
-24-
<PAGE>
LIST OF EXHIBITS
Exhibit "A" Glossary
Exhibit "B" Retail Store Location Approval Form
Exhibit "C" In-Store Shop Location Approval Form
Exhibit "D" Retail Store Material and Fixture Layout Approval Form
Exhibit "E" In-Store Shop Material and Fixture Layout Approval Form
Exhibit "F" Licensed Rights Approval Form
Exhibit "G" Advertising Approval Form
Exhibit "H" Principals of Licensee
Exhibit "I" Ownership of Licensee
Exhibit "J" Monthly Retail Store Report
Exhibit "K" Products
Exhibit "L" Territory
Exhibit "M" Product Purchase Terms
Exhibit "N" Insurance Policies
-25-
<PAGE>
EXHIBIT "A"
GLOSSARY OF TERMS
"Advertising" means any communication through any medium
directed to the trade or public, including trade and public directory listings,
store window displays, posters, point of sale materials and billboards.
"Confidential Information" has the meaning ascribed to it in
Section 8.10.
"Contract Year" means each twelve (12) month period during the
Term beginning on August 1 and ending on July 31.
"Licensed Rights" means collectively the Marks.
"Marks" means BEBE as depicted in Application No. 120631 filed
for International Class 35 with the Israeli Trademark Office on June 28, 1998;
however, that the appearance and/or style of the Marks may vary from time to
time as specified by bebe in its sole discretion without affecting this
Agreement.
"Products" means solely the products of bebe specified on
Exhibit "K" attached hereto and incorporated herein by reference. bebe shall
determine, in its sole discretion, whether a particular product or article falls
within the definition of Products and bebe reserves the right, in its sole
discretion, to eliminate any design as a Product at any time. bebe also reserves
the right to add new designs as Products.
"Renewal Term" has the meaning ascribed to it in Section 1.2.
"Retail Sale" means a sale made at retail price to a consumer.
"Seconds" has the meaning ascribed to it in Section 4.5.
"Store" or "Stores" means [* * *] square foot stores,
including in-store shops, owned and operated entirely by Licensee (or
sublicensees approved by bebe) that (a) carry the Products exclusively for sale
to the general public, (b) bear as their store name, exclusively, the "bebe"
service mark, and (c) conform to the requirements of bebe.
EXHIBIT "A" -- Page 1
* * * Confidential Treatment Requested.
<PAGE>
"Term" means the Initial Term together with the Renewal Term,
if applicable.
"Territory" means solely the geographic area designated
specifically on Exhibit "L" attached hereto and incorporated herein by
reference, as amended from time to time pursuant to this Agreement.
"Trade Secrets" means information including a formula,
pattern, compilation, program, device, method, technique or process, that
derives independent economic value, actual or potential, from not being
generally known to the public or to other persons who can obtain economic value
from its disclosure or use; and is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.
EXHIBIT "A" -- Page 2
<PAGE>
EXHIBIT "B"
RETAIL STORE LOCATION APPROVAL FORM
NEW STORE / /
BEBE (CHECK ONE)
REMODEL / /
DATE: ___________________
- ------------------------------------------------------------------------------
RETAIL STORE LOCATION APPROVAL FORM
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NAME OF
LICENSEE/DISTRIBUTOR: ______________________ NAME OF STORE: ______________
PROPOSED OPENING DATE: _____________________ SQUARE FTG.: _________________
ADDRESS OF STORE: ___________________________________________________
(INCLUDING CITY, STATE)
___________________________________________________
WHO OWNS THE STORE? (CIRCLE ONE) LICENSEE DISTRIBUTOR SUB-LICENSEE
IF THERE ARE MULTIPLE OWNERS OF THE STORE, LIST THE OWNERS BY PERCENTAGE OF
OWNERSHIP, AND WHO HAS THE CONTROLLING INTEREST.
1) __________________________________ 3) ________________________________
2) __________________________________ 4) ________________________________
- -----------------------------------------------------------------------------
THE FOLLOWING ITEMS MUST ACCOMPANY THIS FORM:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
A) PHOTO OF STORE LOCATION, AND A LAYOUT OF ADJACENT VENDORS.
