<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
---------------
COMMISSION FILE NO. 333-62021
HOME INTERIORS & GIFTS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-0981828
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4550 SPRING VALLEY ROAD
DALLAS, TEXAS 75244
(Address of principal executive offices) (Zip Code)
(972) 386-1000
(Registrant's telephone number, including area code)
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 requirement for the past 90 days. Yes [X] No [ ]
As of August 12, 1999, the registrant had outstanding 15,239,110 shares of
its common stock, $0.10 par value per share.
===============================================================================
<PAGE> 2
HOME INTERIORS & GIFTS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Interim Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and
June 30, 1999.................................................................... 3
Consolidated Statements of Operations and Comprehensive Income
For the three months and six months ended June 30, 1998 and 1999................. 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1999........................................................... 5
Notes to Unaudited Interim Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................. 10
PART II - OTHER INFORMATION
Item 1. Legal proceedings............................................................ 19
Item 6. Exhibits and Reports on Form 8-K............................................. 19
</TABLE>
2
<PAGE> 3
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------- ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 41,024 $ 17,740
Accounts receivable, net............................................ 7,975 11,463
Inventories......................................................... 31,010 41,328
Deferred income tax benefit......................................... 2,164 2,044
Other current assets................................................ 1,040 2,285
--------- ---------
Total current assets........................................ 83,213 74,860
Property, plant and equipment, net.................................... 21,774 26,222
Investments........................................................... 1,667 1,729
Debt issuance costs, net.............................................. 19,132 17,536
Other assets.......................................................... 6,662 4,301
--------- ---------
Total assets................................................ $ 132,448 $ 124,648
=========== =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................................... $ 13,119 $ 8,791
Accrued seminars and incentive awards............................... 12,422 12,922
Royalties payable................................................... 6,922 6,535
Hostess prepayments................................................. 8,719 9,556
Income taxes payable................................................ 4,101 2,824
Accrued compensation................................................ 3,606 4,797
Current maturities and prepayment of long-term debt................. 33,723 24,679
Other current liabilities........................................... 9,949 8,019
--------- ---------
Total current liabilities................................... 92,561 78,123
Long-term debt, net of current maturities............................. 453,277 441,966
Deferred income tax liability and other............................... 176 801
--------- ---------
Total liabilities........................................... 546,014 520,890
--------- ---------
Minority interest..................................................... 508 1,806
Commitments and contingencies
Shareholders' deficit:
Common stock, par value $0.10 per share, 75,000,000 shares
authorized, 15,234,422 and 15,239,110 shares
issued and outstanding............................................ 1,523 1,524
Additional paid-in capital.......................................... 178,944 179,791
Accumulated deficit................................................. (594,314) (579,354)
Cumulative translation adjustment................................... (227) (9)
--------- ---------
Total shareholders' deficit................................. (414,074) (398,048)
--------- ---------
Total liabilities and shareholders' deficit................. $ 132,448 $ 124,648
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS AND SIX
MONTHS ENDED JUNE 30, 1998 AND 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .............................................. $ 127,752 $ 126,234 $ 236,073 $ 242,982
Cost of goods sold ..................................... 61,763 60,279 116,087 116,991
--------- --------- --------- ---------
Gross profit ........................................... 65,989 65,955 119,986 125,991
Selling, general and administrative:
Selling .............................................. 22,289 20,642 41,332 42,361
Freight, warehouse and distribution .................. 11,551 12,501 21,225 23,634
General and administrative ........................... 5,897 6,398 10,814 12,612
Gains on the sale of assets .......................... (1,107) -- (5,179) --
Stock option expense ................................. -- 267 -- 748
Recapitalization expenses ............................ 6,198 -- 6,198 --
--------- --------- --------- ---------
Total selling, general and administrative ....... 44,828 39,808 74,390 79,355
--------- --------- --------- ---------
Operating income ....................................... 21,161 26,147 45,596 46,636
Other income (expense):
Interest income ...................................... 1,998 595 4,276 1,369
Interest expense ..................................... (3,481) (11,063) (3,491) (22,324)
Other income (expense), net .......................... 182 (176) 378 (106)
--------- --------- --------- ---------
Other income (expense), net ..................... (1,301) (10,644) 1,163 (21,061)
--------- --------- --------- ---------
Income before income taxes ............................. 19,860 15,503 46,759 25,575
Income taxes ........................................... 7,681 6,485 18,570 10,615
--------- --------- --------- ---------
Net income ............................................. 12,179 9,018 28,189 14,960
Other comprehensive income (loss) before tax:
Cumulative translation adjustment .................... (73) (54) (34) 218
Unrealized losses on investments ..................... (655) -- (698) --
--------- --------- --------- ---------
Other comprehensive income (loss) before tax ... (728) (54) (732) 218
Income tax benefit related to items of other
comprehensive income ................................. 229 -- 244 --
--------- --------- --------- ---------
Other comprehensive income, net of tax ............... (499) (54) (488) 218
--------- --------- --------- ---------
Comprehensive income ................................... $ 11,680 $ 8,964 $ 27,701 $ 15,178
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 28,189 $ 14,960
--------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ..................................... 1,497 1,815
Amortization of debt issuance costs ............................... 97 1,596
Provision for doubtful accounts ................................... 306 278
Gains on the sale of assets ....................................... (5,179) --
Stock option expense .............................................. -- 748
Realized gains on investments ..................................... (203) --
Equity in earnings of an affiliate ................................ -- (62)
Deferred tax expense .............................................. 233 176
Changes in assets and liabilities:
Accounts receivable ............................................... (130) (4,572)
Inventories ....................................................... (8,255) (10,318)
Other current assets .............................................. (276) (1,245)
Other assets ...................................................... (384) 53
Accounts payable .................................................. 4,476 (4,328)
Income taxes payable .............................................. 1,877 (1,277)
Other current liabilities ......................................... 8,982 780
--------- --------
Total adjustments ............................................ 3,041 (16,356)
--------- --------
Net cash provided by (used in) operating activities .......... 31,230 (1,396)
--------- --------
Cash flows from investing activities:
Purchases of investments ............................................ (86,591) --
Proceeds from the sale of investments ............................... 152,765 --
Purchases of property, plant and equipment .......................... (4,778) (5,009)
Purchases of property, plant and equipment by minority
owner of Laredo Candle .......................................... -- (1,229)
Purchases of notes receivable ....................................... (962) --
Payments received on notes receivable ............................... 1,361 3,089
Proceeds from the sale of property, plant and equipment ............. 5,572 --
--------- --------
Net cash provided by (used in) investing activities .......... 67,367 (3,149)
--------- --------
Cash flows from financing activities:
Dividends paid ...................................................... (9,554) --
Proceeds from the issuance of Company common stock .................. 182,557 100
Purchase of treasury stock .......................................... (827,557) --
Proceeds from the issuance of the Notes ............................. 200,000 --
Proceeds from borrowings under the Senior Credit Facility ........... 300,000 --
Debt issuance costs ................................................. (11,609) --
Recapitalization fees and expenses .................................. (12,724) --
Capital contribution from Laredo Candle minority owner .............. -- 1,298
Payments under the Senior Credit Facility ........................... -- (20,355)
--------- --------
Net cash used in financing activities ........................ (178,887) (18,957)
--------- --------
Effect of cumulative translation adjustment ........................... (34) 218
--------- --------
Net decrease in cash and cash equivalents ............................. (80,324) (23,284)
Cash and cash equivalents at beginning of year ........................ 104,262 41,024
--------- --------
Cash and cash equivalents at end of period ............................ $ 23,938 $ 17,740
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BACKGROUND
Home Interiors & Gifts, Inc., together with its subsidiaries (the
"Company"), is a direct seller of home decorative accessories using the "party
plan" method whereby its non-employee, independent sales representatives
("Displayers") conduct shows in the homes of potential customers. The Company
believes that the party plan method provides a comfortable environment where
the unique benefits and attributes of the Company's products can be
demonstrated in a more effective manner than the typical retail setting.
The Company has been located in Dallas, Texas since its inception in
1957. The Company manufactures approximately one-third of its products and
purchases the remainder of its product line from a select number of independent
suppliers, most of who sell their products exclusively to the Company. The
Company expanded its operations internationally in 1995. Revenue from
international operations is not significant.
The following is a brief description of the Company's subsidiaries, each of
which is wholly-owned except as indicated:
o Dallas Woodcraft, Inc. ("DWC") manufactures framed art work and mirrors
using custom-designed equipment
o GIA, Inc. ("GIA") and Homco, Inc. ("Homco") manufacture various types of
molded plastic products using custom-designed equipment
o Laredo Candle Company, L.L.P. ("Laredo Candle"), which is owned 60% by the
Company, was established in 1998 and is anticipated to begin manufacturing
candles in the third quarter of 1999
o Subsidiaries in Mexico and Puerto Rico provide sales support services to
the international Displayers
2. SIGNIFICANT ACCOUNTING POLICIES
The Company maintains its accounting records and prepares financial
statements on the accrual basis of accounting, which conforms with generally
accepted accounting principles. Following these principles, management makes
estimates and assumptions that affect the amounts reported in the financial
statements and notes. Actual results may differ from these estimates.
These consolidated financial statements include the accounts of the
Company. All significant intercompany accounts and transactions have been
eliminated. The Company records sales and related expenses on a weekly basis
ending on each Saturday and every quarter consists of thirteen weeks. The last
days of the quarter ended June 30, 1998 and 1999 in the accompanying unaudited
consolidated financial information were July 4, 1998 and July 3, 1999,
respectively.
The consolidated financial information as of June 30, 1999 and for the
three months and six months ended June 30, 1998 and 1999 is unaudited. In the
opinion of management, the accompanying unaudited consolidated financial
information and related notes thereto contain all adjustments consisting only
of normal, recurring adjustments, necessary to present fairly the Company's
consolidated financial position as of June 30, 1999, operating results and
comprehensive income for the three months and six months ended June 30, 1998
and 1999, and cash flows for the six months ended June 30, 1998 and 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to prior years' balances to
conform with current year presentation.
6
<PAGE> 7
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. THE RECAPITALIZATION
The Company completed a recapitalization (the "Recapitalization") on
June 4, 1998 through the following simultaneous transactions:
o contribution of $182.6 million by Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse") in exchange for 10,111,436 shares of the common stock, or
approximately 66% of all outstanding shares upon completion of the
Recapitalization
o issuance of $200.0 million of senior subordinated notes (the "Notes")
o borrowing of $300.0 million under a $340.0 million senior credit facility
(the "Senior Credit Facility")
o use of the above proceeds, together with available cash of $169.3 million,
to:
o redeem 45,836,584 shares of common stock for $827.6 million
o pay fees and expenses of $24.3 million associated with the
Recapitalization consisting of:
--> $11.2 million financial advisory fee paid to Hicks Muse for its
role in obtaining financing for the Recapitalization
--> $11.6 million of debt issuance costs paid primarily to the bank
syndicate group for the Senior Credit Facility and the initial
purchasers of the Notes
--> $1.5 million of legal and accounting fees
The Company allocated the Hicks Muse financial advisory fee and the
legal and accounting fees on a proportionate basis to the debt and equity
financing for the Recapitalization. Accordingly, the Company allocated $9.5
million to debt issuance costs and $3.2 million to additional paid-in capital.
The total debt issuance costs of $21.1 million are being amortized using the
effective interest method over the term of the related indebtedness.
In addition to the $24.3 million of fees and expenses related to the
Recapitalization, the Company paid additional financial advisory and legal fees
of approximately $6.2 million in connection with the Recapitalization. The
Company paid its financial advisor approximately $5.7 million to assist with
the development of strategic alternatives, identify potential buyers, evaluate
proposals and assist in the negotiation of the Hicks Muse offer. These
financial advisory and legal fees were expensed as incurred in the three months
ended June 30, 1998.
As a result of the Recapitalization, the issued and outstanding shares of
common stock decreased to 15,231,652 shares as of June 4, 1998, all treasury
stock was retired and Hicks Muse acquired a controlling interest in the
Company.
4. NEW WAREHOUSE AND DISTRIBUTION FACILITY
The Company is currently operating in and from several separate
warehouse and distribution facilities. On July 19, 1999 the Company entered
into a contract with Argent Frankford L.P. ("Argent") to construct a new
630,000 square-foot warehouse and distribution facility in Carrollton, Texas
for approximately $19.4 million. The Company expects to incur an additional
$2.0 million to $3.0 million in customized improvements to prepare the facility
for occupancy, which should occur prior to the end of the second quarter of
2000. In the event the Argent transaction described in the next paragraph is
not consummated and the Company is unable to purchase the facility, the Company
is obligated to enter into a long-term lease agreement with Argent upon
completion of construction.
The new warehouse and distribution facility will allow the Company to
consolidate its current warehouse and distribution operation from several
smaller facilities into a single larger facility. Among other things, the
Company anticipates that it will benefit from reduced labor and inventory costs
and property tax savings. Additionally, the new facility will allow the Company
to utilize an automated order fulfillment system, which the Company expects
will result in additional labor savings.
7
<PAGE> 8
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concurrently with the transaction described above, the Company entered
into an exchange transaction with Parker Equities Inc. ("Parker") to sell to
Parker for $15.7 million, net of commissions and closing costs, substantially
all of the Company's owned properties and facilities in the Dallas area,
including all of its warehouse and distribution facilities and its corporate
headquarters. The Company plans to close the transaction on December 1, 1999
subject to certain customary terms and conditions. At closing, the Company
intends to enter into several separate lease agreements to lease back all of
its properties and facilities until the Company's new facilities are ready for
occupancy. The lease terms will vary in length based on a predetermined
schedule of facility closings between April 2000 and August 2000.
The Company expects that the process of selling its current facilities
and properties in exchange for purchasing a new facility and property will
qualify as a Section 1031 Tax-Free Exchange under the United States Internal
Revenue Code of 1986, as amended. The Company anticipates there will be a
pre-tax gain of approximately $10.7 million on the sale of its properties and
facilities for financial reporting purposes.
The transactions described above require approval from the Company's
lenders. The Company is currently meeting with its lenders and expects to gain
approval of these transactions.
5. CORPORATE HEADQUARTERS FACILITY
The Company is in the process of negotiating a ten year lease for a new
corporate headquarters location in the Dallas area. The Company anticipates
that this facility will consist of approximately 75,000 square feet of office
space for annual rent of approximately $1.7 million. Tenant improvements to
customize the space are expected to be approximately $3.0 million after
improvement allowances. The Company expects to move into its new headquarters
facility in late 1999 or early 2000.
6. INVENTORIES
Inventories consist of the following as of December 31, 1998 and June
30, 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------- -----------
(UNAUDITED)
<S> <C> <C>
Raw materials....................................................... $ 6,134 $ 6,952
Work in process..................................................... 1,742 1,802
Finished goods...................................................... 23,134 32,574
--------- ---------
$ 31,010 $ 41,328
========= =========
</TABLE>
7. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following as of December 31,
1998 and June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------- ----------
(UNAUDITED)
<S> <C> <C>
Interest payable.................................................... $ 2,959 $ 2,248
Employee benefit plan contributions................................. 2,264 807
Sales taxes payable................................................. 1,871 1,884
Other current liabilities........................................... 2,855 3,080
--------- ---------
$ 9,949 $ 8,019
========= =========
</TABLE>
8
<PAGE> 9
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard is effective for quarters
and fiscal years beginning after June 15, 2000. The Company has not yet
determined the effect the new standard will have on its financial statements.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and accompanying notes as
of and for the year ended December 31, 1998, included in its Form 10-K. Unless
otherwise mentioned, all references to the number of Displayers, number of
orders shipped, and average order size relate to domestic sales activity only.
COMPANY BACKGROUND
The Company believes it is the largest direct seller of home
decorative accessories in the United States, as measured by sales. The
Company's sales are dependent upon the number of Displayers selling the
Company's products and Displayer productivity. Displayer productivity is
measured in terms of orders shipped and average order size, both of which
fluctuate from time to time based on the implementation and timing of discounts
and new incentive programs, seasonality and recruiting activity.
To stimulate sales, the Company offers a variety of discounts and
incentives to Displayers. The amount and type of discounts and incentives vary
from year to year and throughout each year, but are generally consistent over
any given quarterly period. The cost of discounts is reflected in the Company's
net sales while the cost of incentives is reflected in selling expense.
Primarily because of the nature of the direct selling industry, and as
a result of numerous general and economic factors, the Company experienced
average annual Displayer turnover of approximately 40% during the last three
years. The Company believes that new Displayers are generally among the least
productive Displayers and that the majority of Displayers who terminate their
status as Displayers in any particular year are Displayers recruited in that
year or in the immediately preceding year. The Company's ability to maintain
its sales volume and to achieve growth depends upon its ability to attract,
train and retain a significant number of new Displayers each year.
The Company revised its recruiting and training criteria in early
1999. Among other things, the Company increased opportunities for new
Displayers by reducing start-up costs and lowering certain other barriers to
entry. These changes resulted in a significant increase in the number of new
Displayers. The Company recruited approximately 31,400 new Displayers during
the six months ended June 30, 1999, which was more than the number recruited
during the entire year in 1998. Although the Displayer base grew from 52,800 as
of December 31, 1998 to 83,700 as of June 30, 1999, many of the new Displayers
were not considered active because they had not yet placed their first order.
To be considered an active Displayer, the Displayer must have placed an order
within the 14 prior weeks. Active Displayers totaled 61,400 as of June 30,
1999, up 22.6% from 50,100 as of December 31, 1998, and up 36.1% from 45,100 as
of June 30, 1998.
In connection with the recent growth in recruiting, the
Company lowered its minimum order requirement in June 1999, and as a result,
experienced a significant decline in average order sizes. The Company is
continuing to evaluate the impact the lower minimum order requirement is having
on its business; however, the Company expects that the higher operating costs
experienced during the second quarter will continue through the remainder of
the year.
Historically, the Company has benefited from relatively stable gross
profit and operating profit margins. Once a product is introduced into the
Company's product line, the price at which the Company purchases the product
from its suppliers and the price at which the Company sells the product to
Displayers seldom changes. The Company has steadily improved its gross profit
margin since mid-1997, when the markup on all new products was increased. Prior
to that time, the Company seldom changed product markups. The Company believes
that further improvement in gross margin will occur during the remainder of
1999 until the new pricing structure is incorporated throughout its entire
product line. The Company expects that its operating profit margins will
decline slightly through the end of 1999 primarily as a result of the increased
costs associated with processing and shipping more orders.
The Company delivers its products to Displayers via common carrier and
a regional network of locally-based freight distributors ("Local
Distributors"). Unlike many other direct sales companies that the Company
believes charge their customers shipping costs, the Company delivers its
products to Displayers free of charge if
10
<PAGE> 11
minimum order sizes are met. The Company realizes substantial cost savings from
volume discounts it receives from its common carriers and its use of Local
Distributors. The use of Local Distributors enables the Company to avoid the
premiums charged by common carriers for delivery to private residences, which
is where most Displayers receive their deliveries. In addition, the Company
believes that, as a result of its good relationships with its common carriers
and the Local Distributors, it is able to quickly deliver its products with
minimal shipping errors or product damage.
THE RECAPITALIZATION
The Company completed the Recapitalization on June 4, 1998 through the
following simultaneous transactions:
o contribution of $182.6 million by Hicks Muse, in exchange for 10,111,436
shares of the common stock, or approximately 66% of all outstanding shares
upon completion of the Recapitalization
o issuance of $200.0 million of the Notes
o borrowing of $300.0 million under the Senior Credit Facility
o use of the above proceeds, together with available cash of $169.3 million,
to:
o redeem 45,836,584 shares of common stock for $827.6 million
o pay fees and expenses of $24.3 million associated with the
Recapitalization consisting of:
--> $11.2 million financial advisory fee paid to Hicks Muse for its
role in obtaining financing for the Recapitalization
--> $11.6 million of debt issuance costs paid primarily to the bank
syndicate group for the Senior Credit Facility and the initial
purchasers of the Notes
--> $1.5 million of legal and accounting fees
In addition to the $24.3 million of fees and expenses related to the
Recapitalization, the Company paid additional financial advisory and legal fees
of approximately $6.2 million in connection with the Recapitalization. The
Company paid its financial advisor approximately $5.7 million to assist with
the development of strategic alternatives, identify potential buyers, evaluate
proposals and assist in the negotiation of the Hicks Muse offer. These
financial advisory and legal fees were expensed as incurred during the three
months ended June 30, 1998.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1998
Net Sales. Net sales decreased $1.6 million, or 1.2%, to $126.2
million in the three months ended June 30, 1999 from $127.8 million in the
comparable period in 1998. This decrease was primarily due to a 19.2% decline
in the average order size, which more than offset a 22.0% increase in the
number of orders shipped. The decline in the average order size was primarily
as a result of a lower minimum order requirement implemented in June 1999 and
growth in the Displayer base that increased the percentage of less experienced,
and therefore, less productive Displayers. Additionally, sales in the 1998
period were impacted positively by a six-month sales incentive that ended in
June 1998. For 1999, the same incentive is earned over a nine-month period
ending in September 1999. Growth in the Displayer base contributed to the
increase in the number of orders shipped in the 1999 period. The average number
of active Displayers increased to 56,500 in the three months ended June 30,
1999 from 44,700 in the comparable period in 1998. Orders shipped per active
Displayer decreased slightly. The Company expects that the trend of more orders
shipped and lower order sizes will continue throughout 1999 as a result of the
factors discussed above.
Gross Profit. Gross profit remained flat at $66.0 million in the three
months ended June 30, 1998 and 1999. As a percentage of net sales, gross profit
increased to 52.2% in the 1999 period from 51.7% in the 1998 period largely due
to the introduction of new products with higher profit margins.
Selling expense. Selling expense decreased $1.7 million, or 7.4%, to
$20.6 million in the three months ended June 30, 1999 from $22.3 million in the
comparable period in 1998. As a percentage of net sales, selling expense
decreased to 16.4% in 1999 from 17.4% in the 1998 period. This decrease was
primarily attributable to lower bonus accruals for Displayers in the 1999
period as a result of lower sales and higher incentive costs in the 1998
period. The accrual of annual sales production bonuses for Displayers in the
1999 period was lower as a result of lower sales volume compared to the 1998
period.
11
<PAGE> 12
Freight, warehouse and distribution expense. Freight, warehouse and
distribution expense increased $0.9 million, or 8.2%, to $12.5 million in the
three months ended June 30, 1999 from $11.6 million in the comparable period in
1998. As a percentage of net sales, freight, warehouse and distribution expense
increased to 9.9% in the 1999 period from 9.0% in the 1998 period. This
increase resulted from the 22.0% increase in the number of orders shipped, and
in particular the use of temporary labor necessary to fill orders.
Additionally, the Company incurred higher wage costs for its distribution
employees as a result of a wage rate increase in May 1999. The Company expects
the trend of higher labor costs will continue throughout the remainder of 1999.
General and administrative expense. General and administrative expense
increased $0.5 million, or 8.5%, to $6.4 million in the three months ended June
30, 1999 from $5.9 million in the comparable period in 1998. The increase was
largely due to increased personnel costs, the full period impact of a
monitoring and oversight fee payable to Hicks Muse, and increased depreciation
expense as a result of a higher level of capital expenditures throughout 1998.
The higher personnel costs were in response to the growth in the sales force
coupled with modernization of new computer systems requiring specialized labor.
Gains on the sale of assets. The Company recorded a gain of $1.1
million on the sale of an aircraft in 1998. No gains have been recorded in the
three months ended June 30, 1999.
Recapitalization expenses. Recapitalization expenses of $6.2 million
in 1998 consisted of fees and expenses paid to the Company's financial advisor
and attorneys in connection with the Recapitalization.
Interest Income. Interest income decreased to $0.6 million in the
three months ended June 30, 1999 from $2.0 million in the comparable period in
1998 due to lower average investment balances as a result of the
Recapitalization.
Interest Expense. Interest expense increased to $11.1 million in the
three months ended June 30, 1999 from $3.5 million in the comparable period in
1998. Interest expense was incurred over the entire period in 1999 in
connection with the Senior Credit Facility and the Notes as compared to one
month in the 1998 period.
Income Taxes. Income taxes decreased to $6.5 million in the three
months ended June 30, 1999 from $7.7 million in the comparable period in 1998.
Income taxes as a percentage of income before income taxes increased to 41.8%
in the 1999 period from 38.7% in the 1998 period. This increase was primarily
due to a higher effective state income tax rate in the 1999 period as a result
of the Company's filing income or franchise tax returns in substantially all
states.
THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1998
Net Sales. Net sales increased $6.9 million, or 2.9%, to $243.0
million in the six months ended June 30, 1999 from $236.1 million in the
comparable period in 1998. This increase was primarily attributable to a 19.1%
increase in the number of orders shipped, which more than offset a 13.7%
decrease in the average order size. The increase in orders shipped was due to
growth in the Displayer base. The average number of active Displayers increased
to 54,400 in the six months ended June 30, 1999 from 44,100 in the comparable
period in 1998. Orders shipped per active Displayer dropped slightly. The
decline in the average order size was primarily as a result of a lower minimum
order requirement implemented in June 1999 and growth in the Displayer base
that increased the percentage of less experienced and, therefore, less
productive Displayers.
Gross Profit. Gross profit increased $6.0 million, or 5.0%, to $126.0
million in the six months ended June 30, 1999 from $120.0 million in the
comparable period in 1998. As a percentage of net sales, gross profit increased
to 51.9% in 1999 from 50.8% in the 1998 period. This increase was primarily
attributable to the introduction of new products with higher profit margins,
and to a lesser extent, manufacturing efficiencies.
Selling expense. Selling expense increased $1.1 million, or 2.5%, to
$42.4 million in the six months ended June 30, 1999 from $41.3 million in the
comparable period in 1998. As a percentage of net sales, selling expense of
17.4% in 1999 was in line with 17.5% in the 1998 period. Increased commissions
earned by Displayers in the 1999 period were offset by higher incentive costs
in the 1998 period.
12
<PAGE> 13
Freight, warehouse and distribution expense. Freight, warehouse and
distribution expense increased $2.4 million, or 11.3%, to $23.6 million in the
six months ended June 30, 1999 from $21.2 million in the comparable period in
1998. As a percentage of net sales, freight, warehouse and distribution expense
increased to 9.7% in the 1999 period from 9.0% in the 1998 period. This
increase resulted from the increase in the number of orders shipped, and in
particular the use of temporary labor necessary to fill orders. Additionally,
the Company incurred higher wage costs for its distribution employees as a
result of a wage rate increase in May 1999. The Company expects that the trend
of higher labor costs will continue throughout the remainder of 1999.
General and administrative expense. General and administrative expense
increased $1.8 million, or 16.6%, to $12.6 million in the six months ended June
30, 1999 from $10.8 million in the comparable period in 1998. The increase was
largely due to increased personnel costs, the full period impact of a
monitoring and oversight fee payable to Hicks Muse, and increased depreciation
expense as a result of a higher level of capital expenditures throughout 1998.
The higher personnel costs are in response to the growth in the sales force
coupled with modernization of new computer systems requiring specialized labor.
Gains on the sale of assets. The Company recorded gains of $5.2
million primarily on the sale of two aircraft in 1998. No gains have been
reported in the six months ended June 30, 1999.
Interest Income. Interest income decreased to $1.4 million in the six
months ended June 30, 1999 from $4.3 million in the comparable period in 1998
due to lower average investment balances as a result of the Recapitalization.
Interest Expense. Interest expense increased $18.8 million to $22.3
million from $3.5 million in the comparable period in 1998 due to interest
expense incurred in connection with the Senior Credit Facility and the Notes.
Income Taxes. Income taxes decreased to $10.6 million in the six
months ended June 30, 1999 from $18.6 million in the comparable period in 1998.
Income taxes as a percentage of income before income taxes increased to 41.5%
in the 1999 period from 39.7% in the 1998 period. This increase was primarily
due to a higher effective state income tax rate in the 1999 period as a result
of the Company's filing income or franchise tax returns in substantially all
states.
SEASONALITY
The Company's business is influenced by the Christmas holiday season
and promotional events. Historically, a higher portion of the Company's sales
and net income has been realized during the fourth quarter, and net sales and
net income have generally been slightly lower during the first quarter as
compared to the second and third quarters. Working capital requirements also
fluctuate during the year and reach their highest levels during the third and
fourth quarters as the Company increases its inventory for the peak season. In
addition to the Company's peak season fluctuations, quarterly results of
operations may fluctuate depending on the timing of, and amount of sales from
discounts, incentive promotions and/or the introduction of new products. As a
result, the Company's business activity and results of operations in any
quarter are not necessarily indicative of any future trends in the Company's
business.
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its historical requirements for capital
through cash flow from operations. As a result of borrowings under the Senior
Credit Facility and the issuance of the Notes, the Company is subject to cash
requirements, which are significantly greater than its historical requirements.
Net cash used by operating activities in the six months ended June 30, 1999
totaled $1.4 million, a $32.6 million decline from the $31.2 million in cash
provided by operations in the comparable period in 1998. The decrease was
largely attributable to reduced net income in the six months ended June 30,
1999 primarily as a result of the full period impact of interest expense on the
Senior Credit Facility and the Notes and an increase in accounts receivable
combined with a decrease in accounts payable and other current liabilities.
Prior to June 4, 1998, the Company liquidated substantially all of its
investments held as of December 31, 1997 to meet the cash requirements of the
Recapitalization. As a result, proceeds from the sale of investments through
June 30, 1998 totaled $152.8 million. Purchases of investments totaled $86.6
million through June 30, 1998. In addition to its other investing activities,
the Company sold two aircraft for proceeds of $5.2 million.
13
<PAGE> 14
The Company used $3.1 million cash in investing activities during the
six months ended June 30, 1999 and generated $67.4 million in the comparable
period in 1998. The Company's capital expenditures totaled $6.2 million during
the six months ended June 30, 1999 and $4.8 million in the comparable period in
1998. Capital expenditures in the 1999 period include $1.2 million attributable
to the minority owner of Laredo Candle. Payments received on notes receivable
increased to $3.1 million during the six months ended June 30, 1999 from $1.4
million in the comparable period in 1998 primarily due to the early payoff of a
note. In addition to its other investing activities, the Company sold two
aircraft in 1998 for proceeds of $5.6 million.
The Company is currently operating in and from several separate
warehouse and distribution facilities. On July 19, 1999 the Company entered
into a contract with Argent to construct a new 630,000 square-foot warehouse
and distribution facility in Carrollton, Texas for approximately $19.4 million.
The Company expects to incur an additional $2.0 million to $3.0 million in
customized improvements to prepare the facility for occupancy, which should
occur prior to the end of the second quarter of 2000. In the event the Company
is unable to purchase the facility, the Company is obligated to enter into a
long-term lease agreement with Argent upon completion of construction.
The new warehouse and distribution facility will allow the Company to
consolidate its current warehouse and distribution operation from several
smaller facilities into a single larger facility. Among other things, the
Company anticipates that it will benefit from reduced labor and inventory costs
and property tax savings. Additionally, the new facility will allow the Company
to utilize an automated order fulfillment system, which the Company expects
will result in additional labor savings.
Concurrently with the transaction described above, the Company entered
into an exchange transaction with Parker Equities Inc. to sell to Parker for
$15.7 million, net of commissions and closing costs, substantially all of the
Company's owned properties and facilities in the Dallas area, including all of
its warehouse and distribution facilities and its corporate headquarters. The
Company plans to close the transaction on December 1, 1999 subject to certain
customary terms and conditions. At closing, the Company intends to enter into
several separate lease agreements to lease back all of its properties and
facilities. The lease terms will vary in length based on a predetermined
schedule of facility closings between April 2000 and August 2000.
The Company expects that the process of selling its current facilities
and properties in exchange for purchasing a new facility and property will
qualify as a Section 1031 Tax-Free Exchange under the United States Internal
Revenue Code of 1986, as amended. The Company anticipates there will be a
pre-tax gain of approximately $10.7 million on the sale of its properties and
facilities for financial reporting purposes.
The transactions described above require approval from the Company's
lenders. The Company is currently meeting with its lenders and expects to gain
approval of these transactions.
The Company is in the process of negotiating a ten year lease for a
new corporate headquarters location in the Dallas area. The Company anticipates
that this facility will consist of approximately 75,000 square feet of office
space for annual rent of approximately $1.7 million. Tenant improvements to
customize the space are expected to be approximately $3.0 million after
improvement allowances. The Company expects to move into its new headquarters
facility in late 1999 or early 2000.
In connection with the construction of the new warehouse and
distribution facility, the Company is working with a consultant to assist in
the specific design layout of the facility and implementation of an automated
order fulfillment system. The Company expects that its automation related costs
will be approximately $5.0 million to $10.0 million. These costs will be
incurred in late 1999 and throughout 2000 as the Company transitions from its
current warehouse and distribution facilities to its new facility over a period
of several months. The Company expects to continue to use its current
distribution system until the automated system is fully operational.
The Company estimates that its remaining capital expenditures will
increase to approximately $13.2 million during the year ended December 31, 1999
from $8.4 million in the comparable period of 1998. The anticipated increase is
principally as a result of continued enhancements to the Company's new computer
system, including Internet capabilities, and construction of the building and
purchase of equipment for Laredo Candle. The Company's capital expenditures
include expenditures attributable to the minority owner of Laredo Candle. The
minority owner of Laredo Candle spent $0.5 million in capital expenditures in
the 1998 period and expects to spend approximately $2.0 million in the 1999
period for its portion of the new candle manufacturing operation.
14
<PAGE> 15
The Company's use of cash for financing activities decreased to $19.0
million during the six months ended June 30, 1999 from $178.9 million in the
comparable period in 1998. The higher use of cash in the 1998 period was due to
the Recapitalization. The Company used proceeds of $182.6 million from the
contribution of equity by Hicks Muse, $200.0 million from the issuance of the
Notes and $300.0 million of borrowings under the Senior Credit Facility,
together with proceeds from the sale of investments as described above, to pay
$827.6 million for the redemption of common stock, and to pay $24.3 million of
fees and expenses associated with the Recapitalization. Prior to the
Recapitalization, the Company's primary financing activity was the payment of
dividends. Dividends paid during the 1998 period totaled $9.6 million. Since
the terms of the Notes and the Senior Credit Facility restrict the Company's
ability to pay dividends, the Company does not anticipate the payment of
dividends in the foreseeable future, and no dividends were paid during the 1999
period. The Company's primary financing activity in the 1999 consisted of
principal payments under the Senior Credit Facility of $20.4 million.
Payments on the Notes and Senior Credit Facility represent significant
cash requirements for the Company. Interest payments on the Notes commenced in
December 1998 and will continue semi-annually until the Notes mature in 2008.
Borrowings under the Senior Credit Facility require quarterly interest and
principal payments. In addition, the Senior Credit Facility includes $40.0
million of Revolving Loans, which mature on June 30, 2004. The Revolving Loans
remained undrawn as of June 30, 1999.
The Company paid a total of $36.5 million in debt service in the six
months ended June 30, 1999. The debt service payments consisted of scheduled
principal payments under the Senior Credit Facility of $12.7 million, a
mandatory prepayment of $7.7 million under the Senior Credit Facility, and
interest under the Senior Credit Facility and the Notes of approximately $16.1
million.
The Company anticipates that its debt service requirements will total
$72.4 million in 1999. These debt service requirements are expected to consist
of scheduled principal payments due under the Senior Credit Facility of $24.6
million, the mandatory prepayment of $7.7 million under the Senior Credit
Facility, interest due under the Senior Credit Facility of $19.9 million and
interest of $20.2 million due on the Notes. A majority of the Company's
variable-rate debt as of June 30, 1999 consisted of thirty day borrowings
entered into on June 30, 1999.
The terms of the Notes and Senior Credit Facility include significant
operating and financial restrictions, such as limits on the Company's ability
to incur indebtedness, create liens, sell assets, engage in mergers or
consolidations, make investments and pay dividends. In addition, under the
Senior Credit Facility, the Company is required to comply with specified
financial ratios and tests, including minimum interest coverage and maximum
leverage ratios. Subject to the financial ratios and tests, the Company will be
required to make certain mandatory prepayments of the term loans on an annual
basis. The Company prepaid $7.7 million on the term loans on March 31, 1999. As
a result of the timing and magnitude of the prepayment amount, the Company may
have to utilize the Revolving Loans at varying times subsequent to June 30,
1999 primarily to meet working capital needs and to fund capital expenditures,
including costs associated with an automated order fulfillment system, and the
transitions to its new warehouse and distribution facility and corporate
headquarters facility.
The Company believes that net cash flow from operations and borrowings
under the Revolving Loans, if any, will be sufficient to fund its cash
requirements over the next twelve months, which will consist primarily of
payment of principal and interest on outstanding indebtedness, working capital
requirements and capital expenditures. The Company's future operating
performance and ability to service or refinance its current indebtedness will
be subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control.
MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
The Company is exposed to financial market risks, including changes in
interest rates and foreign currency exchange rates. To mitigate risks on
changes in interest rates, the Company utilizes derivative financial
instruments. The Company does not use derivative financial instruments for
speculative or trading purposes. The Company's international operations are not
significant, and as a result, changes in foreign currency exchange rates do not
have a material effect on the Company.
In July 1998, the Company entered into an interest rate swap agreement
to limit the effect of changes in interest rates on long-term borrowings. Under
the swap, the Company pays interest at 5.50% on a notional amount of $75.0
million and receives interest thereon at three-month LIBOR on a quarterly
basis. Beginning June 9, 1999, if LIBOR is greater than 6.44% at the
commencement of any quarterly reset period, a knockout provision provides for
15
<PAGE> 16
no payment under the swap during such period. The knockout provision is
separately adjusted to market on a quarterly basis. The Company recorded a
$546,000 loss on the derivative in the six months ended June 30, 1999 as a
result of an increase in interest rates.
There are no material quantitative changes in market risk exposures at
June 30, 1999 when compared to December 31, 1998.
ENVIRONMENTAL ISSUES
In 1989, DWC was named as a potentially responsible party ("PRP")
based on allegedly having sent 2,640 gallons of waste to the Chemical
Recycling, Inc. facility in Wylie, Texas. The Company believes that DWC's share
of the total cleanup costs based on a volumetric allocation would be less than
one percent. In the future, DWC and the other PRPs, who are jointly and
severally liable, may incur additional costs related to the cleanup of
hazardous substances at the facility. DWC did not incur any cleanup related
costs in 1996, 1997 and 1998 or in the six months ended June 30, 1999. Because
the site has been dormant for several years, the Company does not believe it is
probable that any additional costs will be incurred and, accordingly, has not
established any accruals for future cleanup costs at the site.
In 1997, Homco was named as a PRP based on allegedly having
transported hazardous substances to the Materials Recovery Enterprises, Inc.
facility near Ovalo, Texas in Taylor County, Texas. In 1998, Homco paid an
assessment of approximately $1,000 for liability at the facility. By agreement,
Kraft Foods, Inc., a partial indemnitor to Homco, paid Homco 96.5% of this past
assessment; assumed the future administration of the matter, including payment
of future costs; and may, upon demand, request reimbursement from Homco for
3.5% of future costs. Although Homco remains jointly and severally liable for
the remediation of the site, the probability that Homco will be required to pay
more than a de minimis amount is remote.
In 1996, the United States Environmental Protection Agency issued a
Notice of Violation claiming that GIA had violated the Clean Air Act and
Nebraska Air Regulations by failing to obtain one or more Construction Permits
for plant expansions that occurred in the 1970s and 1980s. In January 1997, GIA
responded to the Notice of Violation and in January 1998, a combined
construction and operating permit was proposed for the facility. This permit
has been issued and GIA did not incur penalties for the activities covered by
the Notice of Violation.
On February 9, 1999, the EPA conducted an inspection at GIA to
determine compliance with the toxic chemical release reporting requirements for
1997 pursuant to the Emergency Planning and Community Right To Know Act of
1986, Section 313. A final determination has not been issued, but several
possible calculation errors in GIA's Form R Report were noted during the
inspection. The EPA will make its final determination upon receipt and
verification of GIA's revised 1997 Form R calculation. It is possible that the
EPA could seek administrative penalties for these errors.
The ultimate outcome and aggregate cost of resolving all of the above
contingencies will be based on a number of factors and will be determined over
a number of years. Accordingly, the total cost to the Company cannot currently
be determined with certainty. It is management's opinion, however, the total
cost of resolving such contingencies should not have a material adverse effect
on the Company's business, financial condition or results of operations.
YEAR 2000 ISSUES; MANAGEMENT INFORMATION SYSTEM
As a result of certain computer programs being written using two
digits rather than four digits to define the applicable year, any of the
Company's computer programs that have date sensitive software may recognize a
date using "00" as the Year 1900 rather than the Year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices or engage in normal business activities.
The Company has established a Year 2000 compliance team to address the
issue of computer programs and systems that are unable to distinguish between
the year 1900 and the year 2000 (the "Project"). The Project is divided into
three categories: infrastructure, subsidiaries and third party suppliers and
service providers. The Company has completed the assessment phase which
consisted of identifying and inventorying items, prioritizing, determining
critical items and establishing a timetable for Year 2000 compliance and is
actively engaged in the remediation and testing phases of the Project. The
computer system is a critical aspect of the Project.
16
<PAGE> 17
The Company implemented its new and significantly more sophisticated
computer system (the "Computer System") in January 1999, which replaced
substantially all of the hardware and software previously in use at the
Company. A limited amount of peripheral equipment was retained and testing for
Year 2000 compliance is substantially complete. Additional testing will
continue throughout the third quarter of 1999. The Computer System includes a
mainframe computer, certain business applications and upgraded or replacement
peripheral equipment associated with the Company's core business systems. The
Company upgraded the software for the Computer System through the purchase of
certain software products developed by Distribution Architects International
("DAI"). DAI has been engaged to assist with the implementation and enhancement
process. Each supplier (including DAI) of the hardware and software
incorporated or to be incorporated into the Computer System has provided to the
Company a compliance statement or other documentation certifying that its
products will function properly in all material respects beyond 1999.
The DAI software was installed in January 1999, and the Computer
System is presently operational. In addition, Year 2000 remediation of other
aspects of the Company's infrastructure is substantially complete. Remediation
of the Company's subsidiaries was substantially completed in the first quarter
of 1999 and testing is ongoing throughout the third quarter. The Company
believes that Year 2000 remediation of its infrastructure and its subsidiaries
is complete in all material respects. Additional costs associated with
remediating the Company's remaining infrastructure is expected to be less than
$1.0 million.
The Company is currently enhancing the effectiveness of the DAI
software and the Computer System in general. The Company's core business
functions, including inventory, purchasing and accounting are dependent on a
properly functioning management information system. Because the Computer System
replaced a significant portion of such system, the failure of the DAI software
to function as anticipated would require the Company to reassess its Year 2000
compliance and its Computer System in general. On-site systems testing will
continue throughout the remainder of 1999. Specific testing of the DAI software
for Year 2000 compliance took place in the second quarter of 1999. No
substantial weaknesses were found during the testing. There can be no assurance
that such software could be obtained and installed in a timely fashion or that
such software would be year 2000 compliant. Non-compliance could potentially
result in a disruption of operations, including, among other things, a
temporary inability to process transactions, ship products or engage in normal
business activities, which could have a material adverse effect on the
Company's business, financial condition, results of operations and liquidity of
a magnitude which the Company is presently unable to predict. However, if some
or all of the Company's remediated or replaced internal computer systems fail
to correctly distinguish between years before and after Year 2000, or if any
software applications critical to the Company's operations are overlooked in
the Company's assessment of its Year 2000 compliance, there could be a material
adverse effect on the Company's business, financial condition, results of
operations and liquidity of a magnitude which the Company presently is not able
to predict.
In addition to the foregoing, the Company has identified and surveyed
its critical third party suppliers and service providers, and continues to
monitor and assess their progress toward Year 2000 compliance to determine the
extent to which the Company is vulnerable to the failure of such suppliers and
service providers to remediate their own Year 2000 issues. The failure of such
third parties to adequately address their respective Year 2000 issues, could
have a material adverse effect on the Company's business, financial condition,
results of operations and liquidity of a magnitude which the Company is
presently not able to predict.
The Company spent approximately $5.3 million on the Computer System as
of March 31, 1999, which represented substantially all of the costs to
implement the first phase of the rollout of the Computer System. Now that the
installation process is complete, the Company is responding to increased
information demands and overall growth by enhancing the operational performance
and capabilities of the Computer System. The Company spent approximately $1.0
million on the Computer System in the three months ended June 30, 1999.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard is effective for quarters
and fiscal years beginning after June 15, 2000. The Company has not yet
determined the effect the new standard will have on its financial statements.
17
<PAGE> 18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors that may cause the Company's actual results to be materially
different from any future results expressed or implied by such forward-looking
statements.
In some cases, forward-looking statements are identified by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of such terms or other comparable terminology.
All of these forward-looking statements are based on estimates and
assumptions made by management of the Company which, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed upon such statements. No assurance can be given that any of such
estimates or statements will be realized and actual results may differ
materially from those contemplated by such forward-looking statements. Factors
that may cause such differences include: (i) loss of Displayers; (ii) loss or
retirement of key members of management; (iii) imposition of state taxes; (iv)
change in status of independent contractors; (v) increased competition; (vi)
unexpected delays or problems associated with the completion of the Company's
new warehouse and distribution facility; (vii) unexpected delays or problems
associated with the sale of substantially all of the Company's existing
properties and facilities; (viii) unexpected delays or problems associated with
integration and implementation of an automated order fulfillment system; (ix)
unexpected delays or problems associated with the Company's Year 2000 Project;
and (x) the ability of third party suppliers and service providers to remediate
any Year 2000 issues applicable to their respective businesses. Many of these
factors will be beyond the control of the Company.
Moreover, neither the Company nor any other person assumes
responsibility for the accuracy and completeness of such statements. The
Company is under no duty to update any of the forward-looking statements after
the date of this Form 10-Q to conform such statements to actual results.
18
<PAGE> 19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Environmental Issues" for information regarding legal
proceedings which is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10.1 Consulting Services Agreement dated as of June 3, 1999, between Home Interiors & Gifts, Inc.
and Tompkins Associated Incorporated.
10.2 Real Estate Purchase Contract dated July 19, 1999, between Home Interiors & Gifts, Inc. and
Parker Equities, Inc.
10.3 First Amendment to Real Estate Purchase Contract dated August 9, 1999, between Home Interiors
& Gifts, Inc. and Parker Equities, Inc.
10.4 Purchase and Sale Agreement dated July 19, 1999, between Argent Frankford, L.P. and Home
Interiors & Gifts, Inc.
10.5 First Amendment to Purchase and Sale Agreement dated July 23, 1999, between Argent Frankford,
L.P. and Home Interiors & Gifts, Inc.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
19
<PAGE> 20
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.
HOME INTERIORS & GIFTS, INC.
By: /s/ LEONARD A. ROBERTSON
-------------------------
Leonard A. Robertson
Chief Financial Officer
(principal financial and accounting officer)
Date: August 12, 1999
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10.1 Consulting Services Agreement dated as of June 3, 1999, between Home Interiors & Gifts, Inc.
and Tompkins Associated Incorporated.
10.2 Real Estate Purchase Contract dated July 19, 1999, between Home Interiors & Gifts, Inc. and
Parker Equities, Inc.
10.3 First Amendment to Real Estate Purchase Contract dated August 9, 1999, between Home Interiors
& Gifts, Inc. and Parker Equities, Inc.
10.4 Purchase and Sale Agreement dated July 19, 1999, between Argent Frankford, L.P. and Home
Interiors & Gifts, Inc.
10.5 First Amendment to Purchase and Sale Agreement dated July 23, 1999, between Argent Frankford,
L.P. and Home Interiors & Gifts, Inc.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
CONSULTING SERVICES AGREEMENT
This AGREEMENT, dated as of June 3, 1999, is between Home Interiors &
Gifts, Inc. (herein called "Home Interiors") and Tompkins Associates
Incorporated (herein called "Tompkins"). In consideration of the mutual promises
herein contained, Home Interiors and Tompkins agree as follows:
1. SCOPE OF SERVICES. During the term of this Agreement, Tompkins shall
furnish the services set forth in the proposal provided in Schedule A,
attached hereto and made a part thereof (the "Proposal"). Such services
shall be performed by individuals as employees of Tompkins, an
independent contractor, and not as employees of Home Interiors
provided, however, that Home Interiors shall have the right to cause
Tompkins to cease using any of its employees in connection with this
Agreement and to substitute for such employees one or more other
employees who are satisfactory to Home Interiors, in its sole
discretion. Tompkins shall be obligated to perform only the services
described in the proposal for the agreed upon fee and arrangements as
stipulated. No representation is made that Tompkins is responsible, or
accepts responsibility, for the following services:
a. Certification as to the accuracy or sufficiency of any document
prepared by others and provided to Tompkins by Home Interiors or
as directed by Home Interiors.
b. Assurance of favorable or timely approval, permitting, and
licensing action by governmental agencies as a result of services
provided by Tompkins.
Home Interiors shall inform Tompkins of any special criteria or
requirements related to Tompkins' services. Home Interiors shall
willingly furnish, at no cost to Tompkins, any existing information,
drawings, specifications, and reports which will assist Tompkins in the
performance of its services.
2. CHANGE IN SCOPE OF SERVICES. Home Interiors may, by written request,
submit proposed changes in the scope of services to be performed by
Tompkins as defined in the Proposal. Tompkins shall notify Home
Interiors in writing of its response to the requested change in the
scope of services within ten (10) days of receipt of the request. If
Tompkins accepts the proposed changes and determines that such changes
cause an increase or decrease in the cost or the time required for
performance, Tompkins shall include in its response any corresponding
change in price or time required for performance. Home Interiors shall
accept or reject Tompkins' response in writing within ten (10) days of
receipt, If Home Interiors accepts Tompkins' proposed modifications to
the price or time for performance, they shall be deemed accepted and
shall become an addendum to the Proposal.
3. OPINION OF CONSTRUCTION COSTS, EQUIPMENT COSTS AND SYSTEMS COSTS. Since
Tompkins has no control over the cost of labor, materials, equipment or
services furnished by others, or over contractor(s)' or vendor(s)'
means or methods of determining prices or over competitive bidding or
market conditions, Tompkins' opinions of probable total project and/or
construction costs and/or equipment costs and/or systems costs are made
on the basis of Tompkins' experience and qualifications and represent
Tompkins' best professional judgment as an experienced and qualified
professional
<PAGE> 2
familiar with the material handling, warehousing and logistics
industry. However, Tompkins cannot and does not guarantee that
proposals, quotes, bids or actual total project or construction or
equipment or systems costs will not vary from opinions or probable
costs prepared by Tompkins. If Home Interiors wishes greater assurance
as to total project or construction or equipment or systems costs, Home
Interiors shall employ an independent cost estimator at Home Interiors'
expense or authorize Tompkins to contract for such services which will
be considered additional services.
4. TERM OF AGREEMENT. The Agreement shall commence on June 3, 1999 and,
subject to Section 11, terminate on June 3, 2000, or until all services
provided for in the Proposal have been completed if later.
5. PAYMENT TERMS. As compensation for services to be performed by Tompkins
hereunder, Home Interiors shall pay Tompkins at the rates set forth in
the Proposal. In addition, Home Interiors shall reimburse for travel
expenses incurred in the performance of services hereunder, including
coach fare air travel, lodging costs not to exceed $125 per night and
taxi fares. Tompkins shall use its best efforts to plan its air travel
in an effort to take advantage of all available discounts. Home
Interiors shall not have any liability for any other expenses or costs
or costs incurred by Tompkins hereunder.
Tompkins shall submit to Home Interiors invoices based on the payment
schedule as provided in the Proposal. Invoices shall be due and payable
within thirty (30) calendar days of receipt date of the invoice. If
Home Interiors takes issue or objects to all or any portion of an
invoice, Home Interiors shall notify Tompkins in writing within
fourteen (14) calendar days of the invoice date, clearly identifying
the nature of the issue or objection, and shall pay that portion of the
invoice, if any, not in dispute. If the undisputed invoice, or the
undisputed portion thereof, is not paid within sixty (60) days,
Tompkins may, without waiving any claim or right against Home
Interiors, suspend the performance of further consulting services until
all undisputed invoices more than thirty (30) days past due are fully
paid, or may terminate the services being provided. Each invoice
submitted by Tompkins will:
a. Provide complete supporting detail, including name(s) of
person(s) who performed the services, dates of services, hours or
days worked and billing rates;
b. Be accompanied by (i) an itemized listing of amounts claimed,
(ii) pertinent information relative to the expenses, and (iii)
receipts, to document the expenses.
6. NONDISCLOSURE. Neither party will disclose to any third persons any
unpublished information or knowledge it acquires about the other
party's business, products, employees or methods, unless such
disclosure is required by law. If either party is required by law to
disclose any such unpublished information or knowledge, it shall notify
the other party of such requirement immediately and cooperate with the
other party's reasonable requests in an effort to avoid or limit such
disclosure.
2
<PAGE> 3
7. PUBLICITY. Tompkins shall not, without the prior written consent of
Home Interiors, in any manner advertise or publish the fact that Home
Interiors has entered into this Agreement with Tompkins or that
Tompkins is providing services to Home Interiors.
8. NON-SOLICITATION OF EMPLOYEES. During the term of the engagement
contemplated hereby, and for a period of six months thereafter, Home
Interiors shall not solicit for hire or hire any employee or officer of
Tompkins who performs work or services for Home Interiors pursuant to
this Agreement. Notwithstanding the foregoing, however, this Section 8
shall not prohibit Home Interiors from hiring an employee or officer of
Tompkins who is involuntarily terminated by Tompkins or voluntarily
resigns from Tompkins, provided that, in the case of an employee or
officer who voluntarily resigns from Tompkins, Home Interiors has not
induced such employee or officer to resign his employment with Tompkins
by promising employment to such employee or officer.
9. INEXCUSABLE DELAY. No delay or failure in performance by either party
shall constitute a default hereunder or give rise to any claims if such
delay or failure is caused by circumstances beyond its control.
Tompkins shall be diligent in attempting to remove such cause and shall
promptly notify Home Interiors of the extent and probable duration of
such a delay. If Tompkins is unable to remove the cause within fourteen
(14) days, Home Interiors shall have the option of terminating this
Agreement or any portion of it affected by the delay in performance or
non-performance. If Tompkins shall terminate any portion of this
Agreement pursuant to this Section 9, Tompkins and Home Interiors shall
negotiate in good faith and agree upon an equitable reduction in the
compensation payable by Home Interiors to Tompkins hereunder.
10. INDEMNIFICATION. Each party hereby indemnifies and holds harmless the
other party, its officers, directors and employees, from any and all
claims, damages, losses and expenses (including attorneys' fees)
arising out of the performance of this Agreement by the indemnifying
party, except when such claims, damages, losses and expenses are caused
by the gross negligent acts, errors or omissions of the party to be
indemnified.
11. TERMINATION. This Agreement may be terminated by Home Interiors at any
time upon ten (10) days written notice. In the event of termination,
Tompkins shall be entitled to recover the costs and expenses incurred
in connections with its performance under the Agreement throughout the
date of termination.
12. ASSIGNMENT AND SUBCONTRACTING. Performance of this Agreement by
Tompkins may not be subcontracted in whole or in part, nor may Tompkins
assign this Agreement, without, in each case, the prior written consent
of Home Interiors.
13. COMPLIANCE WITH LAWS. To the extent applicable hereto, Tompkins shall
in the performance of this Agreement comply with all applicable
federal, state and local laws; and all regulations and orders issued
under any applicable law.
14. INSURANCE, INDEMNITY AND LIABILITY. Tompkins shall carry Workers
Compensation and Comprehensive General Liability Insurance in such form
as to
3
<PAGE> 4
protect Home Interiors, its directors, officers, agents and employees
as additional insureds from and against any claims or damages for
bodily injury, including death, and any damage to property which may
arise from acts or omissions of Tompkins under this Agreement. Tompkins
shall furnish Home Interiors with a certificate of insurance evidencing
limits of liability not less than $1 million combined single limit per
occurrence for bodily injury (including death) and property damage.
Such insurance shall be primary and non-contributing to any insurance
maintained or obtained by Home Interiors and shall not be canceled or
materially modified without thirty (30) days prior written notice to
Home Interiors. Tompkins agrees to waive any rights of subrogation
Tompkins or Tompkins's insurers may have against Home Interiors.
15. STANDARDS. All services hereunder shall be performed by employees or
agents of Tompkins who are experienced and highly skilled in their
profession and in accordance with the highest standards of workmanship
in their professions.
16. PATENT AND DATA RIGHTS. All information and data, regardless of form,
generated in the performance of or delivered under this Agreement, as
well as any information provided to Tompkins by Home Interiors, shall
be and remain the sole property of Home Interiors. Tompkins shall keep
all such information and data in confidence and not disclose or use it
for any purpose other than performing this Agreement, except with Home
Interiors' prior written approval. In the event that the copyright in
any data and information generated in the performance of this Agreement
does not vest in Home Interiors by law, Tompkins hereby agrees to
assign and assigns to Home Interiors the copyright in all such data and
information.
Tompkins assigns to Home Interiors the entire right, title, and
interest, worldwide, in any invention or patent thereunder conceived or
first actually reduced to practice in performing this Agreement.
Tompkins grants Home Interiors the royalty-free, non-exclusive,
worldwide, irrevocable license to make, use and sell any invention
which is not conceived or first actually reduced to practice in
performing this Agreement, but which is described or incorporated in
anything furnished to Home Interiors in connection with this Agreement.
In connection with actual inventions or patents conceived or first
actually reduced to practice in connection with this Agreement,
Tompkins will furnish Home Interiors with information sufficient to
file and prosecute patent applications, and will execute all documents
incident to such filing and prosecution and, in connection with the
license granted under this Agreement, Tompkins will furnish information
sufficient to enable Home Interiors to avail itself of such license.
Final payment shall not be due hereunder until after receipt by Home
Interiors of such complete invention information, or certification that
there is no such information, and receipt of all information and data
which is the property of Home Interiors. These obligations shall
survive the termination of this Agreement.
4
<PAGE> 5
17. CONFIDENTIALITY. Tompkins shall preserve as confidential all
information pertaining to Home Interiors' business and all technical
and proprietary information obtained from Home Interiors in the
performance of this Agreement. Tompkins further agrees that any data
and information generated or delivered in the performance of this
Agreement and any information and data furnished by Home Interiors
shall (1) be kept in confidence and not be disclosed to third parties
without the prior written approval of Home Interiors, and (2) shall not
be used in the production, manufacture or design of any article or
material, except as otherwise provided herein, without Home Interiors'
prior written consent; and this obligation, Tompkins agrees, shall
survive the termination or expiration of this Agreement. Tompkins shall
deliver all data and information to Home Interiors upon Home Interiors'
request and, in any event, upon the completion of all work hereunder or
the termination or expiration hereof, whichever shall first occur, and
shall be fully responsible for the care and protection thereof until
such delivery.
18. DISPUTES. Any dispute arising under this Agreement which is not settled
by agreement of the parties may be settled by appropriate legal
proceedings. Pending any decision, appeal or judgment in such
proceedings or the settlement of any dispute arising under this
Agreement, Tompkins shall proceed diligently with the performance of
this Agreement in accordance with the decision of Home Interiors.
19. RECORDS. Home Interiors shall, until the expiration of three (3) years
after final payment under this Agreement, have access to and the right
to examine any directly pertinent books, documents, papers and records
of Tompkins involving transactions related to this Agreement.
20. NOTICES. Any notice provided for in this Agreement shall be considered
as having been given (i) to Home Interiors if mailed by certified mail,
postage prepaid to Home Interiors & Gifts, Inc., 4550 Spring Valley
Rd., Dallas, Texas 75244-3705, Attention: Legal Department, or (ii) to
Tompkins if mailed by certified mail, postage prepaid to Tompkins
Associates Incorporated., 2809 Millbrook Road, Raleigh, NC 27616,
Attention: John Spain.
21. RESERVATIONS OF RIGHTS. Either party's waiver of any of its remedies
afforded the Agreement or by law shall not waive any other remedies
which such party shall have available to it. Such waiver also shall not
waive such party's right to any remedies due to a future breach by the
other party, regardless of whether such future breach is of a like or a
different character.
22. SEVERABILITY. Should any portion or provision of this Agreement be
found to be unenforceable then all other provisions shall remain in
full force and effect.
23. PRECEDENCE. The terms of this Agreement shall supersede any printed
conditions in the Proposal.
24. EXCLUSIVITY. The terms of this Agreement are between the parties herein
5
<PAGE> 6
stated and any changes to the terms must be in writing and signed by an
authorized representative of both parties.
25. GOVERNING LAW AND VENUE. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Texas, without
regard to choice of laws provisions. This Agreement shall be performed
in Dallas, Texas and any dispute arising out of this Agreement shall be
adjudicated solely in the courts of the State of Texas or in the
federal courts located in Dallas, Texas, and Tompkins hereby agrees
that service of process upon it by registered or certified mail shall
be deemed adequate and lawful. Tompkins hereby consents to personal
jurisdiction and venue being solely in the above-referenced courts and
agrees not to object to personal jurisdiction and venue in such courts,
and agrees not to seek personal jurisdiction and venue in any other
courts.
27. ATTORNEY FEES. If either party is required to bring or maintain any
action for the enforcement of any covenants, terms, or conditions of
the Agreement, the prevailing party in such action shall, in addition
to all other payments required herein, be entitled to recover
reasonable costs (including attorney's fees) incurred by the prevailing
party at and in preparation for arbitration, trial, appeal, review, and
proceedings in bankruptcy court, including, but not limited to matters
unique to bankruptcy.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
Tompkins Associates, Incorporated Home Interiors & Gifts, Inc.
By /s/ JOHN C. SPAIN By /s/ JIM LIVINGSTON
------------------------------ ------------------------------
Name John C. Spain Name Jim Livingston
---------------------------- ----------------------------
Title Executive Vice President Title VP Operations
--------------------------- ---------------------------
6
<PAGE> 7
SCHEDULE A
PROPOSAL FOR THE
DESIGN AND
IMPLEMENTATION
OF A NEW
DISTRIBUTION
CENTER
PRESENTED TO:
Jim Livingston
Home Interiors & Gifts, Inc.
DALLAS, TEXAS
[TOMPKINS ASSOCIATES INCORPORATED LOGO]
Irving, Texas
May 1999
<PAGE> 8
EXECUTIVE SUMMARY
Home Interiors & Gifts, Inc. has decided to design, construct, outfit
and implement a new centralized Distribution Center in Dallas, Texas. The plan
is to have this new facility fully operational by first quarter 2000. Tompkins
Associates, Inc. believes that the project can be completed within this time
frame as long as the potential delays between phases are kept to a minimum.
Tompkins has planned and implemented many distribution centers very
similar to the one planned for Home Interiors & Gifts, Inc. Tompkins Associates,
Inc. has considerable experience in dealing with construction, equipment,
people, systems and maintenance issues in the implementation of full-scale
Distribution Centers. With our experience in all these practice areas Tompkins
Associates, Inc. is uniquely qualified to partner with Home Interiors & Gifts,
Inc. to optimize their distribution operations and meet the future head-on.
Tompkins Associates, Inc. is the turnkey consultant that is best positioned to
assist in the successful implementation of the new distribution center.
This proposal presents a path forward for Home Interiors & Gifts, Inc.
to follow in order to implement the new facility. This proposal also indicates
the deliverables Tompkins Associates, Inc. will provide in each phase of the
project. The fees for Phase I and II are $520,000 plus expenses.
i
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXECUTIVE SUMMARY................................................................................... i
1.0 DESIGN AND IMPLEMENTATION OF A DISTRIBUTION CENTER STRATEGIC MASTER PLAN........................ 2
PHASE IA: OPERATIONS PLANNING................................................................... 2
PHASE IB: WMS SELECTION......................................................................... 5
PHASE II: DETAIL PLANNING....................................................................... 6
PHASE III: IMPLEMENTATION........................................................................ 7
2.0 PROJECT SCHEDULE............................................................................... 8
3.0 PROJECT LOGISTICS.............................................................................. 8
3.1 STAFFING..................................................................................... 8
3.2 PRICING...................................................................................... 9
</TABLE>
<PAGE> 10
Home Interiors & Gifts, Inc.
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Distribution Center Design & Implementation - Page 2
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1.0 DESIGN AND IMPLEMENTATION OF A DISTRIBUTION CENTER STRATEGIC MASTER PLAN
A Distribution Center Strategic Master Plan (SMP) must be undertaken at
Home Interiors & Gifts, Inc. in order to ensure the successful implementation,
by first quarter 2000, of an efficient and effective Distribution Center that
provides for maximum return on investment and customer service. Tompkins
Associates, Inc. (Tompkins) recommends the following approach to implementing
such a distribution center.
PHASE I: DISTRIBUTION CENTER REQUIREMENTS
Ia: Operations Planning
Ib: WMS Definition & Selection
PHASE II: DETAIL PLANNING
IIa: Equipment and Facility
IIb: WMS
PHASE III: IMPLEMENTATION
Phase III staffing, duration and deliverables will be further defined
during Phase II.
This proposal presents the scope, objectives, deliverables, approach,
and fees for Phase I and II. It also outlines some of the deliverables for Phase
III that Tompkins can provide Home Interiors.
PHASE Ia: OPERATIONS PLANNING
Typically Tompkins recommends that companies define the design and
functionality needs of the distribution center first and then move forward with
the selection of a Warehouse Management System (WMS). This is typically done
because the WMS is not the longest lead-time item when implementing a new
facility and all the system requirements are known before the selection.
However, based on the concerns about the length of time to install the WMS,
Tompkins recommends that the effort focusing on the WMS run in parallel to the
Distribution Center Design. The final selection of the WMS should be
accomplished upon completion of the operations design.
<PAGE> 11
Home Interiors & Gifts, Inc.
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Distribution Center Design & Implementation - Page 3
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The design will focus on optimizing the operations, layouts, methods,
storage and picking technologies, and information flow. The design will address
not only today's requirements, but also future requirements based on business
plans and growth projections. Likewise, the WMS "Rapid Selection" should take
these same factors into consideration and will utilize information from the
design process as it becomes available. It is anticipated that 70% of the WMS
requirements will be known within the first few weeks of the project. This
should be sufficient to get the WMS process started.
APPROACH PHASE Ia: OPERATIONS PLANNING
Step 1: ESTABLISH HOME INTERIORS' OBJECTIVES AND PRIORITIES. Interact
with key staff to establish the objectives and priorities for
the development of the plan. Quantify these objectives and
priorities for use as a guide in alternative generation and to
apply as the criteria for the qualitative analysis.
Step 2: ANALYZE OPERATIONS. Tour and observe the current distribution
operations in detail. Interview key staff and management on
current operations, problems, performance, etc. Obtain
performance metrics and other information to allow analysis of
shortcomings and improvement opportunities in the existing
design.
Step 3: ESTABLISH DATABASE. Obtain information on product group
requirements, storage requirements, throughput requirements,
receiving and shipping requirements, labor and equipment
requirements, facility requirements, operating cost and
miscellaneous information.
Step 4: ANALYZE DATABASE. Manipulate and analyze the database to
determine profiles for growth, orders, SKUs, customers,
inventory, etc. Develop baseline (1999) profiles and the
future profiles based on assumptions, trends, customer demands
and business requirements.
<PAGE> 12
Home Interiors & Gifts, Inc.
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Distribution Center Design & Implementation - Page 4
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Step 5: IDENTIFY AND DOCUMENT ALTERNATIVE OPERATIONAL STRATEGIC MASTER
PLANS. Given the analysis performed in Steps 2 and 4,
alternative material handling, storage, and operational
systems will be considered. The methods of receiving,
crossdocking, checking, putaway, storing, inventory control,
replenishing, picking, packaging, and shipping will all be
questioned. The utmost use of best practices along with
creativity, innovation, and practicality will be pursued.
Step 6: EVALUATE ALTERNATIVE STRATEGIC MASTER PLANS. Define the
investment, installation, and operating costs for each
alternative plan. Perform an after-tax economic analysis of
each alternative plan. Select the best plan based on the
overall economic and qualitative evaluations. Qualitative
factors considered will be items such as flexibility,
expandability, safety, security, integration, quality,
accuracy, order cycle speed, ease of implementation, and
others. The project team will determine these factors.
Step 7: SPECIFY THE PLAN. The selected plan must clearly illustrate
the building layout, material handling systems, storage
systems, and material control systems. The result of this step
is a briefing report and an oral presentation. This step,
along with weekly team meetings will allow Home Interiors &
Gifts, Inc. to totally understand the plan.
DELIVERABLES PHASE Ia: OPERATIONS PLANNING
1. Update meetings during which the Home Interiors/Tompkins team will
discuss the following:
a. The data collected and an analysis of the data
b. Any assumptions being made
c. All alternatives under consideration
d. The economic and qualitative evaluation of alternatives
e. Alternative layouts
2. Recommended order-picking methods that optimize space utilization and
maximize labor productivity, minimize order cycles, and optimize
customer service issues such as accuracy, fill rate, etc.
3. An economic and qualitative analysis of all viable material handling,
storage, and order fulfillment alternatives and documentation of why
the recommended strategy should be pursued.
4. An analysis of the material flow to determine a strategy for the most
efficient
<PAGE> 13
Home Interiors & Gifts, Inc.
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Distribution Center Design & Implementation - Page 5
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and cost-effective operation and layout. This plan will document the
space, equipment and labor needed to implement the plan.
5. Recommendation of product slotting by generic product group and by
classifications such as product line, popularity, similarity, size,
characteristics, and space utilization.
6. A description of operations for all operations such as receiving,
crossdocking, putaway, storing, picking, packing, and shipping.
7. Employee staffing plan required to support the recommendations along
with a list of job classifications needed to run the facility.
8. AutoCAD drawings of the recommended layout, showing all main
operational areas and support areas such as dock areas, forklift
charging, and offices.
9. The dollar amounts and timing of all the capital requirements for the
plan (equipment, systems, building, land, etc.)
10. A briefing report and oral presentation of the above deliverables.
PHASE Ib: WMS SELECTION
APPROACH PHASE Ib:
1. IDENTIFY MISSION-CRITICAL FUNCTIONALITY: Through detailed reviews of
existing operations, the design process and system requirements the project
team will identify all current functionality and future mission critical
functionality that are a requirements for Home Interiors & Gifts, Inc.
2. DEVELOP A RFP: Create a document that puts the mission critical
functionality into a bid solicitation document. Include terms, conditions,
bid directions, etc. In order to allow an "apples to apples" evaluation of
vendor responses.
3. CREATE A SCRIPTED DEMO: Using Home Interiors information and
mission-critical functionality, a scripted demo will be created. This demo
will be used to allow the WMS vendors to demonstrate that their systems are
capable of meeting Home Interiors' requirements.
4. DEVELOP WMS EVALUATION CRITERIA: The evaluation criteria will be developed
by the cross-functional team. The evaluation criteria will be weighed by
area of importance.
5. SOLICIT BIDS FROM WMS PROVIDERS: Invite WMS vendors to participate in the
solicitation. During the bidding process the vendors will tour the
facilities, understand the mission-critical functionality, perform the
scripted demo and provide a proposal.
<PAGE> 14
Home Interiors & Gifts, Inc.
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Distribution Center Design & Implementation - Page 6
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6. INTERACT WITH WMS VENDORS DURING BID PROCESS: Answer vendor questions and
provide information to vendors during bid process to assure complete
understanding of the WMS requirements. Field vendor suggestions and
evaluate the merits of the vendor suggestions. Conduct scripted demo review
with WMS vendors and qualify vendors' capabilities to meet mission-critical
functionality.
7. ARRANGE WMS SITE VISITS: Make arrangements and attend vendor site visits
(if the project team determines this beneficial to helping them make a
decision). During this process a series of questions will be asked to
gather evaluation information.
8. EVALUATE WMS BIDS AND SELECT VENDOR: Based on the Economic and Qualitative
criteria, evaluate vendor proposals and recommend a vendor.
DELIVERABLES PHASE Ib:
1. A detailed description of the current and future operational
requirements of the facility.
2. Description of Mission-Critical Functionality based on existing
methods and the facility design project requirements.
3. A review of the selection process performed to date and determination
of changes that should be made to the vendors on the short list.
4. A RFP containing the functional requirements and the terms and
conditions for contracting the vendor.
5. WMS site visits for each supplier to a similar install if desired by
the team.
6. Develop and conduct a Scripted Demo to determine the ease with which
the short listed system suppliers execute the mission critical
functionality.
7. Economic and Qualitative evaluation of vendors' proposals.
8. A written report and oral presentation of the above seven
deliverables.
PHASE II: DETAIL PLANNING
The detail planning process is made up of two sub-phases: Phase IIa:
Equipment and Facility, Phase IIb: WMS. The approach for this Phase follows the
Phase II methodology. The deliverables of each sub-phase is as follows:
<PAGE> 15
Home Interiors & Gifts, Inc.
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DELIVERABLES PHASE IIa: EQUIPMENT AND FACILITY
1. Functional bid specifications for all material handling and storage
equipment.
2. Conduct in-depth interviews of references supplied by vendors.
3. Organize vendor presentations and site visits if applicable to similar
operations for vendors on short list.
4. Approve and conduct on-site equipment demonstrations where
appropriate.
5. A qualitative and quantitative evaluation of vendor bids.
6. Selection of vendors for all required equipment.
7. A detailed layout of the new facility.
8. Slot the products that require storage and picking slots in the new
facility.
9. A Phase III implementation schedule.
DELIVERABLES PHASE IIb: WMS
1. Negotiate final contract with WMS vendor.
2. Work with selected WMS vendor to perform a detailed Conference Room
Pilot (CRP). The CRP will demonstrate the ability of the WMS to "go
live".
PHASE III: IMPLEMENTATION
The following are some the deliverables for Phase III. Tompkins will further
define these deliverables during Phase II.
1. Establish Operating Procedures for the new facility.
2. Oversee Installation of equipment, systems and facility.
3. Plan for move from current facilities to new facility.
4. Train Personnel on new equipment and systems procedures.
5. Verify Installation of equipment, systems and facility design.
<PAGE> 16
Home Interiors & Gifts, Inc.
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Distribution Center Design & Implementation - Page 8
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6. Conduct Acceptance Test for equipment and systems.
7. Start-up, Debug and Audit systems and equipment.
2.0 PROJECT SCHEDULE
The project schedule for Phases Ia and Ib is as follows:
<TABLE>
<CAPTION>
WK
TASK 1 2 3 4 5 6 7 8 9 10
--- --- --- --- --- --- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Review Operation and Collect Data X X
Analyze Data X X X
Define Alternatives X X
Analyze Alternatives X X X X
Layout Distribution Center X X
Specify Strategic Plan X X
Develop Functional Specs X X
Establish Bidders List X X
Release Functional Specs X
Develop and Release Scripted Demo X X
Interact With Vendors X X X X
Evaluate and Select vendor X X
</TABLE>
The Phase II schedule will be detailed during Phase I.
3.0 PROJECT LOGISTICS
Tompkins is very comfortable pursuing the project as presented in this document.
In fact, Tompkins has completed many similar projects. We look forward to
working with Home Interiors & Gifts, Inc. on this project as outlined.
3.1 STAFFING
The Tompkins Project Team will have the following structure:
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Home Interiors & Gifts, Inc.
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<TABLE>
<S> <C>
- ---------------------------------- --------------------------------------------------------------------
QUALITY ASSURANCE Responsible for assuring the quality of the project and providing
10% OF WORKING TIME input to project direction.
MIKE FUTCH
- ---------------------------------- --------------------------------------------------------------------
PROJECT DIRECTOR Responsible for establishing project direction and monitoring
30% OF WORKING TIME project progress.
JIMMY BENEFIELD
- ---------------------------------- --------------------------------------------------------------------
PROJECT MANAGER Responsible for on-site project management and the primary point
100% OF WORKING TIME of contact with Home Interiors & Gifts, Inc..
- ---------------------------------- --------------------------------------------------------------------
PROJECT CONSULTANT(S) Two Tompkins' project consultant(s) will be assigned full time to
100% OF WORKING TIME this project and are responsible for the work designated by the
Project Manager.
- ---------------------------------- --------------------------------------------------------------------
ASSOCIATE CONSULTANT Responsible for CAD, data analysis and project schedule
100% OF WORKING TIME coordination to support the consultants.
- ---------------------------------- --------------------------------------------------------------------
CUSTOMER RELATIONS Responsible for ensuring a productive relationship between Home
COORDINATOR Interiors & Gifts, Inc. and Tompkins throughout the project and
beyond.
- ---------------------------------- --------------------------------------------------------------------
</TABLE>
3.2 PRICING
The duration of the total Tompkins effort is estimated at 19 weeks. The
cost for Tompkins to perform all of the Phase I and II activities outlined in
this report is $520,000 plus expenses.
o Phase I - Duration is estimated at 9-11 weeks
o Phase II - Duration is estimated at 8-10 weeks
o Phase III - Proposal and cost will be presented at the end of
phase II.
Table 1.0 below summarizes the cost (excluding expenses) by phase with
the corresponding duration in weeks, which will be paid in accordance with Table
2.0 below.. Travel expenses will be invoiced to Home Interiors & Gifts, Inc. at
cost.
<PAGE> 18
Home Interiors & Gifts, Inc.
- --------------------------------------------------------------------------------
Distribution Center Design & Implementation - Page 10
- --------------------------------------------------------------------------------
TABLE 1.0 - PHASE I DURATION AND COST
<TABLE>
<CAPTION>
PROJECT PHASE DURATION PROJECT COST
-------------------------------- ------------ ------------
<S> <C> <C>
PHASE I:
DISTRIBUTION CENTER REQUIREMENTS 9 - 11 weeks $274,000
------------ --------
PHASE II:
DETAIL PLANNING 8 - 10 weeks $246,000
------------ --------
</TABLE>
TABLE 2.0 PAYMENT SCHEDULE
<TABLE>
<CAPTION>
WEEKS AFTER INITIATION AMOUNT
---------------------- ------
<S> <C>
0 $100,000
2 $ 46,000
4 $ 46,000
6 $ 46,000
8 $ 46,000
10 $ 46,000
12 $ 46,000
14 $ 46,000
16 $ 46,000
Upon Completion $ 52,000
--------
TOTAL $520,000
</TABLE>
The cost of this project is based on the following assumptions:
1. Home Interiors & Gifts, Inc. provides Tompkins personnel with
office space and business telephone services while on site.
2. Home Interiors & Gifts, Inc. concurs with the payment schedule
presented in Table 2.0. Home Interiors & Gifts, Inc. agrees to
pay all charges not in dispute within 30 days of receipt of
Tompkins' invoice. Any charges held to be in dispute shall be
called to Tompkins' attention within 10 days of receipt of
Tompkins' invoice and Home Interiors & Gifts, Inc. and Tompkins
shall work together in good faith to resolve their differences.
3. Home Interiors & Gifts, Inc. provides input data for planning
database no later than two weeks after project start date.
4. The total fixed-cost and project schedule are applicable for the
project scope, steps, and deliverables presented herein. If Home
Interiors & Gifts, Inc. directs or causes a change in the project
scope, steps, deliverables, or schedule, Tompkins shall present a
written change order. Within one week of Tompkins submitting a
change order, Home Interiors & Gifts, Inc. shall either approve
or disapprove the change order. If Home Interiors & Gifts, Inc.
approves the change order or if no response is received within
one week, Tompkins shall
<PAGE> 19
Home Interiors & Gifts, Inc.
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Distribution Center Design & Implementation - Page 11
- --------------------------------------------------------------------------------
submit and adhere to a revised invoice schedule. If Home Interiors
& Gifts, Inc. disapproves the change order, all work shall cease
until an agreement on the change order is reached.
<PAGE> 1
EXHIBIT 10.2
REAL ESTATE PURCHASE CONTRACT
STATE OF TEXAS )
)
COUNTY OF DALLAS )
THIS REAL ESTATE PURCHASE CONTRACT (this "Contract") is made this 19th
day of July, 1999 (the "Effective Date") by and between Home Interior & Gifts,
inc. (hereinafter referred to as "Seller") and Parker Equities, Inc., a Texas
corporation with principal offices in Dallas County, Texas (hereinafter referred
to as "Purchaser"), upon the terms and conditions set forth herein.
ARTICLE I.
PURCHASE AND SALE
Upon the terms and subject to the conditions set forth in this
Contract, Seller hereby agrees to sell and convey to Purchaser and Purchaser
hereby agrees to purchase from Seller all of the property described in (a), (b)
and (c) below (the "Property") described below:
(a) Seven tracts of land described in Exhibit "A" attached
hereto and made a part hereof, together with all right,
title and interest, if any, of the Seller in and to any
adjacent streets, alleys or rights-of-way (individually,
each a "Tract" and collectively the "Land");
(b) Seven office/warehouse buildings containing approximately
623,799 square feet, parking areas and other improvements
located on the Land, described in Exhibit "A", together with
all fixtures, equipment and systems, owned by Seller, used
in the operation of such buildings and improvements and
affixed to or located on the Land on the date hereof
(individually, each a "Building" and together with the Tract
where such Building is located, each a "Site" and all the
Buildings are collectively referred to herein as the
"Improvements"); and
(c) Such other rights, interests and property as may be
specified in this Contract to be sold, transferred, assigned
or conveyed by Seller to Purchaser.
<PAGE> 2
ARTICLE II.
PURCHASE PRICE
2.1. Amount of Purchase Price. The Purchase Price ("Purchase Price")
for said Property shall be the sum of Sixteen million four hundred and eight
thousand dollars ($16,408,000.00). If this Contract is terminated with respect
to one or more of the Site(s) as provided for herein, but not all of the Sites,
the Purchase Price shall be reduced by the amount set forth on Exhibit "A" for
the Site(s) being terminated.
2.2. Payment of Purchase Price. The Purchase Price shall be payable in
cash at Closing.
ARTICLE III.
PURCHASER'S OBLIGATIONS
3.1. Conditions to Purchaser's Obligations. The obligations of
Purchaser hereunder to consummate the transactions contemplated hereby are
subject to the satisfaction of each of the following conditions (any of which
may be waived in whole or in part by Purchaser at or prior to the Closing).
3.2. Title Commitment. A commitment for Title Insurance (the
"Commitment") shall be delivered to Purchaser on or before ten business (10)
days after this Contract has been executed, issued by First American Title
Company and countersigned by an escrow officer of Republic Title of Texas, Inc.,
300 Crescent Court, #100, Dallas, Texas 75201, Attn: Ms. Leslie B. Wheeler,
("Title Company") and describing the matters affecting title to each Site and
setting forth the terms and conditions under which said Title Company is willing
to issue its Owners Policy of Title Insurance. No objections to title shall be
made by Purchaser unless such matter(s) has/have a material affect on the value
of any Site. In the event such type of exceptions appear in such binder,
Purchaser shall so notify Seller in writing on or before twenty (20) days from
the date of this Contract. Purchaser shall be deemed to have waived, accepted
and approved all matters set out in the Commitment to which it has not objected
in writing within twenty (20) days of the date of this Contract. Seller will
either cause the objected to exceptions to be released or modified to the
reasonable satisfaction of Purchaser within ten (10) days of Purchaser's
objection (but shall have no obligation to do so), or Purchaser may elect in
writing to terminate this Contract only with respect to the Site(s) which is/are
affected by such objection(s) which has/have not been cured. If Purchaser fails
to terminate this Contract with respect to any Site within such ten (10) day
period, then Purchaser shall be deemed to have waived all such objections
previously made. Any exception to which no objection is made or which exception
is waived or deemed waived or which is modified to the reasonable satisfaction
of Purchaser is referred to herein as a Permitted Exception.
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<PAGE> 3
3.3 Survey. As soon as reasonably practicable, Seller shall furnish
Purchaser a current survey for each Site (hereinafter collectively called the
"Survey") which shall (1) show the area and boundaries of each Tract, (2) locate
all easements (whether of record or apparent from an inspection of each Tract),
rights-of-way on or adjacent to each Tract (identified by recording data, if
applicable), (3) show the location and size of all streets (existing and
proposed) and utility lines on or adjacent to each Tract, (4) reflect any
encroachments or protrusions, railroads, rivers, creeks, or other water causes,
fences, utilities, including size and location and other matters located on or
affecting each Tract (and any recording information relating thereto), (5) set
forth the number of square feet comprising the land thereon, together with a
legal description of each Tract by metes and bounds, (6) contain a certification
as to the existence of any portion of each Tract within a 100 year flood plain
or within any flood prone area as reflected by applicable FEMA map or community
panel, and (7) contain a certification by the surveyor reasonably acceptable to
the Title Company and to Purchaser. In the event the Survey contains any matters
which have a material affect on the value on any Site, Purchaser shall so notify
Seller in writing on or before thirty (30) days from the date of this Contract.
Purchaser shall be deemed to have waived, accepted and approved all matters set
forth on such Survey to which it has not objected in writing within thirty (30)
days of the date of this Contract. Seller will either cause the objected to
exceptions to be released or modified to the reasonable satisfaction of
Purchaser within ten (10) days of Purchaser's objection (but shall have no
obligation to do so), or Purchaser may elect in writing to terminate this
Contract only with respect to the Site(s) which is/are affected by such
objection(s) which has/have not been cured. If Purchaser fails to terminate this
Contract with respect to any Site within such ten (10) day period then Purchaser
shall be deemed to have waived all such objections previously made. Any matter
to which no objection is made or which exception is waived or deemed waived or
which is modified to the reasonable satisfaction of Purchaser shall be a
"Permitted Exception."
3.4 Inspections.
(a) Purchaser and its architects and engineers shall have until
the date which is 60 days after the Effective Date (the "Inspection Expiration
Date"), to inspect the Property and review the Materials (hereinafter defined)
and do any other inspection including environmental audit that Purchaser in its
reasonable discretion deems pertinent. Notwithstanding the foregoing, Seller
grants Purchaser and its engineers the right to core or otherwise penetrate any
slab, parking lot or pavement; provided, however, that Purchaser shall, at its
sole expense, repair and restore any and all portions of the Property that are
cored, penetrated, dismantled or otherwise disturbed in connection with such
inspections and return them to the condition in which they existed immediately
prior to such inspection activities. Buyer shall provide Seller with not less
than twenty-four (24) hours notice of its intention to perform any such
procedure (and Seller may supervise the performance of such procedure). All
inspections shall be done without unreasonably interfering with any tenant's or
Seller's business operations, shall be done in compliance with all applicable
laws and shall be done at the sole risk and expense of Purchaser.
3
<PAGE> 4
Seller may also supervise the repair required to be performed by Purchaser (or
its engineers) at Purchaser's expenses. Purchaser shall indemnify Seller and its
agents from and against all claims resulting from any entry on the Property by
Purchaser or any of its agents, contractors, consultants or other
representatives ("Purchaser's Representative") or any activities conducted in or
on the Property by Purchaser, or any of Purchaser's Representatives, together
with all expenses incurred by Seller and/or its agents by reason thereof
including, without limitation, reasonable attorneys' fees and disbursements,
which obligation shall survive the Closing or the termination of this Contract.
(b) In the event Purchaser's inspection of the Property or of any
of the Materials reveals any Material Physical Defects at any Site, then
Purchaser shall give written notice to Seller of such Material Physical Defects
immediately after discovering same, but in all events by no later than the
Inspection Expiration Date (the "Reported Physical Defects"). Except for
Environmental Defects (hereinafter defined), Purchaser shall not have the right
to object to Physical Defects which are not Material Physical Defects. By no
later than the date which is 30 days after the Inspection Expiration Date (the
"Cure Expiration Date"), Seller may (but shall have no obligation to do so)
offer to correct some or all of any such Reported Physical Defects. If (i)
Seller has not offered a reasonable solution with respect to any Reported
Physical Defects or (ii) if there are any Major Physical Defects, then (A) with
respect to any Site other than the Sites located at 4545 and 4550 Spring Valley
Road, Dallas, Texas (the "Spring Valley Sites"), Purchaser may terminate this
Contract only with respect to the Site(s) which is/are affected by such uncured
objectionable matter(s) or (B) with respect to either of the Spring Valley
Sites, Purchaser may terminate this Contract with respect to all (but not a
portion) of the Sites. Such termination shall only be effective if Purchaser
delivers written notice thereof to Seller by no later than the Cure Expiration
Date. If Purchaser fails to terminate this Contract with respect to any Site by
the Cure Expiration Date or Purchaser sends no objection notice to Seller by the
Inspection Expiration Date then Purchaser shall be deemed to have waived all
such objections. For purposes of this paragraph:
"Physical Defects" shall mean the physical defects or damage or
deferred maintenance (other than Environmental Defects) affecting the Property
as discovered by Purchaser's inspections;
"Material Physical Defects" shall refer to Physical Defects on each
Site independently and shall mean that the cumulative cost to remedy the
physical defects at any such Site exceeds $25,000; and
"Major Physical Defects" shall refer to the Reported Physical Defects
on each Site independently and shall mean that the cumulative cost to remedy the
Reported Physical Defects at any such Site exceeds the Major Physical Defects
Threshold shown on Exhibit "A" for such Site.
(c) In the event Purchaser's inspection of the Property or of any
of the Materials reveals the presence of any hazardous or toxic substances or
any other
4
<PAGE> 5
environmental issues ("Environmental Defects") at any Site which impairs
Purchaser's ability to obtain financing on such Site, then Purchaser shall give
written notice to Seller of such Environmental Defects immediately after
discovering same, but in all events by no later than the Inspection Expiration
Date (the "Reported Environmental Defects"). By no later than the Cure
Expiration Date, Seller may (but shall have no obligation to do so) correct some
or all of any such Reported Environmental Defects. If Seller has not cured to
Purchaser's reasonable satisfaction any Reported Environmental Defects, then (A)
with respect to any Site other than the Spring Valley Sites, Purchaser may
terminate this Contract only with respect to the Site(s) which is/are affected
by such uncured objectionable matter(s) or (B) with respect to either of the
Spring Valley Sites, Purchaser may terminate this Contract with respect to all
(but not a portion) of the Sites. Such termination shall only be effective if
Purchaser delivers written notice thereof to Seller by no later than the Cure
Expiration Date. If Purchaser fails to terminate this Contract with respect to
any Site by the Cure Expiration Date or Purchaser sends no objection notice to
Seller by the Inspection Expiration Date then Purchaser shall be deemed to have
waived all such objections.
(d) As part of its inspections prior to the Inspection Expiration
Date, Purchaser shall have the right to retain, at its sole cost and expense,
Reed Environmental Engineers or other engineers of its selection ("Engineer") to
undertake Environmental Site Assessments at the Sites (the "Assessments"). Prior
to commencing such Assessments (i) Purchaser shall provide Seller with the
reasonable opportunity to review and comment on the scope of work and locations
where the samples are being taken in order to facilitate a joint application, if
necessary, for the State of Texas "Innocent Owner Program" and (ii) Purchaser
shall cause the Engineer to provide Seller with a copy of the Engineer's
insurance certificate showing Seller as an additional named insured. Seller
shall be a named party on any Assessments, and copies shall be provided to
Seller upon their respective completion by the Engineer.
3.5 Other Documents. To the extent in Sellers possession and control,
Seller shall deliver to Purchaser within ten (10) days of the execution of this
Contract true and correct copies of the following (the "Materials"):
(1) A Schedule of all insurance policies on the Property.
(2) A copy of all leases, estoppels issued in connection with
proper transfers of leasehold interests or financings,
certificates of occupancy and warranties on the improvements
to the Property.
(3) Complete "as-built" plans, soil tests, engineering
documents, plans and reports for the original construction
and any subsequent engineering or environmental report,
building permit, contract for repairs or improvements.
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<PAGE> 6
(4) A list of operating expenses for calendar years 1996, 1997
and 1998 showing the cost of all operating expenses
including electrical, water, gas, trash and maintenance by
months.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF SELLER AND PURCHASER
Seller hereby represents, warrants to, and where applicable agrees with
Purchaser as follows, which representations and warranties shall be deemed made
by Seller to Purchaser also as of the Closing Date:
(1) Except for final approval of the Board of Directors as
provided in Article XI (l) hereof, Seller has legal capacity
and authority to perform Seller's obligations hereunder.
Except for Seller and Seller's affiliates, to the best
knowledge of Seller, there are no parties in possession of a
portion of the Property as lessees under unrecorded leases.
(2) There is no pending or to the best of Seller's knowledge
threatened condemnation or similar proceeding or assessment
affecting the Property, or any part thereto, not to the best
knowledge of Seller is any such proceeding or assessment
contemplated by any governmental authority;
(3) To the best of its knowledge, Seller has complied in all
material respects with all applicable laws, ordinances,
regulations, statutes, rules and restrictions relating to
the Property, or any part thereof and has received no notice
and has no knowledge of any material violation or claim
thereof;
(4) During the period from the date of this Contract to the
Closing Date, Seller agrees that:
(a) Seller will manage and operate the Property in
substantially the same manner as the same has
heretofore been operated and managed.
(b) The Improvements will be maintained in as good
condition and state of repair as that existing on the
date of this Contract, normal wear and tear and
casualty excepted.
6
<PAGE> 7
(c) No additional buildings or other material improvements
will be constructed on the Land without the prior
written consent of Purchaser.
(d) To the best of Seller's knowledge, the Property is free
of asbestos, polychlorinated biphenyls, dioxins, radon
gas and hazardous or toxic substances and, to the best
of Seller's knowledge, has never been used as a so
called "dumpsite" and the Seller has never so used the
Property, nor used asbestos or other toxic substances
in the construction, operation or maintenance of the
Property except in immaterial amounts in accordance
with applicable laws (the foregoing representation and
warranty is limited by and excludes any such conditions
as are disclosed by Purchaser's inspection prior to
Closing).
(e) To the best knowledge of Seller, there are no
agreements relating to the Property which would not be
terminable at or after Closing by Purchaser on thirty
(30) days notice or less without penalty.
For purposes of this section, "to the best knowledge of Seller" or
similar phrases shall be limited to the actual knowledge of Jim King and Leonard
Robertson without independent investigation except that Jim King and Leonard
Robertson will reasonably review the relevant files of Seller.
EXCEPT FOR THE SPECIAL WARRANTY OF TITLE TO BE CONTAINED IN SELLER'S
DEEDS AND THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS CONTRACT,
THE PROPERTY WILL BE CONVEYED AND TRANSFERRED TO BUYER "AS IS, WHERE IS AND
WITHALL FAULTS," AND SELLER DOES NOT WARRANT OR MAKE ANY REPRESENTATION, EXPRESS
OR IMPLIED AS TO ITS FITNESS FOR A PARTICULAR PURPOSE, MARKETABILITY, FOOTAGE,
PHYSICAL CONDITION, COMPLIANCE WITH LAWS AND REGULATIONS; OR THE FITNESS OF THE
PROPERTY FOR BUYER'S PLANNED USE. IF CLOSING SHALL OCCUR, EXCEPT FOR LIABILITY
ARISING OUT OF THE INACCURACY OF THE EXPRESS REPRESENTATIONS AND WARRANTIES SET
FORTH IN THIS AGREEMENT, SELLER SHALL BE DEEMED TO BE AUTOMATICALLY RELEASED BY
BUYER AND ITS SUCCESSORS AND ASSIGNS OF AND FROM ALL LIABILITIES, OBLIGATIONS
AND CLAIMS, KNOWN OR UNKNOWN, THAT BUYER MAY HAVE AGAINST SELLER OR THAT ARISE
IN THR FUTURE. THE PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE CLOSING.
7
<PAGE> 8
Purchaser hereby represents and warrant to Seller, which
representations and warranties shall be deemed made by Purchaser to Seller also
as of the closing Date, that: (1) Purchaser has legal capacity and authority to
enter into, and to perform, Purchaser's obligations hereunder; and (2) Purchaser
has readily available funds in an amount sufficient to perform its obligations
hereunder and to purchase the Property pursuant to the terms hereof.
ARTICLE V.
CLOSING
The Closing shall be held at the office of Republic Title of Texas,
Inc. on or before December 1, 1999, or such earlier date, or at such time, date,
and place as Seller and Purchaser may agree upon in writing (which date is
herein referred to as the "Closing Date"). At the Closing, Seller shall deliver
to Purchaser one or more duly executed and acknowledged Special Warranty Deeds
(the "Deeds") conveying good and indefeasible title in fee simple to each of the
Sites, free and clear of any and all liens, encumbrances, conditions, easements,
assessments, and restrictions, except for the following:
(1) Covenants, encumbrances, conditions and restrictions set
forth in the Title Commitment and approved by Purchaser
pursuant to Sections 3.02 and Permitted Exceptions;
(2) General real estate taxes for the year of Closing and
subsequent years not yet due and payable and subsequent
assessments for prior years due to change in land usage or
ownership;
(3) Any exceptions approved by Purchaser.
Seller shall furnish at Seller's cost at Closing a Texas Standard Owner
Policy of Title Insurance issued by the Title Company in the full amount of the
Purchase Price containing no exception to such title other than the Permitted
Exceptions and the standard printed exceptions, the exception for taxes shall be
limited to taxes for the year in which Closing occurs and subsequent years and
subsequent assessments for prior years due to change in land usage or ownership,
any exception for parties in possession of each Site shall be limited to rights
of tenants in possession, as tenants only, pursuant to unrecorded leases and
there shall be no exception for visible and apparent easements, and any other
permitted exceptions shall be only those items shown on the Commitment issued by
the Title Company which have been approved by Purchaser or which are Permitted
Exceptions hereunder.
General real estate taxes, special taxes and assessments for the then
current year relating to the property, rents, association dues, utilities and
insurance shall be prorated as of the Closing Date and shall be adjusted in cash
at the Closing. If the Closing shall occur before the tax rate and/or the tax
valuation is fixed for the then current year, the
8
<PAGE> 9
apportionment of taxes shall be estimated and pro rated based upon the basis of
the tax rate for the next preceding year applied to the latest assessed
valuation. In the event the actual taxes differ from such estimate, Seller and
Purchaser agree to adjust the proration. Any adjusted payment shall be made
within fifteen (15) days after notification by either party that such adjustment
is necessary.