B) DEMOGRAPHIC INFORMATION, INCLUDING A MAP OF THE AREA WHERE THE STORE WILL
BE LOCATED
C) RETAIL SALES PROJECTIONS FOR THE FIRST THREE YEARS
_____________________________________ ___________________________________
LICENSEE/DISTRIBUTOR SIGNATURE SIGNATURE
APPROVED / / DISAPPROVED / /
NOTE:
- -----
ALL INTERNAL AND EXTERNAL PLANS (INCLUDING FIXTURE LAYOUT) MUST BE APPROVED
PRIOR TO BEGINNING STORE CONSTRUCTION. PLEASE BE AWARE THAT NO STORE MAY BE
OPENED UNTIL HAS GIVEN FINAL WRITTEN APPROVAL.
COMMENTS: ___________________________________________________________________
______________________________________________________________________________
<PAGE>
EXHIBIT "C"
IN-STORE SHOP LOCATION APPROVAL FORM
BEBE
DATE: ________________________
- ------------------------------------------------------------------------------
IN-STORE SHOP AND LOCATION APPROVAL FORM
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NAME OF
LICENSEE/DISTRIBUTOR: ______________________ NAME OF STORE: ______________
PROPOSED OPENING DATE: _____________________ SQUARE FTG.: _________________
ADDRESS OF STORE: ___________________________________________________
(INCLUDING CITY, STATE)
___________________________________________________
- -----------------------------------------------------------------------------
THE FOLLOWING ITEMS MUST ACCOMPANY THIS FORM:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
A) PHOTO OF STORE LOCATION, AND A LAYOUT OF ADJACENT VENDORS.
B) MAP OF AREA WITH STORE INDICATED AND DEMOGRAPHICS.
C) RETAIL SALES PROJECTIONS FOR THE FIRST THREE YEARS
_____________________________________ ___________________________________
LICENSEE/DISTRIBUTOR SIGNATURE SIGNATURE
APPROVED / / DISAPPROVED / /
NOTE:
- -----
PLEASE BE AWARE NO STORE CAN BE OPENED UNTIL STORE LOCATION, FIXTURE
PLANS AND ELEVATION PLANS SHOWING POSTER REPRESENTATION AND STORE SIGNAGE
HAVE BEEN APPROVED BY .
COMMENTS: ___________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
EXHIBIT "D"
RETAIL STORE MATERIAL AND FIXTURE
LAYOUT APPROVAL FORM
NEW STORE / /
BEBE (CHECK ONE)
REMODEL / /
DATE: ___________________
- ------------------------------------------------------------------------------
RETAIL STORE MATERIAL AND FIXTURE LAYOUT APPROVAL FORM
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NAME OF
LICENSEE/DISTRIBUTOR: ______________________ NAME OF STORE: ______________
AVERAGE SQUARE FTG.: _______________________
NEW MATERIALS SUBMITTED: (CHECK ONE) YES ______________ NO ______________
- -----------------------------------------------------------------------------
THE FOLLOWING ITEMS MUST ACCOMPANY THIS FORM:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
A) FLOOR PLANS SHOWING FIXTURE LAYOUT.
B) EXTERIOR STORE FRONT ELEVATION PLANS WITH ALL MATERIALS SPECIFIED.
C) INTERIOR ELEVATIONS SHOWING ALL SIGNAGE, POSTER LOCATIONS, STOCKROOM
LOCATIONS, MIRRORS AND ALL MATERIALS SPECIFIED.
D) SAMPLE AND MATERIAL BOARD INCLUDING FLOORING, WALL TREATMENTS, HARDWARE,
METAL FINISHES AND PAINT COLOR.
MATERIAL SAMPLES ONLY NEED TO BE SUBMITTED FOR THE FIRST STORE, OR
WHEN MAKING CHANGES IN STORE DESIGN
_____________________________________ ___________________________________
LICENSEE/DISTRIBUTOR SIGNATURE SIGNATURE
APPROVED / / DISAPPROVED / /
NOTE:
- -----
ALL CHANGES IN STORE DESIGN, MATERIALS OR FIXTURE DIMENSIONS MUST BE
RE-SUBMITTED TO PRIOR TO BEGINNING STORE CONSTRUCTION.
COMMENTS: ___________________________________________________________________
______________________________________________________________________________
<PAGE>
EXHIBIT "E"
IN-STORE SHOP MATERIAL AND FIXTURE
LAYOUT APPROVAL FORM
NEW STORE / /
BEBE (CHECK ONE)
REMODEL / /
DATE: ___________________
- ------------------------------------------------------------------------------
IN-STORE SHOP MATERIAL AND FIXTURE LAYOUT APPROVAL FORM
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NAME OF
LICENSEE/DISTRIBUTOR: ______________________ NAME OF STORE: ______________
AVERAGE SQUARE FTG.: _______________________
NEW MATERIALS SUBMITTED: (CHECK ONE) YES ______________ NO ______________
- -----------------------------------------------------------------------------
THE FOLLOWING ITEMS MUST ACCOMPANY THIS FORM:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
A) INTERIOR AND EXTERIOR (IF APPLICABLE) ELEVATION PLANS SHOWING SHOP
LAYOUT, INTERIOR WALLS, SHOP SIGNAGE, AND POSTER REPRESENTATION.