In addition to the Deeds, at the Closing, Seller shall deliver to
Purchaser (i) one executed original of each of the Leases (hereinafter defined),
(ii) an affidavit executed on behalf of Seller that Seller is not a foreign
corporation or entity, and (iii) the keys to each of the Buildings.
In addition to the Purchase Price, at the Closing, Purchaser shall
deliver to Seller an executed original of each of the Leases.
ARTICLE VI.
EARNEST MONEY
For the purpose of securing the performance of Purchaser under the
terms and provisions of this Contract, Purchaser will deliver to the Title
Company the sum of Fifty Thousand Dollars ($50,000) (the "Earnest Money"),
within three (3) business days of final execution of this Contract. On or before
the Inspection Expiration Date, Purchaser shall deposit an additional earnest
money deposit in the amount of Four Hundred Fifty Thousand Dollars ($450,000.00)
with the Title Company, which shall become part of the Earnest Money. The
aggregate Earnest Money shall consist of Five Hundred Thousand Dollars
($500,000), to be handled and disbursed as provided in this Contract. All sums
comprising the Earnest Money shall be held in an interest-bearing account at a
federally insured depository institution. At the Closing, the Earnest Money plus
all interest accrued therein, shall be paid over to Seller and applied to the
cash portion of the Purchase Price or returned to Purchaser at its option.
Unless this Contract is terminated by Purchaser in accordance with, Sections
3.2, 3.3, or 3.4 (in which event the Earnest Money shall be refunded to
Purchaser), hereof the Earnest Money of Purchaser shall be non-refundable. If
Purchaser fails to deposit any portion of the Earnest Money when such portion of
the Earnest Money is due, this Contract shall automatically terminate and any
Earnest Money already deposited shall be released to Seller as liquidated
damages. The parties agree that, unless otherwise agreed to by Seller, the
Earnest Money shall not be used to fund any repairs or replacements to the
Property that are discovered during Purchaser's inspection of the Property.
ARTICLE VII.
BREACH BY SELLER
In the event Seller shall fail to consummate the sale of the Property
for any reason, except Purchaser's default, Purchaser may as Purchaser's sole
and exclusive
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<PAGE> 10
remedies: (1) enforce specific performance of the Contract; or (2) request that
the Earnest Money shall be forthwith returned by the Title Company to Purchaser
which are agreed to be Purchaser's exclusive remedies.
ARTICLE VIII.
BREACH BY PURCHASER
In the event Purchaser should fail to consummate the purchase of the
Property for any reason, except Seller's default hereunder, Seller will have the
right to receive the Earnest Money from the Title Company, such sum being agreed
on as liquidated damages for the failure of Purchaser to perform the duties,
liabilities and obligations imposed upon it by the terms and provisions of this
Contract as Seller's exclusive remedy.
ARTICLE IX.
RISK OF LOSS
In the event that any Site is materially damaged or destroyed by fire
or other casualty or a material portion thereof is taken by eminent domain prior
to Closing, Purchaser may elect to (1) terminate the Contract only with respect
to the affected Site, or (2) the transaction shall be closed in accordance with
the terms of this Contract except that Seller shall reduce the Purchase Price by
the amount of any deductible related to such loss of any applicable insurance
policy and assign to Purchaser all of its rights under such insurance policy or
policies.
ARTICLE X.
BROKERAGE COMMISSION
If the sale contemplated by this Contract is closed, Seller agrees to
pay a cash commission equal to six percent (6%) of the first $1,000,000 of the
Purchase Price and three percent (3%) of the balance of the Purchase Price, to
be paid at Closing and be divided equally between Willis Realty Advisors and The
Staubach Company (collectively, the "Brokers"). The Brokers shall be privileged
to share such commission with any other licensed real estate broker or
salesperson. Notwithstanding the foregoing, the payment of the foregoing
commission to the Brokers shall fully discharge the obligation of Seller for
commissions to the Brokers in connection with this transaction. The Broker's
right to such commission shall vest upon Closing but not otherwise.
Purchaser and Seller each represent and warrant to the other that
except as disclosed herein neither has employed any real estate agent, broker or
finder in connection with the transaction contemplated by this Contract, and
each party agrees to indemnify the other from and against all brokerage
commissions and finders' fees arising or resulting from acts or omissions of the
indemnifying party.
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<PAGE> 11
Purchaser hereby acknowledges that, at the time of the execution of
this Contract, the undersigned Broker advised the Purchaser by this writing that
the Purchaser should have the abstract covering the real estate which is the
subject of this Contract examined by an attorney of the Purchaser's own
selection or that the Purchaser should be furnished with or obtain a policy of
title insurance.
ARTICLE XI.
MISCELLANEOUS
(a) Survival of Covenants. Except as otherwise provided herein, any of
the representations, warranties, covenants and agreements of the parties, as
well as any rights and benefits of the parties, pertaining to a period of time
following the Closing of the transactions contemplated hereby shall survive the
Closing for a period of 90 days after Closing.
(b) Notice. Any notice required or permitted to be delivered hereunder
shall be deemed received when deposited in the United States' mail, postage
prepaid, certified mail, return receipt requested, addressed to Seller or
Purchaser, as the case may be, at the address set forth below:
If to Purchaser: Parker Equities, Inc.
5956 Sherry Lane, # 1620
Dallas, Texas 75225
With Copy to: Mr. Tom Wittenbraker
4625 Greenville Avenue, #101
Dallas, Texas 75206
If to Seller: General Counsel
Home Interiors & Gifts, inc.
4550 Spring Valley Road
Dallas, Texas 75248
With Copy to: Mr. Robert Feldman
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
(c) Texas Law to Apply. This Contract shall be construed under and in
accordance with the laws of the State of Texas, and all obligations of the
parties created hereunder are performable in Dallas County, Texas.
(d) Parties Bound. This Contract shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal
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<PAGE> 12
representatives, successors and assignees where permitted by this Contract. It
is expressly agreed that the rights and duties of Purchaser hereunder shall not
be assignable in whole or in part to any party without the prior written consent
of Seller. Notwithstanding the foregoing, Purchaser may assign this Contract to
a party that is fully cable of performing Purchaser's obligations and truthfully
making Purchaser's representations and warranties under this Contract provided
that (i) Jeff P. Howle owns a material financial stake (direct or indirect) in
such party and (ii) Purchaser is the general partner of such party if such party
is a limited partnership or the managing member of such party if such party is a
limited liability company.
(e) Legal Construction. In case any one or more of the provisions
contained in this Contract shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or enforceability
shall not affect any other provision hereof and this Contract shall be construed
as if such invalid, illegal, or unenforceable provision had never been contained
herein.
(f) Prior Agreements Superseded. This Contract constitutes the sole and
only agreement of the parties hereto and superseded any prior understandings or
written or oral agreements between the parties respecting the within subject
matter.
(g) Gender. Words of any gender used in this Contract shall be and
construed to include any other gender, and words in the singular number shall be
held to include the plural, and vise versa, unless the context requires
otherwise.
(h) Attorney's Fee. If any party shall be required to employ an
attorney to enforce or defend the rights of such party hereunder, the prevailing
party shall be entitled to recover reasonable attorney's fees and costs of
court.
(i) Section 1031. The parties covenant and agree to reasonably
cooperate with each other, at no cost to the other, in effecting a tax deferred
exchange involving the Property under and pursuant to Section 1031 of the Code.
No party shall be obligated to take title to any replacement property or incur
any cost or expense as part of such cooperation. The obligations of the parties
hereunder shall not be conditioned upon effecting any such tax deferred
exchange.
(j) Sale/Leaseback. At Closing, Purchaser and Seller will enter into
counterpart lease agreements (individually, each a "Lease" and collectively, the
"Leases") for each Site (except the Site located in Lewisville, Texas) in a
lease form which substantially conforms to the form of Lease attached hereto as
Exhibit "B" as modified by the written comments and conceptual changes written
on the face thereof. Prior to Closing, Purchaser and Seller shall finalize the
form of Lease based on the foregoing modifications. The lease rate will be three
dollars ($3.00) per square foot, per annum, payable monthly, absolute net, with
Seller/tenant being responsible for ordinary expenses, associated with each
leased Site. The expenses include, but are not limited to, the real estate
taxes, personal property taxes, all insurance expenses, all utilities, and
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<PAGE> 13
repairs and maintenance to each leased Site. The term for each Lease shall
commence at Closing and shall expire as set forth on Exhibit "A".
(k) Access to Property. Commencing on the date which is the earlier of
(i) the date which Seller notifies Purchaser that it has completed its
communications with its employees at each Site and (ii) fifteen (15) days after
the Effective Date, Seller agrees that Purchaser will be allowed to show each
Site to prospective lease tenants at anytime during normal business hours, with
twenty-four (24) hour notice to Seller and Purchaser (or Purchaser's
Representatives) and will be allowed to erect a "For Lease" sign on each Site.
Neither Purchaser nor Purchaser's Representatives shall hold itself out as the
agent of Seller and no lease or other agreement between Purchaser, or
Purchaser's Representatives and any party shall, in any way, bind Seller.
Purchaser shall indemnify Seller and its agents from and against all claims
resulting from any entry on the Property by Purchaser or Purchaser's
Representatives or any activities conducted in or on the Property by Purchaser,
or any of Purchaser's Representatives, together with all expenses incurred by
Seller and/or its agents by reason thereof including, without limitation,
reasonable attorneys' fees and disbursements, which obligation shall survive the
Closing or the termination of this Contract.
[SIGNATURES ON THE FOLLOWING PAGE]
13
<PAGE> 14
Executed in multiple counterparts this 19th day of July, 1999.
SELLER:
Home Interiors & Gifts, inc.
By: /s/ DONALD J. CARTER, JR.
--------------------------------
Name: DONALD J. CARTER, JR.
------------------------------
Title: CEO
-----------------------------
PURCHASER:
Parker Equities, Inc.
By: /s/ JEFF P. HOWLE
--------------------------------
Jeff P. Howle, President
<PAGE> 15
EXHIBIT "A"
Legal:
Being Lot 1, in Block A, of HOME INTERIORS PARK, an Addition to the City of
Farmers Branch, Texas, according to the Map thereof recorded in Volume 71189,
Page 119, of the Map Records of Dallas County, Texas;
Being part of Lots 4 and 5, Block 3, of METROPOLITAN INDUSTRIAL PARK, SECTION
FOUR-SECOND INSTALLMENT, an Addition to the City of Farmers Branch, Dallas
County, Texas, according to the Map thereof recorded in Volume 73063, Page 24,
of the Map Records of Dallas County, Texas, and being more particularly
described on Exhibit A attached hereto and made a part hereof for all purposes;
Being a portion of Block C, of CARROLLTON COMMERCE CENTER, an Addition to the
City of Carrollton, Dallas County, Texas, according to the Map thereof recorded
in Volume 78167, Page 1250, Map Records, Dallas County, Texas, and being more
part described on Exhibit A attached hereto and made a part hereof for all
purposes;
Being a tract of land containing 3.91 acres, more or less, situated in the JAMES
A. SIMMONS SURVEY, ABSTRACT NO. 1296, Dallas County, Texas, and being more
particularly described by metes and bounds description to be provided;
Being 2 tracts of land situated in the H. Moss Survey, Abstract No. 626, Collin
County, Texas and being more particularly described on Exhibit A attached hereto
and made a part hereof for all purposes;
Being all of LOT 1, BLOCK 1 OF NORTHEAST BUSINESS PARK NO. 7, an Addition to the
City of Garland, Dallas County, Texas, according to the Map thereof recorded in
Volume 80155, Page 1113, of the Map Records of Dallas County, Texas. SAVE AND
EXCEPT that right of way dedicated to the City of Garland by instrument filed
06/01/1994, recorded in Volume 94104, Page 3754, Deed Records, Dallas County,
Texas; and
Being a 2.0 acre tract of land in the J. W. KING SURVEY, Abstract No. 695, City
of Lewisville, Denton County, Texas, and being more particularly described on
Exhibit A attached hereto and made a part hereof for all purposes.
<PAGE> 16
Improvements:
<TABLE>
<CAPTION>
Agreed Value of each
Site as a portion of Lease
the total Purchase Expiration Major Physical
Price Date Defects Threshold
- -------- ----------------------- ----------------- ------------------ ---------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
(1) 4550 Spring Valley 210,233 S.F. 8.0000 acres $ 5,718,573 June 30, 2000 $100,000
Dallas, Texas
- -------- ----------------------- ----------------- ------------------ ---------------------- ------------------- -----------------
(2) 4545 Spring Valley 114,380 S.F. 5.5770 acres $ 3,099,870 June 30, 2000 $100,000
Dallas, Texas
- -------- ----------------------- ----------------- ------------------ ---------------------- ------------------- -----------------
(3) 1130 W. Jackson Rd. 54,000 S.F. 3.1945 acres $ 1,350,000 May 31, 2000 $ 25,000
Carrollton, Texas
- -------- ----------------------- ----------------- ------------------ ---------------------- ------------------- -----------------
(4) 815 S. Coppell Road 78,750 S.F. 3.9100 acres $ 2,133,300 June 30, 2000 $ 25,000
Coppell, Texas
- -------- ----------------------- ----------------- ------------------ ---------------------- ------------------- -----------------
(5) 10351 Home Road 86,400 S.F. 5.0000 acres $ 2,073,600 August 31, 2000 $ 25,000
Frisco, Texas
- -------- ----------------------- ----------------- ------------------ ---------------------- ------------------- -----------------
(6) 2601 West Kingsley 54,000 S.F. 4.5044 acres $ 1,404,000 April 30, 2000 $ 25,000
Garland, Texas
- -------- ----------------------- ----------------- ------------------ ---------------------- ------------------- -----------------
(7) 582 E. Hwy. 121 26,036 S.F. 2.0000 acres $ 628,657 No Lease $ 25,000
Lewisville, Texas
- -------- ----------------------- ----------------- ------------------ ---------------------- ------------------- -----------------
Total............ $ 16,408,000
- -------- ----------------------- ----------------- ------------------ ---------------------- ------------------- -----------------
</TABLE>
<PAGE> 17
EXHIBIT "B"
Form of Lease
<PAGE> 18
LEASE AGREEMENT
Note: The concepts noted in brackets shall be added to this form of Lease
prior to its execution.
THIS LEASE AGREEMENT is made and entered into as of the date set forth
below between Parker Equities, Inc., hereinafter referred to as "Lessor" and
_________________, hereinafter referred to as "Lessee":
W I T N E S S E T H :
1. LEASED PREMISES: In consideration of the rents, terms, provisions
and covenants of this Lease, Lessor hereby leases, lets and demises to Lessee
the following described premises (referred to as "leased premises" and
containing approximately ____ square feet) situated at ___________________
(sometimes referred to as "the building" or "the project"):
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
2. TERM: Subject to and upon the conditions set forth below, the term
of this Lease shall commence on __________ (the "commencement date") and shall
terminate __________(__) months thereafter.
3. RENT: (a) Lessee agrees to pay monthly as base rental during the
term of this Lease the following amounts:
<TABLE>
<CAPTION>
Months Monthly Base Rental
------ -------------------
<S> <C>
_________________________: $______ per month
_________________________: $______ per month
_________________________: $______ per month
_________________________: $______ per month
_________________________: $______ per month
</TABLE>
Each installment shall be payable to Lessor at the address shown below on the
first day of the month. One monthly installment of rent shall be due and payable
on or before the first day of each calendar month succeeding the "commencement
date" or "completion date" during the demised term; provided, that if the
"commencement date" or the "completion date" should be a date other than the
first day of a calendar month, the monthly rental set forth above shall be
prorated to the end of that calendar month, and all succeeding installments of
rent shall be
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<PAGE> 19
payable on or before the first day of each succeeding calendar month during the
demised term. Lessee shall pay, as additional rental, all other sums due under
this Lease.
(b) If any increase in the fire insurance premiums paid by Lessor for
the building in which Lessee occupies space is caused by Lessee's use and
occupancy of the leased premises, or if Lessee vacates the leased premises and
causes an increase in such premiums, then Lessee shall pay as additional rental
the amount of such increase to Lessor.
(c) Other remedies for nonpayment of rent notwithstanding, if the
monthly rental payment is not received by Lessor within 3 business days after
Lessor notifies Lessee in writing that the rent is overdue, a service charge of
five per cent (5%) of such past due amount shall become due and payable in
addition to such amounts owed under this Lease. In addition, Lessor shall be
entitled to charge twenty-five dollars for each check or payment which is not
honored by Lessee's bank. Said charge to be in addition to any other amounts
owed under this Lease.
(d) In the event the operating expenses (as defined below) of Lessor
for the building and/or project of which the leased premises are a part shall,
in any calendar year during the term of this Lease, exceed the sum of $ -0- per
square foot, Lessee agrees to pay as additional rental Lessee's pro rata share
of such excess operating expenses. Lessor shall, within three (3) months
following the close of any calendar year for which additional rental is due
under this paragraph, invoice Lessee for the additional rental. The invoice
shall include in reasonable detail all computations of the additional rental,
and Lessee agrees to pay the additional rental within thirty (30) days following
receipt of the invoice. If this Lease shall terminate on a day other than the
last day of a year, the amount of any additional rental payable by Lessee
applicable to the year in which such termination shall occur shall be prorated
on the ratio that the number of days from the commencement of such year to and
including such termination date bears to 365. During the year in which this
Lease terminates, Lessor shall have the option to invoice Lessee for Lessee's
pro rata share of the excess operating expenses based upon the previous year's
excess operating expenses; Lessor shall invoice Lessee under this option within
thirty days prior to the termination of this Lease or at any time thereafter.
Lessee shall have the right, at it own expense and at a reasonable time, to
audit Lessor's books relevant to the additional rentals due under this paragraph
3.
(e) The term "operating expenses" as used above includes all expenses
incurred with respect to the maintenance and operation of the building and/or
project of which the leased premises are a part, including, but not limited to,
maintenance and repair costs, sewer, security, trash and snow removal,
landscaping and pest control, all services, supplies, repairs, or other expenses
for maintaining and operating the building and/or project including common area,
parking area. The term "operating expenses" also includes all real property
taxes and installments of special assessments, including special assessments due
to deed restrictions, which accrue against the building and/or project of which
the leased premises are a part during the term of this Lease as well as all
insurance premiums Lessor is required to pay or reasonably deems necessary to
pay, including liability insurance, with respect to the building and/or project.
The term operating expenses does not include any capital improvement to the
building and/or project of which the leased premises are a part, nor shall it
include repairs, restoration or other
2
<PAGE> 20
work occasioned by fire, windstorm or other casualty, income and franchise taxes
of Lessor, expenses incurred in leasing to or procuring of tenants, leasing
commissions, advertising expenses, expenses for the renovating of space for new
tenants, interest or principal payments on any mortgage or other indebtedness of
Lessor, compensation paid to any employee of Lessor above the grade of building
superintendent nor any depreciation allowance or expense.
4. REPAIRS AND MAINTENANCE: (a) Unless otherwise expressly provided, Lessor
shall not be required to make any improvements, replacements or repairs of any
kind or character to the leased premises during the time of this Lease except
such repairs as are set forth in this subparagraph. Lessor shall maintain only
the roof, foundation, parking areas, and the structural soundness of the
exterior walls (excluding all windows, window glass, plate glass and all doors)
of the building in good repair and condition except for reasonable wear and
tear. Lessor's costs of maintaining the items set forth in this subparagraph are
subject to the additional rental provisions in paragraph 3. Lessee shall repair
and pay for any damage caused by the negligence or default of Lessee or Lessee's
agents and employees. Lessee shall immediately give written notice of the need
for repairs, which repairs shall be made by Lessor beginning not more than
fifteen (15) days after written notice by Lessee. Lessor shall not be liable to
Lessee, except as expressly provided in this Lease, for any damage or
inconvenience, and Lessee shall not be entitled to any abatement or reduction of
rent by reason of any repairs, alterations or additions made by Lessor under
this Lease.
(b) Lessee shall, at its own cost and expense, maintain all other parts
of the building and other improvements on the leased premises in good repair and
condition (ordinary wear and tear and casualty excepted), including, but not
limited to, plumbing, heating and air conditioning systems, downspouts, fire
sprinkler system, dock bumpers, regular mowing and trimming of any grass, pest
control and extermination including termite eradication, weed removal and
regular removal of debris. Lessee shall take good care of all the property and
its fixtures, including all landscaping. Should Lessee neglect to keep and
maintain the leased premises, then Lessor shall have the right, but not the
obligation, to have the work done and the cost therefor shall be charged to
Lessee as additional rental and shall become payable by Lessee with the payment
of the rental next due hereunder.
(c) Lessee shall not allow any damage to be committed on any portion of
the leased premises, and at the termination of this Lease, by lapse of time or
otherwise, Lessee shall deliver the leased premises to Lessor in as good
condition as existed at the commencement date or completion date of this Lease,
ordinary wear and tear and casualty excepted. The cost and expense of any
repairs necessary to restore the condition of the leased premises shall be borne
by Lessee, and if Lessor undertakes to restore the leased premises it shall have
a right of reimbursement against Lessee.
(d) All requests for repairs or maintenance that the responsibility of
Lessor pursuant to any provision of this Lease must be made in writing to Lessor
at the address set forth below.
(e) If after the date hereof, Lessee or its employees, agents, or
contractors shall ever violate the provisions of Paragraph 7 below (that apply
to Lessee regarding toxic or hazardous
3
<PAGE> 21
materials), or if Lessee's acts, negligence, breach of this provision or
business operations directly and materially expand the scope of any
contamination from toxic or hazardous materials, then Lessee shall clean-up,
remove and dispose of the material causing the violation, in compliance with
all applicable governmental standards, laws, rules and regulations and repair
any damage to the leased premises or building within such period of time as may
be responsible under the circumstances after written notice by Lessor, provided
that such work shall commence not later than thirty (30) days from such notice
and be diligently and continuously carried to completion by Lessee or Lessee's
designated contractors. Lessee shall notify Lessor of its method, time and
procedure for any clean-up or removal of toxic or hazardous materials under
this provision; and Lessor shall have the right to require reasonable changes
in such method, time or procedure or to require the same to be done after
normal business hours or when the building is otherwise closed (i.e., weekends
or holidays).
5. MAINTENANCE CONTRACT: Lessee shall, at its sole cost and expense, during the
term of this Lease maintain a regularly scheduled preventative
maintenance/service contract with a maintenance contractor for the servicing of
all heating and air conditioning systems and equipment within the leased
premises. The maintenance contractor and contract must include all services
suggested by the equipment manufacturer. In the event this service contract is
not provided, then Lessor shall have the right, but not the obligation, to have
the work done and the cost therefor shall be charged to Lessee as additional
rental and shall become payable by Lessee with the payment of the rental next
due hereunder.
6. SIGNS: Lessee shall allow Lessee to keep in place any existing signs relating
to Lessee's business as of the date hereof. No additional Lessee signs or other
objects shall be attached to the building or canopy.
7. USAGE: Lessee warrants and represents to Lessor that the leased premises
shall be used and occupied only for the purposes of office/warehouse. Lessee
shall occupy the leased premises, conduct its business and control its agents,
employees, invitees and visitors in such a way as is lawful and reputable.
Without Lessor's prior written consent, Lessee shall not receive, store or
otherwise handle any product, material or merchandise which is explosive or
highly flammable. Lessee shall not commit, or suffer to be committed any waste
on the leased premises.
Neither Lessee nor Lessor shall ever knowingly permit to remain in,
incorporate into, use, or otherwise place or dispose of at the leased premises
or in the building or project any toxic or hazardous materials in concentrations
or levels sufficient that by the then applicable EPA, OSHA or other applicable
governmental standards cause the specific materials so identified to be
classified or identified as toxic or hazardous materials unless (i) such
materials are in small quantities, properly labeled and contained, (ii) such
materials are handled and disposed of in accordance with highest accepted
industry standards for safety, storage, use and disposal, (iii) such materials
are for use in the ordinary course of business (i.e. as with office or cleaning
supplies), (iv) notice of and a copy of the current material safety data sheet
is provided to the other party for each such hazardous or toxic material and (v)
such materials are handled and disposed of in accordance with all applicable
governmental laws, rules and regulations. If after
4
<PAGE> 22
the date hereof Lessor or Lessee ever obtains knowledge of the presence in the
leased premises or the building or the project of such toxic or hazardous
materials which affect the leased premises, the party having knowledge shall
notify the other party thereof in writing promptly after obtaining such
knowledge. For purposes of this Lease, hazardous or toxic materials shall mean
hazardous or toxic chemicals or any materials containing hazardous or toxic
chemicals at levels or content which cause such materials to be classified as
hazardous or toxic as then prescribed by the prevalent industry practice and
standards or by the then current levels or content as set from time to time by
EPA or OSHA or as defined under 29 CFR 1910 or 29 CFR 1925 or other applicable
governmental laws, rules or regulations.
8. INSURANCE: Lessee shall not permit the leased premises to be used in any way
which would, in opinion of Lessor, be extra hazardous on account of fire or
otherwise which would in any way increase or render void the fire insurance on
leasehold improvements or contents in the building belonging to other tenants in
the building. If at any time during the term of this Lease the State Board of
Insurance or other insurance authority disallows any of Lessor's sprinkler
credits or imposes an additional penalty or surcharge in Lessor's insurance
premiums because of Lessee's original or subsequent placement or use of storage
racks or bins, method of storage or nature of Lessee's inventory or any other
act of Lessee, Lessee agrees to pay as additional rental the increase (between
fire walls) in Lessor's insurance premiums.
9. UTILITY SERVICE: Lessor shall provide the normal utility service connections
into the leased premises. Lessee shall pay the cost of all utility services,
including, but not limited to, initial connection charges, all charges for gas,
water and electricity used on the leased premises, and for all electric light
lamps or tubes. Lessee shall pay all costs caused by Lessee introducing the cost
of such excessive pollutants or solids other than ordinary human waste into the
sanitary sewer system, including permits, fees and charges levied by any
governmental subdivision for any such pollutants or solids. Lessee shall be
responsible for all installation and maintenance of any dilution tanks, holding
tanks, settling tanks, sewer sampling devices, sand traps, grease traps or
similar devices as may be required by any governmental subdivision for Lessee's
use of the sanitary sewer system. Lessor shall not be required to pay for any
utility services, supplies or upkeep in connection with the leased premises.
10. COMPLIANCE WITH LAWS, RULES AND REGULATIONS: Lessee, at Lessee's expense,
shall comply with all laws, ordinances, orders, rules and regulations of state,
federal, municipal or other agencies or bodies having jurisdiction relating to
the use, condition and occupancy of the leased premises. Lessee will comply with
the rules of the building adopted by Lessor which are set forth on a schedule
attached to this Lease. Lessor shall have the right at all times to change the
rules and regulations of the building or to amend them in any reasonable manner
as may be deemed advisable for the safety, care and cleanliness, and for the
preservation of good order, of the leased premises. All changes and amendments
in the rules and regulations of the building will be sent by Lessor to Lessee in
writing and shall thereafter be carried out and observed by Lessee.
11. ALTERATIONS AND IMPROVEMENTS: Lessee shall not make or allow to be made any
alterations or physical additions in or to the leased premises without first
obtaining written
5
<PAGE> 23
consent of Lessor. Any alterations, physical additions or improvements to the
leased premises made by Lessee shall at once become the property of Lessor and
shall be surrendered to Lessor upon the termination of this Lease. Lessor, at
its option, may require Lessee to remove any physical additions and/or repair
any alterations in order to restore the leased premises to the condition
existing at the time Lessee took possession, all costs of removal and/or
alterations to be borne by Lessee. This clause shall not apply to moveable
equipment or furniture owned by Lessee which may be removed by Lessee at the
end of the term of this Lease if Lessee is not then in default and if such
equipment and furniture is not then subject to any other rights, liens and
interests of Lessor.
12. CONDEMNATION: (a) If, during the term (or any extension or renewal) of this
Lease, all or a substantial part of the leased premises are taken for any public
or quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain or by purchase in lieu thereof, and the taking would
prevent or materially interfere with the use of the leased premises for the
purposes for which the leased premises are then being used, this Lease shall
terminate and the rent shall be abated during the unexpired portion of this
Lease effective on the date physical possession is taken by the condemning
authority.
(b) In the event a portion of the leased premises shall be taken for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain or by purchase in lieu thereof, and
this Lease is not terminated as provided in subparagraph (a) above, Lessor may,
at Lessor's sole risk and expense, restore and reconstruct the building and
other improvements on the leased premises to the extent necessary to make it
reasonably tenantable. The rent payable under this Lease during the unexpired
portion of the term shall be adjusted to such an extent as may be fair and
reasonable under the circumstances.
13. FIRE AND CASUALTY: (a) If the leased premises should be totally destroyed by
fire or other casualty, or if the leased premises should be so damaged so that
rebuilding cannot reasonably be completed within ninety (90) working days after
the date of written notification by Lessee to Lessor of the destruction, this
Lease shall terminate and the rent shall be abated for the unexpired portion of
the Lease, effective as of the date of the written notification.
(b) If the leased premises should be partially damaged by fire or other
casualty, and rebuilding or repairs can reasonably be completed within ninety
(90) working days from the date of written notification by Lessee to Lessor of
the destruction, this Lease shall not terminate, but Lessor may at its sole risk
and expense proceed with reasonable diligence to rebuild or repair the building
or other improvements to substantially the same condition in which they existed
prior to the damage. If the leased premises are to be rebuilt or repaired and
are untenantable in whole or in part following the damage, and the damage or
destruction was not caused or contributed to by act or negligence of Lessee, its
agents, employees, invitees or those for whom Lessee is responsible, the rent
payable under this Lease during the period for which the leased premises are
untenantable shall be adjusted to such an extent as may be fair and reasonable
under the circumstances. In the event that Lessor fails to complete the
necessary repairs or rebuilding within ninety (90) working days from the date of
written notification by Lessee to Lessor of the
6
<PAGE> 24
destruction, Lessee may at its option terminate this Lease by delivering
written notice of termination to Lessor, whereupon all rights and obligations
under this Lease shall cease to exist.
14. PROPERTY INSURANCE: Lessor shall at all times during the term of this Lease
maintain a policy or policies of insurance with the premiums paid in advance,
issued by and binding upon some solvent insurance company, insuring the building
against all risk of direct physical loss in an amount equal to ninety percent
(90%) of the full replacement cost of the building structure and its
improvements as of the date of the loss (and at Lessors option, loss of rents
attributable to such loss); provided, that Lessor shall not be obligated in any
way or manner to insure any personal property (including, but not limited to,
any furniture, machinery, goods or supplies) of Lessee or which Lessee may have
upon or within the leased premises or any fixtures installed by or paid for by
Lessee upon or within the leased premises or any additional improvements which
Lessee may construct on the leased premises.
15. WAIVER OF SUBROGATION: Anything in this Lease to the contrary
notwithstanding, Lessor and Lessee hereby waive and release each other of and
from any and all rights of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the leased premises, improvements to the building of which the
leased premises are a part, or personal property (contents) within the building,
by reason of fire or the elements regardless of cause or origin, including
negligence of Lessor or Lessee and their agents, officers and employees. Because
this paragraph will preclude the assignment of any claim mentioned in it by way
of subrogation or otherwise to an insurance company or any other person, each
party to this Lease agrees immediately to give to each insurance company which
has issued to its policies of insurance covering all risk of direct physical
loss, written notice of the terms of the mutual waivers contained in this
paragraph, and to have the insurance policies properly endorsed, if necessary,
to prevent the invalidation of the insurance coverages by reason of the mutual
waivers contained in this paragraph.
16. HOLD HARMLESS: Lessor shall not be liable to Lessee's employees, agents,
invitees, licensees or visitors, or to any other person, for any injury to
person or damage to property on or about the leased premises caused by the
negligence or misconduct of Lessee, its agents, servants or employees, or of any
other person entering upon the leased premises under express or implied
invitation by Lessee, or caused by the building and improvements located on the
leased premises becoming out of repair, or caused by leakage of gas, oil, water
or steam or by electricity emanating from the leased premises. Lessee agrees to
indemnify and hold harmless Lessor of and from any loss, attorney's fees,
expenses or claims arising out of any such damage or injury. Lessee shall
procure and maintain throughout the term of this Lease a policy or policies of
insurance, at its sole cost and expense, insuring both Lessor as its interest
may appear with respect to the premises and Lessee against all claims, demands
or actions arising out of or in connection with: (i) the premises; (ii) the
condition of the premises; (iii) Lessee's operations in the maintenance and use
of the premises; and (iv) Lessee's liability assumed under this Lease, the
limits of such policy or policies to be in the amount of not less than $300,000
per occurrence in respect of injury to persons (including death), and in the
amount of not less than $50,000 per occurrence in respect of property damage or
destruction, including loss of use thereof.
7
<PAGE> 25
Certificates of Insurance evidencing such coverage shall be delivered to Lessor
upon request. [This paragraph shall be revised so that the indemnity shall be
mutual.]
17. QUIET ENJOYMENT: Lessor warrants that it has full right to execute and to
perform this Lease and to grant the estate demised and that Lessee, upon payment
of the required rents and performing the terms, conditions, covenants and
agreements contained in this Lease, shall peaceably and quietly have, hold and
enjoy the leased premises during the full term of this Lease as well as any
extension or renewal thereof. Lessor shall not be responsible for the acts or
omissions of any other Lessee or third party that may interfere with Lessee's
use and enjoyment of the leased premises.
18. LESSOR'S RIGHT OF ENTRY: Lessor shall have the right, at all reasonable
hours upon reasonable notice to Lessee, to enter the leased premises for the
following reasons: inspection; cleaning or making repairs; or determining if an
event of default under this Lease has occurred. During the final one hundred
fifty days of the lease term, Lessor and its authorized agents shall have the
right to erect and maintain on or about the leased premises customary signs
advertising the property for lease or for sale.
19. ASSIGNMENT OR SUBLEASE: Lessor shall have the right to transfer and assign,
in whole or in part, its rights and obligations in the building and property
that are the subject of this Lease. Lessee shall not assign this Lease or sublet
all or any part of the leased premises without the prior written consent of
Lessor (which consent shall not be unreasonably withheld or delayed).
Notwithstanding the foregoing, Lessee may transfer and assign its rights and
obligations, in whole or in part under this lease to any affiliate of Lessee
without the consent of Lessor provided that such affiliate maintains the
insurance required to be maintained by Lessee hereunder and if requested by
Lessor shall provide Lessor with a Certificate of Insurance evidencing such
coverage. In the event of any assignment or subletting, Lessee shall
nevertheless at all times remain fully responsible and liable for the payment of
the rent and for compliance with all of its other obligations under the terms,
provisions and covenants of this Lease. Upon the occurrence of an "event of
default" as defined below, if all or any part of the leased premises are then
assigned or sublet, Lessor, in addition to any other remedies provided by this
Lease or provided by law, may, at its option, collect directly from the assignee
or subtenant all rents becoming due to Lessee by reason of the assignment or
sublease, and Lessor shall have a security interest in all properties on the
leased premises to secure payment of such sums. Any collection directly by
Lessor from the assignee or subtenant shall not be construed to constitute a
novation or a release of Lessee from the further performance of its obligations
under this Lease. Nothing contained herein shall allow any assignee or sublessee
of Lessee to transfer and assign, in whole or in part, its rights and
obligations in the building and property that are the subject of this Lease
whatsoever.
20. DEFAULT BY LESSEE: The following shall be deemed to be events of default by
Lessee under this Lease:
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<PAGE> 26
(a) Lessee shall fail to pay when due any installment of rent or any
other payment required pursuant to this Lease and such failure shall continue
for a period of five (5) days after receiving written notice of such failure;
[Paragraphs (b) and (d) shall be revised to give Lessee a 30 day right to cure
and paragraph (c) shall be revised to give Lessee a 60 day right to cure.]
(b) Lessee shall fail to comply with any term, provision or covenant of
this Lease.
(c) Lessee shall file a petition or be adjudged bankrupt or insolvent
under the National Bankruptcy Act, as amended, or any similar law or statute of
the United States or any state; or a receiver or trustee shall be appointed for
all or substantially all of the assets or Lessee; or Lessee shall make a
transfer in fraud of creditors or shall make an assignment for the benefit of
creditors; or
(d) Lessee shall do or permit to be done any act which results in a
lien being filed against the leased premises or the building and/or project of
which the leased premises are a part.
21. REMEDIES FOR LESSEE'S DEFAULT: Upon the occurrence of any event of default
set forth in this Lease, Lessor shall have the option to pursue any one or more
of the following remedies without any notice or demand:
(a) Terminate this Lease, in which event Lessee shall immediately
surrender the leased premises to Lessor, and if Lessee fails to surrender the
leased premises, Lessor may, without prejudice to any other remedy which it may
have for possession or arrearages in rent, enter upon and take possession of the
leased premises, by picking or changing locks if necessary, and lock out, expel,
or remove Lessee and any other person who may be occupying all or any part of
the leased premises without being liable for prosecution of any claim for
damages. Lessee agrees to pay on demand the amount of all loss and damage which
Lessor may suffer by reason of the termination of the Lease under this
subparagraph, whether through inability to relet the leased premises on
satisfactory terms or otherwise.
(b) Enter upon and take possession for the leased premises, by picking
or changing locks if necessary, and lock out, expel or remove Lessee and any
other person who may be occupying all or any part of the leased premises without
being liable for any claim for damages, and relet the leased premises on behalf
of the Lessee and receive directly the rent by reason of the reletting. Lessee
agrees to pay Lessor on demand any deficiency that may arise by reason of any
reletting of the leased premises.
(c) Enter upon the leased premises, by picking or changing locks if
necessary, without being liable for prosecution of any claim for damages, and do
whatever Lessee is obligated to do under the terms of this Lease. Lessee agrees
to reimburse Lessor on demand for any reasonable expenses which Lessor may incur
in effecting compliance with Lessee's obligations under this Lease; further,
Lessee agrees that Lessor shall not be liable for any damages resulting to
Lessee from effecting compliance with Lessee's obligations under the
subparagraph caused by the negligence of Lessor or otherwise.
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<PAGE> 27
(d) In the event Lessor exercises any of it rights provided herein and
Lessee subsequently cures such default, Lessor shall be entitled to receive a
service charge of one hundred dollars from Lessee for its time and expense in
addition to any other amounts owed hereunder, prior to allowing the Lessee to
re-enter and re-occupy the premises.
22. WAIVER OF DEFAULT OR REMEDY: Failure of Lessor to declare an event of
default immediately upon its occurrence, or delay in taking any action in
connection with an event of default, shall not constitute a waiver of the
default, but Lessor shall have the right to declare the default at any time and
take such action as is lawful or authorized under this Lease. Pursuit of any one
or more of the remedies set forth in paragraph 25 above shall not preclude
pursuit of any of one or more of the other remedies provided elsewhere in this
Lease or provided by law, nor shall pursuit of any remedy provided constitute
forfeiture or waiver of any rent or damages accruing to Lessor by reason of the
violation of any of the terms, provisions or covenants of this Lease. Failure by
Lessor to enforce one or more of the remedies provided upon an event of default
shall not be deemed or construed to constitute a waiver of the default or of any
other violation or breach of any of the terms, provisions and covenants
contained in this Lease.
23. ACTS OF GOD: Lessor shall not be required to perform any covenant or
obligation in this Lease, or be liable in damages to Lessee, so long as the
performance or non-performance of the covenant or obligation is delayed, caused
by or prevented by an act of God or force majeure.
24. ATTORNEY'S FEES: In the event Lessee defaults in the performance of any of
the terms, covenants, agreements or conditions contained in this Lease and
Lessor places in the hands of an attorney the enforcement of all or any part of
this Lease, the collection of any rent due or to become due or recovery of the
possession of the leased premises, Lessee agrees to pay Lessor reasonable
attorney's fees for the services of the attorney, whether suit is actually filed
or not.
25. HOLDING OVER: In the event of holding over by Lessee after the expiration or
termination of this Lease, the holdover shall be as a tenant at will and all of
the terms and provisions of this Lease shall be applicable during that period,
except that Lessee shall pay Lessor as rental for the period of such hold over
an amount equal to one and one-half the rent which would have been payable by
Lessee had the hold over period been a part of the original term of this Lease.
Lessee agrees to vacate and deliver the leased premises to Lessor upon Lessee's
receipt of notice from Lessor to vacate. The rental payable during the hold over
period shall be payable to Lessor on demand. No holding over by Lessee, whether
with or without consent of Lessor, shall operate to extend this Lease except as
otherwise expressly provided.
26. RIGHTS OF FIRST MORTGAGE: Lessee accepts this Lease subject and subordinate
to any recorded first mortgage or deed of trust lien presently existing or
hereafter created upon the leased premises provided Lessor provides Lessee with
a Subordination Nondisturbance and Attornment agreement executed by the lien
holder in a form reasonably acceptable to Lessee. Lessor is hereby irrevocably
vested with full power and authority to subordinate Lessee's interest under this
Lease to any first mortgage or deed of trust lien hereafter placed on the leased
premises, and Lessee agrees upon demand to execute additional instruments
subordinating this
10
<PAGE> 28
Lease as Lessor may require provided Lessor provides Lessee with a
Subordination Nondisturbance and Attornment agreement executed by the lien
holder in a form reasonably acceptable to Lessee.
27. ESTOPPEL CERTIFICATES: Lessee agrees to furnish promptly, from time to time,
upon request of Lessor or Lessor's mortgagee, a statement certifying, if
applicable, that Lessee is in possession of the leased premises; the leased
premises are acceptable; the Lease is in full force and effect; the Lease is
unmodified; Lessee claims no present charge, lien, or claim of offset against
rent; the rent is paid for the current month, but is not prepaid for more than
one month and will not be prepaid for more than one month in advance; there is
no existing default by reason of some act or omission by Lessor; and such other
matters as may be reasonably required by Lessor or Lessor's mortgagee.
28. SUCCESSORS: This Lease shall be binding upon an inure to the benefit of
Lessor and Lessee and their respective heirs, personal representatives,
successors and assigns. It is hereby covenanted and agreed that should Lessor's
interest in the leased premises cease to exist for any reason during the term of
this Lease, then notwithstanding the happening of such event this Lease
nevertheless shall remain unimpaired and in full force and effect and Lessee
hereunder agrees to attorn to the then owner of the leased premises.
29. RENT TAX: If applicable in the jurisdiction where the leased premises are
situated, Lessee shall pay and be liable for all rental, sales and use taxes or
other similar taxes, if any, levies or imposed by any city, state, county or
other governmental body having authority, such payments to be in addition to all
other payments required to be paid to Lessor by Lessee under the terms of this
Lease. Any such payment shall be paid concurrently with the payment of the rent
upon which the tax is based as set forth above.
30. DEFINITIONS: The following definitions apply to the terms set forth below as
used in this Lease:
(a) An "act of God" or "force majeure" is defined for purposes of this
Lease as strikes, lockouts, sit-downs, material or labor restrictions by any
governmental authority, unusual transportation delays, riots, floods, washouts,
explosions, earthquakes, fire, storms, weather (including wet grounds or
inclement weather which prevents construction), acts of the public enemy, wars,
insurrections and any other cause not reasonably within the control of Lessor
and which by the exercise of due diligence Lessor is unable, wholly or in part,
to prevent or overcome.
(b) The "commencement date" shall be the date set forth in paragraph 2.
The "commencement date" shall constitute the commencement of this Lease for all
purposes, whether or not Lessee has actually taken possession.
(c) "Real property tax" means all school, city, state and county taxes
and assessments including special district taxes or assessments.
11
<PAGE> 29
(d) "Square feet" or "square foot" as used in this Lease includes the
area contained within the space occupied by Lessee.
(e) "Pro rata share" shall be ________% which represents the ratio of
the Demised Premises (_______ square feet) to the total area of the Project
(_______ square feet).
31. MISCELLANEOUS: The captions appearing in this Lease are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent of such paragraph. If any provision of this Lease shall ever be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Lease, and such other provisions shall
continue in full force and effect.
32. NOTICE: (a) All rent and other payments required to be made by Lessee shall
be payable to Lessor at the address set forth below:
(b) All payments required to be made by Lessor to Lessee shall be
payable to Lessee at the address set forth below, or at any other address within
the United States as Lessee may specify from time to time by written notice.
(c) Any notice or document required or permitted to be delivered by
this Lease shall be deemed to be delivered (whether or not actually received)
when deposited in the United States Mail, postage prepaid, certified mail,
return receipt requested, addressed to the parties at the respective addresses
set out below:
LESSOR: LESSEE: (Legal Address)
Parker Equities, Inc. ----------------------------------
a Texas Corporation ----------------------------------
300 Crescent Court, #855 ----------------------------------
Dallas, Texas 75201 ----------------------------------
33. ENTIRE AGREEMENT AND LIMITATION OF WARRANTS: IT IS EXPRESSLY AGREED BY
LESSEE, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS
LEASE, WITH SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE
AGREEMENT OF THE PARTIES: THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATION,
WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO
THIS LEASE OF THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT
INCORPORATED IN WRITING IN THIS LEASE. LESSOR AND LESSEE EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE
AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN
THIS LEASE. IT IS LIKEWISE AGREED THAT THIS LEASE MAY NOT BE ALTERED, WAIVED,
AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY BOTH LESSOR AND
LESSEE.
34. OTHER PROVISIONS:
(a) Warehouse Buildings Rules and Regulations Exhibit "A"
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<PAGE> 30
SIGNED AT , this day of , 19 .
----------------- ------ ------- ---
LESSOR: LESSEE:
Parker Equities, Inc.
----------------------------
- ------------------------------ ----------------------------
BY: Jeff P. Howle BY:
----------------------------
(TYPE NAME AND TITLE)
AGENT FOR LESSOR:
----------------------------
----------------------------
BY:
13
<PAGE> 31
WAREHOUSE BUILDINGS
RULES AND REGULATIONS
EXHIBIT "A"
1. Lessor agrees to furnish Lessee two keys for each lock existing upon the
entrance doors when Tenant assumes possession without charge.
Additional keys will be furnished at a nominal charge.
2. Lessee will refer all contractors, contractor's representatives and
installation technicians, rendering any service on or to the leased premises for
Lessee, to Lessor for Lessor's approval and supervision before performance of
any contractual service. This provision shall apply to all work performed on or
about the leased premises or project, including installation of telephones,
telegraph equipment, electrical devices and attachments and installations of any
nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment of
any other physical portion of the leased premises or project.
3. Lessee shall not at any time occupy any part of the leased premises or
project as sleeping or lodging quarters.
4. Lessee shall not place, install or operate on the leased premises or in any
part of Building, stove or cook for commercial purposes thereon or therein, or
place or use in or about the leased premises any explosives, gasoline, kerosene,
oil, acids, caustics, or any flammable, explosive or hazardous material without
written consent of Lessor.
5. Lessor will not be responsible for lost or stolen personal property,
equipment, money or jewelry from the leased premises or the project regardless
of whether such loss occurs when area is locked against entry or not.
6. No dogs, cats, fowl or other animals shall be brought into or kept in or
about the leased premises or project.
7. Employees of Lessor shall not receive or carry messages for or to any Lessee
or other person, nor contract with or render free or paid services to any Lessee
or Lessee's agents, employees or invitees.
8. None of the parking, recreation or lawn areas, entries, passages, doors shall
be blocked or obstructed, or any rubbish, litter, trash, or material of any
nature placed, emptied or thrown into these areas or such area be used by
Lessee's agents, employees or invitees at any time for purposes inconsistent
with their designation by Lessor.
9. The water closets and other water fixtures shall not be used for any purpose
other than those for which they were constructed, and any damage resulting to
them from misuse, or by the defacing of injury of any part of the Building shall
be borne by the person who shall occasion it.
<PAGE> 32
10. Nothing shall be thrown out of the windows or doors of the Building.
11. Lessee shall not leave any vehicle in a state of disrepair (including,
without limitation, flat tires, out of date inspection stickers or license
plates) on the leased premises or project. If Lessee or its employees, agents or
invitees park their vehicles in areas other than the designated parking areas or
leave any vehicle in a state of disrepair, Lessor, after posting written notice
on the vehicle of such violation, Lessor shall have the right to remove such
vehicles at vehicle owner's expense.
12. Lessee shall not make penetrations or alterations to the roof, exterior
walls, or the foundation without express written consent from the Lessor. No
equipment, antenna of any kind may be installed on any portion of the roof or
exterior portion of the Building without express written consent from the
Lessor.
13. No temporary or permanent signs may be erected on or about the premises
without express written consent from the Lessor.
14. Canvassing, peddling, soliciting and distribution of hand bills or any other
written material in the Building or in the Building's parking areas are
prohibited, and each Lessee shall cooperate to prevent the same.
15. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building.
16. The alleyways and sidewalks of the building shall not be used by Lessee for
any purpose other than ingress to or egress from the demised premises.
17. Landlord reserves the right to make such other and reasonable Rules and
Regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the building, and for the preservation of good order
therein.
18. Lessor may waive any one or more of these Rules and Regulations for the
benefit of any particular Tenant or Tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other Lessee or Lessees nor prevent Lessor from thereafter enforcing any such
Rules and Regulations against any or all of the Lessees in the Building.
It is Lessor's desire to maintain in the Building the highest standard of
dignity and good taste consistent with comfort and convenience for Lessees.
Any action or condition not meeting this high standard should be reported
directly to Lessor. Your cooperation will be mutually beneficial and sincerely
appreciated. The Lessor reserves the right to make such other and further
reasonable Rules and Regulations as in its judgment may from time to time be
needful, for the safety, care and cleanliness of the leased premises, and for
the preservation of good order herein.
2
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT TO REAL ESTATE PURCHASE CONTRACT
THIS FIRST AMENDMENT TO REAL ESTATE PURCHASE CONTRACT (this
"Amendment"), is made this 9th day of August, 1999 (the "Effective Date"), by
and between Home Interiors & Gifts, inc., ("Seller"), and Parker Equities, Inc.
("Purchaser").
RECITALS
WHEREAS, on July 19, 1999, Purchaser and Seller entered into that
certain Real Estate Purchase Contract (the "Contract") relating to the purchase
and sale of seven office/warehouse buildings, as more particularly described
therein; and
WHEREAS, Purchaser and Seller now desire to enter into this Amendment
to amend the Contract.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser
hereby agree as follows:
1. Title/Survey Objection Date. Notwithstanding the provisions of
Sections 3.2 and 3.3 of the Contract, Purchaser's right to object to title and
survey matters is hereby extended until the fifth (5th) business day after
Purchaser receives the Survey (the last of all seven properties).
2. Modifications. Except as expressly herein modified, the Contract
shall remain in full force and effect in accordance with its terms. Except as
otherwise expressly provided herein, all capitalized terms used but not defined
herein shall have the same meaning as that attributed to such terms in the
Contract.
3. Effectiveness/Counterparts. This Amendment does not become effective
as an amendment to the Contract or otherwise until executed and delivered by
both Purchaser and Seller. This Amendment may be executed in counterparts, and
facsimile signatures shall be deemed originals for all intents and purposes.
[REMAINDER OF PAGE INTENTIONALLY DELETED]
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
PURCHASER:
PARKER EQUITIES, INC.
By: /s/ JEFF P. HOWLE
---------------------------------
Name: JEFF P. HOWLE
---------------------------------
Title: President
---------------------------------
SELLER:
HOME INTERIORS & GIFTS, INC.
By: /s/ BETTINA S. SIMON
---------------------------------
Name: BETTINA S. SIMON
---------------------------------
Title: Vice President, General Counsel
and Secretary
---------------------------------
2
<PAGE> 1
EXHIBIT 10.4
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made and entered
into as of July 19, 1999 (the "Effective Date"), by and between ARGENT
FRANKFORD, L.P., a Texas limited partnership ("Seller"), and HOME INTERIORS &
GIFTS, INC. a Texas corporation ("Buyer").
-------------------------
W I T N E S S E T H :
A. Seller is the owner of that certain approximately 29.62+ acre tract of land
located in Carrollton, Texas (the "Land"), more particularly described on
Exhibit "A" attached hereto and incorporated herein by reference for all
purposes, to be improved with a 659,340 square foot shell building (the
"Building") with defined interior improvements and associated helipad and
parking lot (collectively, as more particularly defined in Exhibit "C," the
"Seller's Improvements").
B. The Land is served by a nonexclusive easement (the "Rail Easement") for rail
siding service recorded in Volume 97182, Page 3373, Deed Records, Dallas County,
Texas, covering real property described on Exhibit "A-1."
C. The Land, the Seller's Improvements, the Rail Easement, and Seller's
interests in all easements, rights, and benefits appurtenant thereto, are
hereinafter collectively referred to as the "Property."
D. Buyer desires to purchase the Property and Seller desires to sell the
Property to Buyer on the terms and conditions set forth hereinafter.
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Sale of the Property. Seller agrees to bargain, sell, grant, convey and
deliver, and Buyer agrees to purchase and accept the Property, for the price and
on the terms and conditions set forth herein. In consideration of Seller's
agreements set forth in this Agreement, Buyer hereby delivers to Seller the sum
of One Hundred Dollars ($100.00) as independent consideration.
2. Earnest Money Deposit. Buyer shall, within three (3) business days after
mutual execution of this Agreement, deposit with Republic Title Company, Attn:
Mel Morgan, 300 Crescent Court, Suite 100, Dallas, Texas 75201 ("Title
Company"), an earnest money deposit in the amount of TWO HUNDRED FIFTY THOUSAND
AND NO/100 DOLLARS ($250,000.00) (the "First Deposit"). On or before July 31,
1999, Buyer shall deposit an additional TWO HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($250,000.00) (the "Second Deposit") with the Title Company. On or
before August 31, 1999, Buyer shall deposit an
<PAGE> 2
additional TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) with the
Title Company, which together with the First Deposit and Second Deposit shall be
referred to herein as the "Earnest Money." The aggregate Earnest Money shall
consist of $750,000 (or so much thereof as shall be deposited by Buyer from time
to time and retained in escrow by the Title Company), to be handled and
disbursed as provided in this Agreement.
The Earnest Money will be paid either by wire transfer, certified or
bank cashier's check or other mutually acceptable transfer of immediately
available funds to the Title Company. The Earnest Money shall be held in escrow
by the Title Company pursuant to the terms hereof. All sums comprising the
Earnest Money held by the Title Company shall be held in an interest-bearing
account at a federally insured depository institution. The Earnest Money, plus
interest accrued on the escrowed amount, shall be applied to the Purchase Price
at the Closing (as hereinafter defined) or otherwise in accordance with the term
and provisions of this Agreement.
In order to defray interest charges in connection with the Seller's
financing of construction costs, and provided Seller shall not be in default
under this Agreement, the Seller shall have the right to cause the disbursal of
$700,000 (the "Construction Security") from the Title Company to Seller's
construction lender for application to Seller's construction loan, for Seller's
account. Such disbursal shall be made within three (3) days after Seller shall
have notified Buyer and the Title Company that the aggregate costs incurred in
connection with Seller's design and construction of the Seller's Improvements
(as defined in Exhibit "C") shall exceed the sum of ONE MILLION FOUR HUNDRED
THOUSAND AND NO/100 DOLLARS ($1,400,000.00), provided that disbursal of the
Construction Security shall be made no earlier than ninety (90) days after the
Effective Date. Seller's notice shall be accompanied by the written confirmation
by Seller's construction lender in such form as Buyer may reasonably require
that the outstanding principal balance of the construction loan from which
Seller is funding the costs of the Seller's Improvements exceeds $1,400,000.00.
The balance of the Earnest Money deposit remaining after disbursal of the
Construction Security as provided herein shall be the Earnest Money thereafter.
3. Purchase Price. The purchase price for the Property shall be Nineteen
Million, Three Hundred Fifty Four Thousand, Nine Hundred and Seventy Four
Dollars ($19,354,974.00) (as adjusted pursuant to Exhibit "C," the "Purchase
Price") and shall be payable in cash at the Closing. The Purchase Price shall be
subject to adjustment in accordance with Exhibit "C" for the costs associated
with construction of the Seller's Improvement and for changes to the
construction budget for the Seller's Improvements approved in accordance with
Exhibit "C", and as otherwise expressly provided in this Agreement.
4. Survey and Title.
A. Delivery of Survey. Seller shall, at Seller's expense, deliver to Buyer
within twenty (20) days following the Effective Date a current or recertified
survey of the Land and Rail Easement (the "Survey") prepared by Halff
Associates, Inc. The Survey shall: (i) be certified to Buyer and to Title
Company in a manner reasonably approved by Buyer and the Title Company, (ii) be
dated after the Effective Date, (iii) be an on the ground survey and shall
include a legal description of the Land, (iv) show the projected location of the
planned Building, to the extent
2
<PAGE> 3
such location may be projected, based on the then current status of the Building
design process, (v) show the square feet in the Land, (vi) show the location of
the Rail Easement and all other easements and rights-of-way, setback lines,
encroachments and other matters affecting the Land and the Rail Easement,
including, without limitation, all exceptions affecting the surveyed property
listed in the Title Commitment, to the extent such exceptions are locatable by
survey and (vii) contain a certification as to the existence of any portion of
the Land within a flood prone zone as designated by applicable FEMA map. The
survey description of the Land shall supersede the description on Exhibit "A".
B. Delivery of Title Commitment. Seller shall, as soon as possible but not later
than twenty (20) days following the Effective Date, obtain and deliver to Buyer,
at Seller's sole cost and expense, a current standard form of commitment for
title insurance issued through the Title Company describing the Land and Rail
Easement, listing Buyer as the proposed insured, showing the Purchase Price as
the policy amount for the Property and dated after the Effective Date, together
with legible true and complete copies of all instruments referred to in the
Title Commitment as conditions or exceptions to title to the Property therein
described (collectively, the "Title Commitment").
C. Review of Title and Survey. Buyer shall have a period of ten (10) days (the
"Title Review Period"), after the receipt of the later of the Title Commitment
in which to notify Seller in writing of any objections Buyer has to any matters
shown or referred to in the Title Commitment, except for such exceptions as are
locatable by an on-the-ground survey, to which Buyer shall have the right to
state objections through a period of ten (10) days after receipt of the Survey
(the "Survey Review Period"). Any title encumbrances or exceptions which are set
forth in the Title Commitment or on the Survey (except for any title exceptions
that arise subsequent to the date of Title Commitment or Survey, as applicable),
and to which Buyer does not object within the Title Review Period or Survey
Review Period, as applicable, shall be deemed to be Permitted Exceptions (herein
so-called) to the status of Seller's title with respect to the Property.
D. Objections to Status of Title or Survey. In the event Buyer shall object to
the status of Seller's title or items disclosed by the Survey with respect to
the Property during the Title Review Period or Survey Review Period, as
applicable, Seller shall have five (5) days from receipt of Buyer's written
objections within which to (i) satisfy Buyer's objections, if Seller so elects
(provided Seller shall have no obligation to incur any cost or expense to cure
any title objections, other than liens affecting the Property or encumbrances
created in violation of this Agreement), or (ii) notify Buyer that Seller is
unable or unwilling to cure some or all of Buyer's objections, specifying
Seller's proposed cure and specifying those objections which Seller is unable or
unwilling to cure ("Seller's Notice"). As to those objections which Seller is
unable or unwilling to cure or to which the proposed cure is unacceptable to
Buyer, as specified in Seller's Notice, Buyer shall have five (5) days from
receipt of Seller's Notice to either (A) waive such uncured or such unacceptable
objections and purchase the Property as otherwise contemplated in this
Agreement, notwithstanding such objections, in which event the subject matter of
such waived objections shall become Permitted Exceptions, and Seller shall
convey the Property to Buyer by the Deed (as hereinafter defined), subject to
the Permitted Exceptions with no offset in the Purchase Price, or (B) terminate
this Agreement, which shall be a Permitted Termination (as hereinafter defined
in Section 14A). Those encumbrances and exceptions which Buyer shall
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approve, or be deemed to have approved, pursuant to the terms of this Section
shall be the "Permitted Exceptions."
E. Condition of Title. At the Closing, Seller shall convey good and indefeasible
fee simple title to the Land, the Seller's Improvements, and such other
improvements as are incorporated into the Property pursuant to Exhibit "C", and
nonexclusive easement rights in and to the Rail Easement, free and clear of all
liens, encumbrances, easements, restrictions, rights, conditions and exceptions
to title, except the Permitted Exceptions, to Buyer by special warranty deed and
other legal instruments and documents of conveyance.
5. Due Diligence Period. Commencing on the Effective Date, and continuing until
July 23, 1999 (the "Due Diligence Period"), Buyer shall have the right to review
both information collected by Buyer about the Property and engineering and/or
architectural materials relating to the Property which Seller is obligated to
make available under the terms of this Agreement, to inspect the Property as it
deems necessary to determine whether the Property is suitable for Buyer's needs,
and negotiate the form of the Buyer's lease. Buyer's investigation shall be of
such scope as Buyer shall determine. Seller shall in good faith cooperate with
Buyer in facilitating Buyer's investigation of the Property and shall provide
Buyer and its agents and consultants with access to the Property to determine
its present condition.
A. During the Due Diligence Period, Seller agrees to make available to Buyer at
Seller's office, on Buyer's request, the engineering and/or architectural
materials in Seller's possession relating to the Property, and the plans and
specifications for the Seller's Improvements. Materials to be provided by Seller
were prepared by third parties and are provided with no warranty by Seller of
any kind, express or implied. Seller advises Buyer that in evaluating the
Property, Buyer should perform due diligence through independent contractors
engaged directly by Buyer, on whose assessments Buyer shall rely in evaluating
whether the Property is acceptable to Buyer for Buyer's intended use. Buyer
hereby acknowledges that it will not rely on any document, evaluation,
assessment, report, or other materials furnished by or through Seller, nor on
any statement made by Seller or Seller's agents, concerning the Property, except
to the extent that Seller makes an express warranty in this Agreement.
B. The obligations of Buyer pursuant to this Agreement including, without
limitation, any obligation of Buyer to purchase the Property, are expressly
conditioned upon Buyer's satisfaction with the results of all review and
inspections made by Buyer pursuant to this Section 5. If Buyer determines, in
its sole discretion, during the Due Diligence Period that the Property is
unsuitable for its purposes, then Buyer shall have the right to terminate this
Agreement by delivery of written notice to Seller at its address set forth
herein on or prior to the expiration of the Due Diligence Period; any such
termination shall be a Permitted Termination (as hereinafter defined in Section
14A), except that Seller shall be entitled to disbursal of a sum representing a
fifty percent (50%) share of Seller's costs incurred (whether such costs are
funded by Seller out-of-pocket or through Seller's construction loan) through
the Due Diligence Period, up to but not exceeding Two Hundred Fifty Thousand
Dollars ($250,000.00), subject to the terms of subparagraph 5C, below. If Buyer
fails to deliver such written notice to Seller on or prior to the expiration of
the Due Diligence Period, Buyer shall be deemed to have waived its right to
terminate this Agreement under this Section 5; provided, however, such waiver
shall not extend
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to or otherwise affect any other right granted to Buyer under this Agreement to
terminate this Agreement.
C. In the event that Buyer shall terminate the Agreement as provided in
subparagraph 5B, Seller shall prepare an accounting of Seller's costs invested
in the design, site work, and construction activities of Seller related to this
Agreement and submit such accounting to Buyer, which shall have a period of ten
(10) days to review such accounting and approve or disapprove it. If Buyer shall
approve the accounting, Buyer shall notify Seller and the Title Company and the
Title Company shall promptly disburse the Earnest Money in accordance with the
approved accounting, subject to the terms of Section 5B. If Buyer fails to
notify Seller within ten (10) days of Seller's notice, Buyer shall be deemed to
have approved Seller's accounting. If Buyer shall disapprove Buyer's accounting
within the ten (10) day review period, and the parties are unable to agree
within ten (10) day period immediately following Buyer's notice of disapproval,
then either party shall have the right to submit the dispute concerning the
Earnest Money to mediation and arbitration in accordance with the terms of
Exhibit "C."
D. Any entry made on the Property by Buyer or its representatives shall be upon
reasonable notice to Seller and at reasonable times and at the sole risk of
Buyer. Buyer hereby indemnifies and exonerates Seller from all losses, claims,
liabilities, actions, demands, costs and expenses, including reasonable
attorneys' fees and expenses, relating to physical damage to persons or property
caused by Buyer's inspection of the Property including any entry upon the
Property by agents or contractors of Buyer or their subagents or subcontractors.
Buyer shall pay for all such work and inspections performed on or in connection
with the Property and shall not permit the creation of any lien in favor of any
contractor, materialman, mechanic, surveyor, architect or laborer engaged by
Buyer. Buyer's obligations under this Section shall survive the Closing or the
termination of this Agreement.
6. Closing. The consummation of the transactions contemplated by this Agreement
with respect to the Property (the "Closing") shall take place in the offices of
the Title Company or such other place as is mutually agreeable to Buyer and
Seller. The Closing shall occur ten (10) days after Substantial Completion of
the Seller's Improvements (as defined in Exhibit "C"), or on the first business
day after such period, if such period expires on a day other than a business
day, but in no event earlier than December 20, 1999 (the "Closing Date"). If
Substantial Completion is delayed because of any Buyer's Delay (as defined in
Exhibit "C") or Buyer's failure to comply with time periods or deadlines
established under Exhibit "C" of this Agreement, then the Closing shall be
extended, but the Purchase Price shall be increased at the per diem rate equal
to the lease rent payable on a per diem basis under the lease as provided in
Section 16, below.
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A. Delivery of Closing Documents.
(1) Seller's Deliveries at Closing. At the Closing, Seller
shall deliver to Buyer: (a) a special warranty deed (the "Deed") in the
form attached hereto as Exhibit "B", incorporating the Joint Access
Agreement described in Section 18 of this Agreement and conveying
nonexclusive easement rights in the Rail Easement appurtenant to the
Land; (b) a nonforeign status affidavit executed by Seller; (c)
evidence satisfactory to Title Company of the authority of Seller or
anyone executing documents on behalf of Seller to consummate the
transactions contemplated herein; (d) a closing statement duly executed
by Seller setting forth the prorations and adjustments required herein;
(e) an assignment of warranties and guaranties (without recourse to or
warranty by Seller) for the Seller's Improvements issued by contractors
and/or suppliers employed by Seller in construction of the Seller's
Improvements (it being acknowledged that Buyer has not relied on, and
will not rely on, any representation, warranty, or covenant of Seller
pertaining to the Seller's Improvements in purchasing the Property,
other than those expressly provided in Section 7 herein or Section 3 of
Exhibit "C"), to the extent and in the manner provided in Exhibit "C,"
(f) releases of mechanics and materialmen's liens for construction work
performed in connection with Seller's Improvements, based upon the
General Contractor's identification of subcontractors and materials
suppliers performing labor, or supplying materials, or a bond in form
satisfactory to the Title Company to indemnify the Buyer against any
mechanics' or materialmen's liens which are subject to dispute at the
time of Closing; and (g) such other documents as may be reasonably
requested by the Title Company or the Buyer to effectuate the
transaction contemplated by this Agreement.
(2) Buyer's Deliveries at Closing. At the Closing, Buyer shall
deliver to Seller: (a) the Purchase Price in immediately available
funds, with a credit for the Construction Security previously applied
as contemplated in Section 2 and the Earnest Money, if Buyer shall
elect to apply the Earnest Money to the Purchase Price; (b) evidence
satisfactory to the Title Company of the authority of Buyer or anyone
executing documents on behalf of Buyer to consummate the transactions
contemplated herein; (c) the closing statement; and (d) such other
documents as may be reasonably requested by the Title Company or the
Seller to effectuate the transaction contemplated by this Agreement. At
the Closing, the Title Company shall deliver the Earnest Money plus
accrued interest thereon to Seller to be applied to the Purchase Price.
B. Deliveries After Closing. Upon satisfaction of all of the conditions to the
Closing and the recording of all documents to be recorded by the Title Company
as provided herein, the following actions shall be taken, all of which will be
deemed taken simultaneously at the Closing, no one of which will be deemed
completed until all have been completed:
(1) Any excess funds deposited by Buyer with the Title Company
(after payment of all of Buyer's Closing Expenses (as defined below) as
contemplated herein) shall be returned to Buyer at its address set
forth herein.
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(2) All other funds with the Title Company to which Seller is
entitled hereunder (after payment of all of Seller's Closing Expenses
(as hereinafter defined)) shall be paid to Seller.
(3) All documents and instruments to be recorded or delivered
by the Title Company shall be delivered to the party for whose benefit
such documents or instruments are made.
C. Title Policy. At the Closing, Seller shall cause the Title Company to issue a
TLTA Standard Form of Owner's Policy of Title Insurance (the "Title Policy"), or
cause the Title Commitment (as hereinafter defined) to be marked up to the
Closing Date, in the amount of the Purchase Price, insuring Buyer's fee title to
the Land and nonexclusive rights in the Rail Easement appurtenant to the Land,
subject only to nondelinquent property taxes, those matters shown as exceptions
to title in the Title Commitment to be delivered by the Title Company pursuant
to Section 4, and the Permitted Exceptions. The Permitted Exceptions shall
include the exception promulgated under Procedural Rule 8(a)(1) of the Texas
Title Insurance Manual (to the extent that Buyer shall elect to insure the value
of immediately contemplated post-Closing improvements to the Property), provided
that Seller shall furnish to the Title Company such instruments as the Title
Company may reasonably require in order to provide express title insurance
coverage to the Buyer pursuant to Procedural Rule 39 against loss arising from
foreclosure of mechanics' or materialmen's lien claims asserted for the costs of
constructing the Seller's Improvements (as defined in Exhibit "C"). The cost of
the Title Policy shall be borne as hereafter provided.
D. Prorations. Ad valorem taxes shall be prorated as of the Closing Date based
upon the actual number of days in the billing period for such expense items. If
the actual tax bill is not available, Seller and Buyer agree to prorate using ad
valorem taxes based upon actual taxes for the preceding year. In the event the
actual taxes differ from such estimate, Seller and Buyer agree to adjust the
proration. Any adjustment payment shall be made within fifteen (15) days after
notification by either party that such adjustment is necessary. Seller shall, on
or before the Closing Date, furnish to Buyer and the Title Company all
information necessary to compute the prorations provided for in this Section 6D.
The obligations of the parties under this Section 6D shall survive the Closing.
E. Closing Expenses and Costs.
(1) Seller's Costs. Seller shall pay the following
(collectively, "Seller's Closing Expenses"): (A) All amounts and fees
required to release all liens on the Property; (B) The cost of the
basic premium for the Title Policy with coverage of Nineteen Million,
Three Hundred Fifty Four Thousand, Nine Hundred and Seventy Four
Dollars ($19,354,974.00) (with the premium for any coverage in excess
of such amount paid by Buyer), (C) All costs of the Survey; (D)
One-half (1/2) of all escrow charges of the Title Company, except those
associated with the exchange contemplated in Section 15 herein; and (E)
Seller's share of the prorations set forth herein.
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(2) Buyer's Costs. Buyer shall pay the following
(collectively, "Buyer's Closing Expenses"): (A) All costs of any
modifications of or endorsements to the Title Policy; (B) Buyer's share
of the prorations set forth herein; (C) The recording fees for the
Deed; (D) All escrow charges of the Title Company associated with the
exchange contemplated in Section 15 herein; and (E) One-half (1/2) of
all other escrow charges of the Title Company.
(3) Other Expenses. Except as otherwise provided herein, each
party hereto agrees to bear its own expenses, including but not limited
to, attorneys' and advisors' fees.
7. Representations and Warranties of Seller. Seller makes the following
representations and warranties as of the date hereof and as of the Closing:
A. Authority. This Agreement has been duly and validly authorized, executed and
delivered by Seller and no other action is requisite to the valid and binding
execution, delivery and performance of this Agreement by Seller, and no consents
of any third party are necessary to permit the consummation by Seller of the
transactions contemplated pursuant to this Agreement.
B. Litigation. There are no actions, suits or proceedings pending or, to
Seller's knowledge, threatened which affect the Property, or any pending or, to
Seller's knowledge, threatened proceedings in eminent domain which would result
in a taking of any portion of the Property.
C. Leases. There are no tenants or other parties in possession of any part of
the Land and Seller has entered into no leases, subleases or other agreements or
arrangements, whether written or oral, for the use or occupancy of all or any
portion of the Land.
D. Environmental. To Seller's knowledge or except as may be disclosed in any
engineering reports or assessments provided to Buyer, the Property does not
contain any material (the "Hazardous Materials") hazardous to human health which
is listed or described in and is subject to regulation under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act,
the Toxic Substances Control Act, the Safe Drinking Water Act, Safe Drinking
Water and Toxic Enforcement Act of 1986, or in the regulations promulgated
pursuant thereto, or in any other federal, state or local environmental law,
ordinance, rule or regulation (collectively, the "Environmental Laws").
E. Foreign Person. Seller is not a "foreign person" within the meaning of
Section 1445 et seq. of the Internal Revenue Code of 1986, as amended.
F. Bankruptcy. Seller has not (i) made a general assignment for the benefit of
creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition by Seller's creditors, (iii) suffered the
appointment of a receiver to take possession of all, or substantially all, of
Seller's assets, (iv) suffered the attachment or other judicial seizure of all,
or substantially all, of Seller's assets, (v) admitted in writing Seller's
inability to pay its debts as they come due, or (vi) made an offer of
settlement, extension, or composition to its creditors generally.
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G. Title. Seller has good and indefeasible title to the Property, and will
convey such title to Buyer on the Closing Date free and clear of all options,
rights, covenants, easements, liens and other rights in favor of third parties
except for the Permitted Exceptions. The Property is not subject to any
outstanding agreements of sale or any options, liens, or other rights of third
parties to acquire any interest therein, except as described in this Agreement,
and upon execution and delivery by Seller of the conveyancing documents required
to be executed by Seller hereunder, Buyer will be vested with good and
indefeasible title to the Property. Seller's delivery of the Deed, conveying the
Property to Buyer as provided in this Agreement, shall be deemed to fulfill the
foregoing representation for all purposes.
H. Insolvency Proceedings. Seller is not aware of any attachments, executions,
assignments for the benefit of creditors, or voluntary or involuntary bankruptcy
proceedings, or proceedings under any debtor relief laws, contemplated by or
pending or threatened against Seller or the Property.
I. Zoning. The Property is zoned with the City of Carrollton's zoning category
"Light Industrial-1" which will allow for the construction of the Seller's
Improvements.
J. Documents and Records. All documents and records delivered pursuant to this
Agreement will be true, correct and complete copies of the documents and records
required to be delivered except as disclosed and to the best of Seller's
knowledge.
K. Seller's Improvements. Seller hereby represents and warrants that the
Seller's Improvements shall be designed and constructed in conformance with
Americans With Disabilities Act of 1990, 42 USC ss.12101 et seq. and Texas
architectural barriers laws, Tex. Rev. Civ. Stat. Ann. Art. 9102 (West
Supp.1999), and regulations promulgated thereunder, and shall incorporate
monitoring and venting equipment and fixtures consistent with other buildings in
the Property's subdivision subject to the recorded covenants, conditions, and
restrictions applicable to the Property.
The representations and warranties of Seller in this Agreement shall survive the
Closing for a period of 365 days. Any claim based on breach of representation or
warranty shall be null and void if not filed within such 365 day period.
EXCEPT FOR THE SPECIAL WARRANTY OF TITLE TO BE CONTAINED IN SELLER'S
DEED AND THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT,
THE PROPERTY WILL BE CONVEYED AND TRANSFERRED TO BUYER "AS IS, WHERE IS AND WITH
ALL FAULTS" AND SELLER DOES NOT WARRANT OR MAKE ANY REPRESENTATION, EXPRESS OR
IMPLIED, AS TO ITS FITNESS FOR A PARTICULAR PURPOSE, MARKETABILITY, FOOTAGE,
PHYSICAL CONDITION, COMPLIANCE WITH SPECIFICATIONS, ABSENCE OF LATENT DEFECTS,
OR COMPLIANCE WITH LAWS AND REGULATIONS; OR THE FITNESS OF THE PROPERTY FOR
BUYER'S PLANNED USE. IF CLOSING SHALL OCCUR, EXCEPT FOR LIABILITY ARISING OUT OF
THE INACCURACY OF THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
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AGREEMENT, SELLER SHALL BE DEEMED TO BE AUTOMATICALLY RELEASED BY BUYER AND ITS
SUCCESSORS AND ASSIGNS OF AND FROM ALL LIABILITIES, OBLIGATIONS AND CLAIMS,
KNOWN OR UNKNOWN, THAT BUYER MAY HAVE AGAINST SELLER OR THAT ARISE IN THE FUTURE
BASED IN WHOLE OR IN PART UPON THE PRESENCE OF TOXIC OR HAZARDOUS SUBSTANCES OR
OTHER ENVIRONMENTAL CONTAMINATION ON OR WITHIN THE PROPERTY (INCLUDING, WITHOUT
LIMITATION, CLAIMS ASSERTED UNDER ENVIRONMENTAL LAWS). THE PROVISIONS OF THIS
PARAGRAPH SHALL SURVIVE THE CLOSING.
8. Covenants and Interim Responsibilities of Seller. Seller agrees that during
the period between the Effective Date and through the Closing Date, the Seller
covenants that it shall not commit any waste on the Property nor enter into any
agreement or instrument which would encumber the Property, which would bind
Buyer or the Property after Closing, without the prior written consent of Buyer.
Contractual relations contemplated pursuant to Exhibit "C" and actions necessary
in connection with the replatting of the Land are approved and authorized for
all purposes.
9. Representations and Warranties of Buyer. Buyer hereby makes the following
representations and warranties to Seller, all of which shall be true and correct
as of the date hereof and as of the Closing:
A. Authority. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and no other action is requisite to the valid and binding
execution, delivery and performance of this Agreement by Buyer, and no consents
of any third party are necessary to permit the consummation by Buyer of the
transactions contemplated pursuant to this Agreement.
B. Bankruptcy. Buyer has not (i) made a general assignment for the benefit of
creditors, (i) filed any voluntary petition in bankruptcy or suffered the filing
of any involuntary petition by Buyer's creditors, (iii) suffered the appointment
of a receiver to take possession of all or substantially all of Buyer's assets,
(iv) suffered the attachment or other judicial seizure of all, or substantially
all, of Buyer's assets, (v) admitted in writing Buyer's inability to pay its
debts as they come due, or (vi) made an offer of settlement, extension or
composition to its creditors generally.
10. Brokerage Commissions. By its execution of this Agreement, Seller agrees to
pay a brokerage fee equal to the sum of:
o $60,000 (six percent (6%) of the first $1,000,000 of
$17,782,000 out of the Purchase Price); plus
o $503,460 (three percent (3%) of $16,782,000)
(or such lesser balance as may result if the Purchase Price shall be reduced
below $17,782,000 as the result of a reduction in the scope of work for the
Seller's Improvements), if, as, and when Closing occurs, but not otherwise, to
be divided equally by Cushman & Wakefield of Texas, Inc. (Jack Fraker) and The
Staubach Company (Greg Burns and Tom McCarthy). Seller and Buyer
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warrant to each other that neither has dealt with or agreed to pay any broker or
brokerage company other than those identified in this Section 10 (the
"Brokers"), a fee in connection with the proposed purchase and sale of the
Property. In the event that any claims other than by the Brokers, for brokers,
agents, finders fees or commissions in connection with the negotiation,
execution or consummation of this Agreement, the party on whose alleged
statement, representation or agreement such claim or liability arises shall
indemnify, hold harmless and defend the other party from and against such claim,
including without limitation reasonable attorneys' fees and costs.
11. Possession. Seller shall deliver full possession of the Property to Buyer
upon the Closing.
12. Casualty Damage. In the event that any tangible portion of the Property
shall be damaged prior to Closing to the extent that the cost of restoring such
damaged portion shall exceed Eight Million Nine Hundred Thousand Dollars
($8,900,000.00) and in Buyer's commercially reasonable judgment, such damage
materially adversely affects Buyer's use for the Property, Buyer may, at its
option, (a) terminate this Agreement (which will be a Permitted Termination) by
notifying Seller and Title Company in writing within thirty (30) days after
Buyer first is advised of such proceedings by Seller in writing; or (b) elect to
consummate the transactions provided for herein. In the event Buyer is required
or elects to consummate the transactions provided for herein, the Seller shall
assign to Buyer the right to recover from Seller's casualty insurance policies
on account of such casualty damage, the Purchase Price shall be reduced by the
amount of (i) Seller's deductible under such policy applicable to the loss in
question and (ii) the amount to repair any casualty (or portion of casualty)
which is not covered by Seller's casualty insurance or for which Seller's
casualty insurance recovery is insufficient to make the repairs, and Seller
shall have no further duty or obligation with respect to the repair or
restoration of such casualty damage.
13. Condemnation. In the event that condemnation or eminent domain proceedings
are threatened or initiated prior to the Closing Date which would result in the
value of the Property being reduced by an amount greater than Three Million
Dollars ($3,000,000.00) and, in Buyer's judgment, adversely affects Buyer's use
for the Property, Buyer may, at its option (a) terminate this Agreement (which
will be a Permitted Termination) by notifying Seller and Title Company in
writing within thirty (30) days after Buyer first is advised of such
proceedings; or (b) elect to consummate the transactions provided for herein. In
the event Buyer elects to consummate the transactions provided for herein, the
Purchase Price shall not be reduced, and Buyer shall be entitled to participate
with Seller in all negotiations and dealings with the condemning authority in
respect of such matter; provided, however, that Buyer shall have the right to
finally approve any agreement with the condemning authority and Seller shall, at
the Closing, assign Buyer all of its right, title and interest in and to any
award or other benefits made or to be made in connection with such condemnation
or eminent domain proceeding.
14. Termination, Default and Remedies.
A. Permitted Termination. If this Agreement is terminated by either Seller or
Buyer pursuant to Section 4 or 5 of this Agreement (a "Permitted Termination"),
except for a
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termination by Seller because of the default of Buyer, the Earnest Money and
accrued interest shall be immediately disbursed to Buyer and Seller in
accordance with the terms of Section 5B, and this Agreement shall thereafter be
null and void (other than Buyer's cost reimbursement obligations under Section
5B). If this Agreement is terminated by Buyer pursuant to Section 12 (Casualty
Damage) or 13 (Condemnation) of this Agreement, Seller shall refund to Buyer the
Construction Security within thirty (30) days of Seller's recovery of insurance
loss proceeds (in the event of a casualty termination) or condemnation award (in
the event of a condemnation termination), and the Earnest Money and accrued
interest shall immediately disbursed to Buyer, and this Agreement shall
thereafter be null and void; provided, however, that the Seller's obligation to
refund Construction Security shall be subject to the consent of the mortgagee of
the Property, which Seller shall use its best good faith efforts to obtain. If
this Agreement is terminated by either Seller or Buyer as the result of the
default by the other party, the Earnest Money and accrued interest shall be
disbursed in accordance with the terms of this Section 14.
B. Default by Seller. If Seller commits a material default under this Agreement,
Buyer may, at Buyer's sole option, do either of the following: (a) terminate
this Agreement by written notice delivered to Seller at or prior to the Closing
(any such termination shall entitle Buyer to a refund of the Earnest Money and
accrued interest thereon and the Construction Security) and Seller shall be
liable to Buyer for Buyer's actual damages as a result thereof, or (b) enforce
specific performance of this Agreement against Seller.
C. Default by Buyer. If Buyer commits a material default under this Agreement,
Seller may, at Seller's sole option, (a) terminate this Agreement by written
notice delivered to Buyer at or prior to the Closing, and collect the Earnest
Money and accrued interest thereon as hereafter provided, or (b) enforce
specific performance of this Agreement against Buyer, or (c) sue Buyer for
actual damages occasioned by such default. If Buyer commits a material default
under this Agreement and fails to purchase the Property and Seller elects to
terminate this Agreement, Buyer and Seller agree that it would be impractical or
extremely difficult to fix Seller's actual damages and that the Earnest Money
paid by Buyer ("Liquidated Damages") and accrued interest thereon is a
reasonable estimate of Seller's actual damages in such event, and that in the
event of a breach by Buyer as described above, Title Company, upon instructions
to do so, shall disburse the Earnest Money and accrued interest thereon to
Seller, Seller shall be entitled to retain the Construction Security, and the
escrow created pursuant hereto shall be cancelled, in which event Seller and
Buyer shall be relieved from all liability hereunder.
15. Exchange. Seller shall cooperate as reasonably requested by Buyer in
connection with Buyer acquiring the Property pursuant to a tax-deferred exchange
qualifying under Section 1031 of the Internal Revenue Code utilizing an
affiliate of Title Company as a qualified intermediary and/or an escrow
arrangement reasonably approved by Seller, provided that Seller incurs no costs
and assumes no liabilities or obligations in connection therewith and that any
such action does not delay the Closing. Buyer shall immediately advise Seller
upon the sale of any of Buyer's existing facilities, and designate the Property
as the sole and exclusive trade property for the Exchange transaction in
accordance with Section 6 of this Agreement. Buyer also assumes responsibility
of filing necessary tax forms for the Exchange.
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16. Leasing Contingency. Seller acknowledges that Buyer desires to acquire the
Property through a nonsimultaneous tax-deferred exchange involving the
disposition of seven (7) properties (the "Exchange Tracts") currently owned and
operated by Buyer. Buyer agrees that within seven (7) days after the disposition
of Buyer's Exchange Tracts, or after the earliest date at which Buyer is
permitted to designate substitute properties pursuant to applicable laws, Buyer
shall identify the Property as the sole and exclusive substitute property to be
acquired by Buyer pursuant to Buyer's exchange transaction pursuant to Section
1031of the Internal Revenue Code (the "Code") and furnish Seller with a copy of
such designation.
In the event, and only in the event, that Buyer has not closed its
disposition of Thirteen Million Dollars ($13,000,000.00) in value of Exchange
Tracts which disposition must include its two (2) Spring Valley properties
(hereafter, the "Minimum Exchange") on or before thirty (30) days prior to the
projected Closing Date, based on Seller's estimated Substantial Completion Date,
notwithstanding Buyer's best good faith efforts to complete such disposition(s),
in lieu of the purchase of the Property pursuant to this Agreement, Buyer shall
have the right and option to lease the Building for a term of ten (10) years
from the date of the scheduled Closing, subject to the terms provided in the
lease attached as Exhibit "D;" provided, however, that the lease shall be
subject to the following terms and conditions in addition to those set forth in
Exhibit "D:"
A. Base Rent (as that term is defined in Exhibit "D") under the lease shall be
calculated as follows:
(1) The Base Rent rate in the first five years of the lease
term shall the Recapitalized Rent (as defined in Section 2.g. of
Exhibit "C" hereto); plus
(2) The Base Rent rate in the second five years of the lease
term shall be increased by 12 1/2% (i.e., the product of 1.125 times
the Recapitalized Rent (as defined in Section 2.g. of Exhibit "C"
hereto).
(3) The Base Rent rate from and after July 1, 2001 shall be
adjusted to reflect the inclusion of Financing Costs (hereafter
defined) in the Purchase Price to be recapitalized in the manner
provided in Section 2.g. of Exhibit "C" hereto.
B. The lease shall be executed by Seller and Buyer on or before thirty (30) days
in advance of the scheduled Closing Date, and the ten (10) year lease term shall
commence ten (10) days following the Substantial Completion Date (subject to the
condition that Buyer's Minimum Exchange shall not be consummated as of such
effective date).
C. As a precondition to Buyer's lease, Buyer shall be obligated to reimburse
Seller, and shall reimburse Seller within ten (10) days following the
Substantial Completion Date for the actual construction costs for the portion of
Seller's Improvements indicated as "Buyer Elections" on Exhibit "C-1" of this
Agreement, plus costs associated with the construction of Buyer Elections, equal
to $1,572,974.00. (Buyer Elections are indicated in the shaded areas of Exhibit
"C-1" attached.) The Earnest Money, together with all interest accrued thereon,
shall be disbursed by the Title Company and applied to payment of the sum due
from Buyer hereunder.
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<PAGE> 14
D. Seller shall grant to Buyer the right to purchase the Property (the "Option")
under Buyer's lease. Buyer shall use its best good faith efforts to consummate
the Minimum Exchange on or before July 1, 2001, keep Seller informed on a
regular basis of the status of such transaction, and notify Seller if the
Minimum Exchange shall be completed. It is the intention of the parties that if
the Minimum Exchange is consummated, the Buyer shall complete its tax-deferred
exchange through the Buyer's purchase of the Property, or alternatively, the
Buyer may elect to purchase the Property without disposing of the Exchange
Tracts. If Buyer shall consummate the Minimum Exchange on or before July 1,
2001, Seller agrees to sell and Buyer agrees to purchase the Property in
accordance with the terms of this Agreement thirty (30) days after the Minimum
Exchange is consummated (or on the first business day following such period, if
it expires on a day which is not a business day).
Alternatively, if Buyer shall exercise the Option, Seller agrees to
sell and Buyer agrees to purchase the Property subject to the following terms
and conditions, which shall be incorporated into Buyer's lease:
(1) The purchase price (the "Option Price") for the Property
under the Option shall be the greater of: (i) the Purchase Price set
forth in Section 3 of the Agreement, and (ii) the fair market value
(the "Market Value") of the Property (giving effect to the costs of
constructing Buyer Elections), determined in accordance with
subparagraph 3, below.
(2) Buyer shall have the right to exercise the Option by
written notice (the "Option Notice") to Seller at any time through 5:00
p.m., Dallas, Texas time, April 1, 2001. Buyer's notice of exercise
shall specify Buyer's opinion of Market Value and a closing date a
minimum of forty five (45) days following the date of Buyer's notice.
Closing shall occur no later than July 1, 2001. If Buyer shall have
failed to exercise the Option on or before April 1, 2001, or, if
exercised, to have closed the purchase of the Option on or before July
1, 2001, for any reason (other than the failure or refusal of Seller to
deliver a deed to the Property or to comply with the terms of
subparagraph 3), the Option shall be null and void.
(3) During the thirty (30) day period following the Option
Notice, Seller and Buyer shall diligently negotiate the purchase price
of the Property in good faith, based on the Market Value proposed by
Buyer in the Option Notice and Seller's opinion of Market Value. If the
parties are unable to reach agreement with respect to the purchase
price within such period, the Market Value of the Property shall be
determined in accordance with the following procedure:
(a) Within ten (10) days after receipt of Buyer's
written notice of such an election, each party, by giving
written notice to the other party, shall appoint an appraiser
to render a written opinion of the Market Value. Each
appraiser must be a member of the Appraisal Institute of
America (MAI) for at least five years and with at least ten
years experience in the appraisal of industrial property
values in the area in which the Property is located. The two
appraisers shall render their written opinions of the Market
Value within twenty (20) days after the appointment of the
second appraiser. If the greater of the determined Market
Values is within 105%
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<PAGE> 15
of the lesser of such Market Values, then the average of the
two appraisals of Market Value shall be utilized as the Market
Value and shall be binding on the parties. If one party does
not appoint its appraiser as provided above, then the one
appointed shall determine the Market Value. The Market Value
so determined under this subparagraph shall be binding on
Seller and Buyer.
(b) If the greater of the determined Market Values is
more than one hundred five percent (105%) of the lesser of
such Market Values, then the two appraisers shall pick a third
appraiser within ten (10) days after the two appraisers have
rendered their opinions of Market Value as provided above. If
the two appraisers are unable to agree on the third appraiser
within said ten (10) day period, Seller and Buyer shall
mutually agree on a third appraiser within ten (10) days
thereafter. The third appraiser shall be a person who has not
previously acted in any capacity for either Seller or Buyer
and must meet the qualifications stated above.
(c) Within twenty (20) days after his appointment,
the third appraiser shall render its written opinion of the
Market Value ("Third Opinion"). The appraisal of Market Value
made by Seller's or Buyer's appraiser that is closest to the
Market Value specified in the Third Opinion shall be the
Market Value. If the Market Value set forth in the Third
Opinion is equidistant from the Market Values determined by
Seller's and Buyer's appraisers, then the Market Value
contained in the Third Opinion shall be the Market Value. The
Market Value so determined under this subparagraph shall be
binding on Seller and Buyer.
(d) Each party shall bear the cost of its own
appraiser and one-half (1/2) the cost of the third appraiser.
(e) In the event that the procedures for
determination of the Market Value shall result in a
determination of the purchase price occurring later than five
(5) business days prior to the closing proposed in the Option
Notice, the closing shall be extended to the fifth (5th)
business day following the date on which the Market Value
shall be determined.
(4) Within thirty (30) days following the Option Notice,
Seller shall deliver to Buyer:
(a) A survey (the "Option Survey") of the Land and
Rail Easement conforming with the provisions of Section 4 of
this Contract, except that the survey shall be dated no
earlier than the date of the Option Notice and shall locate
all improvements constructed on the Property; and
(b) A Commitment for Title Insurance (the "Option
Title Work") for the Land and Rail Easement conforming with
the provisions of Section 4 of this Contract.
15
<PAGE> 16
Buyer shall have the right to review the Option Survey and Option Title
Work in accordance with the provisions of Section 4 of this Agreement,
provided that any item which was a Permitted Exception in connection
with Seller' initial review of the Survey and Title Commitment shall be
a Permitted Exception in connection with the Option.
(5) At the closing of the Option, Seller shall convey good and
indefeasible fee simple title to the Land, Seller's Improvements, and
such other improvements as are incorporated into the Property by Seller
in accordance with Exhibit "C", and nonexclusive easement rights in the
Rail Easement, free and clear of all liens, encumbrances, easements,
restrictions, rights, conditions and exceptions to title, except the
Permitted Exceptions, to Buyer by special warranty deed and other legal
instruments and documents of conveyance.
(6) Closing shall occur in accordance with the terms of
Section 6 of this Agreement on the date provided in the Option Notice,
subject to the following terms:
(a) The terms, provisions and conditions pertaining
to the consummation of Buyer's tax deferred exchange in the
second grammatical paragraph of Section 6 shall not apply in
the closing of the Option transaction.
(b) The purchase price shall be the Option Price, and
Seller's obligation with respect to the Owner's Policy of
Title Insurance shall be to pay the cost of the basic premium
for the Title Policy in the amount of the Option Price. Buyer
shall be credited for reimbursements made under Section 16C.
(c) Buyer shall be obligated to reimburse Seller at
the closing of the Option for the following fees and expenses
(collectively, the "Financing Costs") which Seller incurs or
is obligated to reimburse to prospective lenders in connection
with any financing alternative for the period after July 1,
2001:
(i) If the Option Notice (hereafter defined) shall be
given on or after December 27, 2000, but prior to
March 27, 2001, reasonable preparatory costs,
including attorneys' fees, survey costs, appraisal
fees, and other costs related to preparation for
obtaining a permanent loan commitment on the Property
(but excluding standby or loan commitment fees, which
shall be subject to reimbursement only as provided in
subparagraph ii); plus
(ii) If the Option Notice (hereafter defined) shall
be given after March 27, 2001, but on or prior to
July 1, 2001, standby and/or loan commitment fees
payable to obtain assurance by the lender that the
Seller will have available to it permanent financing
on the Property, in the event the Buyer does not
exercise its option to purchase the Property.
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<PAGE> 17
(iii) It is expressly provided, however, that the
aggregate of out-of-pocket permanent loan-related
costs reimbursable by Buyer under subparagraphs (i)
and (ii) shall not exceed one percent (1%) of the
principal of the permanent loan sought by Seller.
Seller agrees to furnish Buyer with true and correct copies of
the invoices, statements, or other evidence of such
out-of-pocket costs incurred or assumed by Seller.
(d) Possession of the Property shall be delivered to
Buyer at the closing of the Option, subject to Buyer's
possessory rights under Buyer's lease (if any) and subject to
the Permitted Exceptions.
(7) The representations of Seller and Buyer in Sections 7 and
9 of the Agreement shall apply in connection with the Option.
(8) Real estate commissions payable in connection with the
Buyer's purchase of the Property pursuant to the Option shall be
payable in the amount and in accordance with the terms of Section 10 of
the Agreement.
(9) The provisions of Sections 12 (Casualty Damage), 13
(Condemnation), 14 (Termination, Default and Remedies)(other than the
provisions of Section 14 relating to termination of the Agreement
pursuant to Section 5, which shall not apply), 15 (Exchange), 17 (Force
Majeure), 18 (Shared Access Drive), and 19 (Miscellaneous) of the
Agreement shall apply in connection with the Option.
E. In the event that the Option expires without exercise or is otherwise
terminated, Buyer shall have a continuing right of first refusal to purchase the
Property at the price and on the terms offered to Seller by a third party,
pursuant to a bona fide offer to purchase in the form of a contract offer or
nonbinding letter of intent, submitted to Seller which Seller is prepared to
accept during the lease term. Seller shall provide Buyer with a copy of such
offer and Buyer shall be obligated to return the offer to Seller, signed by
Buyer, within five (5) business days after Seller's delivery, if Buyer intends
to exercise its right of first refusal. If Buyer fails to do so for any reason,
Buyer's right of first refusal shall terminate with respect to the sale to the
party extending the offer refused by Buyer, and Seller shall have the right
thereafter to sell the Property to such party free of any rights of Buyer to
purchase same. If Seller's proposed sale is not consummated with such party (or
affiliates controlled by, or under common control with, the original offeror),
Buyer's right of first refusal shall remain in effect with respect to future
sales proposed by Seller during the ten year term of the Buyer's lease. Buyer
agrees to furnish Seller with a written release of Buyer's right of first
refusal upon request, from and after expiration of such right in accordance with
its terms.
F. If such lease is executed by the parties, this Agreement shall terminate
automatically and the parties shall have no further duties or obligations to one
another hereunder, except as
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<PAGE> 18
expressly provided with respect to Buyer's cost reimbursement obligations set
forth in Section 16C of this Agreement.
17. Force Majeure. Deadlines, and periods of time in which actions are required
under this Agreement, shall be extended on a day-for-day basis for any period of
Force Majeure Delay, as defined in Exhibit "C." A party's obligation to pay
funds or deliver documents or instruments shall not be subject to extension by
reason of Force Majeure Delay.