B) MATERIAL SAMPLE INCLUDING FIXTURE WOOD SAMPLE, HARDWARE, PAINT COLOR,
WALL TEXTURE, METAL FINISHED AND ALL FLOOR SAMPLES.
MATERIAL SAMPLES ONLY NEED TO BE SUBMITTED FOR THE FIRST SHOP, OR
WHEN MAKING CHANGES IN STORE DESIGN
_____________________________________ ___________________________________
LICENSEE/DISTRIBUTOR SIGNATURE SIGNATURE
APPROVED / / DISAPPROVED / /
NOTE:
- -----
ALL CHANGES IN SHOP DESIGN, MATERIALS OR FIXTURE DIMENSIONS MUST BE
RE-SUBMITTED TO PRIOR TO BEGINNING SHOP CONSTRUCTION.
COMMENTS: ___________________________________________________________________
______________________________________________________________________________
<PAGE>
EXHIBIT "F"
LICENSED RIGHTS APPROVAL FORM
BEBE
LICENSED RIGHTS APPROVAL FORM
-----------------------------
(ALL USES OF TRADEMARKS THAT ARE NOT ADVERTISING
E.G., TRIM, LABELS, STATIONERY, PACKAGING, DISPLAYS, ETC.)
NAME OF LICENSEE _________________________________________________________
LICENSED PRODUCT(S) _________________________________________________________
- ------------------------------------------------------------------------------
DESCRIPTION OF USE __________________________________________________________
_____________________________________________________________________________
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
/ / CONCEPT DESIGN / / COLOR INDICATION / /FINISHED ART / / PRODUCTION SAMPLE
/ / FINAL SAMPLE
/ / APPROVED _________________ / / DISAPPROVED ___________________
COMMENTS / SUGGESTIONS: ____________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
IF SUBMISSION IS A LABEL OR HANGTAG, NAME AND ADDRESS OF SUPPLIER:
_____________________________________________________________________________
_____________________________________________________________________________
ATTACH A SAMPLE OF USE IN THIS SPACE OR AFFIX TO A SEPARATE PAGE
_________________________________ _____________________________________
SIGNATURE OF LICENSEE SIGNATURE OF LICENSOR
<PAGE>
EXHIBIT "G"
ADVERTISING APPROVAL FORM
BEBE ADVERTISING APPROVAL FORM
-------------------------
(SUBMISSIONS MAY BE APPROVED ONLY IN WRITING AND ONLY IF ALL
CHANGES ARE MADE).
NAME OF LICENSEE _________________________________________________
LICENSED PRODUCT(S) _________________________________________________
- ------------------------------------------------------------------------------
ARTWORK SUBMISSION
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PLEASE CHECK THE MEDIA OF ADVERTISING:
/ / FULL PAGE AD / / BILLBOARD / / OTHER ______________________________
NAME OF PUBLICATION: ________________________________________________________
COUNTRY: ____________________________ ISSUE DATE: ________________________
AD POSITION (AS DETAILED AS POSSIBLE): ______________________________________
/ / LEFT HAND PAGE / / RIGHT HAND PAGE / / FULL PAGE SPREAD
- -----------------------------------------------------------------------------
FOR USE ONLY
PLEASE FOLLOW THE APPLICABLE INSTRUCTIONS:
/ / ________________________
/ / ________________________
SPECIAL INSTRUCTIONS: _______________________________________________________
______________________________________________________________________________
______________________ ________________________ ___________________
APPROVED APPROVED WITH CHANGES DISAPPROVED
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PUBLICATION SUBMISSION
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NAME OF PUBLICATION:
(A COPY OF THE MAGAZINE OR NEWSPAPER MUST BE INCLUDED)
FREQUENCY (CHECK ONE): / / DAILY / / WEEKLY / / MONTHLY / / OTHER ________
COMMENTS/SUGGESTIONS: _______________________________________________________
_________________________________ ___________________________________
APPROVED DISAPPROVED
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT "H"