18. Shared Access Drive. The parties contemplate that a single driveway to the
Land off Frankford Road in the northeastern corner of the Land, adjoining Site 8
of Frankford Trade Center, shall be shared with the adjoining landowner
(currently, Seller or Seller's Affiliate). The location of the proposed access
drive is shown on Exhibit "A" to this Agreement. A proposed form of joint access
agreement (herein so-called) providing for perpetual and nonexclusive
ingress-egress and joint maintenance responsibilities of the landowners to be
benefited by such shared access drive shall be included in the Deed to be
delivered at the Closing, the form of which shall be delivered for Buyer's
review and approval no later than ten (10) days in advance of the scheduled
Closing Date.
19. Miscellaneous.
A. Notices. All notices, demands, requests, consents, approvals or other
communications (the "Notices") required or permitted to be given by this
Agreement shall be in writing and shall be either personally delivered, or sent
via telecopy with receipt confirmation, or by Federal Express or other regularly
scheduled overnight courier or sent by United States mail, registered or
certified with return receipt requested, properly addressed and with full
postage prepaid. Said Notices shall be deemed received and effective on the
earlier of (i) the date actually received (which, in the case of telecopied
notice, shall be the date such telecopy is transmitted with confirmation of
receipt) or (ii) three (3) business days after being placed in the United States
Mail as aforesaid or (iii) one (1) business day after being sent by Federal
Express or other regularly scheduled overnight carrier.
Said Notices shall be sent to the parties hereto at the following
addresses, unless otherwise notified in writing:
TO SELLER: Argent Frankford, L.P.
5949 Sherry Lane, Suite 1000
Dallas, Texas 75225
Attn: C. E. Cornutt
Phone: (214) 361-6115
Facsimile: (214) 361-5032
with copy to: Charles C. Jordan, Esq.
Carrington, Coleman, Sloman & Blumenthal, L.L.P.
200 Crescent Court, Suite 1500
Dallas, Texas 75201
Phone: (214) 855-3021
Facsimile: (214) 758-3721
18
<PAGE> 19
TO BUYER: Home Interiors & Gifts, Inc.
4550 Spring Valley
Dallas, Texas 75244-3705
Attention: General Counsel
Phone: (972) 386-1084
Facsimile: (972) 386-1106
with copies to: Weil Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Att'n: Robert C. Feldman
Phone: (214) 746-7744
Facsimile: (214) 746-7777
The Staubach Company
15601 Dallas Parkway, Suite 400
Dallas, Texas 75002
Attn: Greg Burns
Phone: (972) 361-5207
Facsimile: (972) 361-5910
19
<PAGE> 20
TO TITLE COMPANY:
Republic Title Company
300 Crescent Court, Suite 100
Dallas, Texas 75201
Attn: Melvin Morgan
Phone: (214) 855-8823
Facsimile: (214) 855-8898
B. Attorneys' Fees. In the event that any party hereto brings an action or
proceeding for a declaration of the rights of the parties under this Agreement,
for injunctive relief, for an alleged breach or default of, or any other action
arising out of, this Agreement or the transactions contemplated hereby, the
prevailing party shall be entitled to reasonable attorneys' fees in addition to
any court costs incurred and in addition to any other damages or relief awarded.
This provision will survive the termination of this Agreement.
C. Entire Agreement, Amendment. This Agreement, together with all exhibits
hereto and documents referred to herein, if any, constitutes the entire
arrangements and understandings among the parties hereto. This Agreement may not
be amended, modified, changed or supplemented, nor may any obligations hereunder
be waived. except by a writing signed by the party to be charged or by its agent
duly authorized in writing or as otherwise permitted herein.
D. Severability. Whenever possible, each provision of this Agreement and every
related document shall be interpreted in such manner as to be valid under
applicable law; but, if any provision of any of the foregoing shall be invalid
or prohibited under said applicable law, such provisions shall be ineffective to
the extent of such invalidity or prohibition without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
E. Choice of Law. This Agreement and each and every related document is to be
governed by, and construed in accordance with, the laws of the State of Texas
applicable to contracts to be performed in that state.
F. Successors. Except as otherwise provided herein, the provisions and covenants
contained herein shall inure to the benefit of and be binding upon the heirs,
representatives, successors and permitted assigns of the parties hereof.
G. Assignment. Buyer may not assign its rights and obligations under this
Agreement without the prior written consent of Seller, which may be given, or
withheld, in Seller's sole discretion, provided that Seller's consent shall not
be required for an assignment (a) to an affiliated party controlled by, under
common control with, or controlling Buyer (where control shall be determined by
ownership of more than 50% of the common stock of the controlled entity); and
(b) to a qualified intermediary in connection with a tax-deferred exchange
referenced in Section 15. Except for an assignment of this Agreement to any
affiliated party controlled by, under common control with, or controlling Seller
(where control shall be determined by ownership of more than 50% of the
partnership interests of the controlled entity, and C.E. Cornutt shall act in a
controlling management capacity therein), Seller may not assign this
20
<PAGE> 21
Agreement without the prior written consent of Buyer, which consent may be given
or withheld in Buyer's sole discretion. No assignment by either party permitted
by this Section shall release that party's liability for performance hereunder.
H. Waiver. No claim of waiver, consent, or acquiescence with respect to any
provision of this Agreement shall be made against any party hereto except on the
basis of a written instrument executed by or on behalf of such party. However,
the party for whose unilateral benefit a condition is herein inserted shall have
the right to waive such condition.
I. Gender and Number. Whenever the context so requires herein, the neuter gender
shall include the masculine and feminine, and the singular number shall include
the plural.
J. Further Actions. Buyer and Seller agree to execute such additional documents,
and take such further actions, as may reasonably be required to carry out the
provisions and intent of this Agreement, and every agreement or document
relating hereto, or entered into in connection herewith.
K. Time of the Essence. Time is of the essence of each and every term, covenant
and provision hereof.
L. Business Day. The term "business day" as used herein shall mean a day in
which federally insured national banking associations located in the county in
which the Property is situated are not closed. If any date set forth in this
Agreement or the last date for the taking of any action hereunder shall fall on
a Saturday, Sunday or other day which is not a business day, then the last date
for taking such action shall be extended to the next succeeding business day.
M. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which taken together shall
constitute but one and the same instrument.
N. Exhibits. The following exhibits "A" through "D", inclusive, attached hereto
are incorporated herein by this reference for all purposes:
A .......................... Land
A-1 ........................ Rail Easement property description
B .......................... Special Warranty Deed
C .......................... Construction Agreement
C-1 ........................ Building Outline Design Specifications
D .......................... Lease Agreement
O. Confidentiality. Each party shall treat all information relating to the
Property and/or this Agreement as confidential and shall not permit its release
to other parties or make any public announcement or publicity releases without
the other party's prior written authorization.
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<PAGE> 22
EXECUTED as of the day and year first above set forth, which shall be
the Effective Date of this Agreement for all purposes.
SELLER:
ARGENT FRANKFORD, L.P.,
a Texas limited partnership
By: ARGENT FRANKFORD GP, LLC,
a Texas limited liability company
its General Partner
By: /s/ C. E. CORNUTT
--------------------------------
Name: C. E. Cornutt
Title: President
BUYER:
HOME INTERIORS & GIFTS, INC.
a Texas corporation
By: /s/ DONALD J. CARTER, JR.
--------------------------------
Name: Donald J. Carter, Jr.
Title: CEO
ACCEPTANCE BY TITLE COMPANY
Republic Title Company hereby acknowledges receipt of the foregoing
Purchase and Sale Agreement and agrees to accept, hold, and return the Earnest
Money and disburse any funds received thereunder in accordance with the
provisions of such Agreement.
REPUBLIC TITLE COMPANY
By: /s/ MELVIN MORGAN
--------------------------------
Name: Melvin Morgan
Title: Senior Vice President
Dated: July 19, 1999
22
<PAGE> 23
EXHIBIT "A"
LEGAL DESCRIPTION OF LAND
Being a tract of land situated along the south right-of-way line of the 1600
Block of West Frankford Road and also having frontage along the west
right-of-way line of Commodore Drive and specifically being the westernmost
approximate 29.62 + acres out of Block C, Lot 5R, of Frankford Trade Center, an
addition to the City of Carrollton, according to the map and plat thereof
recorded in Cabinet N, Page 360, Denton County Plat Records.
The Land shall be bounded by the lot line of the adjacent improved tract, known
as Block C, Lot 6 (except as shown on page 2 of this Exhibit "A" [for trailer
storage area]), by Commodore Drive, by Trade Center Drive, and by a boundary to
be determined based on the location of the Building as finally reflected by the
Drawings of Seller's Improvements. The boundaries of the Land shall be
approximately as set forth on Page 2 of this Exhibit "A."
<PAGE> 24
EXHIBIT "B"
SPECIAL WARRANTY DEED
THE STATE OF TEXAS }
} KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF DENTON }
THAT, ARGENT FRANKFORD, L.P., a Texas limited partnership ("Grantor"),
whose mailing address is 5949 Sherry Lane, Suite 1000, Dallas, Texas 75225, for
and in consideration of the sum of Ten and No/100ths Dollars ($10.00) cash and
other good and valuable consideration to it in hand paid by HOME INTERIORS &
GIFTS, INC., a Texas corporation ("Grantee"), whose mailing address is 4550
Spring Valley, Dallas, Texas 75244-3705, the receipt and sufficiency of which is
hereby acknowledged and confessed, has GRANTED, BARGAINED, SOLD and CONVEYED,
and by these presents does hereby GRANT, BARGAIN, SELL and CONVEY unto Grantee
all that certain tract piece or parcel of land described on Exhibit "I" attached
hereto and made a part hereof (the "Property"), together with all and singular,
all improvements thereon, and all the rights and appurtenances pertaining
thereto, including any right, title and interest of Grantor herein in and to
adjacent streets, alleys or rights-of-way.
This conveyance is expressly made subject to the exceptions to title
and/or other matters of record in Denton County, Texas, set forth on Exhibit
"II" hereto, to the extent the same affect the Property conveyed hereby.
Seller hereby reserves from the conveyance of the Property
ingress-egress easements over the portions of the Property more particularly
described on Exhibit "C" hereto, all in accordance with the terms of Exhibit "C"
to this Deed [TERMS OF JOINT ACCESS DRIVEWAY AGREEMENT].
TO HAVE AND TO HOLD the above described premises, together with all and
singular the rights, hereditaments, and appurtenances thereunto in any manner
belonging unto the said Grantee, Grantee's successors and assigns forever and
Grantor does hereby bind Grantor, Grantor's successors and assigns, to WARRANT
and FOREVER DEFEND, all and singular the same unto the said Grantee, Grantee's
successors and assigns, against every person whomsoever lawfully claiming or to
claim the same, or any part thereof, by, through or under Grantor but not
otherwise.
EXECUTED on this _____ day of ___________, ____.
<PAGE> 25
GRANTOR:
ARGENT FRANKFORD, L.P.,
a Texas limited partnership
By: Argent Frankford GP, LLC
Its general partner
By:
------------------------------
C. E. Cornutt, President
THE STATE OF TEXAS }
}
COUNTY OF DENTON }
This instrument was acknowledged before me on the _____ day of
____________, _____, by C. E. CORNUTT, President of ARGENT FRANKFORD GP, LLC,
general partner of ARGENT FRANKFORD, L.P., a Texas limited partnership, on
behalf of said partnership.
---------------------------------
Notary Public in and for the State
of Texas
(S E A L)
(Printed Name of Notary)
-------------------------
(Commission Expiration Date)
-------------------------
GRANTEE:
HOME INTERIORS & GIFTS, INC.,
a Texas corporation
By:
----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 26
THE STATE OF TEXAS }
}
COUNTY OF DENTON }
This instrument was acknowledged before me on the _____ day of
____________, ____, by _____________________, ______________ of Home Interiors &
Gifts, Inc., a Texas corporation.
----------------------------------
Notary Public in and for the State
of Texas
(S E A L)
(Printed Name of Notary)
-------------------------
(Commission Expiration Date)
-------------------------
<PAGE> 27
EXHIBIT "C"
CONSTRUCTION AGREEMENT
1. OUTLINE PLANS AND SPECIFICATIONS FOR SELLER'S IMPROVEMENTS. Attached
as Exhibit "C-1" are the outline design specifications (the "Outline Plans")
describing certain base building and site improvements to be constructed on the
Property by the Seller (the "Seller's Improvements") in accordance with the
column headed "Outline Specifications/Proposed Building #7." The specifications
are hereby approved by Buyer and Seller. Buyer and Seller agree that the
Seller's Improvements to be constructed on the Property are to be substantially
the same design and construction criteria as 2828 Trade Center Drive,
Carrollton, Texas (the "Model") except as noted in Exhibit "C-1" ("Outline
Specifications/Proposed Building #7") or as subsequently modified by the
approval of both Buyer and Seller in accordance with this Agreement. Office
interior improvements to the Building not set forth on Exhibit "C-1", and other
improvements which Buyer desires to have constructed on the Land, shall be
designed by Buyer in accordance with the terms of this Agreement. The Seller's
Improvements and Office Improvements (as defined in Section 4 of this Agreement)
are collectively referred to in this Agreement as the "Improvements." The
construction and site work required in connection with the Seller's Improvements
are collectively referred to in this Agreement as the "Project."
2. CONSTRUCTION DRAWINGS AND SPECIFICATIONS FOR SELLER'S IMPROVEMENTS.
a. Seller shall cause to be prepared at Seller's cost all detailed
plans and specifications for the Seller Improvements in accordance with the
Outline Plans, including, without limitation, architectural, structural, and
civil; site utilities; environmental monitoring and venting equipment and
fixtures; and electrical, plumbing, and mechanical drawings necessary to
construct the Seller's Improvements (the "Drawings"). The Drawings shall be
delivered to Buyer as soon as practicable after the execution of this Agreement
subject to Buyer providing Seller with approvals concerning the various elements
of the design criteria as hereinafter provided.
b. Grounds for Buyer's disapproval of submitted Drawings shall be
limited in scope to Buyer's good faith determination that such Drawings are at
material variance with the Outline Plans and with the Model (to the extent the
Outline Plans do not alter the Model design). Buyer and Seller contemplate that
Drawings shall be prepared and submitted by Seller in stages, and Buyer's
approval thereof shall be given in stages, with the result that portions of the
Drawings will have received Buyer's approval before all Drawings have been
completed. Buyer shall notify Seller if it determines that the submitted
Drawings materially vary from the Outline Plans or from the Model design (to the
extent the Outline Plans do not alter the Model design) within five (5) days
after Seller's submission thereof. Submitted Drawings shall be deemed to have
received Buyer's approval if they are not disapproved within five (5) days after
Buyer's receipt thereof.
<PAGE> 28
c. If Buyer disapproves the submitted Drawings on the grounds that such
Drawings materially vary from the Outline Plans or from the Model design (to the
extent the Outline Plans do not alter the Model design), Buyer shall in its
notice to Seller include the element(s) of the Drawing that it disapproves and
the reason for Buyer's determination that a material variance exists. Seller
shall within five (5) days after receipt of Buyer's notice of its disapproval or
proposed change in the Drawings to advise Buyer whether Seller concurs with
Buyer's determination and, if not, the grounds for Seller's determination. If
Seller concurs with Buyer's determination, Seller shall cause the Drawings to be
corrected in accordance with Buyer's determination and no adjustment of the
Purchase Price shall result. If Seller does not concur, the parties shall
diligently and in good faith attempt to resolve their difference of opinion, and
if they are unable to do so within five (5) business days after Seller notifies
Buyer of Seller's disagreement with Buyer's determination, either party shall
thereafter have the right to submit their dispute to mediation or arbitration in
accordance with the terms of this Agreement. Seller shall be deemed to have
concurred in Buyer's determination that the submitted Drawings materially vary
from the Outline Plans or from the Model design (to the extent the Outline Plans
do not alter the Model design) if Seller shall fail to notify Buyer of Seller's
position within five (5) days after receipt of Buyer's notice to Seller of its
determination.
d. Since it is agreed to be in the best interest of both Buyer and
Seller in order to expedite completion of construction, as portions of the
Drawings are approved representing construction documents for initial phases of
site work and construction, Buyer authorizes Seller to commence site work and
construction of the Project in accordance with the approved Drawings prior to
receiving final approval of the entire set of completed Drawings for the
Seller's Improvements. In the event that Buyer proposes an Optional Item
Election (hereafter defined) that affects a previously approved Drawing such
that completed work must be redesigned and/or reworked, Buyer understands and
agrees that Seller may not be able to suspend construction and/or incorporate
such disapproval or change without the additional cost of reworking the then
existing construction so affected, and such cost shall be added to the
construction cost.
e. In addition to assuring the conformance of submitted Drawings with
the Outline Plans and the Model design (to the extent the Outline Plans do not
alter the Model design), Buyer shall have the right during preparation and
review of the submitted Drawings, through 5:00 p.m., CDT, August 20, 1999, to
elect (the "Optional Item Election") to incorporate the "Optional Items"
scheduled on Exhibit "C-1," or any other change in Project scope which Seller,
in its discretion, elects to consider, into the Outline Plans and Drawings. The
Optional Item Election shall be made by written notice to Seller specifying
Buyer's election. Seller shall within five (5) days after receipt of Buyer's
notice of an Optional Item Election advise Buyer of the effect of such proposed
change in Project scope on construction costs and reduction and/or addition of
time to complete construction in accordance with the procedures for Optional
Item Statements described in subparagraph f. Buyer shall within five (5) days
following receipt of such notice notify Seller of its approval or disapproval of
such change(s), if any. If Buyer approves the change(s), Seller shall
incorporate the Optional Item Election into the Drawings, project schedule, and
construction cost, and corresponding changes shall be made to the Purchase
Price, Required Completion Date, and/or Fixturing Date, as more particularly
provided in subparagraph g., below. If Buyer disapproves, Buyer shall be deemed
to have withdrawn the Optional Item Election.
<PAGE> 29
f. Seller shall provide Buyer for its approval a statement of cost and
schedule impact (the "Optional Item Statement") to incorporate the Optional Item
Election into the Seller's Improvements. Such statements shall include:
i) a true and exact copy of the quotation received by Seller from the
General Contractor and its sub-contractor (if applicable) in order to
construct the requested change. Such quotation shall provide detail of
the various components of the Project affected by the change and the
corresponding cost of construction. The portion of the cost
attributable the General Contractor's profit and overhead shall be
limited to a maximum of six percent (6.0%) of its cost to construct
such change; plus,
ii) if applicable, the actual cost to design and incorporate the change
into the Drawings as such cost is received from the affected design
discipline(s) required; plus,
iii) if applicable, any added cost of interest payable by Seller
attributable to extension of the Closing Date in order to incorporate
the change, including an estimate of the added time necessary to
construct the Optional Item in question, or to principal funding of
additional construction costs; plus,
iv) a construction management fee equal to the total cost of i) and ii)
above times three and twenty five hundredths percent (3.25%).
The parties agree that in order to facilitate the calculation of item i) and ii)
adjustments and schedule impacts of requested changes to the Project, the
reasonable determination of the Project's General Contractor as to cost
differential and construction completion, as determined pursuant to the
provisions of the General Contract relating to change orders, shall be binding
on the parties (in the absence of fraud or collusion).
g. If Buyer shall confirm an Optional Item Election:
i) The Purchase Price shall be adjusted on a dollar-for-dollar basis on
account of any cost differential determined in accordance with
subparagraph f, provided Buyer shall have approved the statement of
additional costs and the change in the Drawings or Seller's
Improvements giving cause for such adjustment;
ii) Any change in the Purchase Price resulting from an Optional Item
Election shall be reflected in the annual base rent payable under any
lease of the Building entered into by Buyer and Seller by multiplying
the revised Purchase Price, less a credit for amounts reimbursed to
Seller prior to commencement of the lease, by 10.5% (such revised base
rent being herein referred to as the "Recapitalized Rent");
iii) Any added time necessary to construct the Optional Item in
question shall be incorporated into the Project schedule and extend the
Required Completion Date and/or Fixturing Date (each of which
extensions is hereafter referred to as an "Extension"); and
<PAGE> 30
iv) Changes contemplated by the Optional Item Election shall be deemed
to be a part of the Seller's Improvements.
3. SELLER'S IMPROVEMENTS. Seller shall enter into a contract (the
"Construction Contract") with Bob Moore Construction, Inc. (the "General
Contractor") for the construction of Seller's Improvements. Seller shall at its
sole cost and expense and in a good and workmanlike manner administer and
coordinate the construction of Seller's Improvements pursuant to the terms of
this Construction Agreement, the Drawings, and all applicable building,
plumbing, electrical and fire codes, laws, ordinances, rules, and the terms and
provisions of any restrictive covenants or deed restrictions applicable to
Seller's Improvements (collectively, such legal standards administered and
enforced by public authorities being hereafter called the "Legal Requirements").
4. OFFICE IMPROVEMENTS.
a. The Buyer may choose to add office and other improvements to the
scope of the Project that are not included in Exhibit "C-1" (the "Office
Improvements"), provided that cost and schedule impacts resulting from such
change of scope are approved as provided in this Section 4. Seller and Buyer
shall cooperate in good faith at all stages of design and construction to
promote the efficient and expeditious design and construction of the Office
Improvements in accordance with the Drawings for the Office Improvements and the
terms of this Agreement. The Office Improvements shall be performed at Buyer's
cost, payable in accordance with the terms of the construction contract
therefor. Seller and Buyer have discussed the possibility of Seller managing the
construction of the Office Improvements in addition to the Seller's
Improvements, but Buyer has not determined as of the date of this Agreement to
engage Seller for that purpose. If Buyer shall engage Seller, Buyer and Seller
shall amend this agreement to provide for Seller's management of the
construction of the Office Improvements in substantial conformance with the
terms of this Agreement, based on project-specific design review, economics, and
scheduling agreements. If Buyer shall not engage Seller for construction of the
Office Improvements, Buyer's contractor shall be subject in all respects to the
terms of Section 8 of this Agreement relating to access to the premises prior to
completion of Seller's Improvements.
b. In order to incorporate the Office Improvements into the Seller's
Improvements, Buyer may at Buyer's cost utilize the services of Seller's Project
Architect (herein so-called) and mechanical and electrical engineer or may,
subject to Seller's reasonable approval, cause the plans for Office Improvements
to be prepared by another registered professional architect and mechanical and
electrical engineer. In the event Buyer selects another architect and/or
mechanical and electrical engineer, Buyer shall be responsible for the
reasonable actual cost (if any) of Seller's architect and mechanical and
electrical engineer to redraw the Drawings in order to conform them with the
Office Improvements (excluding, however, Office Improvement plan review costs),
such cost to be reimbursable to Seller within twenty (20) days of Buyer's
receipt of statements therefor. Buyer shall furnish detailed plans and
specifications of the Office Improvements (the "Buyer's Drawings") to Seller for
Seller's review as soon as reasonably possible following the date of this
Agreement. Seller shall within ten (10) business days after Buyer furnishes such
Buyer's Drawings provide Buyer with a statement identical in scope to an
Optional Item Statement describing the cost and schedule impact (if any) of the
Office
<PAGE> 31
Improvement Drawings on the construction of Seller's Improvements, to the extent
the Office Improvement Drawings are not in conformance with, or require material
alteration of, the Seller's Improvements. If Seller determines that there will
be no change in the scope of Seller's Improvements based on Buyer's Drawings,
Seller shall notify Buyer within ten (10) days of receipt of Buyer's Drawings.
If Seller fails to notify Buyer within such ten (10) day period, Seller shall be
deemed to have determined that the Office Improvements, as contemplated in
Buyer's Drawings, shall have no impact on Seller's Improvements. If Seller
notifies Buyer within such ten (10) day period with a statement of cost
adjustment or delay attributable to the impact of the Office Improvements on
Seller's Improvements, Buyer may either (i) approve the cost or schedule
adjustment, in which case the Buyer shall give notice thereof to Seller and the
terms of Section 2g of this Agreement shall apply with respect to corresponding
price and schedule adjustments, or (ii) disapprove of the cost or schedule
adjustment, in which event Buyer shall provide notice to Seller that describes
the reason(s) for such disapproval and requesting Seller to re-price the cost
based upon a change in Buyer's Drawings to be provided by Buyer with ten (10)
days or eliminate all or the portion of the Office Improvements necessitating
the cost or schedule adjustment from the scope of work proposed by Buyer for the
Office Improvements. The process described above shall be repeated again, if
necessary, until the Office Improvements have been approved or eliminated by
Buyer and Seller shall have approved the conformance of the Office Improvements
with Seller's Improvements.
5. COMPLETION VERIFICATION AND PUNCH LIST.
a. Seller shall notify Buyer on or before forty five (45) days prior to
the estimated Substantial Completion Date of the Seller's Improvements. Seller
shall reconfirm the Substantial Completion Date at least ten (10) days prior to
such date. When Seller shall determine that the Seller's Improvements are
Substantially Completed, Seller, Buyer, and any professionals retained by Buyer
to inspect the Project and the Project Architect, and General Contractor shall
meet at the premises within five (5) business days after Seller's notice to
conduct an on-site inspection of the Seller's Improvements, or portions thereof
which have been completed, and to prepare a punch list.
b. If there is no disagreement between the parties as to Substantial
Completion, then (i) Seller, Buyer, and the General Contractor shall sign the
punch list prepared by the Project Architect and Seller shall cause all such
punch list items to be completed within thirty (30) days thereafter and (ii) the
Project Architect shall sign the certificate of substantial completion as
provided in the industry standard AIA documents in accordance with the
Construction Contract and deliver a signed copy to all parties within five (5)
days after such inspection.
c. After the Substantial Completion Date the Project Architect shall
prepare and maintain a detailed written punch list of all completions,
corrections, and repairs to be made to the Seller's Improvements based on such
inspection and a copy of such punch list shall be delivered to Seller, Buyer and
the General Contractor. If any items which are not normal punch list items
require correction, repair or replacement, including, without limitation the
Correction Work (hereinafter defined), then the Seller Improvements shall not be
deemed Substantially Complete. After all such work which does not constitute
normal punch list items has been completed, then the parties shall meet again to
inspect the Seller's Improvements and prepare a final punch list.
<PAGE> 32
As used herein, the term "Correction Work" shall mean all replacement,
retrofitting, or other restorative or corrective work required in order to bring
any portion of the Seller's Improvements into substantial conformance with the
Drawings, the Construction Contract, or other standards applicable to such
improvements pursuant to this Agreement.
d. Buyer reserves the right to make a punch list in addition to the
Project Architect's punch list within ten (10) days after first occupancy which
shall be submitted to Seller and the General Contractor and Seller agrees to
cause General Contractor to repair or bring to completion the items required by
such punch list as soon as possible provided, however, Buyer shall pay for the
cost of repairing, correcting or replacing those items on Buyer's punch list
that were caused by Buyer and/or its contractors, representatives or invitees.
e. Subject to obtaining access to the Building for such purpose, Seller
shall complete the punch list items within thirty (30) days after execution of
the punch list (or, with respect to any punch list item not reasonably subject
to completion within such period, such longer period, not to exceed ninety (90)
days in any event) as completion reasonably requires, provided Seller shall
pursue completion with commercially reasonable diligence) and notify Buyer and
the Project Architect upon such completion. The Buyer and Project Architect
shall arrange for a joint inspection of the Building for the purpose of
determining whether punch list items are in fact complete. In the event Buyer
and the Project Architect shall approve Seller's completion of the punch list
items, the Seller's Improvements shall be deemed to be finally complete.
Seller's obligations to attain final completion shall be subject to Buyer Delays
and Force Majeure Delays.
f. After final completion of the Seller's Improvements and verification
as provided in this Agreement, Buyer agrees to execute a letter acknowledging
and accepting the Seller's Improvements as fully completed, subject to
applicable warranties under the Construction Contract(s), and Seller agrees to
assign to Buyer the rights (without assumption by Buyer of any obligations) in
and to the Construction Contract, subject to a reservation of rights to enforce
warranty rights to the extent required by this Construction Agreement.
6. CLOSING DATE.
a. The Closing Date shall be ten (10) days from the Substantial
Completion Date of Seller's Improvements. As used herein the term "Substantial
Completion Date" shall mean the date all of the following events ("Substantial
Completion") have occurred:
i) Seller obtains and delivers to Buyer a Certificate of Occupancy from
the City of Carrollton, Texas with respect to the Seller's Improvements
(or the portions of such improvements for which municipal inspections
and approvals are required by law);
ii) Access to the Project by vehicle from two dedicated public streets
onto the parking lot associated with the Building shall be available
without unreasonable restriction;
iii) The Project Architect shall have issued his certificate of
substantial completion for the Seller's Improvements pursuant to the
Construction Contract, or otherwise certified substantial completion of
Seller's Improvements by commercially reasonable means.
<PAGE> 33
b. Notwithstanding anything herein to the contrary, any one or more of
the following shall constitute "Buyer Delay" effecting a day-for-day extension
of the Required Completion Date and Fixturing Date (if applicable) and
subjecting Buyer to the penalties set forth in Section 6 of the Purchase and
Sale Agreement:
i) Buyer's request for change orders whether or not any such change
orders are actually performed, to the extent such change order requests
delay completion of the Seller's Improvements beyond the Required
Completion Date or readiness of the premises for fixturing purposes at
the Fixturing Date; or
ii) Change orders requested by Buyer, incorporation of which into the
Seller's Improvements would delay completion of the Seller's
Improvements beyond the Required Completion Date or readiness of the
premises for fixturing purposes at the Fixturing Date, to the extent
such Change Orders are actually performed (as reasonably determined by
the Project Architect); or
iii) Buyer's delay in reviewing, revising, producing, or approving
Drawings or other plans and specifications or construction documents
beyond the periods set forth in this Agreement; or
iv) Buyer's delay in providing information critical to the normal
progression of the Project. Buyer shall provide such information as
soon as reasonably possible, but in no event longer than three (3)
business days after receipt of such request for information from the
Seller; or
v) Buyer's failure to comply with any deadline specified in this
Agreement or Purchase and Sale Agreement to the extent such failure
causes a delay in completion of the Seller's Improvements beyond the
Required Completion Date or readiness of the premises for fixturing
purposes at the Fixturing Date, as determined in the Project
Architect's reasonable judgment; or
vi) Buyer's or Buyer's contractor's or agent's interference with the
progress of work at the site after gaining entry to the site, whether
such entry is made with or without Seller's permission pursuant to this
Agreement, in violation of the requirements of Section 8 of this
Construction Agreement; or
vii) Any other act or omission by Buyer, its agents, contractors or
persons employed by any of such persons to the extent such act or
omission causes a delay in completion of the Seller's Improvements
beyond the Required Completion Date or readiness of the premises for
fixturing purposes at the Fixturing Date, as determined in the Project
Architect's reasonable judgment.
As used herein, the term "Required Completion Date" is defined as set
forth in Section 7, below.
<PAGE> 34
No Buyer Delay shall be deemed to have occurred until Seller delivers
notice of the action or inaction which constitutes a Buyer Delay and Buyer fails
to cure such action or inaction within two (2) business days following delivery
of such notice. Such notice should be delivered to the following persons at the
following facsimile number(s), and shall be deemed to have been delivered if
sent by facsimile transmission with a regularly produced record of successful
transmission:
Home Interiors & Gifts, Inc.
4550 Spring Valley
Dallas, Texas 75244-3705
Attention: General Counsel
Phone: (972) 386-1084
Facsimile: (972) 386-1106
7. COMPLETION DEADLINE. Seller agrees that it will cause the
Substantial Completion of the Seller's Improvements on or before April 21, 2000,
subject to Buyer Delays, Force Majeure Delay, and Extensions (as extended, the
"Required Completion Date"). As used herein, the term "Force Majeure Delay"
shall mean a delay which is the result of a strike, fire or other casualty,
adverse weather conditions preventing progress of the work, to the extent such
conditions persist, in the aggregate, over a period exceeding twenty two (22)
"bad weather" days, governmental preemption of priorities or other controls in
connection with a national or other public emergency, inability to obtain
necessary materials by reason of unforeseeable materials shortages or
disruptions in logistics or distribution networks caused by Year 2000 computer
or network malfunctions, shortages of fuel, supplies or labor resulting
therefrom, the necessity for governmental approvals of plans and specifications
and/or inspections of the Improvements to the extent the aggregate periods for
such approvals and/or inspections extend beyond the period contemplated therefor
to complete the Project, or any other cause beyond Seller's reasonable control
which is characterized as a force majeure item in the Construction Contract.
In the event that any of the following conditions shall exist, and
Seller shall fail to cure such default within fifteen business days following
Buyer's written notice of default, Seller shall be deemed to have committed a
material breach of this Construction Agreement if:
a. The General Contractor (or any successor general contractor with
which Seller may contract to complete the Seller's Improvements) shall
persistently or repeatedly refuse or fail to supply enough properly skilled
workers or proper materials to maintain the construction schedule for the
Seller's Improvements for any reason other than Buyer Delay or Force Majeure
Delay;
b. The General Contractor (or any successor general contractor with
which Seller may contract to complete the Seller's Improvements) shall
persistently disregard laws, ordinances, or rules, regulations or orders of any
public authority having jurisdiction after notice of such disregard shall have
been provided by a public authority; or
c. Failure by Seller to cause construction of Seller's Improvements by
the General Contractor (or any successor general contractor with which Seller
may contract to complete the
<PAGE> 35
Seller's Improvements) to conform with the Drawings and the terms of this
Construction Agreement, where such failure shall be repetitive and willful,
negligent, or reckless on Seller's part.
Following Seller's failure to cure a material breach of this Construction
Agreement following Buyer's notice as required herein, Buyer shall have the
right to terminate this Construction Agreement and receive a refund of the
Earnest Money and Construction Security, the Purchase and Sale Agreement, and
pursue such remedies as may be available to Buyer at law or in equity.
8. ACCESS BY BUYER PRIOR TO CLOSING DATE.
a. Buyer and Buyer's construction representative shall have the right
to inspect and monitor the construction of the Seller's Improvements subject to
the terms of this Agreement. If after any such inspection, Buyer determines that
Correction Work is necessary, Buyer shall promptly notify Seller, specifying the
Correction Work. Seller shall investigate the identified Correction Work and
cause it to be remedied if Seller concurs with Buyer. If Seller disputes that
the Correction Work requires correction, Seller shall notify Buyer within ten
(10) days of receipt of Buyer's notice and if the parties are unable to resolve
their differences concerning the Correction Work within a period of fifteen (15)
days thereafter, either party shall thereafter have the right to submit the
dispute to mediation in accordance with the terms of this Agreement.
b. Seller shall permit Buyer and its agents to enter the Project when,
in the reasonable determination of the General Contractor, such entry shall not
impede the progress of the construction of the Improvements (or earlier upon
Seller's reasonable determination that such entry will not interfere with the
progress of Seller's Improvements) to commence construction of the Office
Improvements or install fixtures and equipment (collectively, "F&E"). Seller and
Seller's contractors and agents shall work in harmony with Buyer and its agents,
subject to the terms of this section 8 pertaining to Buyer's duties in
connection with construction entry. Notwithstanding the foregoing, Seller agrees
to permit Buyer access to the premises for F&E installation on or before sixty
(60) days in advance of the Substantial Completion Date projected by Seller (the
"Fixturing Date"), but no later than February 21, 2000 (as such date may be
extended by Force Majeure Delay, Buyer Delays, or Extensions). The interior of
the Building shall be sheltered from the elements from and after the Fixturing
Date. Buyer's contractors and agents shall be permitted to utilize the same
power system utilized by the General Contractor for construction period power,
at Buyer's cost, and to park their vehicles without charge in the same parking
areas as the General Contractor's subcontractors in the vicinity of the building
site.
c. Buyer's access to the premises shall be on a basis which creates the
most minimal disruption of the progress of construction of the Seller's
Improvements. Any such permission shall constitute a license only, conditioned
upon Buyer and Buyer's representatives, agents and consultants working in
harmony with Seller and Seller's agents, contractors, workmen, mechanics and
suppliers, obtaining in advance Seller's reasonable approval of the contractors
proposed to be used by Buyer, and furnishing Seller with such insurance as
Seller may reasonably require against liabilities which may arise out of such
entry. Seller shall have the right to withdraw such license upon twenty-four
(24) hours' written notice to Buyer if such entry unreasonably interferes with
Seller's construction of the Improvements. Seller shall not be liable
<PAGE> 36
in any way for any injury, loss or damage which may occur to any of Buyer's
property or installations in the Building or at the Property prior to the
Closing Date, and Seller agrees to cooperate with Buyer in securing Buyer
insurance of such risks through appropriate policies of insurance. Buyer shall
protect, defend, indemnify and save harmless Seller from all liabilities, costs,
damages, fees and expenses arising out of the activities of Buyer or its agents,
contractors, suppliers or workmen on the Project. Any entry and occupation
permitted under this Section shall be governed by Section 5 and all other terms
of the Purchase and Sale Agreement.
9. APPROVALS. Except as otherwise expressly provided herein, in any
instance where Seller's or Buyer's approval is required hereunder, if Seller or
Buyer fails to deliver written disapproval and specifics of such disapproval as
required and within the time period provided, then such party shall be deemed to
have given the required approval, provided that no approval shall ever be deemed
to have been given to any feature of plans and specifications which does not
conform with Legal Requirements.
10. ADDITIONAL CLOSE-OUT DOCUMENTATION. Notwithstanding anything to the
contrary contained in this Agreement, in addition to any other requirements set
forth herein, Seller shall deliver to Buyer all of the following as soon as
possible following final completion of the Seller's Improvements:
a. Assignments of the originals or copies of operation and maintenance
manuals received from the General Contractor for all building systems serving
the premises.
b. The originals or copies of the Construction Contract and
architectural contract provisions relating to design and construction of the
Seller's Improvements, and all guarantees and warranties obtained by Seller in
connection with the construction of the Office Improvements.
c. An assignment of as-built plans and specifications for the Seller's
Improvements (the cost of which shall be part of the cost of the Seller's
Improvements).
d. A list of the name, address and telephone number all contractors and
subcontractors that have supplied labor or furnished a major component of
materials or equipment to the premises on behalf of Seller.
11. CHANGES. If Buyer requests a change, alteration or addition, other
than Correction Work, after the Drawings for Seller's Improvements have been
approved, including, without limitation, a change in the appearance of the
Building materials specified by the Drawings, it shall submit the same in
writing to Seller. The General Contractor shall provide Buyer and Seller with an
estimate of the cost of such change and the additional time required to
implement the change and, upon receipt of same, Buyer shall have three (3)
business days to elect whether to proceed with such change and any extension of
construction time that may be required. If Buyer elects to proceed, the General
Contractor shall incorporate the change into the Final Plans by change order
procedures required under the Construction Contract. In such event, the approved
change order shall be treated as an approved Optional Item Election, and all of
the adjustments set forth in Section 2.g. of this Construction Agreement shall
be made accordingly. If Buyer
<PAGE> 37
elects not to make such change, then it shall immediately notify Seller and
construction shall proceed in accordance with the approved Drawings without
incorporation of such change.
12. RESOLUTION OF CONSTRUCTION-RELATED DISPUTES.
Disputes between the parties concerning the interpretation or
application of this Agreement or any matter relating to the subject matter of
this Agreement shall be submitted to mediation on an expedited basis following
demand by either party, unless the parties shall mutually agree otherwise, and
shall take place in Dallas, Texas, utilizing a mutually approved mediator, or,
if the parties are unable to reach agreement as to an acceptable mediator within
three (3) business days after a party's notice of submittal to mediation, then
utilizing a mediator appointed by the President of the Dallas Chapter of SIOR.
The parties shall use their best good faith efforts to cause the mediation to
occur no later than fifteen (15) business days after a party's demand for
mediation. Each party shall pay its own attorneys' fees and costs of the
mediator's services shall be paid in equal shares by the parties.
In the event that the parties are unable to resolve their disputes
through mediation within forty five (45) days after a party's initial demand for
mediation, such remaining disputes shall be submitted to binding arbitration
("Binding Arbitration") before a single arbitrator. The Binding Arbitration
shall be conducted under the rules for construction-related disputes of the
American Arbitration Association on an expedited basis, unless the parties shall
mutually agree otherwise, and shall take place in Dallas, Texas. The arbitrator
shall have the discretion to award attorneys' fees and arbitration costs to
either party based on facts in evidence, but in the absence of such an award,
each party shall pay its own attorneys' fees and arbitration costs shall be paid
in equal shares by the parties.
<PAGE> 38
EXHIBIT "C-1"
PURCHASE AND SALE AGREEMENT BETWEEN SELLER AND BUYER
<TABLE>
<CAPTION>
PROJECT MODEL OUTLINE SPECIFICATIONS OPTIONAL ITEMS
2828 TRADE CENTER DR. PROPOSED BUILDING #7 NOT NOW INCLUDED
FEATURE BUILDING #6 SELLER'S IMPROVEMENTS IN SELLER'S IMPROVEMENTS
--------------------------------- ------------------------------------ ----------------------------------
<S> <C> <C> <C>
1. PURCHASE Original quote $17,782,000
PRICE: + Buyer Elections $ 1,572,974
-----------
Total PP $19,354,974
All cash at Closing. Plus a
contingency amount to be
determined not to exceed
$75,000 that is equal to
the added cost of pumping
concrete and/or utilizing
lime stabilization to
construct the floor slab
and site paving.
--------------------------------- ------------------------------------ ----------------------------------
2. EARNEST Due at Signing $ 250,000
MONEY DEPOSIT: Sub Installments $ 500,000
---------
Total Deposit $ 750,000
Construction Sec $ 700,000
---------
Net Earnest Money $ 50,000
--------------------------------- ------------------------------------ ----------------------------------
3. TITLE Republic Title of Texas
COMPANY:
--------------------------------- ------------------------------------ ----------------------------------
4. BUILDING A newly constructed concrete Same as Model. Except wall panels
DESCRIPTION: tilt-wall (9 1/4" thick) facility are currently proposed to be 8"
designed for either thick due to advanced engineering
front-loading or cross-dock programs.
loading capability.
--------------------------------- ------------------------------------ ----------------------------------
5. FLEXIBLE Single or multiple Same as Model. Except includes
BUILDING DESIGN: occupancies. Land area to five (5) arcade panels with
accommodate large office recessed soffits.
areas. Structure and utility
services to support a wide
variety of manufacturing,
assembly, distribution and
warehouse operations. Clear
height available for 2nd floor
offices. Four arcade entrance
panels at main office areas
with soffits to provide
distinctive corporate appeal.
Depth of 480' is designed to
provide column free 60' staging
areas at truck doors and dual
160' long efficient forklift
runs.
Column spacing of 51'
perpendicular to truck doors is
designed to accommodate a range
of equipment from narrow isle
to traditional forklift 12'
isles and 40' column spacing
parallel to truck doors will
generally provide that columns
fall in the 12" chase between
racks.
--------------------------------- ------------------------------------ ----------------------------------
6. BUILDING 709,920sf total (1,479 feet by 659,340sf total with mezzanine
SIZE: 480 feet deep). Wall length is (per Exhibit A dimensions).
3,918 lineal feet and equals an
efficiency ratio of 1 lineal
foot of wall producing 181 square
feet of building.
--------------------------------- ------------------------------------ ----------------------------------
7. EXPANSION:
--------------------------------- ------------------------------------ ----------------------------------
8. LAND AREA: 32.59 acres - 1,420,056 square 29.62 acres - 1,290,247 square Additional land is available.
feet (1,273,259sf net) fronting feet net (16,988sf more - net)
Trade Center Dr. and Commodore fronting Frankford Road and There is an approximate 13.68
Drive. Coverage ratio of 50%. Commodore Drive. Coverage ratio of acres or 595,849sf remaining
Extra land (up to 45 acres) is 48.7777%. Extra land that adjoins the site on the
available. (approximately up to 13.68 acres) east.
is available, though all
indications are that the planning All or part (dependent upon
process has proceeded to the point remainder) of this site can be
that the building site is in final delivered with the proposed
project.
--------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE> 39
EXHIBIT "C-1"
PURCHASE AND SALE AGREEMENT BETWEEN SELLER AND BUYER
<TABLE>
<CAPTION>
PROJECT MODEL OUTLINE SPECIFICATIONS OPTIONAL ITEMS
2828 TRADE CENTER DR. PROPOSED BUILDING #7 NOT NOW INCLUDED
FEATURE BUILDING #6 SELLER'S IMPROVEMENTS IN SELLER'S IMPROVEMENTS
--------------------------------- ------------------------------------ ----------------------------------
<S> <C> <C> <C>
configuration. No addition to purchase price
for added trailer space (1) and
five foot (5') expansion on
In order to include additional eastern boundary as shown on
land into the Re-Plat of the Land Exhibit A.
and to finalize the amount of land
to be purchased by Buyer, Buyer Price is $2.75psf for the entire
must notify Seller not later than site (except as provided in
ten (10) business days following preceding sentence) if known at
execution of the Purchase and Sale time of Purchase Agreement and
Agreement if it desires to closed at same time as Building.
incorporate this item into
Seller's Work.
--------------------------------- ------------------------------------ ----------------------------------
9. OFFICE & Shell condition. Interior Add a 30,000sf mezzanine for the
FINISH OUT: finish and shell modifications addition of 60,000sf (+/- 15%) of
BUYER ELECTION to accommodate requirements office area.
provided on a Build-to-Suit The cost to add the mezzanine is
basis.
Total Add High $565,344
--------------------------------- ------------------------------------ ----------------------------------
10. CLEARANCE 30 Feet at 1st column line 34' Clear height at first column
HEIGHT: rising to 35 feet in center of rising to 37'9" in center of
BUYER ELECTION building. building.
Add $172,716
--------------------------
--------------------------------- ------------------------------------ ----------------------------------
11. FIRE Early Suppression Fast Response Same as Model.
PROTECTION (ESFR) system with 1500gpm --
SYSTEM: 100hp fire pump and 10gpm -
10hp jockey pump.
--------------------------------- ------------------------------------ ----------------------------------
12. SMOKE Roof mounted fans each Add to provide 4 air changes per
VENTILATION: producing 30000cfm and hour. Added cost is:
BUYER ELECTION providing 3 air changes/hr. 10 Fans - $5,200ea = $52,000
--------------------------------- ------------------------------------ ----------------------------------
13. ELECTRICAL: Underground 277/480 Volt, 3 Add a 110v outlet at every other
Phase, 4 Wire system by TU column.
Electric. Currently served by Add 78 - Outlets @ $335ea =
one transformer location at $26,130
middle of building. Empty
conduits are located (Cost includes feeders, panel
underground at two (2) and switches.)
additional entry points to
accommodate additional [Owner elected not to include in
transformers. Dual feed pricing.]
electrical service is available
at this location.
--------------------------------- ------------------------------------ ----------------------------------
14. NATURAL GAS: Lone Star Gas provides a 2 inch Same as Model.
underground line. Main trunk
line is 3 inches.
--------------------------------- ------------------------------------ ----------------------------------
15. WATER: Provided by City of Carrollton Same as Model.
through 2 inch domestic line &
8 inch fire line. Main trunk
line is 12 inches - Static
102psi, Residual 88psi, 3054gpm
(6/96).
--------------------------------- ------------------------------------ ----------------------------------
16. SANITARY Sanitary sewer lines into As shown on the Preliminary Plans.
SEWER: building at several locations
in order to accommodate restrooms
and drain locations throughout
the building by sawcutting floor
to sewer taps.
Main trunk line serving the
land is 12 inches.
--------------------------------- ------------------------------------ ----------------------------------
17. STORM SEWER: 8" diameter interior roof Add "Site Drainage" to provide a
drains on west side of building complete underground system in
BUYER ELECTION with underground collection lieu of some previously proposed
system and a collection box surface flow.
gutter and
--------------------------------- ------------------------------------ ----------------------------------
</TABLE>
2
<PAGE> 40
EXHIBIT "C-1"
PURCHASE AND SALE AGREEMENT BETWEEN SELLER AND BUYER
<TABLE>
<CAPTION>
PROJECT MODEL OUTLINE SPECIFICATIONS OPTIONAL ITEMS
2828 TRADE CENTER DR. PROPOSED BUILDING #7 NOT NOW INCLUDED
FEATURE BUILDING #6 SELLER'S IMPROVEMENTS IN SELLER'S IMPROVEMENTS
--------------------------------- ------------------------------------ ----------------------------------
<S> <C> <C> <C>
downspout system on Add: 4,460lf of pipe
east side. Exterior downspouts $61,540
are recessed into the exterior
wall reduce potential for
damage and reduced maintenance.
--------------------------------- ------------------------------------ ----------------------------------
18. TELEPHONE: "Smart Park" designation by GTE Same as Model.
providing underground high
capacity copper and fiber optic
lines with redundant self healing
central switching.
--------------------------------- ------------------------------------ ----------------------------------
19. TRUCK DOORS: 150 total (additional doors can Add 1 - 12' x 14' door with
be added) & 1 oversized drive-in ramp.
BUYER ELECTION drive-in door. Doors are 9 x 10 Add 1 Ramp $11,500
feet high lift sectional made Add Larger Door $ 795
of 24 gauge galvanized steel & -------
painted. Total $12,295
--------------------------------- ------------------------------------ ----------------------------------
20. TRUCK DOOR None. Add:
EQUIPMENT: Rite Hite 30,000lb Leveler
$ 2,992ea
BUYER ELECTION Frommelt Dock Seal
$ 645ea
Rite Hite Trailer Restraint
$ 1,284ea
Fostoria 40" Dock Light
$ 99ea
110v Outlet & Elec. Connect.
$ 313ea
---------
Total Gear Add/Door
$ 5,333ea
---------
Total for 54 doors:
$287,982
--------------------------------- ------------------------------------ ----------------------------------
21. TRUCK APRON 130 feet on west side & a 130 Truck apron along west property Option - Wrought Iron fence at
AND FENCING: feet on east side. Truck line to be configured as shown on $50 to 60plf.
approaches are 51 feet wide Exhibit A.
with 8" thick concrete, 7" Option - Vinyl Chain Link fence
thick in heavy truck traffic Included in the Purchase Price is at $20plf.
areas & 6" in light duty areas. an allowance for fencing of
All areas are reinforced with $17,500. Savings/overruns will
#3's at 18"oc. adjust purchase price.
--------------------------------- ------------------------------------ ----------------------------------
22. CAR PARKING: Separate parking area with 6 Parking for 218 cars has been
inch thick concrete for 188 increased to 300 spaces and the
BUYER ELECTION cars. Additional car parking cost of $59,040 is included in the
spaces available as required. Purchase Price.
Provisions made for handicap. Add 10 Covered Spaces at $28,431
allowance. Savings/overruns will
adjust purchase price.
--------------------------------- ------------------------------------ ----------------------------------
23. TOTAL Approximately 413,138sf at a Same as Model. Approximately
CONCRETE PAVING: ratio of 1sf of paving per 367,825sf + 24,600sf = 392,425sf
1.72sf of building area. of paving.
--------------------------------- ------------------------------------ ----------------------------------
24. COLUMN 60 foot wide staging area at Same as Model.
SPACING: truck doors and 51 X 40 foot
spacing in the center of the
building using 10 inch diameter
steel pipe columns.
--------------------------------- ------------------------------------ ----------------------------------
25. BUILDING Dock height reinforced 4000psi Add Lapidolith floor sealer =
FLOOR: concrete 7" thick placed with a $44,290.
laser screed for superior
flatness. Minimum floor [Owner elected not to include in
elevation is 458 feet above sea pricing.]
level. The 100 year
--------------------------------- ------------------------------------ ----------------------------------
</TABLE>
3
<PAGE> 41
EXHIBIT "C-1"
PURCHASE AND SALE AGREEMENT BETWEEN SELLER AND BUYER
<TABLE>
<CAPTION>
PROJECT MODEL OUTLINE SPECIFICATIONS OPTIONAL ITEMS
2828 TRADE CENTER DR. PROPOSED BUILDING #7 NOT NOW INCLUDED
FEATURE BUILDING #6 SELLER'S IMPROVEMENTS IN SELLER'S IMPROVEMENTS
--------------------------------- ------------------------------------ ----------------------------------
<S> <C> <C> <C>
flood elevation is 453.2 feet.
--------------------------------- ------------------------------------ ----------------------------------
26. MOISTURE 6-mil poly barrier at underside Same as Model.
PROTECTION: of concrete floor of proposed
office areas.
--------------------------------- ------------------------------------ ----------------------------------
27. ENVIRONMENTAL Sealed & passive dual service Same as Model.
PROTECTION: system with a welded 60-mil
HDPE foundation liner to
prevent seepage from the
interior into the subsurface or
vice versa. System includes
exterior monitor ports.
--------------------------------- ------------------------------------ ----------------------------------
28. SKYLIGHTS: 4 foot by 8 foot in alternate Same as Model.
bays each equipped with steel
security bars.
--------------------------------- ------------------------------------ ----------------------------------
29. ROOF: A 4-ply asphalt with ballast Same as Model.
system on 1 inch rigid Fesco
insulation board fastened to a
22 gauge metal deck with white
color on underside.
--------------------------------- ------------------------------------ ----------------------------------
30. EXTERIOR All metal halide lighting. Same as Model.
LIGHTING: Down lights at entries and wall
mounted 400 watt fixtures
providing light to car parking
areas & truck aprons. Wall
mounted fixtures are equipped
with a programmable energy
saving feature.
--------------------------------- ------------------------------------ ----------------------------------
31. LANDSCAPING: Fully landscaped with automatic Allowance of $126,500. Savings
irrigation system. /overruns will adjust purchase
price.
--------------------------------- ------------------------------------ ----------------------------------
32. RAILROAD Union Pacific Railroad. An Same as Model.
SERVICE: easement area is provided in
order to extend a private spur
track from the main lead track
to the property if required in
the future.
--------------------------------- ------------------------------------ ----------------------------------
33. CONSTRUCTION Full Geotechnical, Compaction Same as Model.
TESTING: testing on fill material;
Concrete testing & supervision
on floor, walls and pavement;
Steel & deck inspection; and
Roof application inspection.
--------------------------------- ------------------------------------ ----------------------------------
34. FIRE HOSE: None. Same as Model.
--------------------------------- ------------------------------------ ----------------------------------
35. EXIT LIGHTS: None. 27 Exit Lights @ $325 each at a
cost of $8,775 is included in the
BUYER ELECTION Purchase Price.
--------------------------------- ------------------------------------ ----------------------------------
36. COMPLIANCE: Shell is designed to be Add Rescue Asst. Panel with
BUYER ELECTION compliant upon finish out. audible & visual alarms; $27,552.
--------------------------------- ------------------------------------ ----------------------------------
37. INTERIOR None caulked. Interior caulking of tilt-wall
JOINTS: joints at a cost of $7,020 is
BUYER ELECTION included in the Purchase Price.
--------------------------------- ------------------------------------ ----------------------------------
38. FIRE ALARM: Flow & tamper switches and Add Security System panel and
Monitoring Panel on ESFR and alarms; $35,000 allowance.
Fan Control Panel. Savings/overruns will adjust
purchase price.
[Owner elected not to include in
pricing.]
--------------------------------- ------------------------------------ ----------------------------------
</TABLE>
4
<PAGE> 42
EXHIBIT "C-1"
PURCHASE AND SALE AGREEMENT BETWEEN SELLER AND BUYER
<TABLE>
<CAPTION>
PROJECT MODEL OUTLINE SPECIFICATIONS OPTIONAL ITEMS
2828 TRADE CENTER DR. PROPOSED BUILDING #7 NOT NOW INCLUDED
FEATURE BUILDING #6 SELLER'S IMPROVEMENTS IN SELLER'S IMPROVEMENTS
--------------------------------- ------------------------------------ ----------------------------------
<S> <C> <C> <C>
39. WAREHOUSE None in the shell building. Add 1 - 250,000BTUH gas fired unit
HEATING: heater at 1 per 10,000sf includes
BUYER ELECTION electrical, gas piping & roof;
Add 64 heaters @ $3,072ea =
$196,618
--------------------------------- ------------------------------------ ----------------------------------
40. EMPLOYEE Hollow metal doors. Add four 7' x 9' Storefront glass
ENTRANCES: doors at $1,400ea in lieu of metal
BUYER ELECTION personnel door. Add $5600.
--------------------------------- ------------------------------------ ----------------------------------
41. LARGE FLAG None. Add a 40' tall pole at $6,000,
POLE: internal halyard plus foundation
BUYER ELECTION and lighting.
$6,000 allowance. Savings/overruns
will adjust purchase price.
--------------------------------- ------------------------------------ ----------------------------------
42. HELIPORT None. Add $18,000 allowance.
ON SITE: Savings/overruns will adjust
BUYER ELECTION purchase price.
--------------------------------- ------------------------------------ ----------------------------------
43. COVERED None. Add $30,000 allowance. Savings
AREA FOR /overruns will adjust purchase
BUS: price.
BUYER ELECTION
--------------------------------- ------------------------------------ ----------------------------------
44. RECAP OF
BUYER ELECTIONS & Sub Total of Buyer Elections
COST OF Const Cost + Allowances $1,464,078
ADDITION TO Add GC Fee on Above: $ 31,091
PURCHASE PRICE Add Const Interest on
Above: $ 31,123
Add Const Mgmt on Above: $ 46,682
Total Addition to
Purchase Price $1,572,974
----------
--------------------------------- ------------------------------------ ----------------------------------
</TABLE>
5
<PAGE> 43
EXHIBIT D
TO PURCHASE AND SALE AGREEMENT
INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT FACILITY)
THIS LEASE AGREEMENT (the "Lease") is entered into as of the ___ day of
________, 2000, between ARGENT FRANKFORD, L.P. a Texas limited partnership,
("Landlord"), and _______________________________, a _________________
corporation ("Tenant").
ARTICLE 1. BASIC TERMS
This Article 1 contains the Basic Terms of this Lease between the
Landlord and Tenant. Other Articles and Sections of the Lease referred to in
this Article 1 explain and define the Basic Terms and are to be read in
conjunction with the Basic Terms.
SECTION 1.01. PROPERTY AND PREMISES. The Property (herein so-called) is
described on Exhibit "A" attached hereto and incorporated herein for all
purposes and is part of Landlord's real property industrial park development
located in Carrollton, Texas known as Frankford Trade Center and described or
depicted in the site plan attached as Exhibit "B" (the "Project"). The Project
includes the land and the buildings and all other improvements located or to be
located thereon including, without limitation the Premises (hereinafter defined)
and property subsequently acquired by Landlord and incorporated into the
Project. Tenant's Premises (herein so-called) includes the Property, the
approximately ___________ square foot Building (herein so-called) and related
Tenant Finish Out (herein so-called) located or to be located on the Property as
shown on Exhibit B, described thereon as the Building Floor Plate.
SECTION 1.02. LEASE TERM. _________ (_____) years and no months,
beginning on the Commencement Date provided in the Construction Agreement
(herein so-called) attached hereto as Exhibit "C," and ending on or about
________________, _________.
SECTION 1.03. PERMITTED USES. (See Article 5) The Premises may be used
only for light manufacturing, including, without limitation, selling, storing,
shipping, assembling, painting, welding, fabricating products, materials and
merchandise made or distributed by Tenant and its customers and for such other
purposes as may be incidental thereto, including, without limitation, offices
and parking.
SECTION 1.04. TENANT'S GUARANTOR. (If none, so state)
------------------
SECTION 1.05. BROKERS. (See Article 14) (If none, so state)
------------
Landlord's Broker:
--------------------------------------------------------------
Tenant's Broker:
--------------------------------------------------------------
SECTION 1.06. COMMISSIONS PAYABLE TO BROKERS. (See Article 14) (If
none, so state)
A. To Landlord's Broker: as per separate agreement
-----------------------------------
B. To Tenant's Broker: as per separate agreement
-----------------------------------
SECTION 1.07. INITIAL SECURITY DEPOSIT. (See Section 3.02)
-------------
SECTION 1.08. VEHICLE PARKING SPACES ALLOCATED TO TENANT. (Section
5.01B)
--------------------------------------------------------------------------
SECTION 1.09. RENT AND OTHER CHARGES PAYABLE BY TENANT.
A. BASE RENT. __________________________________Dollars
($____________) per annum, payable in monthly installments of
____________________________ Dollars ($____________) per month for the first
_________ (_____) months, as provided below in accordance with Section 3.01 and
thereafter as shown in the following table:
<TABLE>
<CAPTION>
TERM BUILDING COST OF TENANT FINISH OUT BASE RENT BASE RENT MONTHLY
BASE RENT IN EXCESS OF BUILDING TOTAL (PSF) INSTALLMENT
(PSF) STANDARD ALLOWANCE
(AMORTIZED) (PSF)
- ------------ -------------- ---------------------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Years 1-5
- ------------ -------------- ---------------------------- ----------------- ------------------ ------------------
Year 6-10
- ------------ -------------- ---------------------------- ----------------- ------------------ ------------------
</TABLE>
<PAGE> 44
(Base Rent includes ________________________________________Dollars
($__________) for Tenant Finish Out representing the maximum portion of the
total Tenant Finish Out of ____________________________ Dollars ($___________)
allowance to be paid by Landlord; provided that the Tenant Finish Out allowance
is subject to adjustment as described in Exhibit "C."
B. ITEMS OF ADDITIONAL RENT. (i) Real property taxes (See Section
4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section
4.04); and (iv) Management, Maintenance, Repairs and Alterations of the Premises
(See Sections 4.05, 4.06 and Article 6).
C. RENT. The term "Rent" shall mean Base Rent and Additional Rent.
SECTION 1.10. RIDERS. The following Riders are attached to and made a
part of this Lease: (If none, so state) Rider 1 Renewal Option
----------------------------------------
- --------------------------------------------------------------------------------
SECTION 1.11. EXHIBITS. The following Exhibits "A" through " F" are
attached to and made a part of this Lease:
<TABLE>
<CAPTION>
Exhibit Lease Section Description
------- ------------- -----------
<S> <C> <C>
A 1.01 Property
B 1.01 Site Plan of Project and Building Features
C 2.02 Construction Agreement
D 5.03B. Permitted Hazardous Materials
E 11.02 Subordination, Nondisturbance and Attornment
Agreement
F 11.05A. Estoppel Certificate
G 13.03D. Landlord's Disclaimer and Consent
</TABLE>
ARTICLE 2. LEASE TERM
SECTION 2.01. LEASE OF PREMISES FOR LEASE TERM. Landlord leases the
Premises to Tenant and Tenant leases the Premises from Landlord for the Lease
Term and for any renewal term(s) the option for which is exercised by Tenant
pursuant to the Renewal Option Rider (if any) described in Section 1.10. The
Lease Term is for the period stated in Section 1.02 above and shall begin on the
date specified in Section 1.02 above, unless the beginning of the Lease Term is
changed under any provision of this Lease. The "Commencement Date" shall be the
date specified in Section 1.02 above for the beginning of the Lease Term, unless
advanced or delayed under any provision of this Lease.
SECTION 2.02. CONSTRUCTION OF TENANT FINISH OUT. Landlord will
construct or cause to be constructed the Building and related Tenant Finish Out
in the Property in accordance with the terms of Exhibit "C".
SECTION 2.03. EARLY OCCUPANCY. If Tenant occupies the Premises prior to
the Commencement Date as permitted by Exhibit "C," Tenant's occupancy of the
Premises shall be subject to all of the provisions of this Lease. Early
occupancy of the Premises shall not advance the expiration date of this Lease.
SECTION 2.04. COMMENCEMENT DATE. The Commencement Date shall be the
date of Substantial Completion of the Building and related Tenant Finish Out as
described on Exhibit "C," but in no event shall the Commencement Date be prior
to ______________. Landlord shall not be liable to Tenant if Landlord does not
deliver possession of the Premises to Tenant on the Target Date (as defined in
Exhibit "C"). Landlord's nondelivery of the Premises to Tenant on that date
shall not affect this Lease or the obligations of Tenant under this Lease except
to the extent expressly provided in Exhibit "C" with respect to extension of the
Commencement Date under certain circumstances. Following the Commencement Date,
Tenant shall, if requested by Landlord, execute an amendment to this Lease
setting forth the actual Commencement Date and expiration date of the Lease.
Failure to execute such amendment shall not affect the actual Commencement Date
and expiration date of the Lease as determined in accordance with the terms of
Exhibit "C".
SECTION 2.05. HOLDING OVER. Tenant shall vacate the Premises upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Premises; such damages to include, without
limitation, an amount equal to the sum of (i) One Hundred Fifty Percent (150%)
of the amount of the Rent for the entire holdover period, plus (ii) all
reasonable attorneys' fees and other expenses incurred by Landlord in enforcing
its rights under this Lease. If Tenant does not vacate the Premises upon the
expiration or earlier termination of the Lease and Landlord thereafter accepts
Rent from Tenant, Tenant's occupancy of the Premises shall be a "month-to-month"
tenancy, subject to all of the terms of this
-2-
<PAGE> 45
Lease consistent with a month-to-month tenancy, except that Rent then in effect
shall be increased to One Hundred Fifty Percent (150%) of the amount of the
Rent.
ARTICLE 3. BASE RENT
SECTION 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Section 1.09A
above for the first month of the Lease Term. On the first day of the second
month of the Lease Term and each month thereafter, the Base Rent shall be due
and payable, and Tenant shall pay Landlord the Base Rent, in advance, on each
such due date, without offset, deduction or prior demand. The Base Rent shall be
payable at Landlord's address or at such other place as Landlord may designate
in writing.
SECTION 3.02. SECURITY DEPOSIT; INCREASES.
A. SECURITY DEPOSIT RESTORATION. Upon the execution of this
Lease, Tenant shall deposit with Landlord a cash Security Deposit in the amount
set forth in Section 1.07 above. Landlord may apply all or part of the Security
Deposit to any unpaid rent or other charges due from Tenant or to cure any other
defaults of Tenant. If Landlord uses any part of the Security Deposit, Tenant
shall restore the Security Deposit to its full amount within ten (10) days after
Landlord's written request. No interest shall be paid on the Security Deposit.
Landlord shall not be required to keep the Security Deposit separate from its
other accounts and no trust relationship is created with respect to the Security
Deposit.
B. SECURITY DEPOSIT PERIODIC INCREASES. Each time the Base Rent
is increased, Tenant shall deposit additional funds with Landlord sufficient to
increase the Security Deposit to an amount which bears the same relationship to
the adjusted Base Rent as the initial Security Deposit bore to the initial Base
Rent.
SECTION 3.03. TERMINATION; ADVANCE PAYMENTS. Upon termination of this
Lease under Article 7 (Damage or Destruction), Article 8 (Condemnation) or any
other termination not resulting from Tenant's default and after Tenant has
vacated the Premises in the manner required by this Lease, Landlord shall refund
within thirty (30) days or credit to Tenant (or Tenant's successor) the unused
portion of the Security Deposit, any advance rent or other advance payments made
by Tenant to Landlord, and any amounts paid for real property taxes and other
reserves which apply to any time periods after termination of the Lease.
ARTICLE 4. OTHER CHARGES PAYABLE BY TENANT
SECTION 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent.
SECTION 4.02. PROPERTY TAXES.
A. REAL PROPERTY TAXES. Tenant shall pay Landlord for Landlord's
estimate of all real property taxes on the Property (including any fees, taxes
or assessments against, or as a result of, the Building and all Tenant Finish
Out installed on the Property by or for the benefit of Tenant) during the Lease
Term. Such payments shall be made on a monthly basis in accordance with Section
4.06, below. Landlord shall pay such taxes prior to delinquency provided Tenant
has timely made such payments to Landlord. Any penalty caused by Tenant's
failure to timely make such payments shall also be Additional Rent owed by
Tenant immediately upon demand.
B. DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means:
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Property
by any governmental agency; and (iv) any charge or fee replacing any tax
previously included within the definition of real property tax. "Real property
tax" does not, however, include Landlord's federal or state income, franchise,
inheritance or estate taxes.
C. PERSONAL PROPERTY TAXES.
(1) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment, inventory, or any other personal property
belonging to Tenant. Tenant shall render its personal property for taxation
separately from the Premises.
(2) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord for
such personal property taxes.
-3-
<PAGE> 46
SECTION 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Premises. Landlord requires Tenant to contract for Tenant's own rubbish
collection.
SECTION 4.04. INSURANCE POLICIES.
A. LIABILITY INSURANCE. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, Premises damage (including both pollution and loss
of use of Premises coverage) and personal injury arising out of the operation,
use or occupancy of the Premises. Tenant shall name Landlord as an additional
insured under such policy. The initial amount of such insurance shall be One
Million Dollars ($1,000,000) per occurrence and shall be subject to periodic
increase based upon inflation, increased liability awards, recommendation of
Landlord's professional insurance advisers and other relevant factors. The
liability insurance obtained by Tenant under this Section 4.04A shall be primary
and non-contributing and contain cross-liability endorsements. The amount and
coverage of such insurance shall not limit Tenant's liability nor relieve the
Tenant of any other obligation under this Lease. Landlord may also obtain
comprehensive public liability insurance in an amount and with coverage
determined by Landlord insuring Landlord against liability arising out of
ownership, operation, use or occupancy of the Premises. The policy obtained by
Landlord shall not be contributory and shall not provide primary insurance.
Tenant shall be liable for the payment of any deductible amount under Tenant's
insurance policies maintained pursuant to this Section 4.04A.
B. BUILDING AND RENTAL INCOME INSURANCE. During the Lease Term,
Landlord shall maintain policies of insurance covering loss of or damage to the
Premises in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Premises. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant,
or Tenant's personal property, on the Premises. During the Lease Term, Landlord
shall also maintain a rental income insurance policy, with loss payable to
Landlord, in an amount equal to one year's Base Rent, plus estimated real
property taxes and insurance premiums. Tenant shall be liable for the payment of
any deductible amount under Landlord's or Tenant's insurance policies maintained
pursuant to this Section 4.04B, in an amount not to exceed Ten Thousand Dollars
($10,000), except that the deductible on flood and earthquake insurance (if any)
shall be Twenty Five Thousand Dollars ($25,000). Tenant shall not do or permit
anything to be done which invalidates any such insurance policies.
C. PAYMENT OF PREMIUMS. Tenant shall pay all premiums for the
insurance policies described in Sections 4.04A. Tenant shall pay Landlord on the
terms provided in Section 4.06 Tenant's premium cost of insurance policies
obtained by Landlord pursuant to Section 4.04B, except Landlord shall pay all
premiums for non-primary comprehensive public liability insurance which Landlord
elects to obtain as provided in Section 4.04A and the costs thereof shall not be
included in the premium costs reimbursable by Tenant to Landlord. If insurance
policies maintained by Landlord cover improvements on real property other than
the Property, Landlord shall deliver to Tenant a statement of the allocation of
premium applicable to the Premises showing in reasonable detail how Tenant's
share of the premium was computed. Before the Commencement Date, Tenant shall
deliver to Landlord a copy of any policy of insurance which Tenant is required
to maintain under this Section 4.04. At least thirty (30) days prior to the
expiration of any such policy, Tenant shall deliver to Landlord a renewal of
such policy. As an alternative to providing a policy of insurance, Tenant shall
have the right to provide Landlord a certificate of insurance, executed by an
authorized officer of the insurance company, showing that the insurance which
Tenant is required to maintain under this Section 4.04 is in full force and
effect and containing such other information which Landlord reasonably requires.
D. GENERAL INSURANCE PROVISIONS.
(1) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance carrier to
give Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(2) If Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this lease within the prescribed time period
or if any such policy is canceled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case Tenant
shall reimburse Landlord for the cost of such insurance (including the
deductible thereon, if applicable) within fifteen (15) days after receipt of a
statement that indicates the cost of such insurance.
(3) Tenant shall maintain all insurance required under this
Lease with companies holding a "General Policy Rating" of A-9 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord
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and Tenant acknowledge the insurance markets are subject to change and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described in
this Section 4.04 is for the primary benefit of Landlord. If at any time during
the Lease Term, Tenant is unable to maintain the insurance required under the
Lease, Tenant shall nevertheless maintain insurance coverage which is customary
and commercially reasonable in the insurance industry for Tenant's type of
business, as that coverage may change from time to time. Landlord makes no
representation as to the adequacy of such insurance to protect Landlords' or
Tenant's interest. Therefore, Tenant shall obtain any such additional property
or liability insurance which Tenant deems necessary to protect Landlord and
Tenant.
(4) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to the Premises or the
Property or the property of others under either party's control, if such loss or
damage is covered by any insurance policy in force (whether or not described in
this Lease) at the time of such loss or damage. Upon obtaining the required
policies of insurance, Landlord and Tenant shall give notice to the insurance
carriers of this mutual waiver of subrogation.
SECTION 4.05. LANDLORD PROPERTY MANAGEMENT/RELATED COSTS. Tenant shall
pay the Frankford Trade Center Property Owners Association (the "Association")
for those pro rata costs associated with landscaping of the existing Project
entrances and drainage areas maintained by the Association. If Landlord elects
to enter into a contract with a landscape contractor to provide landscape
maintenance and minor replacement services for the Project and Tenant, Tenant
shall pay to Landlord Tenant's allocable costs of such services. Tenant shall
also pay to Landlord two and one-half percent (2.5%) of the Base Rent under this
Lease for Landlord's property management services.
SECTION 4.06. PAYMENT OF ADDITIONAL RENT. During the Lease Term,
Landlord shall estimate in advance and notify Tenant of all real property taxes
for which Tenant is liable under Section 4.02 of the Lease, all insurance
premiums for which Tenant is liable under Section 4.04 of the Lease, and all
other Additional Rent payable by Tenant hereunder, including, but not limited
to, any related sales tax thereon. Tenant shall pay Landlord such estimated real
property taxes, insurance premiums, and all other items of Additional Rent
(prorated for any fractional month) on a monthly basis, at the same time Base
Rent shall be due, subject to the terms set forth in this Section. The items of
Additional Rent are set out in Section 1.09B. Landlord may adjust Landlord's
estimates of any item of Additional Rent not more often than twice per calendar
year based upon Landlord's reasonable anticipation of costs to be incurred, and
Tenant's Additional Rent shall be adjusted effective as of the next rent payment
date after notice of adjustment is given to Tenant. At Landlord's election,
statements of Additional Rent may be delivered monthly on or before the first
day of each calendar month.
ARTICLE 5. USE OF PREMISES
SECTION 5.01. PERMITTED USES. Tenant may use the Premises only for the
Permitted Uses set forth in Section 1.03 above.
A. RULES AND REGULATIONS. Tenant shall have the right to use the
Premises for the Permitted Uses, subject to such reasonable rules and
regulations as Landlord may establish from time to time. Tenant shall abide by
such rules and regulations.
B. VEHICLE PARKING. Tenant's parking on the Premises shall be
limited to vehicles no larger than standard size automobiles or pickup utility
vehicles along with parking of large delivery vehicles on the Premises at
loading dock stalls serving Tenant's Premises; provided, however, that such
parking of large delivery vehicles may be further regulated by the rules and
regulations established by Landlord. Vehicles shall be parked only in striped
parking spaces and not in driveways, loading areas or other locations not
specifically designated for parking.
SECTION 5.02. MANNER OF USE. Tenant shall not cause or permit the
Premises to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of other tenants of the Project, which constitutes a nuisance or
waste. Tenant shall obtain and pay for all permits (other than a Certificate of
Occupancy for the Premises, which Landlord shall apply for, as provided in
Exhibit "C") required for Tenant's occupancy of the Premises and shall
immediately take all actions necessary to comply with all applicable statues,
ordinances, rules, regulations, orders and requirements regulating the use by
Tenant of the Premises, including the Occupational Safety and Health Act.
SECTION 5.03. HAZARDOUS MATERIALS
(1) DEFINITIONS.
(a) "Hazardous Material" means any substance the
presence of which requires notice to any Governmental Agency or investigation or
remediation pursuant to any Environmental Requirement, or is or becomes
regulated by any Governmental Agency, or the presence of which on the Premises
causes or threatens to
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cause a nuisance or trespass or to otherwise create the reasonable prospect of
the assertion of a claim against the owner of the Project for Environmental
Damages.
(b) "Environmental Requirements" means all applicable
present and future statutes, regulations, rules, ordinances, codes, licenses,
permits, orders, approvals, plans, authorizations, concessions, franchises, and
similar items (including, but not limited to those pertaining to reporting,
licensing, permitting, investigation and remediation), of all Governmental
Agencies; and all applicable judicial, administrative, and regulatory decrees,
judgments, and orders relating to the protection of human health or the
environment effective during the term of this Lease and any renewals or
extensions thereof,
(c) "Environmental Damages" means all claims,
judgments, damages, losses, penalties, fines, liabilities (including strict
liability), encumbrances, liens, costs, and expenses (including the expense of
investigation and defense of any claim, whether or not such claim is ultimately
defeated, or the amount of any good faith settlement or judgment arising from
any such claim) of whatever kind or nature, contingent or otherwise, matured or
unmatured, foreseeable or unforeseeable (including without limitation reasonably
attorneys' fees and disbursements and consultants' fees) any of which are
incurred at any time as a result of the existence of Hazardous Material upon,
about, or beneath the Premises or migrating or threatening to migrate to or from
the Premises, or the existence of a violation of Environmental Requirements
pertaining to the Premises and the activities thereon, regardless of whether the
existence of such Hazardous Material or the violation of Environmental
Requirements arose prior to the present ownership or operation of the Premises.
(d) "Governmental Agency" means all governmental
agencies, departments, commission, boards, bureaus or instrumentalities of the
United States, states, counties, cities and political subdivisions thereof.
(e) The "Tenant Group" means Tenant, Tenant's officers,
directors, agents, employees, or other parties under the supervision or control
of Tenant or entering the Premises during the term of this Lease with the
permission or knowledge of Tenant other than Landlord or its agents or
employees.
(2) PROHIBITIONS. Other than normal quantities of general
office supplies and except as specified on Exhibit "D" attached hereto, Tenant
shall not cause, permit or suffer any Hazardous Material to be brought upon,
treated, kept, stored, disposed of, discharged, released, produced,
manufactured, generated, refined or used upon, about or beneath the Project or
the Premises by The Tenant Group, or any other person without the prior written
consent of Landlord. From time to time during the term of this Lease, Tenant may
request Landlord's approval of Tenant's use of other Hazardous Materials, which
approval may be withheld in Landlord's sole discretion. Tenant shall, prior to
the Commencement Date, provide to Landlord for those Hazardous Materials (if
any) described on Exhibit "D" a description of handling, storage, use and
disposal procedures, and (b) all "community right to know" plans or disclosures
and/or emergency response plans which Tenant is required to supply to local
governmental agencies pursuant to any Environmental Requirements. Tenant shall
not cause, permit or suffer the existence or the commission by The Tenant Group,
or by any other person, of a violation of any Environmental Requirements upon,
about or beneath the Project. Tenant shall not install, operate or maintain any
above or below grade tank, sump, or pit or install any treatment vessel or
device on the Premises without first obtaining all required permits and
approvals required, if any, by governmental authorities and subsequently
obtaining Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. On-site maintenance or repair of hydraulic
equipment, loading vehicles, or highway vehicles shall not be performed in the
Premises or anywhere in the Project.
(3) INDEMNITY. Tenant, its successors and assigns agree to
indemnify, defend, reimburse and hold harmless Landlord, any other person who
acquires all or a portion of the Project in any manner (including purchase at a
foreclosure sale) or who becomes entitled to exercise the rights and remedies of
Landlord under this Lease, and the directors, officers, shareholders, employees,
partners, agents, heirs, devisees, successors and assigns of such persons, from
and against any and all Environmental Damages which exist as a result of the
activities or negligence of The Tenant Group or which exist as a result of the
breach of any warranty or covenant or the inaccuracy of any representation of
Tenant contained in this Lease, or resulting from Tenant's remediation of the
Project or failure to meet its remediation obligations contained in this Lease.
Landlord shall have the right but not the obligation to join and participate in,
and control, if it so elects, any legal proceedings or actions initiated in
connection with Tenant's activities. Landlord may also negotiate, defend,
approve and appeal any action taken or issued by any applicable governmental
authority with regard to contamination of the Project by a Hazardous Material.
This indemnification is for Environmental Damages caused by the Tenant Group,
and does not include conditions existing prior to Tenant's possession of the
Premises (which pre-existing conditions, if any, have been disclosed to Tenant)
or after Tenant's occupancy of the Premises provided that with respect to
conditions existing after Tenant's occupancy of the Premises, Tenant shall, at
Tenant's sole expense, provide to Landlord environmental studies by a nationally
recognized, independent environmental contractor acceptable to Landlord
describing the condition of the Premises at the time Tenant vacates the Premises
sufficient to assure Landlord that there are no Environmental Damages to the
Premises at that time (other than those Environmental Damages, if any, that
existed prior to Tenant's occupancy of the Premises).
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(4) PRIOR INSPECTIONS. The obligations of Tenant under this
Section shall not be affected by any investigation by or on behalf of Landlord,
or by any information which Landlord may have or obtain with respect thereto.
(5) OBLIGATION TO REMEDIATE. In addition to the obligation
of Tenant to indemnify Landlord pursuant to this Lease, Tenant shall, upon
approval and demand of Landlord, at its sole cost and expense and using
contractors approved by Landlord, immediately take all actions to remediate the
Project which are required by any Governmental Agency, or which are reasonably
necessary to mitigate Environmental Damages, which remediation is necessitated
from the presence upon, about or beneath the Project, at any time during or upon
termination of this Lease, of a Hazardous Material or a violation of
Environmental Requirements existing as a result of the activities or negligence
of the Tenant Group. Tenant shall take all actions necessary to restore the
Project to the condition existing prior to the introduction of Hazardous
Material upon, about or beneath the Project, notwithstanding any lesser standard
of remediation allowable under applicable law or governmental policies. This
obligation to remediate is for Environmental Damages caused by the Tenant Group,
and does not include Environmental Damages existing prior to Tenant's possession
of the Premises (which pre-existing conditions, if any, have been disclosed to
Tenant) or after Tenant's occupancy of the Premises provided that with respect
to conditions existing after Tenant's occupancy of the Premises, Tenant shall,
at Tenant's sole expense, provide to Landlord environmental studies by a
nationally recognized, independent environmental contractor acceptable to
Landlord describing the condition of the Premises at the time Tenant vacates the
Premises sufficient to assure Landlord that there are no Environmental Damages
to the Premises at that time (other than those Environmental Damages, if any,
that existed prior to Tenant's occupancy of the Premises).
(6) RIGHT TO INSPECT. Landlord shall have the right in its
sole and absolute discretion, but not the duty, to enter and conduct an
inspection of the Premises, including invasive tests, at any reasonable time to
determine whether Tenant is complying with the terms of the Lease, including but
not limited to the compliance of the Premises and the activities thereon with
Environmental Requirements and the existence of Environmental Damages as a
result of the condition of the Premises or surrounding properties and activities
thereon. The cost of the Landlord's investigation shall be paid by Landlord
unless such investigation discloses a violation of any Environmental Requirement
by The Tenant Group or the existence of a Hazardous Material on the Premises or
any other surrounding properties caused by the activities or negligence of The
Tenant Group (other than Hazardous Materials used in compliance with all
Environmental Requirements and previously approved in writing by Landlord), in
which case Tenant shall pay such cost. Tenant hereby grants to Landlord, and the
agents, employees, consultants and contractors of Landlord the right to enter
the Premises and to perform such tests on the Premises as are reasonably
necessary to conduct such reviews and investigations. Landlord shall use its
best efforts to minimize interference with the business of Tenant in the conduct
of such reviews and investigations.
(7) NOTIFICATION OF CLAIMS OR CONDITIONS. If Tenant shall
become aware of or receive notice or other communication concerning any actual,
alleged, suspected or threatened violation of Environmental Requirements, or
liability of Tenant for Environmental Damages in connection with the Premises or
past or present activities of any person thereon, then Tenant shall immediately
notify Landlord and furnish a reasonably detailed description of such condition.
Receipt of such notice shall not be deemed to create any obligation on the part
of Landlord to defend or otherwise respond to any such notification.
SECTION 5.04. SIGNS AND AUCTIONS. Other than Tenant's Premises signage,
Tenant shall not place any signs on the Premises without Landlord's prior
written consent. Tenant shall not conduct or permit any auctions or sheriff's
sales at the Premises.
SECTION 5.05. TENANT'S INDEMNITY. In addition to, and not in limitation
of or substitution for the indemnity by Tenant in Section 5.03C, Tenant shall
indemnify Landlord against and hold Landlord harmless from any and all costs,
claims or liability arising from: (a) Tenant's use of the Premises; (b) the
conduct of Tenant's business or anything else done or permitted by Tenant to be
done in or about the Premises; (c) any breach or default in the performance of
Tenant's obligations under this lease; (d) any misrepresentation or breach of
warranty by Tenant under this Lease; or (e) other acts or omissions of Tenant.
Tenant shall defend Landlord against any such cost, claim or liability at
Tenant's expense with counsel reasonably acceptable to Landlord or, at
Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs
incurred by Landlord in connection with any such claim. AS A MATERIAL PART OF
THE CONSIDERATION TO LANDLORD, TENANT ASSUMES ALL RISK OF DAMAGE TO PREMISES OR
INJURY TO PERSONS IN OR ABOUT THE PREMISES ARISING FROM ANY CAUSE, AND TENANT
HEREBY WAIVES ALL CLAIMS IN RESPECT THEREOF AGAINST LANDLORD, EXCEPT FOR ANY
CLAIM ARISING OUT OF LANDLORD'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. AS USED
IN THIS SECTION, THE TERM ATENANT" SHALL INCLUDE TENANT'S EMPLOYEES, AGENTS,
CONTRACTORS AND INVITEES, IF APPLICABLE.
SECTION 5.06. LANDLORD'S INDEMNITY. Subject to the terms of Section 6.02
of this Lease, so long as no default shall occur or be continuing, Landlord
shall indemnify Tenant against, and hold Tenant harmless from any and all
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costs, claims, or liability arising from (i) environmental remediation
obligations for which Tenant is not liable pursuant to Section 5.03(5) of this
Lease or (ii) from Landlord's gross negligence or willful misconduct.
SECTION 5.07. LANDLORD'S ACCESS. Landlord or its agents may enter the
Premises at all reasonable times upon prior reasonable notice to Tenant to
verify that Tenant is in compliance with the terms of this Lease, as well as for
other purposes expressly permitted by the terms of this Lease, provided that (i)
Tenant shall have the right to be present during such entry by Landlord or its
agents, (ii) Landlord shall use its best efforts to minimize interference with
the business of Tenant and (iii) in the case of an emergency, no such notices
shall be required.
SECTION 5.08. QUIET POSSESSION. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Premises for
the full Lease Term, subject to the provisions of this Lease.
ARTICLE 6. CONDITION OF PREMISES; MAINTENANCE, REPAIRS AND ALTERATIONS
SECTION 6.01. EXISTING CONDITIONS. TENANT ACCEPTS THE PROPERTY IN ITS
EXISTING CONDITION AS OF THE EXECUTION OF THE LEASE, SUBJECT TO COMPLETION OF
THE BUILDING ACCORDING TO THE TERMS AND CONDITIONS OF EXHIBIT "C" AND ALL
RECORDED MATTERS, LAWS, ORDINANCES, AND GOVERNMENTAL REGULATIONS AND ORDERS.
EXCEPT AS PROVIDED HEREIN, TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY
AGENT OF LANDLORD HAS MADE ANY REPRESENTATION AS TO THE CONDITION OF THE
PREMISES OR THE SUITABILITY OF THE PREMISES FOR TENANT'S INTENDED USE. TENANT
REPRESENTS AND WARRANTS THAT TENANT HAS MADE ITS OWN INSPECTION OF AND INQUIRY
REGARDING THE CONDITION OF THE PREMISES AND IS NOT RELYING ON ANY
REPRESENTATIONS OF LANDLORD OR ANY BROKER WITH RESPECT THERETO.
SECTION 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. LANDLORD SHALL NOT
BE LIABLE FOR ANY DAMAGE OR INJURY TO THE PERSON, BUSINESS (OR ANY LOSS OF
INCOME THEREFROM), GOODS, WARES, MERCHANDISE OR OTHER PROPERTY OF TENANT,
TENANT'S EMPLOYEES, INVITEES, CUSTOMERS OR ANY OTHER PERSON IN OR ABOUT THE
PREMISES, WHETHER SUCH DAMAGE OR INJURY IS CAUSED BY OR RESULTS FROM, WITHOUT
LIMITATION: (A) FIRE, STEAM, ELECTRICITY, WATER, GAS OR RAIN; (B) THE BREAKAGE,
LEAKAGE, OBSTRUCTION OR OTHER DEFECTS OF PIPES, SPRINKLERS, WIRES, APPLIANCES,
PLUMBING, AIR CONDITIONING OR LIGHTING FIXTURES OR ANY OTHER CAUSE; (C)
CONDITIONS ARISING IN OR ABOUT THE PREMISES OR UPON OTHER PORTIONS OF THE
PROJECT, OR FROM OTHER SOURCES OR PLACES; OR (D) ANY ACT OR OMISSION OF ANY
OTHER TENANT OF THE PROJECT. LANDLORD SHALL NOT BE LIABLE FOR ANY SUCH DAMAGE OR
INJURY EVEN THOUGH THE CAUSE OF OR THE MEANS OF REPAIRING SUCH DAMAGE OR INJURY
ARE NOT ACCESSIBLE TO TENANT. THE PROVISIONS OF THIS SECTION 6.02 SHALL NOT,
HOWEVER, EXEMPT LANDLORD FROM LIABILITY FOR (I) ENVIRONMENTAL REMEDIATION
OBLIGATIONS FOR WHICH LANDLORD IS LIABLE PURSUANT TO SECTION 5.03(5) OF THIS
LEASE OR (II) LANDLORD'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
SECTION 6.03. LANDLORD'S OBLIGATIONS. Subject to the provisions of
Article 7 (Damage or Destruction) and Article 8 (Condemnation), Landlord shall
keep the following in good order, condition and repair: the foundation,
structural integrity of the exterior walls and the roof of the Building;
provided, however that Landlord shall have absolutely no responsibility to
repair, maintain or replace windows, doors, plate glass or the interior surfaces
of exterior walls. Landlord shall make repairs under this section 6.03 within a
reasonable time after receipt of written notice from Tenant of the need for such
repairs.
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SECTION 6.04. TENANT'S OBLIGATIONS.
A. MAINTENANCE BY TENANT. Except as provided in Section 6.03,
Article 7 (Damage or Destruction) and Article 8 (Condemnation), Tenant shall
keep all portions of the Premises in good order, condition and repair
(including, but not limited to, interior and exterior painting, systems and
equipment, roof, parking lot lighting and pavement, landscaping and irrigation
and signage provided that, except for damage caused by Tenant, Tenant shall not
be responsible for replacement of the roof or the parking lot pavement). If any
portion of the Premises or any system or equipment in the Premises which Tenant
is obligated to repair cannot be fully repaired or restored, Tenant shall
promptly replace such portion of the Premises or system or equipment in the
Premises, regardless of whether the benefit of such replacement extends beyond
the Lease Term; but if the benefit or useful life of such replacement extends
beyond the Lease Term (as such term may be extended by exercise of any options),
the useful life of such replacement shall be prorated over the remaining portion
of the Lease Term (as extended), and Tenant shall be liable only for that
portion of the cost which is applicable to the Lease Term (as extended). Tenant
will maintain temperature of Premises sufficient to avoid freezing the sprinkler
system. Tenant shall maintain a preventive maintenance contract providing for
the regular inspection and maintenance of the heating, ventilation, and air
conditioning system by a licensed contractor approved in advance by Landlord.
Tenant shall utilize a roofing contractor approved in advance by Landlord for
roof maintenance as needed. If any part of the Project is damaged by any act or
omission of Tenant, Tenant shall pay Landlord the cost of repairing or replacing
such damaged property, whether or not Landlord would otherwise be obligated to
pay the cost of maintaining or repairing such property. It is the intention of
Landlord and Tenant that at all times Tenant shall maintain the Premises in an
attractive, first-class and fully operative condition.
B. LANDLORD REMEDY. Tenant shall fulfill all of Tenant's
obligations under this Section 6.04 at Tenant's sole expense. If Tenant fails to
maintain, repair or replace the Premises as required by this Section 6.04,
Landlord may, upon ten (10) days' prior notice to Tenant (except that no notice
shall be required in the case of an emergency), enter the Premises and perform
such maintenance or repair (including replacement, as needed) on behalf of
Tenant. In such case, Tenant shall reimburse Landlord for all reasonable costs
incurred in performing such maintenance or repair immediately upon demand.
C. SECURITY SERVICES. Tenant, at Tenant's sole cost, may contract
for installation of security devices for the Premises from a reputable
contractor. Monitoring of such devices, if any, shall be performed by a Security
Contractor acceptable to Landlord, in Landlord's reasonable discretion.
D. MECHANIC'S LIENS. Tenant will not permit any mechanic's liens,
or other liens, to be placed upon the Premises or the Project during the Lease
Term or any extension or renewal thereof, and in case of the filing of any such
lien, Tenant will immediately pay same. Tenant agrees to pay all legal fees that
might be incurred by Landlord because of any mechanic's liens being placed upon
the Premises, as a result of Tenant's actions.
SECTION 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
A. NOTICE AND CONSENT. Tenant shall not make any alterations,
additions, or improvements to the Premises without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed except that
Tenant may make non-structural alterations or improvements (excluding roof
penetrations) which do not exceed Ten Thousand Dollars ($10,000) in cost
cumulatively over the Lease Term and which are not visible from the outside of
the Premises. Landlord may require Tenant to provide demolition and/or lien and
completion bonds in form and amount satisfactory to Landlord. Tenant shall
immediately remove any alterations, additions, or improvements constructed in
violation of this Section 6.05A upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" plans, copies of all construction contracts,
and proof of payment for all labor and materials.
B. PAYMENT. Tenant shall pay when due all claims for labor and
material furnished to the Premises. Tenant shall give Landlord at least twenty
(20) days' prior written notice of the commencement of any work on the Premises,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Premises.
SECTION 6.06. CONDITION UPON TERMINATION. Not later than the last day
of the Lease Term (or any renewals or extensions thereof), Tenant shall
surrender the Premises to Landlord, broom clean (with all keys in Tenant's
possession or control) and in the same condition as received except for ordinary
wear and tear which Tenant was not otherwise obligated to repair under any
provision of this Lease. However, Tenant shall not be obligated to repair any
damage which Landlord is required to repair under Article 7 (Damage or
Destruction). In addition, Landlord may require Tenant to remove any
alterations, additions or improvements made after the Commencement Date (whether
or not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Premises to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier
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termination of the Lease, except that Tenant may remove any of Tenant's
machinery, equipment or fixtures which can be removed without material damage to
the Premises. Tenant shall repair, at Tenant's expense, any damage to the
Premises caused by the removal of any such machinery, equipment or fixtures. In
no event, however, shall Tenant remove any of the following (which shall be
deemed Landlord's property ) without Landlord's prior written consent: any power
wiring or power panels; lighting or lighting fixtures; wall coverings; drapes,
blinds or other window coverings; carpets or other floor coverings; heaters, air
conditioners or any other heating or air conditioning equipment; fencing or
security gates, or other similar Building operating equipment and decorations.
ARTICLE 7. DAMAGE OR DESTRUCTION
SECTION 7.01. PARTIAL DAMAGE TO PREMISES.
A. OCCURRENCE OF DAMAGE. Tenant shall notify Landlord in writing
immediately upon the occurrence of any damage to the Premises.
B. RESTORATION.
(8) If the Premises are only partially damaged (i.e., less
than fifty percent (50%) of the Premises are untenantable as a result of such
damage or less than fifty percent (50%) of Tenant's operations are materially
impaired) and if the proceeds received by Landlord from the insurance policies
described in Section 4.04B are sufficient to pay for the necessary repairs, this
Lease shall remain in effect and Landlord shall notify Tenant within thirty (30)
days after notice of the occurrence of the damage whether Landlord shall repair
the damage. In the event Landlord repairs the damage, such repairs shall be
substantially completed within ninety (90) days from the date Landlord is
allowed by governmental authorities and the insurance companies to enter the
Premises for the purpose of beginning repair of the damage.
(9) If the Premises are only partially damaged as described
in Section 7.01B(1) and if (i) the insurance proceeds received by Landlord are
not sufficient to pay the entire cost of repair; or (ii) the cause of the damage
is not covered by the insurance policies which Landlord maintains under Section
4.04B; or (iii) any mortgagee or beneficiary under a deed of trust encumbering
the Premises should require that proceeds payable as a result of said fire or
casualty be used to retire or reduce any debt secured by a deed of trust
encumbering the Premises, Landlord may elect either to (i) repair the damage
within ninety (90) days from the date Landlord is allowed by governmental
authorities and the insurance companies to enter the Premises for the purpose of
beginning repair of the damage, in which case this Lease shall remain in full
force and effect, or (ii) terminate this Lease as of the date the damage
occurred. Landlord shall notify Tenant within thirty (30) days after notice of
the occurrence of the damage whether Landlord elects to repair the damage or
terminate the Lease. If Landlord elects to repair the damage, such repairs shall
be substantially completed within ninety (90) days from the date Landlord is
allowed by governmental authorities and the insurance companies to enter the
Premises for the purpose of beginning repair of the damage. Tenant shall pay
Landlord the "deductible amount" (if any) under Landlord's insurance policies
and, if the damage was due to an act or omission of Tenant, or Tenant's
employees, agents, contractors or invitees, the difference between the actual
cost of repair and any insurance proceeds received by Landlord. If Landlord
elects to terminate this Lease, Tenant may elect to continue this Lease in full
force and effect, in which case Tenant shall repair any damage to the Premises.
Tenant shall pay the cost of such repairs, except that upon satisfactory
completion of such repairs, Landlord shall deliver to Tenant any insurance
proceeds received by Landlord for the damage repaired by Tenant. Tenant shall
give Landlord written notice of such election within ten (10) days after
Landlord's termination notice.
C. TERMINATION. If the damage to the Premises occurs during the
last six (6) months of the Lease Term and such damage will require more than
thirty (30) days to repair, either Landlord or Tenant may elect to terminate
this Lease as of the date the damage occurred, regardless of the sufficiency of
any insurance proceeds. The party electing to terminate this Lease shall give
written notification to the other party of such election within thirty (30) days
after Tenant's notice to Landlord of the occurrence of the damage.