PRINCIPALS OF LICENSEE
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
MR. SOLLY SAKAL - SHARE HOLDER & CHAIRMAN OF THE GROUP
MR. MEIR SAKAL VP OF THE GROUP
MRS. SARY SAKAL EXECUTIVE VICE PRESIDENT/SAKAL SPORTS LTD
MR. HAIM SAKAL CEO
MR. KOBY SAKAL VP MARKETING / SAKAL GROUP
MR. RONY SILBERMAN - CFO
MR. JACOB RIEF DIRECTOR
MR. EHUD PELED DIRECTOR & VP OF RETAIL
</TABLE>
<PAGE>
EXHIBIT "I"
OWNERSHIP OF LICENSEE
PERCENTAGE
EQUITY HOLDER EQUITY
------------- ------
Solly Sakal 66%
Mein Sakal 33%
EXHIBIT "I"
<PAGE>
EXHIBIT "J"
MONTHLY RETAIL STORE REPORT
BEBE
- ------------------------------------------------------------------------------
INDIVIDUAL RETAIL STORE REPORT
(MONTHLY)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LICENSEE/DISTRIBUTOR:
STORE NAME:
CITY:
COUNTRY:
DATE SUBMITTED:
MONTH REPORTED:
* PLEASE NOTE IF THE FIGURES ARE IN U.S. DOLLARS OR LOCAL CURRENCY.
- ------------------------------------------------------------------------------
NET SALES MONTH INCREASE/DECREASE INCREASE/DECREASE
(ACTUAL) ($) (%)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PLEASE LIST REASONS FOR INCREASE OR DECREASE FROM LAST YEAR:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT "K"
PRODUCTS
Women's apparel and accessories.
EXHIBIT "K"
<PAGE>
EXHIBIT "L"
TERRITORY
Israel
EXHIBIT "L"
<PAGE>
EXHIBIT "M"
PRODUCT PURCHASE TERMS
1. Licensee's Cost: U.S. [* * *] net of any
taxes [* * *].
2. Payment Terms: For the first order, 100% of
the payment is due on placing the order. For
each order thereafter, 100% of the payment
is due 30 days after Licensee receives the
Products.
3. Shipping: One shipment per month, FOB Brisbane, California.
Licensee at its sole cost and expense shall assign
freight forwarder and pay all duties.
4. Method of
Payment: In U.S. dollars by confirmed wire transfer.
Licensee shall establish a standby letter of
credit for $75,000 to cover the amounts due under
orders. bebe shall be entitled to draw on such
letter of credit if Licensee has not paid in full
within 30 days of Licensee's receipt of the
Products.
5. Product
Selection: A representative from Licensee shall visit
bebe's corporate headquarters on a date to
be mutually determined each month to make
Product selections. Licensee shall pay all
its own costs and expenses relating to
such visits.
Alternatively, bebe shall send Licensee
photographs or line sheets and fabric
swatches (when available) of offered
Products monthly, and Licensee shall make
its Product selections therefrom.
6. Labels: bebe shall ship Products bearing labels for its
domestic Products. Licensee shall provide at its
sole expense all labeling required in the
Territory which shall be approved in advance by
bebe.
7. Returns: Licensee may return for full credit irregular
Products which exceed 5% of an order.
The Product purchase terms during the Renewal Term (if any) shall be negotiated
between the parties pursuant to Section 1.2 of the Agreement.
* * * Confidential Treatment Requested.
EXHIBIT "M"
<PAGE>
EXHIBIT "N"
INSURANCE POLICIES
EXHIBIT "N"
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 55,166,161
<SECURITIES> 0
<RECEIVABLES> 297,129
<ALLOWANCES> 94,273
<INVENTORY> 14,148,061
<CURRENT-ASSETS> 70,643,126
<PP&E> 19,880,205
<DEPRECIATION> 8,325,289
<TOTAL-ASSETS> 85,361,051
<CURRENT-LIABILITIES> 21,883,942
<BONDS> 0
0
0
<COMMON> 23,944
<OTHER-SE> 60,935,458
<TOTAL-LIABILITY-AND-EQUITY> 85,361,051
<SALES> 101,043,712
<TOTAL-REVENUES> 101,043,712
<CGS> 47,016,054
<TOTAL-COSTS> 29,507,167
<OTHER-EXPENSES> 1,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,768
<INCOME-PRETAX> 25,558,521
<INCOME-TAX> 10,575,805
<INCOME-CONTINUING> 14,982,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,982,716
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.59
</TABLE>