SECTION 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Premises are
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Premises is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate the later of (i) the date the destruction occurred, or (ii) the date
Tenant ceases to do business at the Premises.
SECTION 7.03. REDUCTION OF RENT DUE TO CASUALTY LOSS. If the Premises
are destroyed or damaged and Landlord or Tenant repairs or restores the Premises
pursuant to the provisions of this Article 7, any rent payable during the period
of such damage, repair and/or restoration shall be reduced according to the
degree, if any, to which Tenant's use of the Premises is impaired. However, the
reduction, if any, shall not exceed the sum of one year's payment of Base Rent
and Additional Rent. Except for such possible reduction in Rent or as otherwise
provided in Section 5.06, Tenant shall not be entitled to any compensation,
reduction, or reimbursement from Landlord as a result of any damage,
destruction, repair, or restoration of or to the Premises.
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ARTICLE 8. CONDEMNATION
If all or any portion of the Premises is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the Building is taken,
either Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
takes title or possession). If neither Landlord nor Tenant terminates this
Lease, this Lease shall remain in effect as to the portion of the Premises not
taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Premises. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
mortgagee or beneficiary under a deed of trust encumbering the Premises, the
amount of its interest in the Premises; (b) second, to Tenant, only the amount
of any award specifically designated for loss of or damage to Tenant's trade
fixtures or removable personal property; and (c) third, to Landlord, the
remainder of such award, whether as compensation for reduction in the value of
the leasehold, the taking of the fee, or otherwise. If this Lease is not
terminated, Landlord shall repair any damage to the Premises caused by the
Condemnation, except that Landlord shall not be obligated to repair any damage
for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE 9. ASSIGNMENT AND SUBLETTING
SECTION 9.01. PERMITTED TRANSFERS. Tenant may assign this Lease or
sublease the Premises, without Landlord's consent, to (i) any entity which
controls, is controlled by or is under common control with Tenant, (ii) any
entity resulting from the merger of or consolidation with Tenant or (iii) any
successor of Tenant which acquires all or substantially all of Tenant's assets
("Tenant's Affiliate"), provided Tenant has received Landlord's reasonable
written approval of the credit of such transferee and Tenant shall give Landlord
a minimum of thirty (30) days advance written notice and Tenant's Affiliate
shall assume in writing all of Tenant's obligations under this Lease including,
without limitation, those obligations described in Section 5.03 of this Lease.
SECTION 9.02. PROHIBITED TRANSFERS. Except as permitted by Section
9.01, Tenant shall not, without Landlord's prior written consent, which consent
shall not be unreasonably withheld or delayed, sell, assign, mortgage, sublease,
or otherwise transfer or permit the transfer of (collectively or individually, a
"Transfer") all or any portion of or interest in the leasehold under this Lease.
For purposes of this limitation, each of the following events shall constitute a
Transfer: (A) if Tenant is an individual, a transfer of all or any portion of or
interest in the leasehold by operation of law or by bequest, devise, or
inheritance; (B) if Tenant is a partnership, any cumulative sale, assignment or
transfer (excluding any pledge or mortgage of such interest) of any part of the
partnership interests the effect of which is to change or alter control of the
partnership; and (C) if Tenant is a corporation, any change in the ownership of
a controlling interest of the voting stock of the corporation (except for
transactions described in Section 9.01). Any attempted Transfer without
Landlord's consent shall be void and shall constitute a non-curable breach of
this lease. Landlord has the right to grant or withhold its consent to a
Transfer (except as permitted by Section 9.01) as provided in Section 9.03
below.
SECTION 9.03. LANDLORD'S CONSENT.
A. LANDLORD'S CONSENT; FACTORS. Tenant's request for consent to
any Transfer described in Section 9.02 shall set forth in writing the details of
the proposed Transfer, including the name, business and financial condition of
the prospective transferee, the material financial details of the proposed
Transfer (e.g., the term of and the rent and security deposit payable under any
proposed assignment or sublease), and any other information generally deemed
relevant to such a transfer. Landlord shall have the right to withhold consent,
if reasonable, or to grant consent, based on the following factors: (i) the
business of the proposed assignee or subtenant and the proposed use of the
Premises; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's past and current compliance with all of its
obligations under the Lease; and (iv) such other factors as Landlord may
reasonably deem relevant. In the event Tenant effects or purports to make a
Transfer of this Lease without the express written consent of Landlord, Landlord
shall have the right to terminate this Lease. Any purported Transfer in
violation of this Section shall be void.
B. ASSIGNMENT PROFIT. If Tenant assigns or subleases, the
following shall apply:
(1) Tenant shall pay to Landlord as Additional Rent under
the Lease One Hundred Percent (100%) of the Profit (defined below) on such
transaction as and when received by Tenant, unless Landlord gives written notice
to Tenant and the assignee or subtenant that Landlord's Share shall be paid by
the assignee or subtenant to Landlord directly. The "Profit" means (A) all
amounts paid to Tenant for such assignment or sublease, including"key" money,
monthly rent in excess of the monthly rent payable under the Lease, and all fees
and other
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consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by Tenant
(excluding Tenant's overhead) in connection with the execution and performance
of such assignment or sublease for real estate broker's commissions and costs of
renovation or construction of Tenant Improvements required under such assignment
or sublease. Tenant is entitled to recover such costs and expenses before Tenant
is obligated to pay any portion of assignment or sublease revenue to Landlord.
The Profit in the case of a sublease of less than all the Premises is the rent
allocable to the subleased space as a percentage on a square footage basis, or
as Landlord and Tenant may otherwise mutually agree in writing.
(2) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Premises within thirty (30) days after the transaction documentation is signed,
and Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall immediately furnish to Landlord
copies of all the transaction documentation, all of which shall be certified by
Tenant to be complete, true and correct. Landlord's receipt of the Profit shall
not be a consent to any further Transfer. The breach of Tenant's obligation
under this Section 9.03B shall be a default under this Lease.
C. TERMINATION AND RELETTING. If Landlord elects to terminate
this Lease pursuant to Section 9.03A, Landlord may, if it elects, enter into a
new lease covering the Premises with the intended assignee or sublessee on such
terms as Landlord and such person may agree or enter into a new lease covering
the Premises with any other person; in such event, Tenant shall not be entitled
to any portion of the profit, if any, which Landlord may realize on account of
such termination and reletting. From and after the date of such termination of
this Lease, Tenant shall have no further obligations arising hereunder prior to
the date of such termination, except those obligations expressly provided to
survive termination of this Lease.
SECTION 9.04. NO RELEASE OF TENANT. No assignment, sublease or transfer
of any kind permitted by this Article 9, whether with or without Landlord's
consent, shall release Tenant or change Tenant's primary liability to pay the
Rent and to perform all other obligations of Tenant under this Lease, except
that, in the event of a Permitted Transfer described in Section 9.01, Landlord
shall release Tenant from its obligations under this Lease if, and only if, (i)
Tenant provides to Landlord such material financial details as to the
creditworthiness of the proposed transferee to reasonably assure Landlord that
the proposed transferee is as or more creditworthy than Tenant was on the
Commencement Date and (ii) the proposed transferee assumes all of Tenant's
obligations under this Lease including, without limitation, ALL OF TENANT'S
OBLIGATIONS, LIABILITIES AND RESPONSIBILITIES UNDER SECTION 5.03 OF THIS LEASE.
Landlord's acceptance of rent from any other person is not a waiver of any
provision of this Article 9. Consent to one Transfer is not a consent to any
subsequent Transfer. If Tenant's transferee defaults under this Lease, Landlord
may proceed directly against Tenant without pursuing remedies against the
transferee. Landlord may consent to subsequent assignments or modifications of
this Lease by Tenant's transferee, without notifying Tenant or obtaining its
consent. Such action shall not relieve Tenant's liability under this Lease.
SECTION 9.05. NO MERGER. No merger shall result from Tenant's sublease
of the Premises under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE 10. DEFAULTS; REMEDIES
SECTION 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Premises and exercise of any
other right granted Tenant under this Lease is conditioned upon such
performance. Time is of the essence of the performance of all covenants and
conditions.
SECTION 10.02. DEFAULTS. Tenant shall be in material default (a
"Default") under this Lease:
A. ABANDONMENT. If Tenant's abandonment or vacation of the
Premises results in the cancellation of any insurance described in Section 4.04.
B. FAILURE TO PAY. If Tenant fails to pay Rent or any other
charge when due and such failure continues for a period of ten (10) days after
the date such payment is due, provided that with respect to the first two late
Rent payments which shall occur in any calendar year during the Term, Landlord
agrees to give Tenant written notice of default following nonreceipt of Rent
payment on or before the due date, and seven (7) days opportunity to cure such
default before a Default shall be deemed to have occurred hereunder. No written
notice shall be required with respect to subsequent Rent payment defaults during
such calendar year.
C. FAILURE TO PERFORM NONMONETARY OBLIGATIONS. If Tenant fails to
perform any of Tenant's nonmonetary obligations under this Lease for a period of
thirty (30) days after written notice from Landlord; provided that if more than
thirty (30) days are required to complete such performance no Default shall
occur if Tenant commences such performance within the thirty (30) day period and
thereafter diligently pursues its completion.
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However, Landlord shall not be required to give such notice if Tenant's failure
to perform constitutes a noncurable breach of this Lease.
D. BANKRUPTCY. (i) If Tenant makes a general assignment or
general arrangement for the benefit of creditors; (ii) if a petition for
adjudication of bankruptcy or for reorganization or rearrangement is filed by or
against Tenant and is not dismissed within thirty (30) days; (iii) if a trustee
or receiver is appointed to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease and
possession is not restored to Tenant within thirty (30) days; (iv) if
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within thirty (30) days. If a court of competent
jurisdiction determines that any of the acts described in this Subsection (d) is
not a default under this Lease, and a trustee is appointed to take possession
(or if Tenant remains a debtor in possession) and such trustee or Tenant
transfers Tenant's interest hereunder, then Landlord shall receive, as
Additional Rent, the excess, if any, of the rent (or any other consideration)
paid in connection with such assignment or sublease over the rent payable by
Tenant under this Lease.
E. GUARANTY REVOCATION OR TERMINATION. If any guarantor of the
Lease revokes or otherwise terminates, or purports to revoke or otherwise
terminate, any guaranty of all or any portion of Tenant's obligations under the
Lease. Unless otherwise expressly provided, no guaranty of the Lease is
revocable.
F. DEFAULT BY TENANT ON CREDIT FACILITIES. (i) if Tenant
defaults, or an event of default shall occur, under any working capital,
inventory financing or asset financing Credit Facility (herein so-called)
including, but not limited to any term loan, line of credit, letter of credit,
guaranty, or other extension of credit under which Tenant is an obligor or
guarantor and such default authorizes the Tenant's creditor to pursue the
creditor's remedies for default under the instruments creating or securing the
Credit Facility; or (ii) if any creditor of Tenant as to a financial or other
performance obligation of Tenant under a Credit Facility shall allege in writing
or file suit against Tenant, charging Tenant with breach or default in the
payment or performance thereof; (iii) if there is a materially adverse change in
Tenant's financial condition which Landlord shall conclude in good faith
materially impairs Tenant's ability to pay the financial obligations or perform
the covenants, terms and conditions set forth in this Lease which Tenant is
obligated to perform; or (iv) if Tenant fails to notify Landlord in writing
within ten (10) days of (a) Tenant's defaults, or an event of default occurring,
under any Credit Facility including, but not limited to any term loan, line of
credit, letter of credit, guaranty, or other extension of credit under which
Tenant is an obligor or guarantor and such default authorizes the Tenant's
creditor to pursue the creditor's remedies for default under the instruments
creating or securing the Credit Facility; or (b) any creditor of Tenant as to a
financial or other performance obligation of Tenant under a Credit Facility
alleging in writing or filing suit against Tenant, charging Tenant with breach
or default in the payment or performance thereof; or (c) a materially adverse
change in Tenant's financial condition under the provisions of the Credit
Facility which change materially impairs Tenant's ability to pay the financial
obligations or perform the covenants, terms and conditions set forth in this
Lease which Tenant is obligated to perform.
SECTION 10.03. REMEDIES. On the occurrence of any Default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have:
A. REPOSSESSION; DAMAGES. Terminate Tenant's right to possession
of the Premises by any lawful means in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. If
Tenant shall receive a demand for the payment of past due rent or any other
charge, any payments tendered thereafter to cure any default by Tenant shall be
made only by Cashier's Check. In event of repossession of the Premises following
Tenant's Default, Landlord shall be entitled to recover from Tenant all damages
incurred by Landlord by reason of Tenant's Default, including an amount equal to
the excess of (i) the total rent for the unexpired balance of the Term following
the date the damage judgment is entered (or otherwise awarded)(the "Judgment
Date"), including, without limitation all applicable late charges and interest,
discounted at the Default Discount Rate (hereinafter defined) to the present
value on the Judgment Date, together with all other damages incurred by Landlord
in connection with Tenant's Default as specified in Section 10.05, below, plus
the unpaid rent due as of the Judgment Date, over (ii) the market rental value
of the Premises for the balance of the Term, discounted at the Default Discount
Rate to the present value on the Judgment Date. For the purposes of clause (i)
above, the components of monthly rent (other than Base Rent) for the remainder
of the Term shall be deemed to be equal to the respective monthly amounts
thereof as were due and payable during the month in which the Lease was
terminated. As used in clause (ii), the term "Default Discount Rate" shall be
the average of discount rates of the Federal Reserve Bank of Dallas in effect on
the first day of each of the six calendar months preceding the month in which
the Judgment Date falls, plus one percent (1%). If Tenant has abandoned the
Premises, Landlord shall have the option of (i) retaking possession of the
Premises and recovering from Tenant the amount specified in this Section 10.03A,
or (ii) proceeding under Section 10.03B.
B. CONTINUANCE OF TENANT'S RIGHT TO POSSESSION. Maintain Tenant's
right to possession, in which case this Lease shall continue in effect whether
or not Tenant has abandoned the Premises. In such event, Landlord
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shall be entitled to enforce all of Landlord's rights and remedies under this
Lease, including the right to recover the Rent as it becomes due.
C. RELETTING. Enter upon and take possession of the Premises as
Tenant's agent without terminating this Lease and without being liable for
prosecution or any claim for damages therefor, and Landlord may relet the
Premises as Tenant's agent and receive the rental therefor, in which event
Tenant shall pay to Landlord on demand all sums due pursuant to Section 10.05,
below, together with any deficiency that may arise by reason of such reletting.
D. PERFORMANCE OF TENANT'S LEASE OBLIGATIONS. Do whatever Tenant
is obligated to do under this Lease and enter the Premises, without being liable
for prosecution or any claim for damages therefor, to accomplish such purpose.
Tenant shall reimburse Landlord immediately upon demand for any expenses which
Landlord incurs in thus effecting compliance with this Lease on Tenant's behalf,
together with interest thereon at the highest lawful rate from the date Landlord
incurs the expense in question until Landlord is reimbursed therefor.
E. OTHER REMEDIES. Pursue any other remedy now or hereafter
available to Landlord under the laws or judicial decisions of the state in which
the Premises is located, including, but not limited to, reentering the Premises,
changing the locks, taking possession of any furniture or fixtures and selling
same at a private or public sale and applying the proceeds of such sale to the
costs of the sale, payment of damages and payment of sums owing under this
Lease.
SECTION 10.04. MITIGATION. By execution of this Lease, Tenant
acknowledges that Landlord shall have no duty to mitigate damages caused by
Tenant's Default other than as specifically set forth in Texas Property Code
Section 91.006. If any duty shall be imposed under such law under the
circumstances of Tenant's Default, Tenant acknowledges that Landlord shall have
discharged any such duty if Landlord shall (a) market the Premises for reletting
with a sign posted on or in the vicinity of the Property, visible from a public
street, and (b) advertise the availability of the Premises for reletting in any
newspaper circulated in the county in which the Premises are situated no less
frequently than monthly.
SECTION 10.05. ADDITIONAL DAMAGES ATTRIBUTABLE TO TENANT DEFAULT. Upon
the occurrence of Tenant's Default, in addition to any other sum provided to be
paid herein, Tenant also shall be liable for and shall pay to Landlord: (i)
brokers' fees incurred by Landlord in connection with reletting the whole or any
part of the Premises; (ii) the costs of removing and storing Tenant's or other
occupant's property; (iii) the costs of repairing, altering, remodeling or
otherwise putting the Premises into condition acceptable to a new tenant or
tenants; (iv) all reasonable expenses incurred in marketing the Premises; and
(v) all reasonable expenses incurred by Landlord in enforcing or defending
Landlord's rights and/or remedies. If either party hereto institutes any action
or proceeding to enforce any provision hereof by reason of any alleged breach of
any provision of this Lease, the prevailing party shall be entitled to receive
from the losing party all reasonable attorneys' fees and all court costs in
connection with such proceeding.
SECTION 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11. PROTECTION OF LENDERS
SECTION 11.01. RIGHT TO MORTGAGE AND TRANSFER. Landlord shall have the
right to transfer, mortgage, pledge or otherwise encumber, assign and convey, in
whole or in part, the Project, this Lease, and all or any part of the rights now
or thereafter existing therein and all rents and amounts payable to Landlord
under the provisions hereof. In the event of any such transfer or transfers
resulting in the transfer of Landlord's title to the Premises, Landlord herein
named (and in case of any subsequent transfer, the then transferor) shall be
automatically freed and relieved from and after the date of such transfer of all
personal liability with respect to the performance of any covenants or
agreements on the part of Landlord contained in this Lease thereafter to be
performed.
SECTION 11.02. SUBORDINATION. This Lease shall be subordinate to any
deed of trust or mortgage encumbering the Premises, any advances made on the
security thereof and any renewals, modifications, consolidations, replacements
or extensions thereof, whenever made or recorded. Landlord shall use its best
efforts to obtain from Landlord's mortgagee, if any, a subordination,
non-disturbance and attornment agreement in the form attached hereto as Exhibit
"E" or such other form providing for nondisturbance rights as is then required
by Landlord's lender, provided that Tenant's obligations under this Lease shall
not be increased in any material way (the performance of ministerial acts shall
not be deemed material), and Tenant shall not be deprived of its rights under
this Lease. In the event Landlord has a mortgagee at the time this Lease is
executed, and Landlord is unable to obtain from such mortgagee and deliver to
Tenant a subordination, non-disturbance and attornment agreement as described in
this Section 11.02 within thirty (30) days after Tenant has deposited with
Landlord the Security Deposit, this Lease shall terminate and be of no further
force or effect unless, within ten (10) days following Landlord's notice to
Tenant of Landlord's inability to provide such subordination, nondisturbance and
attornment agreement, Tenant notifies Landlord in writing of Tenant's desire to
maintain this Lease, in which case this Lease shall not terminate and shall
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remain in full force and effect except that Landlord will not be required to
provide such subordination, non-disturbance and attornment agreement. Tenant
shall cooperate with Landlord and any lender which has or is acquiring a
security interest in the Premises or the Lease. Tenant shall execute such
further documents and assurances as such lender may reasonably require, in
connection with the subordination of this Lease to any deed of trust or mortgage
encumbering the Premises. Tenant covenants and agrees to execute and deliver
upon reasonable demand such further instruments subordinating this Lease to the
lien of any such mortgage, deed of trust or security agreement as shall be
requested by Landlord and/or mortgagee or proposed mortgagee or holder of any
security agreement. Tenant's right to quiet possession of the Premises during
the Lease Term shall not be disturbed except as expressly allowed by the terms
of this Lease or any subordination, non-disturbance and attornment agreement(s)
binding Tenant. Notwithstanding anything to the contrary contained herein, if
any beneficiary or mortgagee elects to have this Lease prior to the lien of its
deed of trust or mortgage and gives written notice thereof to Tenant, this Lease
shall be deemed prior to such deed of trust or mortgage whether this Lease is
dated prior or subsequent to the date of said deed of trust or mortgage or the
date of recording thereof. Tenant waives the provisions of any current or future
statute, rule or law which may give or purport to give Tenant any right or
election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.
SECTION 11.03. ATTORNMENT. If Landlord's interest in the Premises is
acquired by any beneficiary under a deed of trust, mortgagee, or purchaser at a
foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Premises and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Premises upon the transfer of Landlord's
interest.
SECTION 11.04 SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instruments or documents necessary or appropriate to evidence any such
attornment or subordination agreement to do so. If Tenant fails to do so within
ten (10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver such instruments or documents.
SECTION 11.05 ESTOPPEL CERTIFICATES.
A. CERTIFICATE REQUIREMENTS. Upon Landlord's written request or
the written request of any mortgagee or beneficiary under a deed of trust
encumbering the Premises, Tenant shall execute, acknowledge and deliver to
Landlord or to any mortgagee or beneficiary under a deed of trust encumbering
the Premises, as the case may be, a written statement in the form attached
hereto as Exhibit "F" or such other form as is then required by Landlord's
lender, certifying: (i) that none of the terms or provisions of this Lease have
been changed (or if they have been changed, stating how they have been changed);
(ii) that this Lease has not been canceled or terminated; (iii) the last date of
payment of the Base Rent and other charges and the time period covered by such
payment; (iv) that Landlord is not in default under this Lease (or, if Landlord
is claimed to be in default, stating why); and (v) such other representations or
information with respect to Tenant or the Lease as Landlord may reasonably
request or which any prospective purchaser or encumbrancer of the Premises may
reasonably require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord may give any such statement by
Tenant to any prospective purchaser or encumbrancer of the Premises. Such
purchaser or encumbrancer may rely conclusively upon such statement as true and
correct.
B. LANDLORD REMEDY. If Tenant does not deliver such statement to
Landlord or to any mortgagee or beneficiary under a deed of trust encumbering
the Premises, as the case may be, within such ten (10) day period, Landlord, and
any prospective purchaser or encumbrancer may conclusively presume and rely upon
the following facts: (i) that the terms and provisions of this Lease have not
been changed except as otherwise represented by Landlord; (ii) that this Lease
has not been canceled or terminated except as otherwise represented by Landlord;
(iii) that not more than one month's Base Rent or other charges have been paid
in advance; and (iv) that Landlord is not in default under the Lease. In such
event, Tenant shall be estopped from denying the truth of such facts.
SECTION 11.06 TENANT'S FINANCIAL CONDITION. Within ten (10) days after
written request from Landlord or any mortgagee or beneficiary under a deed of
trust encumbering the Premises, as the case may be, Tenant shall deliver to
Landlord Tenant's most recent audited financial statements as Landlord
reasonably requires to verify the net worth and credit standing of Tenant or any
assignee or subtenant of Tenant. Tenant represents and warrants to Landlord that
each such financial statement is a true and accurate statement in all material
respects as of the date of such statement. Except for the delivery of financial
statements to any mortgagee or beneficiary under a deed of trust on the
Property, all financial information delivered by Tenant shall be confidential
and shall be used only for the purposes set forth in this Lease.
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ARTICLE 12. LEGAL COSTS
SECTION 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any
reasonable costs or expenses that the Nondefaulting Party incurs in connection
with any breach or default of the Defaulting Party under this Lease, whether or
not suit is commenced or judgment entered. Such costs shall include legal fees
and costs incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. The losing party in such action shall pay such reasonable attorneys' fees
and costs. Tenant shall also indemnify Landlord against and hold Landlord
harmless from all costs, expenses, demands and liability Landlord may incur if
Landlord becomes or is made a party to any claim or action (a) instituted by
Tenant against any third party, or by any third party against Tenant, or by or
against any person holding any interest under or using the Premises by license
of or agreement with Tenant; (b) for foreclosure of any lien for labor or
material furnished to or for Tenant or such other person; (c) otherwise arising
out of or resulting from any act or transaction of Tenant or such other person;
or (d) necessary to protect Landlord's interest under this Lease in a bankruptcy
proceeding, or other proceeding under Title 11 of the United States Code, as
amended. Tenant shall defend Landlord against any such claim or action at
Tenant's expense with counsel reasonably acceptable to Landlord or, at
Landlord's election, Tenant shall reimburse Landlord for any reasonable legal
fees or costs Landlord incurs in any such claim or action.
SECTION 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorneys' fees in excess of an aggregate amount of Two Hundred Fifty
and no/100 Dollars ($250.00) incurred in connection with Tenant's request for
Landlord's consent under Article 9 (Assignment and Subletting), or in connection
with any other act which Tenant proposes to do and which requires Landlord's
consent.
ARTICLE 13. MISCELLANEOUS PROVISIONS
SECTION 13.01. LATE CHARGES. Tenant's failure to pay Rent immediately
may cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Project and Premises. Therefore, if Landlord does not receive any Rent
payment within ten (10) days after it becomes due, Tenant shall pay Landlord a
late charge equal to ten percent (10%) of the overdue amount for all other such
late payments, if any, in said calendar year. The parties agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
SECTION 13.02. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from ten days after the due date of such amount.
However, interest shall not be payable on late charges to be paid by Tenant
under this Lease. The payment of interest on such amounts shall not excuse or
cure any default by Tenant under this Lease. If the interest rate specified in
this Lease is higher than the rate permitted by law, the interest rate is hereby
decreased to the maximum legal interest rate permitted by law.
SECTION 13.03. LANDLORD'S LIABILITY; CERTAIN DUTIES.
A. DEFINITION OF LANDLORD. As used in this Lease, the term
"Landlord" means only the current owner or owners of the fee title to the
Property or Project at the time in question. Each Landlord is obligated to
perform the obligations of Landlord under this Lease only during the time such
Landlord owns such interest or title. Any Landlord who transfers its title or
interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date of transfer.
However, each Landlord shall deliver to its transferee, or credit its transferee
with all funds that Tenant previously paid if such funds have not yet been
applied under the terms of this Lease.
B. NOTICE. Tenant shall give written notice of any failure by
Landlord to perform any of its obligations under this Lease to Landlord and to
any mortgagee or beneficiary under any deed of trust encumbering the Property
whose name and address have been furnished to Tenant in writing. Tenant agrees
to accept cure of any Landlord default from any mortgagee or beneficiary under
any deed of trust encumbering the Property, provided such party shall have no
liability or obligation to tender any cure. Landlord shall not be in default
under this Lease unless Landlord (or such mortgagee or beneficiary) fails to
cure such non-performance within thirty (30) days after receipt of Tenant's
notice. However, if such nonperformance reasonably requires more than thirty
(30) days to cure, Landlord shall not be in default if such cure is commenced
within such thirty (30) day period and thereafter diligently pursued to
completion.
C. PERSONAL LIABILITY. Notwithstanding any term or provision
herein to the contrary, the liability of Landlord for the performance of its
duties and obligations under this lease is limited to Landlord's interest in the
Property and neither the Landlord nor its partners, shareholders, officers or
other principals shall have any personal
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<PAGE> 59
liability under this Lease. Tenant agrees to look solely to Landlord's interest
in the Property for the recovery of any judgment against Landlord, and Landlord
shall not be liable for any deficiency. The foregoing provision shall not limit
any right that Tenant may otherwise have to obtain specific performance of
Landlord's obligations under this Lease.
D. LANDLORD'S CONSENT AND DISCLAIMER. Immediately following (or
as soon thereafter as is reasonably practicable) the latter of (i) the parties'
execution of this Lease; (ii) Tenant's timely delivery to Landlord of the
Security Deposit and the first month's Base Rent as described in Sections 3.01
and 3.02 of this Lease, respectively; and (iii) Landlord's delivery to Tenant of
the subordination document described in Section 11.02 of this Lease, if any,
Landlord shall execute and deliver to Tenant concurrently with the execution and
delivery of this Lease the Landlord's Consent and Disclaimer in the form
attached hereto as Exhibit "G" and incorporated herein by reference for all
purposes.
E. RIGHTS OF LANDLORD. At any time during the Lease Term,
Landlord or its agents may enter the Premises upon for the purpose of exercising
any or all of the following reserved rights without being liable in any manner
to Tenant, provided that Landlord shall have no duty or obligation to perform
any of the rights so reserved:
(1) To change the name of the Project without notice to
Tenant;
(10) To take any and all measures, including making
inspection, repairs, alterations, additions and improvements to the Project as
may be necessary or desirable for the safety, protection, preservation, or more
efficient operation of the Project or the enhancement or protection of
Landlord's interests therein; and
(11) During the last 180 days of the Term or any renewal or
extension, to display a sign advertising the availability of the Premises for
lease, to show the Premises to prospective tenants, and to otherwise market the
Premises for the purpose of reletting same, provided that Landlord shall
exercise Landlord's best efforts to avoid unreasonable interruptions of the
conduct of Tenant's business in the Premises.
(12) To enter upon prior reasonable notice to Tenant and
conduct an inspection of the Premises, including invasive tests, at any
reasonable time to determine whether Tenant is complying with the terms of the
Lease, including but not limited to the compliance of the Premises and the
activities thereon with Environmental Requirements, provided that (i) Landlord
shall exercise Landlord's best efforts to avoid unreasonable interruptions of
the conduct of Tenant's business in the Premises; (ii) Tenant shall have the
right to be present during such entry by Landlord or its agents; and (iii) in
the case of an emergency, no such notices shall be required. The cost of the
Landlord's investigation shall be paid by Landlord unless such investigation
discloses a violation of any Environmental Requirement by The Tenant Group or
the existence of a Hazardous Material on the Premises or any other Premises
caused by the actions of The Tenant Group (other than Hazardous Materials used
in compliance with all Environmental Requirements and previously approved in
writing by Landlord), in which case Tenant shall pay such cost.
SECTION 13.04. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
SECTION 13.05. INTERPRETATION. The captions of the Articles or Sections
of this Lease are to assist the parties in reading this Lease and are not a part
of the terms or provisions of this Lease. Whenever required by the context of
this Lease, the singular shall include the plural and the plural shall include
the singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Premises with Tenant's expressed or
implied permission.
SECTION 13.06. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of the
Premises and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
SECTION 13.07. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be either personally delivered, or sent via
telecopy with receipt confirmation, or by Federal Express or other regularly
scheduled overnight courier or sent by United States mail, registered or
certified with return receipt requested, properly addressed and with full
postage prepaid. All notices shall be effective upon delivery by the sender
(which, in the case of telecopied notice, shall be the date such telecopy is
transmitted with confirmation of receipt) or the day delivery is tendered to the
addressee (in the case of hand delivered notices) or three (3) days after the
day the notice is consigned by the sender (in the case of couriered or mailed
notices). Either party may change its notice address upon written notice to the
other party.
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<PAGE> 60
Said notices shall be sent to the parties hereto at the following
addresses, unless otherwise notified in writing (provided that upon Tenant's
taking possession of the Premises, the Premises shall be Tenant's address for
notice purposes).
To Landlord: Argent Frankford, L.P.
5949 Sherry Lane, Suite 1000
Dallas, Texas 75225
Attn: C. E. Cornutt
Phone: (214) 361-6090
Facsimile: (214) 361-5032
with copy to: Charles C. Jordan
Carrington, Coleman, Sloman & Blumenthal,
L.L.P.
200 Crescent Court, Suite 1500
Dallas, Texas 75201
Phone: (214) 855-3000
Facsimile: (214) 855-1333
To Tenant:
------------------------------------------
Phone:
------------------------------------
Facsimile:
--------------------------------
with copy to:
------------------------------------------
Phone:
------------------------------------
Facsimile:
--------------------------------
To Mortgagee:
------------------------------------------
Phone:
------------------------------------
Facsimile:
--------------------------------
SECTION 13.08. WAIVERS. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
SECTION 13.09. NO RECORDATION. Tenant shall not record this Lease
without prior written consent from Landlord. The party requiring such recording
shall pay all transfer taxes and recording fees.
SECTION 13.10. BINDING EFFECT; CHOICE OF LAW. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. THE LAWS OF THE STATE OF TEXAS SHALL GOVERN THIS LEASE.
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<PAGE> 61
SECTION 13.11. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is
a corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has fully authority to do so and that this Lease binds the
corporation. Within ten (10) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within ten (10) days
after this Lease is signed, Tenant shall deliver to Landlord a copy of Tenant's
recorded statement of partnership or certificate of limited partnership.
SECTION 13.12. JOINT AND SEVERAL LIABILITY. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
SECTION 13.13. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
If Landlord shall be unable to perform or shall be delayed in the performance of
any obligation under this Lease by reason of events beyond Landlord's control,
such nonperformance or delay in performance shall not render Landlord liable in
any respect for damages to either person or property, constitute a total or
partial eviction, constructive or otherwise, work an abatement of rent or
relieve Tenant from the fulfillment of any covenant or agreement contained in
this Lease.
SECTION 13.14. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
SECTION 13.15. SURVIVAL. All representations and warranties of Landlord
and Tenant not fully performed on the date of the expiration or termination of
this Lease shall survive the termination of this Lease for a period of one year,
except the covenants, warranties, and indemnities of Landlord and Tenant set
forth in Article 5, which shall survive such expiration or termination for the
maximum period of time allowed by law.
SECTION 13.16. GENDER AND NUMBER. Whenever the context so requires
herein, the neuter gender shall include the masculine and feminine, and the
singular number shall include the plural.
ARTICLE 14. BROKERS
SECTION 14.01. BROKER'S FEE. When this Lease is signed by and delivered
to both Landlord and Tenant, Landlord shall pay a real estate commission to
Tenant's Broker named in Section 1.05 above, if any, as provided in the written
commission agreement between Landlord and Tenant's Broker.
SECTION 14.02. PROTECTION OF BROKERS. If Landlord sells the Property,
or assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all future payments to Tenant's
Broker thereafter if required of Landlord under the written commission agreement
described in this Article 14.
SECTION 14.03. NO OTHER BROKERS. Tenant represents and warrants to
Landlord that the brokers named in Section 1.05 above are the only agents,
brokers, finders or other parties with whom Tenant has dealt who are or may be
entitled to any commission or fee with respect to this Lease or the Premises.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED
HERETO OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED,
PLEASE DRAW A LINE THROUGH THE SPACE BELOW.
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<PAGE> 62
Landlord and Tenant have signed this Lease at the place and on the
dates specified adjacent to their signatures below and have initialed all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on , 19 ARGENT FRANKFORD, L.P.,
----------- -- a Texas limited partnership
at
---------------------------- By:
--------------------------------
By:
--------------------------------
"TENANT"
Signed on , 19 ------------------------------------
----------- --
at a
---------------------------- ----------------------------------
By:
--------------------------------
Its:
--------------------------------
By:
--------------------------------
Its:
--------------------------------
<PAGE> 63
RIDER 1
TO
INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT FACILITY)
RENEWAL OPTION
Provided Tenant is not in default and no event has occurred which, with
notice or the passage of time could become a Default when Tenant delivers such
notice, Tenant may renew this Lease for up to ______ consecutive additional
periods of ________ (_____) years each, on the same terms provided in this
Lease, except that the Base Rent payable for each month shall be market rate for
space of equivalent size, quality and utility taking into account the credit
standing of Tenant; Tenant Finish Out, and like factors affecting Tenant's
utilization of the Premises and Landlord's return on investment from the
Premises ("Renewal Rate"), as mutually agreed by Landlord and Tenant. Tenant
shall deliver written notice to Landlord indicating whether or not Tenant elects
to preserve its option to extend the Term no later than 270 days prior to the
expiration of the Term ("Election Date"). Within 30 days after the Election
Date, Landlord shall provide Tenant with a proposed Base Rent Renewal Rate. The
proposed Renewal Rate shall be determined by Landlord in its reasonable
discretion, taking into account the factors described herein above. If Tenant
shall object to Landlord's proposed Renewal Rate, Landlord and Tenant shall, by
mutual agreement of the parties, either (i) negotiate in good faith to determine
a mutually acceptable Renewal Rate or (ii) enter into non-binding mediation. If
Landlord and Tenant reach mutual agreement as to the Renewal Rate on or before
the day 180 days prior to the expiration of the Term (the "Renewal Deadline"),
such rate shall be the Renewal Rate, and Landlord and Tenant shall enter into an
agreement confirming Tenant's exercise of this renewal option at such Renewal
Rate. If Landlord and Tenant fail to reach mutual agreement on or before the
Renewal Deadline, this renewal option shall be null and void. Notwithstanding
anything contained herein to the contrary: (a) if Tenant fails to deliver
written notice indicating whether or not it elects to preserve its option to
extend prior to the Election Date, Tenant shall be deemed to have elected not to
extend the Term and the renewal option set forth herein shall automatically
terminate, and (b) Tenant's rights hereunder shall terminate if (i) this Lease
expires or is canceled, or because of an event of Default, this Lease or
Tenant's right to possession of the Premises is terminated, or (ii) Tenant fails
to timely exercise its option hereunder time being of the essence with respect
to Tenant's exercise thereof.
<PAGE> 64
EXHIBIT "C"
CONSTRUCTION AGREEMENT
1. Build to Suit.
(a) Preliminary Drawings. Attached as Exhibit "B-1" are the
preliminary plans, drawings and outline specifications for the construction of
the Building and the Tenant Finish Out on the Premises which are hereby approved
by Landlord and Tenant (the "Preliminary Drawings").
(b) Design Drawings. Landlord shall cause to be prepared all
drawings for the Building and the Tenant Finish Out depicted on the Preliminary
Drawings, including, without limitation, working drawings, construction
drawings, electrical, plumbing and mechanical drawings and specifications
necessary to construct the Building and the Tenant Finish Out (the "Design
Drawings"). The initial Design Drawings shall be delivered to Tenant as soon as
reasonably practicable after the execution of this Lease. Tenant shall notify
Landlord whether it approves of the submitted Design Drawings within seven (7)
days after Landlord's submission thereof. If Tenant disapproves of such Design
Drawings, then Tenant shall notify Landlord thereof specifying in detail the
reasons for such disapproval, in which case, Landlord shall correct the
submitted Design Drawings and deliver them to Tenant for its approval within
three (3) days after Landlord receives Tenant's notice disapproving the
submitted design Drawings. Tenant shall have three (3) days to approve or
disapprove the resubmitted Design Drawings, and Landlord shall have five (5)
days to correct any such resubmitted Design Drawings disapproved by Tenant. This
process shall be repeated until the Design Drawings have been finally approved
by Landlord and Tenant, such approval to be evidenced by the parties' execution
of the approved Design Drawings.
(c) Construction Drawings. Landlord shall cause to be prepared
all Construction Drawings for the Building and the Tenant Finish Out depicted on
the Design Drawings, including, without limitation, working drawings,
construction drawings, electrical, plumbing and mechanical drawings and
specifications necessary to construct the Building and tenant finish out (the
"Construction Drawings"). The Construction Drawings shall be delivered to Tenant
as soon as reasonably practicable after the parties' execution of the Design
Drawings. Tenant shall notify Landlord whether it approves of the submitted
Construction Drawings within three (3) days after Landlord's submission thereof.
If Tenant disapproves of such Construction Drawings, then Tenant shall notify
Landlord thereof specifying in detail the reasons for such disapproval, in which
case, Landlord shall correct the submitted Construction Drawings and deliver
them to Tenant for its approval within five (5) days after Landlord receives
Tenant's notice disapproving the submitted Construction Drawings. Tenant shall
have three (3) days to approve or disapprove the resubmitted Construction
Drawings, and Landlord shall have five (5) days to correct any such resubmitted
Construction Drawings disapproved by Tenant. This process shall repeated until
the Construction Drawings have been finally approved by Landlord and Tenant,
such approval to be evidenced by the parties' execution of the approved
Construction Drawings.
(d) Changes. Tenant may from time to time make changes to the
Construction Drawings by delivering written notice to Landlord, specifying in
detail the requested change. If Tenant requests any changes to any submitted
Construction Drawings that relate to matters other than changes necessary to
conform the Construction Drawings to the Design Drawings or requests any changes
to the approved Construction Drawings, then (1) before any such change will be
made, Tenant shall pay in cash (on or before the earlier of ten (10) days after
invoice by Landlord or Tenant's occupancy of the Premises) all additional costs
in excess of the Tenant Finish Out Allowance as detailed in Section 5 of this
Exhibit "C" in designing and constructing the Building and the Tenant Finish Out
as a result of any such changes and (2) all delays in designing, reviewing of
Tenant Improvement Provisions, and constructing the Building and the Tenant
Finish Out caused by such changes shall not delay the Commencement Date.
2. Construction of Building and Tenant Finish Out. Landlord shall, with
in thirty (30) days following approval of the Construction Drawings, enter into
a contract or contracts to construct the Building and Tenant Finish Out;
provided that if Landlord fails to enter such construction contract or contracts
within thirty (30) days following approval of the Construction Drawings, this
Lease shall terminate and be of no further force or effect. Landlord shall
diligently construct the Building and the Tenant Finish Out in accordance with
the Construction Drawings in a good and workmanlike manner using materials
specified in the Construction Drawings and in compliance with all applicable
codes, ordinances, rules and regulations applicable to the Building and the
Tenant Finish Out (collectively, the "Laws") applicable at the time the initial
building permit is obtained and shall pay for all permits, licenses, and all
other governmental improvements requisite for the construction thereof. In the
event Landlord is required by the Laws to make changes to the Construction
Drawings, Landlord shall provide written notice to Tenant prior to such changes.
Additionally, Landlord may make changes to the Construction Drawings at
Landlord's sole cost without Tenant's approval provided (i) such changes relate
only to the Building and (ii) Landlord provides Tenant notice of such changes.
Landlord assumes no liability for special, consequential, or incidental damages
of any kind whatsoever in connection with the design or construction of the
Building or the Tenant Finish Out, and makes no representations, warranties, or
guaranties regarding the same, expressed or implied, including, without
limitation, warranties of merchantability, fitness for a particular purpose, or
of habitability, except for the assignment of one-year contractor construction
warranties provided in the next sentence.
<PAGE> 65
Landlord shall assign to Tenant, without recourse or warranty, all
warranties obtained by Landlord in connection with the Tenant Finish Out. Each
such warranty shall survive Substantial Completion of the warranted improvement
for a minimum period of one (1) year after Substantial Completion.
3. Substantial Completion. The architect (the "Project Architect")
engaged by Landlord to design and inspect the construction of the Building and
the Tenant Finish Out shall confer with a representative of the Tenant
concerning (i) the substantial completion of the Building and the Tenant Finish
Out prior to submitting the Project Architect's Certificate of Substantial
Completion and (ii) preparation of the punch list (as herein described) in
conjunction with the Project Architect's submission of the punch list to the
Landlord. Substantial Completion (herein so-called) shall occur when each of the
following conditions is satisfied: the Building and the Tenant Finish Out are
substantially completed in accordance with the approved Construction Drawings as
certified by the Project Architect utilizing AIA document G704, Certificate of
Substantial Completion; Landlord has requested of the building inspection
division for the city in which the Premises is located a final certificate of
occupancy for the Premises; and Landlord has tendered to Tenant physical
possession thereof. Substantial Completion shall have occurred even though minor
details of construction, decoration, landscaping, and mechanical adjustments
remain to be completed by Landlord. Landlord shall use all reasonable efforts to
complete the punch list of incomplete, minor, detail items prepared by the
Project Architect in conjunction with the Certificate of Substantial Completion
within thirty (30) days after the date of Substantial Completion, except as to
such items that, by their nature, will take a longer period to complete as set
forth in the punch list.
4. Commencement Date. The Commencement Date (herein so-called) of the
Lease shall be the date of Substantial Completion of the Tenant Finish Out. The
Target Date (herein so-called) for Substantial Completion of the Building and
the Tenant Finish Out is ____________________. If Substantial Completion is
delayed because of (a) any acts or omissions of a Tenant, (b) changes requested
by Tenant to any submitted Drawings that relate to matters other than changes
necessary to conform such drawings to the Preliminary Drawings or to comply with
Laws, or (c) changes requested by Tenant in the approved Drawings other than
changes necessary to conform such drawings with the Laws, then the Commencement
Date shall not be extended, but rather shall occur on the date on which it would
have occurred but for such act, omission, or event. Each day of delay in
Substantial Completion caused by the acts, omissions, or events described in
clauses (a), (b) or (c) of the preceding sentence or by a Tenant is herein
called a "Tenant Delay Day". If the actual date of Substantial Completion is
delayed beyond the Target Date, then Landlord shall have no liability therefor
and the date of Substantial Completion shall be extended by the period of all
Tenant Delay Days. This Lease shall remain in full effect notwithstanding any
delay in Substantial Completion.
5. Allocation of Construction Costs. Landlord shall be obligated to pay
a maximum of __________________________________ Dollars ($__________) toward the
cost of design and construction of the Tenant Finish Out (including, without
limitations, all costs associated with awarding and managing such design and
construction), and Tenant shall be obligated to pay (due within ten (10) days of
invoice by Landlord) to Landlord a minimum of
___________________________________ Dollars ($_____________) toward the cost of
Tenant Finish Out described in the Preliminary Drawings. In the event the cost
of construction of Tenant Finish Out exceeds
_____________________________________ Dollars ($____________) (the "Tenant
Finish Out Allowance"), Tenant shall pay in cash (due on or before the earlier
of ten (10) days after invoice by Landlord or Tenant's occupancy of the
Premises) to Landlord all reasonable costs in excess of the Tenant Finish Out
Allowance. All other work required to design and construct the Building and the
Tenant Finish Out (the "Additional Work") and the changes described in Section
1(d)(1) of this Exhibit C shall be performed at Tenant's additional expense.
Tenant shall pay in cash (due on or before the earlier of ten (10) days after
invoice by Landlord or Tenant's occupancy of the Premises) to Landlord the costs
of any Additional Work reflected either by the change order memorializing such
Additional Work under the contract for construction of the Tenant Finish Out
prior to Landlord's final execution of the change order, or by the Project
Architect's estimate of design cost attributable to the Additional Work. Any
other costs attributable to Additional Work which are not paid in advance by
Tenant shall be billed to and paid by the Tenant prior to Tenant's occupancy of
the Premises.
6. Condition of Premises at Delivery. Prior to delivery of the Premises
to Tenant and occupancy thereof by Tenant, Landlord will cause to be removed
from the Premises all rubbish, tools, scaffolding, and surplus materials and
will cause the Premises, interior and exterior, to be cleaned in accordance with
commercially reasonable standards to be set forth in the construction contract
for the construction of the Building and the Tenant Finish Out and ready for
occupancy. All floors, floor coverings, roof areas, and glass will be cleaned,
both interior and exterior. The heating, plumbing and air conditioning systems
and all utility services will be installed and connected and in good working
order, subject to Tenant's obligations and responsibilities set forth in Section
6 of the Lease.
Exhibit "C", Page 2 of 2
<PAGE> 66
EXHIBIT "E"
SUBORDINATION, NONDISTURBANCE AND
ATTORNMENT AGREEMENT
THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT (this
"Agreement") is made this ______ day of _________________, 199___, by and among
____________, a ___________ chartered banking institution (hereinafter called
"Mortgagee"), _____________________, a _________________ (hereinafter called
"Tenant") and _______________, a ___________________ (hereinafter called
"Landlord").
W I T N E S S E T H:
WHEREAS, Mortgagee is or will be the owner and holder of a
____________________________ (hereinafter called the "Mortgage"), covering the
real property described in Exhibit "A" attached hereto and made a part hereof
and the Building and improvements thereon (hereinafter collectively called the
"Property") securing the payment of a promissory note in the stated principal
amount of $________, executed by Landlord and payable to the order of Mortgagee;
and
WHEREAS, Tenant is the holder of a lease (hereinafter called the
"Lease") dated , 19 , by and between Landlord, as the landlord, and Tenant, as
the tenant, covering that portion of the Property described therein (hereinafter
called the "Leased Premises"); and
WHEREAS, Landlord, Tenant and Mortgagee desire to confirm and agree
upon certain of their rights and obligations with respect to the Lease and the
Mortgage;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Landlord, Tenant and Mortgagee hereby agree and covenant as
follows:
1. Subordination. The Lease now is, and shall at all times continue to
be, subject and subordinate in each and every respect, to the Mortgage and to
any and all increases, renewals, modifications, extensions, substitutions,
replacements and/or consolidations of the Mortgage.
2. Nondisturbance. So long as Tenant is not in default (beyond any
period given Tenant in the Lease to cure such default) in the payment of rent or
in the performance of any of the terms, covenants or conditions of the Lease on
Tenant's part to be performed, (i) Tenant's possession of the Leased Premises
and Tenant's rights and privileges under the Lease, or any extensions or
renewals thereof, or expansions into additional space within the Property which
may be effected in accordance with the terms of the Lease, shall not be
diminished or interfered with by Mortgagee in the exercise of any of its rights
under the Mortgage, (ii) Tenant's occupancy of the Leased Premises or any such
expansion space shall not be disturbed by Mortgagee in the exercise of any of
its rights under the Mortgage during the term of the Lease or any such
extensions or renewals thereof, and (iii) Mortgagee will not join Tenant as a
party defendant in any action or proceeding for the purpose of terminating
Tenant's interest and estate under the Lease because of any default under the
Mortgage.
3. Attornment. In the event any proceedings are brought for the
foreclosure of the Mortgage or if the Property be sold pursuant to a trustee's
sale under the Mortgage, or upon a transfer of the Property by conveyance in
lieu of foreclosure, Tenant shall attorn to the purchaser upon any such
foreclosure sale or trustee's sale or transfer in lieu thereof and shall
recognize such purchaser as the Landlord under the Lease. Such attornment shall
be effective and self-operative without the execution of any further instrument
on the part of any of the parties hereto. Tenant agrees, however, to execute and
deliver at any time and from time to time, upon the request of Landlord or of
any holder(s) of any of the indebtedness or other obligations secured by the
Mortgage or any such purchaser, any instrument or certificate which, in the
reasonable judgment of Landlord or of such holder(s) or such purchaser, may be
necessary or appropriate in any such foreclosure proceeding or otherwise to
evidence such attornment. Tenant hereby irrevocably appoints Mortgagee and any
other or future holders of the indebtedness or other obligations secured by the
Mortgage or any such purchaser, jointly and severally, the agent and attorney in
fact of Tenant to execute and deliver for and on behalf of Tenant any such
instrument or certificate. Such power of attorney shall not terminate on
disability of the principal and may be revoked only by written instrument
recorded in the Real Property Records of Collin County, Texas. In the event of
any such attornment, Tenant further waives the provisions of any statute or rule
of law, now or hereafter in effect, which may give or purport to give Tenant any
right or election to terminate or otherwise adversely affect the Lease and the
obligations of Tenant thereunder as a result of any such foreclosure proceeding,
trustee's sale or conveyance in lieu thereof.
4. Foreclosure and Sale. If Mortgagee shall succeed to the interest of
Landlord under the Lease in any manner, or if any purchaser acquires the Leased
Premises upon any foreclosure of the Mortgage or any trustee's sale under the
Mortgage, Mortgagee or such purchaser, as the case may be, shall have the same
remedies by entry, action or otherwise in the event of any default by Tenant
(beyond any period given to Tenant in the Lease to cure such default) in the
payment of rent or additional rent or in the performance of any of the terms,
covenants and conditions of the Lease on Tenant's part to be performed that
Landlord had or would have had if Mortgagee or such purchaser had not succeeded
to the interest of Landlord. From and after attornment by Tenant, Mortgagee or
such purchaser shall be bound to Tenant under all of the terms, covenants,
<PAGE> 67
and conditions of the Lease, and Tenant shall, from and after the succession to
the interest of Landlord under the Lease by Mortgagee or such purchaser, have
the same remedies against Mortgagee or such purchaser for the breach of an
agreement contained in the Lease that Tenant might have had under the Lease
against Landlord if Mortgagee or such purchaser had not succeeded to the
interest of Landlord; provided further, however, that Mortgagee or such
purchaser shall not in any event be:
(a) liable for any act or omission of any prior landlord
(including Landlord); or
(b) subject to any offsets or defenses which Tenant might have
against any prior landlord (including Landlord); or
(c) bound by any rent or additional rent which Tenant might have
paid for more than the current month to any prior landlord
(including Landlord), or by any security deposit, cleaning
deposit or other prepaid charge which Tenant might have paid
in advance to any prior landlord (including Landlord), unless
actually received by Mortgagee or such purchaser; or
(d) bound by or liable for any obligation of the landlord to pay
any sums of money to or for the benefit of or on behalf of
Tenant for concessions or inducements granted to Tenant by the
landlord (including Landlord) except as expressly set forth in
the Lease; or
(e) bound by any amendment or modification of the Lease made
without its consent.
5. Acknowledgment and Agreement by Tenant. Tenant acknowledges
and agrees that:
(a) Mortgagee, in making any disbursements to Landlord, is under
no obligation or duty to oversee or direct the application of
the proceeds of such disbursements, and such proceeds may be
used by Landlord for purposes other than improvement of the
Property.
(b) From and after the date hereof, in the event of any act or
omission by Landlord which would give Tenant the right, either
immediately or after the lapse of time, to cease paying rent
or terminate the Lease or to claim a partial or total
eviction, Tenant will not exercise any such right:
(i) until it has given written notice of such act or
omission to Mortgagee; and
(ii) if Landlord shall have failed to cure such default
within the time provided for in the Lease, then the
Mortgagee shall have an additional thirty (30) days
within which to cure such default or if such default
cannot be cured within that time, then such
additional time as may be necessary to cure such
default shall be deemed granted to Mortgagee if
within such thirty (30) days Mortgagee has commenced
and is diligently pursuing the remedies necessary to
cure such default (including, but not limited to,
commencement of foreclosure proceedings, if necessary
to effect such cure), in which event the Lease shall
not be terminated while such remedies are being so
diligently pursued.
(c) It has notice that the Lease and the rent and all other sums
due thereunder have been assigned or are to be assigned to
Mortgagee as security for the Loan secured by the Mortgage. In
the event that Mortgagee notifies Tenant of a default under
the Mortgage and demands that Tenant pay its rent and all
other sums due under the Lease to Mortgagee, Tenant shall
honor such demand and pay its rent and all other sums due
under the Lease directly to Mortgagee or as otherwise required
pursuant to such notice.
(d) It shall send a copy of any notice or statement claiming a
default by Landlord under the Lease to Mortgagee at the same
time such notice or statement is sent to Landlord.
(e) This Agreement satisfies any condition or requirements in the
Lease relating to the granting of a non-disturbance agreement.
6. Acknowledgment an Agreement by Landlord. Landlord, as landlord under
the Lease and mortgagor or grantor under the Mortgage, acknowledges and agrees
for itself and its successors and assigns, that:
(a) This Agreement does not:
(i) constitute a waiver by Mortgagee of any of its rights
under the Mortgage; and/or
(ii) in any way release Landlord from its obligations to
comply with the terms, provisions, conditions,
covenants, agreements and clauses of the Mortgage;
(b) The provisions of the Mortgage remain in full force and effect
and must be complied with by Landlord; and
(c) In the event of a default under the Mortgage, Tenant may pay
all rent and all other sums due under the Lease to Mortgagee
as provided in this Agreement.
Exhibit "E", Page 2 of 4
<PAGE> 68
7. Notice. All notices to be delivered hereunder to Mortgagee shall be
deemed to have been duly given if mailed under United States registered or
certified mail, with return receipt requested, postage prepaid to Mortgagee at
________________________ (or at such other address as shall be given in writing
by Mortgagee to Tenant) and shall be deemed complete upon any such mailing.
8. Miscellaneous.
(a) This Agreement supersedes any inconsistent provision of the
Lease.
(b) Mortgagee shall have no obligations nor incur any liability
with respect to any warranties of any nature whatsoever,
whether pursuant to the Lease or otherwise, including, without
limitation, any warranties respecting use, compliance with
zoning, Landlord's title, Landlord's authority, habitability,
fitness for purpose or possession.
(c) This Agreement shall inure to the benefit of the parties
hereto, their respective successors and permitted assigns;
provided, however, that in the event of the assignment or
transfer of the interest of Mortgagee, all obligations and
liabilities of Mortgagee under this Agreement shall terminate,
and thereupon all such obligations and liabilities shall be
the responsibility of the party to whom Mortgagee's interest
is assigned or transferred.
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MORTGAGEE:
,
----------------------------------
a chartered banking institution
---------------------
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
TENANT:
,
--------------------------------------------------
a
------------------------------
By:
--------------------------------------------------
Name: (Printed)
------------------------------------------------
Title:
-----------------------------------------------
LANDLORD:
--------------------------------------------------
a
------------------------------
By:
--------------------------------------------------
Name: (Printed)
------------------------------------------------
Title:
-----------------------------------------------
<PAGE> 69
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this ________ day of
_____________, 199___, by _______________________________ , of Compass Bank, a
Texas state chartered banking institution, on behalf of said bank.
[SEAL]
--------------------------------------
Notary Public, State of Texas
STATE OF TEXAS )
)
COUNTY OF )
This instrument was acknowledged before me on this ______ day of
____________________, 199___, by _______________________________, of
____________________________, a _______________________, on behalf of said
____________________.
[SEAL]
--------------------------------------
Notary Public, State of Texas
STATE OF TEXAS )
)
COUNTY OF )
This instrument was acknowledged before me on this ______ day of
____________________, 199___, by _______________________________, of
____________________________, a corporation, on behalf of said corporation.
[SEAL]
--------------------------------------
Notary Public, State of Texas
<PAGE> 70
EXHIBIT "F"
ESTOPPEL CERTIFICATE
The undersigned, ___________________________, does hereby make the following
statements:
Article 1. The undersigned is the Tenant under a certain Lease dated
_____________________, with ______________________________, as
Landlord, leasing the Premises commonly known as _________________
__________________________________.
Article 2. The Lease dated ______________________ is in full force and effect
and the undersigned is aware of no defaults under the terms and
conditions of the Lease and has no offsets against rentals due the
Landlord or to become due the Landlord.
Article 3. The undersigned accepted possession of the Premises on _________,
the Lease Term began on ________________, and ends on
________________, pursuant to the terms and conditions of the
Lease.
Article 4. The total Base Rent to be paid pursuant to the terms of said Lease
is not less than $____________________ and no Base Rent has been
paid more than one month in advance.
Article 5. In the event of a default by the Landlord under any of the terms
and conditions of the Lease, the undersigned at the same time
notice thereof is given to the Landlord, will notify the holder of
any first mortgage or deed of trust covering the Property,
provided Landlord has provided Tenant the address of such
mortgagee. In the event that the default is not cured by the
Landlord within the time provided for under the terms and
conditions of the Lease and provided the Mortgagee has given the
undersigned written notice of mortgagee's intention to cure such
default, the undersigned will allow the mortgagee the opportunity
and sufficient additional time within which to correct Landlord's
default, provided the mortgagee diligently pursues such cure.
--------------------------------
By:
----------------------------
Title:
-------------------------
Date:
--------------------------
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT TO
PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Agreement")
is made and entered into as of July 23, 1999 (the "Effective Date"), by and
between ARGENT FRANKFORD, L.P., a Texas limited partnership ("Seller"), and HOME
INTERIORS & GIFTS, INC. a Texas corporation ("Buyer").
-----------------------------
W I T N E S S E T H :
A. Seller and Purchaser entered into that one certain Purchase and Sale
Agreement (the "Agreement") with an effective date of July 19, 1999.
B. Seller and Purchaser hereby intend to amend the Agreement as more
particularly provided herein.
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Exhibit "D" to the Agreement is deleted and the Exhibit "D" attached to
this First Amendment is substituted in its place for all purposes.
2. The first sentence of Section 16.D.(6) is hereby amended and restated
as follows:
Closing shall occur in accordance with the terms of Section 6 of
this Agreement on the date provided in the Option Notice
(extended, if necessary, in accordance with Section 16.D.3.(e),
above), subject to the following terms:
3. Section 16.D.(8) is hereby deleted from the Agreement.
4. Buyer hereby acknowledges that it does not intend to exercise the right
to terminate the Agreement pursuant to Section 5 thereof; provided,
however, that such election shall not extend to or otherwise affect any
other right of termination granted to Buyer under the Agreement.
5. Except as amended hereby, the Agreement is in full force and effect.
[The remainder of this page is left blank intentionally.]
<PAGE> 2
EXECUTED as of the day and year first above set forth, which shall be
the Effective Date of this First Amendment for all purposes.
SELLER:
ARGENT FRANKFORD, L.P.,
a Texas limited partnership
By: ARGENT FRANKFORD GP, LLC,
a Texas limited liability company
its General Partner
By: /s/ C. E. CORNUTT
---------------------------------
Name: C. E. Cornutt
Title: President
BUYER:
HOME INTERIORS & GIFTS, INC.
a Texas corporation
By: /s/ BETTINA S. SIMON
---------------------------------
Name: Bettina S. Simon
--------------------------
Title: Vice President, General
Counsel and Secretary
--------------------------
2
<PAGE> 3
DRAFT: JULY 23, 1999
EXHIBIT "D"
TO PURCHASE AND SALE AGREEMENT
INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT FACILITY)
THIS LEASE AGREEMENT (the "Lease") is entered into as of the ___ day of
________, 2000, between ARGENT FRANKFORD, L.P. a Texas limited partnership
("Landlord"), and HOME INTERIORS & GIFTS, INC., a Texas corporation ("Tenant").
ARTICLE 1. BASIC TERMS
This Article 1 contains the Basic Terms of this Lease between the
Landlord and Tenant. Other Articles and Sections of the Lease referred to in
this Article 1 explain and define the Basic Terms and are to be read in
conjunction with the Basic Terms.
SECTION 1.01. PROPERTY AND PREMISES. The Property (herein so-called) is
described on Exhibit "A" attached hereto and incorporated herein for all
purposes and is part of Landlord's real property industrial park development
located in Carrollton, Texas known as Frankford Trade Center and described or
depicted in the site plan attached as Exhibit "B" (the "Project"). The Project
includes the land and the buildings and all other improvements located or to be
located thereon including, without limitation the Premises (hereinafter defined)
and property subsequently acquired by Landlord and incorporated into the
Project. Tenant's Premises (herein so-called) includes the Property, the
approximately 659,340 square foot Building (herein so-called) and related Tenant
Finish Out (herein so-called) located or to be located on the Property as shown
on Exhibit B, described thereon as the Building Floor Plate, and as more
particularly described in the Purchase and Sale Agreement (the "PSA") dated July
19, 1999, by and between Landlord and Tenant.
SECTION 1.02. LEASE TERM. Ten (10) years and no months, beginning on
[per the PSA] (the "Commencement Date") and ending on or about ________________,
_________ [per the PSA].
SECTION 1.03. PERMITTED USES. (See Article 5) The Premises may be used
only for storage, warehousing, and distribution of Tenant's decorative
accessories for home and office, as well as general office use and parking
related thereto. The Permitted Uses may be altered only in accordance with
Article 5 of this Lease.
SECTION 1.04. TENANT'S GUARANTOR. (If none, so state) None.
SECTION 1.05. BROKERS. (See Article 14) (If none, so state)
------------
Landlord's Broker: Cushman & Wakefield of Texas, Inc.
-------------------------------------------------------------
Tenant's Broker: Staubach
-------------------------------------------------------------
SECTION 1.06. COMMISSIONS PAYABLE TO BROKERS. (See Article 14) (If
none, so state)
A. To Landlord's Broker: as per separate agreement
-------------------------------------
B. To Tenant's Broker: as per separate agreement
-------------------------------------
SECTION 1.07. INITIAL SECURITY DEPOSIT. (See Section 3.02) None
-------------
SECTION 1.08. VEHICLE PARKING SPACES ALLOCATED TO TENANT. (Section
5.01B) All spaces located on the Property.
SECTION 1.09. RENT AND OTHER CHARGES PAYABLE BY TENANT.
A. BASE RENT. [per PSA] Dollars ($____________) per annum,
payable in monthly installments of __________________________________________
Dollars ($____________) per month for the first _________ (_____) months, as
provided below in accordance with Section 3.01 and thereafter as shown in the
following table:
<PAGE> 4
<TABLE>
<CAPTION>
- ------------------------------------------------
TERM BASE RENT MONTHLY
INSTALLMENT
- ------------------------------------------------
<S> <C> <C>
Years 1-5
- ------------------------------------------------
Year 6-10
- ------------------------------------------------
</TABLE>
B. ITEMS OF ADDITIONAL RENT. (i) Real property taxes (See
Section 4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See
Section 4.04); and (iv) Management, Maintenance, Repairs and Alterations of the
Premises (See Sections 4.05, 4.06 and Article 6).
C. RENT. The term "Rent" shall mean Base Rent and Additional
Rent.
SECTION 1.10. RIDERS. The following Riders are attached to and made a
part of this Lease: (If none, so state) Rider 1 Renewal Option
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION 1.11. EXHIBITS. The following Exhibits "A" through "G" and
Rider 1 are attached to and made a part of this Lease:
<TABLE>
<CAPTION>
Exhibit Lease Section Description
------- ------------- -----------
<S> <C> <C>
A 1.01 Property
B 1.01 Site Plan of Project and Building Features
C [intentionally omitted]
D 5.03B. Permitted Hazardous Materials
E 11.02 Subordination, Nondisturbance and Attornment
Agreement
F 11.05A. Estoppel Certificate
G 15 Tax Deferred Exchange/Purchase Option
Rider 1 Renewal Option
</TABLE>
SECTION 1.12. PURCHASE AND SALE AGREEMENT PROVISIONS. Each provision of
the PSA specifically referred to in this Lease shall survive the termination of
the PSA and is incorporated herein by this reference to the extent required for
the parties' performance and enforcement of this Lease.
ARTICLE 2. LEASE TERM
SECTION 2.01. LEASE OF PREMISES FOR LEASE TERM. Landlord leases the
Premises to Tenant and Tenant leases the Premises from Landlord for the Lease
Term and for any renewal term(s) the option for which is exercised by Tenant
pursuant to the Renewal Option Rider (if any) described in Section 1.10. The
Lease Term is for the period stated in Section 1.02 above and shall begin on the
date specified in Section 1.02 above, unless the beginning of the Lease Term is
changed under any provision of this Lease. The "Commencement Date" shall be the
date specified in Section 1.02 above for the beginning of the Lease Term, unless
advanced or delayed under any provision of this Lease.
SECTION 2.02. INTENTIONALLY DELETED.
SECTION 2.03. INTENTIONALLY DELETED.
SECTION 2.04. INTENTIONALLY DELETED.
SECTION 2.05. HOLDING OVER. Tenant shall vacate the Premises upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Premises; such damages to include, without
limitation, an amount equal to the sum of (i) One Hundred Thirty Five Percent
(135%) of the amount of the Rent for the entire holdover period, plus (ii) all
reasonable attorneys' fees and other expenses incurred by Landlord in enforcing
its rights under this Lease. If Tenant does not vacate the Premises upon the
expiration or earlier termination of the Lease and Landlord thereafter accepts
Rent from Tenant, Tenant's occupancy of the Premises shall be a "month-to-month"
tenancy, subject to all of the terms of this Lease consistent with a
month-to-month tenancy, except that Rent then in effect shall be increased to
One Hundred Thirty Five Percent (135%) of the amount of the Rent.
ARTICLE 3. BASE RENT
SECTION 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Section 1.09A
above for the first month of the Lease Term. On the first day of the second
month of the Lease Term and each month thereafter, the Base Rent shall be due
and payable, and Tenant
-2-
<PAGE> 5
shall pay Landlord the Base Rent, in advance, on each
such due date, without offset, deduction, or prior demand. The Base Rent shall
be payable at Landlord's address or at such other place as Landlord may
designate in writing.
SECTION 3.02. INTENTIONALLY DELETED.
SECTION 3.03. TERMINATION; ADVANCE PAYMENTS. Upon termination of this
Lease under Article 7 (Damage or Destruction), Article 8 (Condemnation) or any
other termination not resulting from Tenant's default and after Tenant has
vacated the Premises in the manner required by this Lease, Landlord shall refund
within thirty (30) days or credit to Tenant (or Tenant's successor) the unused
portion of the Security Deposit, any advance rent or other advance payments made
by Tenant to Landlord, and any amounts paid for real property taxes and other
reserves which apply to any time periods after termination of the Lease.
ARTICLE 4. OTHER CHARGES PAYABLE BY TENANT
SECTION 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent.
SECTION 4.02. PROPERTY TAXES.
A. REAL PROPERTY TAXES. Tenant shall pay Landlord for Landlord's
estimate of all real property taxes on the Property (including any fees, taxes
or assessments against, or as a result of, the Building and all Tenant Finish
Out installed on the Property by or for the benefit of Tenant during the Lease
Term. Such payments shall be made on a monthly basis in accordance with Section
4.06, below. Landlord shall pay such taxes prior to delinquency provided Tenant
has timely made such payments to Landlord. Any penalty caused by Tenant's
failure to timely make such payments shall also be Additional Rent owed by
Tenant immediately upon demand.
B. DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means:
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Property
by any governmental agency; and (iv) any charge or fee replacing any tax
previously included within the definition of real property tax. "Real property
tax" does not, however, include Landlord's federal or state income, franchise,
inheritance or estate taxes.
C. PERSONAL PROPERTY TAXES.
(1) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment, inventory, or any other personal property
belonging to Tenant. Tenant shall render its personal property for taxation
separately from the Premises.
(2) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord for
such personal property taxes.
SECTION 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Premises. Landlord requires Tenant to contract for Tenant's own rubbish
collection.
SECTION 4.04. INSURANCE POLICIES.
A. LIABILITY INSURANCE. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, Premises damage (including both pollution and loss
of use of Premises coverage) and personal injury arising out of the operation,
use or occupancy of the Premises. Tenant shall name Landlord as an additional
insured under such policy. The initial amount of such insurance shall be One
Million Dollars ($1,000,000) per occurrence and shall be subject to periodic
reasonable increase based upon inflation, increased liability awards,
recommendation of Landlord's professional insurance advisers and other relevant
factors. The liability insurance obtained by Tenant under this Section 4.04A
shall be primary and non-contributing and contain cross-endorsements. The amount
and coverage of such insurance shall not limit Tenant's liability nor relieve
the Tenant of any other obligation under this Lease. Landlord may also obtain
comprehensive public liability insurance in an amount and with coverage
determined by Landlord insuring Landlord against liability arising out of
ownership, operation, use or occupancy of the Premises. The policy obtained by
Landlord shall not be contributory and shall not provide primary insurance.
Tenant shall be liable for the payment of any deductible amount under Tenant's
insurance policies maintained pursuant to this Section 4.04A.
-3-
<PAGE> 6
B. BUILDING AND RENTAL INCOME INSURANCE. During the Lease Term,
Landlord shall maintain policies of insurance covering loss of or damage to the
Premises in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Premises. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant,
or Tenant's personal property, on the Premises. During the Lease Term, Landlord
shall also maintain a rental income insurance policy, with loss payable to
Landlord, in an amount equal to one year's Base Rent, plus estimated real
property taxes and insurance premiums. Tenant shall be liable for the payment of
any deductible amount under Landlord's or Tenant's insurance policies maintained
pursuant to this Section 4.04B, in an amount not to exceed Ten Thousand Dollars
($10,000), except that the deductible on flood and earthquake insurance (if any)
shall be Twenty Five Thousand Dollars ($25,000). Tenant shall not do or permit
anything to be done which invalidates any such insurance policies.
C. PAYMENT OF PREMIUMS. Tenant shall pay all premiums for the
insurance policies described in Sections 4.04A. Tenant shall pay Landlord on the
terms provided in Section 4.06 Tenant's premium cost of insurance policies
obtained by Landlord pursuant to Section 4.04B, except Landlord shall pay all
premiums for non-primary comprehensive public liability insurance which Landlord
elects to obtain as provided in Section 4.04A and the costs thereof shall not be
included in the premium costs reimbursable by Tenant to Landlord. If insurance
policies maintained by Landlord cover improvements on real property other than
the Property, Landlord shall deliver to Tenant a statement of the allocation of
premium applicable to the Premises showing in reasonable detail how Tenant's
share of the premium was computed. Before the Commencement Date, Tenant shall
deliver to Landlord a copy of any policy of insurance which Tenant is required
to maintain under this Section 4.04. At least thirty (30) days prior to the
expiration of any such policy, Tenant shall deliver to Landlord a renewal of
such policy. As an alternative to providing a policy of insurance, Tenant shall
have the right to provide Landlord a certificate of insurance, executed by an
authorized officer of the insurance company, showing that the insurance which
Tenant is required to maintain under this Section 4.04 is in full force and
effect and containing such other information which Landlord reasonably requires.
D. GENERAL INSURANCE PROVISIONS.
(1) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance carrier to
give Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(2) If Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this lease within the prescribed time period
or if any such policy is canceled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case Tenant
shall reimburse Landlord for the cost of such insurance (including the
deductible thereon, if applicable) within fifteen (15) days after receipt of a
statement that indicates the cost of such insurance.
(3) Tenant shall maintain all insurance required under this
Lease with companies holding a "General Policy Rating" of A-9 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord and Tenant
acknowledge the insurance markets are subject to change and that insurance in
the form and amounts described in this Section 4.04 may not be available in the
future. Tenant acknowledges that the insurance described in this Section 4.04 is
for the primary benefit of Landlord. If at any time during the Lease Term,
Tenant is unable to maintain the insurance required under the Lease, Tenant
shall nevertheless maintain insurance coverage which is customary and
commercially reasonable in the insurance industry for Tenant's type of business,
as that coverage may change from time to time. Landlord makes no representation
as to the adequacy of such insurance to protect Landlords' or Tenant's interest.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(4) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to the Premises or the
Property or the property of others under either party's control, if such loss or
damage is covered by any insurance policy in force (whether or not described in
this Lease) at the time of such loss or damage. Upon obtaining the required
policies of insurance, Landlord and Tenant shall give notice to the insurance
carriers of this mutual waiver of subrogation.
SECTION 4.05. LANDLORD PROPERTY MANAGEMENT/RELATED COSTS. Tenant shall
pay the Frankford Trade Center Property Owners Association (the "Association")
for those pro rata costs associated with maintenance of landscaping of the
existing Project entrances, maintenance of Project drainage areas, and
monitoring and maintenance of Project environmental systems. If Landlord elects
to enter into a contract with a landscape contractor
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to provide landscape maintenance and minor replacement services for the Project
and Tenant, Tenant shall pay to Landlord Tenant's allocable costs of such
services. From and after such time as members of the Carter family shall no
longer participate in the management of Tenant, Tenant shall also pay to
Landlord one and one half percent (1.5%) of the Base Rent under this Lease for
Landlord's property management services.
SECTION 4.06. PAYMENT OF ADDITIONAL RENT. During the Lease Term,
Landlord shall estimate in advance and notify Tenant of all real property taxes
for which Tenant is liable under Section 4.02 of the Lease, all insurance
premiums for which Tenant is liable under Section 4.04 of the Lease, and all
other Additional Rent payable by Tenant hereunder, including, but not limited
to, any related sales tax thereon. Tenant shall pay Landlord such estimated real
property taxes, insurance premiums, and all other items of Additional Rent
(prorated for any fractional month) on a monthly basis, at the same time Base
Rent shall be due, subject to the terms set forth in this Section; except that
for so long as Tenant shall not be in monetary default under this Lease,Tenant
may elect to pay to Landlord such estimated real property taxes and insurance
premiums in a single annual payment to be received by Landlord on or before (i)
January 1 of each calendar year for the real property taxes due and owing for
the preceding calendar year and (ii) [align with policy year] of each calendar
year (or other date, if any, on which any insurance company providing insurance
required under this Lease shall require payment of premiums pursuant to such
company's billing cycle) in the case of such insurance premiums. The items of
Additional Rent are set out in Section 1.09B. Landlord may adjust Landlord's
estimates of any item of Additional Rent not more often than twice per calendar
year based upon Landlord's reasonable anticipation of costs to be incurred, and
Tenant's Additional Rent shall be adjusted effective as of the next rent payment
date after notice of adjustment is given to Tenant. At Landlord's election,
statements of Additional Rent may be delivered monthly on or before the first
day of each calendar month.
ARTICLE 5. USE OF PREMISES
SECTION 5.01. PERMITTED USES. Tenant may use the Premises only for the
Permitted Uses set forth in Section 1.03 above.
A. RULES AND REGULATIONS. Tenant shall have the right to use the
Premises for the Permitted Uses, subject to such reasonable rules and
regulations as Landlord may establish from time to time. Tenant shall abide by
such rules and regulations.
B. VEHICLE PARKING. Tenant's parking on the Premises shall be
limited to vehicles no larger than standard size automobiles or pickup utility
vehicles along with parking of large delivery vehicles on the Premises at
loading dock stalls or in designated trailer parking areas serving Tenant's
Premises; provided, however, that such parking of large delivery vehicles may be
further regulated by the rules and regulations established by Landlord. Vehicles
shall be parked only in striped parking spaces and not in driveways, loading
areas or other locations not specifically designated for parking.
SECTION 5.02. MANNER OF USE. Tenant shall not cause or permit the
Premises to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which unreasonably annoys or
unreasonably interferes with the rights of other tenants of the Project, which
constitutes a nuisance or waste. Tenant shall obtain and pay for all permits
(other than a Certificate of Occupancy for the Building shell, which Landlord
shall apply for in accordance with the terms of the PSA) required for Tenant's
occupancy of the Premises and Tenant shall immediately take all actions
necessary to comply with all applicable statues, ordinances, rules, regulations,
orders and requirements regulating the use by Tenant of the Premises, including
the Occupational Safety and Health Act.
SECTION 5.03. HAZARDOUS MATERIALS
(1) DEFINITIONS.
(a) "Hazardous Material" means any substance the
presence of which requires notice to any Governmental Agency or investigation or
remediation pursuant to any Environmental Requirement, or is or becomes
regulated by any Governmental Agency, or the presence of which on the Premises
causes or threatens to cause a nuisance or trespass or to otherwise create the
reasonable prospect of the assertion of a claim against the owner of the Project
for Environmental Damages.
(b) "Environmental Requirements" means all applicable
present and future statutes, regulations, rules, ordinances, codes, licenses,
permits, orders, approvals, plans, authorizations, concessions, franchises, and
similar items (including, but not limited to those pertaining to reporting,
licensing, permitting, investigation and remediation), of all Governmental
Agencies; and all applicable judicial, administrative, and regulatory decrees,
judgments, and orders relating to the protection of human health or the
environment effective during the term of this Lease and any renewals or
extensions thereof,
(c) "Environmental Damages" means all claims,
judgments, damages, losses, penalties, fines, liabilities (including strict
liability), encumbrances, liens, costs, and expenses (including the expense of
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investigation and defense of any claim, whether or not such claim is ultimately
defeated, or the amount of any good faith settlement or judgment arising from
any such claim) of whatever kind or nature, contingent or otherwise, matured or
unmatured, foreseeable or unforeseeable (including without limitation reasonably
attorneys' fees and disbursements and consultants' fees) any of which are
incurred at any time as a result of the existence of Hazardous Material upon,
about, or beneath the Premises or migrating or threatening to migrate to or from
the Premises, or the existence of a violation of Environmental Requirements
pertaining to the Premises and the activities thereon, regardless of whether the
existence of such Hazardous Material or the violation of Environmental
Requirements arose prior to the present ownership or operation of the Premises.
(d) "Governmental Agency" means all governmental
agencies, departments, commission, boards, bureaus or instrumentalities of the
United States, states, counties, cities and political subdivisions thereof.
(e) The "Tenant Group" means Tenant, Tenant's officers,
directors, agents, employees, or other parties under the supervision or control
of Tenant or entering the Premises during the term of this Lease with the
permission or knowledge of Tenant other than Landlord or its agents or
employees.
(2) PROHIBITIONS. Other than normal quantities of general
office supplies, and except as specified on Exhibit "D" attached hereto, Tenant
shall not cause, permit or suffer any Hazardous Material to be brought upon,
treated, kept, stored, disposed of, discharged, released, produced,
manufactured, generated, refined or used upon, about or beneath the Project or
the Premises by The Tenant Group, or any other person without the prior written
consent of Landlord. Landlord acknowledges that subsurface biogases which may be
present as of the effective date of this Lease shall not constitute a violation
of this prohibition. From time to time during the term of this Lease, Tenant may
request Landlord's approval of Tenant's use of other Hazardous Materials, which
approval may be withheld in Landlord's sole discretion. Tenant shall, prior to
the Commencement Date, provide to Landlord for those Hazardous Materials (if
any) described on Exhibit "D" a description of handling, storage, use and
disposal procedures, and (b) all "community right to know" plans or disclosures
and/or emergency response plans which Tenant is required to supply to local
governmental agencies pursuant to any Environmental Requirements. Tenant shall
not cause, permit or suffer the existence or the commission by The Tenant Group,
or by any other person, of a violation of any Environmental Requirements upon,
about or beneath the Project. Tenant shall not install, operate or maintain any
above or below grade tank, sump, or pit or install any treatment vessel or
device on the Premises without first obtaining all required permits and
approvals required, if any, by governmental authorities and subsequently
obtaining Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. On-site maintenance or repair of hydraulic
equipment, loading vehicles, or highway vehicles shall not be performed in the
Premises or anywhere in the Project.
(3) INDEMNITY. Tenant, its successors and assigns agree to
indemnify, defend, reimburse and hold harmless Landlord, any other person who
acquires all or a portion of the Project in any manner (including purchase at a
foreclosure sale) or who becomes entitled to exercise the rights and remedies of
Landlord under this Lease, and the directors, officers, shareholders, employees,
partners, agents, heirs, devisees, successors and assigns of such persons, from
and against any and all Environmental Damages which exist as a result of the
activities or negligence of The Tenant Group or which exist as a result of the
breach of any warranty or covenant or the inaccuracy of any representation of
Tenant contained in this Lease, or resulting from Tenant's remediation of the
Project or failure to meet its remediation obligations contained in this Lease.
Landlord shall have the right but not the obligation to join and participate in,
and control, if it so elects, any legal proceedings or actions initiated in
connection with Tenant's activities. Landlord may also negotiate, defend,
approve and appeal any action taken or issued by any applicable governmental
authority with regard to contamination of the Project by a Hazardous Material.
This indemnification is for Environmental Damages caused by the Tenant Group,
and does not include conditions ("Pre-existing Conditions") existing prior to
Tenant's possession of the Premises (which Pre-existing Conditions, if any, have
been disclosed to Tenant in [refer to engineering reports furnished Tenant] ) or
after Tenant's occupancy of the Premises provided that with respect to
conditions existing after Tenant's occupancy of the Premises, Tenant shall, at
Tenant's sole expense, provide to Landlord environmental studies by a nationally
recognized, independent environmental contractor acceptable to Landlord
describing the condition of the Premises at the time Tenant vacates the Premises
sufficient to assure Landlord that there are no Environmental Damages to the
Premises at that time (other than Pre-existing Conditions).
(4) PRIOR INSPECTIONS. Except with respect to Pre-Existing
Conditions, the obligations of Tenant under this Section shall not be affected
by any investigation by or on behalf of Landlord, or by any information which
Landlord may have or obtain with respect thereto.
(5) OBLIGATION TO REMEDIATE. In addition to the obligation
of Tenant to indemnify Landlord pursuant to this Lease, Tenant shall, upon
approval and demand of Landlord, at its sole cost and expense and using
contractors approved by Landlord, immediately take all actions to remediate the
Project which are required by any Governmental Agency, or which are reasonably
necessary to mitigate Environmental Damages, which remediation is necessitated
from the presence upon, about or beneath the Project, at any time during or upon
termination of this Lease, of a Hazardous Material or a violation of
Environmental Requirements existing as a result of the activities or
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negligence of the Tenant Group. Tenant shall take all actions necessary to
restore the Project to the condition existing prior to the introduction of
Hazardous Material upon, about or beneath the Project, notwithstanding any
lesser standard of remediation allowable under applicable law or governmental
policies. This obligation to remediate is for Environmental Damages caused by
the Tenant Group, and does not include Pre-existing Conditions, if any, provided
that with respect to conditions existing after Tenant's occupancy of the
Premises, Tenant shall, at Tenant's sole expense, provide to Landlord
environmental studies by a nationally recognized, independent environmental
contractor acceptable to Landlord describing the condition of the Premises at
the time Tenant vacates the Premises sufficient to assure Landlord that there
are no Environmental Damages to the Premises at that time (other than
Pre-existing Conditions).
(6) RIGHT TO INSPECT. Landlord shall have the right in its
sole and absolute discretion, but not the duty, to enter and conduct an
inspection of the Premises, including invasive tests, at any reasonable time to
determine whether Tenant is complying with the terms of the Lease, including but
not limited to the compliance of the Premises and the activities thereon with
Environmental Requirements and the existence of Environmental Damages as a
result of the condition of the Premises or surrounding properties and activities
thereon. The cost of the Landlord's investigation shall be paid by Landlord
unless such investigation discloses a violation of any Environmental Requirement
by The Tenant Group or the existence of a Hazardous Material on the Premises or
any other surrounding properties caused by the activities or negligence of The
Tenant Group (other than Hazardous Materials used in compliance with all
Environmental Requirements and previously approved in writing by Landlord), in
which case Tenant shall pay such cost. Tenant hereby grants to Landlord, and the
agents, employees, consultants and contractors of Landlord the right to enter
the Premises and to perform such tests on the Premises as are reasonably
necessary to conduct such reviews and investigations. Landlord shall use its
best efforts to minimize interference with the business of Tenant in the conduct
of such reviews and investigations.
(7) NOTIFICATION OF CLAIMS OR CONDITIONS. If Tenant shall
become aware of or receive notice or other communication concerning any actual,
alleged, suspected or threatened violation of Environmental Requirements, or
liability of Tenant for Environmental Damages in connection with the Premises or
past or present activities of any person thereon, then Tenant shall immediately
notify Landlord and furnish a reasonably detailed description of such condition.
Receipt of such notice shall not be deemed to create any obligation on the part
of Landlord to defend or otherwise respond to any such notification.
SECTION 5.04. SIGNS AND AUCTIONS. Other than Tenant's premises signage
and temporary banners which are occasionally place at Tenant's entrance, Tenant
shall not place any signs on the Premises without Landlord's prior written
consent. Tenant shall not conduct or permit any auctions or sheriff's sales at
the Premises.
SECTION 5.05. TENANT'S INDEMNITY. In addition to, and not in limitation
of or substitution for the indemnity by Tenant in Section 5.03C, Tenant shall
indemnify Landlord against and hold Landlord harmless from any and all costs,
claims or liability arising from: (a) Tenant's use of the Premises; (b) the
conduct of Tenant's business or anything else done or permitted by Tenant to be
done in or about the Premises; (c) any breach or default in the performance of
Tenant's obligations under this lease; (d) any misrepresentation or breach of
warranty by Tenant under this Lease; or (e) other acts or omissions of Tenant.
Tenant shall defend Landlord against any such cost, claim or liability at
Tenant's expense with counsel reasonably acceptable to Landlord or, at
Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs
incurred by Landlord in connection with any such claim. AS A MATERIAL PART OF
THE CONSIDERATION TO LANDLORD, TENANT ASSUMES ALL RISK OF DAMAGE TO PREMISES OR
INJURY TO PERSONS IN OR ABOUT THE PREMISES ARISING FROM ANY CAUSE, AND TENANT
HEREBY WAIVES ALL CLAIMS IN RESPECT THEREOF AGAINST LANDLORD, EXCEPT FOR ANY
CLAIM ARISING OUT OF LANDLORD'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. AS USED
IN THIS SECTION, THE TERM ATENANT" SHALL INCLUDE TENANT'S EMPLOYEES, AGENTS,
CONTRACTORS AND INVITEES, IF APPLICABLE.
SECTION 5.06. LANDLORD'S INDEMNITY. Subject to the terms of Section
6.02 of this Lease, so long as no default shall occur or be continuing, Landlord
shall indemnify Tenant against, and hold Tenant harmless from any and all costs,
claims, or liability arising from (i) Environmental Damages caused by or arising
as the result of Pre-existing Conditions, for which Tenant is not liable
pursuant to Section 5.03(5) of this Lease, or (ii) from Landlord's gross
negligence or willful misconduct.
SECTION 5.07. LANDLORD'S ACCESS. Landlord or its agents may enter the
Premises at all reasonable times upon prior reasonable notice to Tenant to
verify that Tenant is in compliance with the terms of this Lease, as well as for
other purposes expressly permitted by the terms of this Lease, provided that (i)
Tenant shall have the right to be present during such entry by Landlord or its
agents, (ii) Landlord shall use its best efforts to minimize interference with
the business of Tenant and (iii) in the case of an emergency, no such notices
shall be required.
SECTION 5.08. QUIET POSSESSION. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Premises for
the full Lease Term, subject to the provisions of this Lease.
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ARTICLE 6. CONDITION OF PREMISES; MAINTENANCE, REPAIRS AND ALTERATIONS
SECTION 6.01. EXISTING CONDITIONS. TENANT ACCEPTS THE PROPERTY IN ITS
EXISTING CONDITION AS OF THE EXECUTION OF THE LEASE, SUBJECT TO ALL RECORDED
MATTERS, LAWS, ORDINANCES, AND GOVERNMENTAL REGULATIONS AND ORDERS. EXCEPT AS
PROVIDED HEREIN OR IN THE PSA, TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY
AGENT OF LANDLORD HAS MADE ANY REPRESENTATION AS TO THE CONDITION OF THE
PREMISES OR THE SUITABILITY OF THE PREMISES FOR TENANT'S INTENDED USE. TENANT
REPRESENTS AND WARRANTS THAT TENANT HAS MADE ITS OWN INSPECTION OF AND INQUIRY
REGARDING THE CONDITION OF THE PREMISES AND IS NOT RELYING ON ANY
REPRESENTATIONS OF LANDLORD OR ANY BROKER WITH RESPECT THERETO (EXCEPT THOSE
REPRESENTATIONS SET FORTH IN THE PSA).
SECTION 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. LANDLORD SHALL NOT
BE LIABLE FOR ANY DAMAGE OR INJURY TO THE PERSON, BUSINESS (OR ANY LOSS OF
INCOME THEREFROM), GOODS, WARES, MERCHANDISE OR OTHER PROPERTY OF TENANT,
TENANT'S EMPLOYEES, INVITEES, CUSTOMERS OR ANY OTHER PERSON IN OR ABOUT THE
PREMISES, WHETHER SUCH DAMAGE OR INJURY IS CAUSED BY OR RESULTS FROM, WITHOUT
LIMITATION: (A) FIRE, STEAM, ELECTRICITY, WATER, GAS OR RAIN; (B) THE BREAKAGE,
LEAKAGE, OBSTRUCTION OR OTHER DEFECTS OF PIPES, SPRINKLERS, WIRES, APPLIANCES,
PLUMBING, AIR CONDITIONING OR LIGHTING FIXTURES OR ANY OTHER CAUSE; (C)
CONDITIONS ARISING IN OR ABOUT THE PREMISES OR UPON OTHER PORTIONS OF THE
PROJECT, OR FROM OTHER SOURCES OR PLACES; OR (D) ANY ACT OR OMISSION OF ANY
OTHER TENANT OF THE PROJECT. LANDLORD SHALL NOT BE LIABLE FOR ANY SUCH DAMAGE OR
INJURY EVEN THOUGH THE CAUSE OF OR THE MEANS OF REPAIRING SUCH DAMAGE OR INJURY
ARE NOT ACCESSIBLE TO TENANT. THE PROVISIONS OF THIS SECTION 6.02 SHALL NOT,
HOWEVER, EXEMPT LANDLORD FROM LIABILITY FOR (I) ENVIRONMENTAL REMEDIATION
OBLIGATIONS FOR WHICH LANDLORD IS LIABLE PURSUANT TO SECTION 5.03(5) OF THIS
LEASE OR (II) LANDLORD'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
SECTION 6.03. LANDLORD'S OBLIGATIONS. Subject to the provisions of
Article 7 (Damage or Destruction) and Article 8 (Condemnation), Landlord shall
keep the following in good order, condition and repair: the foundation,
structural integrity of the exterior walls and the roof of the Building;
provided, however that Landlord shall have absolutely no responsibility to
repair, maintain or replace windows, doors, plate glass or the interior surfaces
of exterior walls. Landlord shall make repairs under this section 6.03 within a
reasonable time after receipt of written notice from Tenant of the need for such
repairs.
SECTION 6.04. TENANT'S OBLIGATIONS.
A. MAINTENANCE BY TENANT. Except as provided in Section 6.03,
Article 7 (Damage or Destruction) and Article 8 (Condemnation), Tenant shall
keep all portions of the Premises in good order, condition and repair
(including, but not limited to, interior and exterior painting, systems and
equipment, roof (to the extent of the preventive maintenance arrangements
hereafter required), parking lot lighting and pavement, landscaping and
irrigation and signage provided that, except for damage caused by Tenant, Tenant
shall not be responsible for replacement of the roof or replacement of the
parking lot pavement). If any portion of the Premises or any system or equipment
in the Premises which Tenant is obligated to repair cannot be fully repaired or
restored, Tenant shall promptly replace such portion of the Premises or system
or equipment in the Premises, regardless of whether the benefit of such
replacement extends beyond the Lease Term; but if the benefit or useful life of
such replacement extends beyond the Lease Term (as such term may be extended by
exercise of any options), the useful life of such replacement shall be prorated
over the remaining portion of the Lease Term (as extended), and Tenant shall be
liable only for that portion of the cost which is applicable to the Lease Term
(as extended). Tenant will maintain temperature of Premises sufficient to avoid
freezing the sprinkler system. Tenant shall maintain preventive maintenance
arrangements involving regular inspection and maintenance of the heating,
ventilation, and air conditioning system by a licensed contractor, and of the
roof by a roofing contractor, each reasonably approved in advance by the
Landlord. If any part of the Project is damaged by any act or omission of
Tenant, Tenant shall pay Landlord the cost of repairing or replacing such
damaged property, whether or not Landlord would otherwise be obligated to pay
the cost of maintaining or repairing such property. It is the intention of
Landlord and Tenant that at all times Tenant shall maintain the Premises in an
attractive, first class, and fully operative condition.
B. LANDLORD REMEDY. Tenant shall fulfill all of Tenant's
obligations under this Section 6.04 at Tenant's sole expense. If Tenant fails to
maintain, repair or replace the Premises as required by this Section 6.04,
Landlord may, upon ten (10) days' prior notice to Tenant (except that no notice
shall be required in the case of an emergency), enter the Premises and perform
such maintenance or repair (including replacement, as needed) on behalf of
Tenant. In such case, Tenant shall reimburse Landlord for all reasonable costs
incurred in performing such maintenance or repair immediately upon demand.
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C. SECURITY SERVICES. Tenant, at Tenant's sole cost, may contract
for installation of security devices for the Premises from a reputable
contractor. Monitoring of such devices, if any, shall be performed by a Security
Contractor acceptable to Landlord, in Landlord's reasonable discretion.
D. MECHANIC'S LIENS. Tenant will not permit any mechanic's liens,
or other liens, to be placed upon the Premises or the Project during the Lease
Term or any extension or renewal thereof, and in case of the filing of any such
lien, Tenant will immediately pay same. Tenant agrees to pay all reasonable
legal fees that might be incurred by Landlord because of any mechanic's liens
being placed upon the Premises, as a result of Tenant's actions.
SECTION 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
A. NOTICE AND CONSENT. Tenant shall not make any alterations,
additions, or improvements to the Premises without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed except that
Tenant may make non-structural alterations or improvements (excluding
penetrations of the roof or foundation liner) which do not exceed One Hundred
Thousand Dollars ($100,000) per year and which are not visible from the outside
of the Premises. Landlord's approval of alterations, additions, or improvements
shall include, when granted, direction on whether or not the improvements shall
remain or be removed at Lease expiration or earlier termination, and it shall be
presumed that improvements are required to be removed in the absence of specific
direction to the contrary. Landlord may require Tenant to provide demolition
and/or lien and completion bonds in form and amount satisfactory to Landlord.
Tenant shall immediately remove any alterations, additions, or improvements
constructed in violation of this Section 6.05A upon Landlord's written request.
All alterations, additions, and improvements shall be done in a good and
workmanlike manner, in conformity with all applicable laws and regulations, and
by a contractor approved by Landlord. Upon completion of any such work, Tenant
shall provide Landlord with "as built" plans, copies of all construction
contracts, and proof of payment for all labor and materials.
B. PAYMENT. Tenant shall pay when due all claims for labor and
material furnished to the Premises. Tenant shall give Landlord at least ten (10)
days' prior written notice of the commencement of any work on the Premises,
regardless of whether Landlord's consent to such work is required.
SECTION 6.06. CONDITION UPON TERMINATION. Not later than the last day
of the Lease Term (or any renewals or extensions thereof), Tenant shall
surrender the Premises to Landlord, broom clean (with all keys in Tenant's
possession or control) and in the same condition as received except for ordinary
wear and tear which Tenant was not otherwise obligated to repair under any
provision of this Lease. However, Tenant shall not be obligated to repair any
damage which Landlord is required to repair under Article 7 (Damage or
Destruction). In addition, Landlord may require Tenant to remove any
alterations, additions or improvements which are subject to removal pursuant to
Section 6.05, or which are part of Tenant Finish Out, prior to the expiration of
the Lease, and to restore the Premises to their condition prior to installation
of such improvements, all at Tenant's expense. All alterations, additions and
improvements which are not subject to removal hereunder shall become Landlord's
property and shall be surrendered to Landlord upon the expiration or earlier
termination of the Lease, except that Tenant may remove any of Tenant's
machinery, equipment or fixtures which can be removed without material damage to
the Premises. Tenant shall repair, at Tenant's expense, any damage to the
Premises caused by the removal of any such machinery, equipment or fixtures. In
no event, however, shall Tenant remove any of the following (which shall be
deemed Landlord's property ) without Landlord's prior written consent: any power
wiring or power panels; lighting or lighting fixtures; wall coverings; drapes,
blinds or other window coverings; carpets or other floor coverings; heaters, air
conditioners or any other heating or air conditioning equipment; fencing or
security gates, or other similar Building operating equipment and decorations.
ARTICLE 7. DAMAGE OR DESTRUCTION
SECTION 7.01. PARTIAL DAMAGE TO PREMISES.
A. OCCURRENCE OF DAMAGE. Tenant shall notify Landlord in writing
immediately upon the occurrence of any damage to the Premises.
B. RESTORATION.
(1) If the Premises are only partially damaged (i.e., less
than fifty percent (50%) of the Premises are untenantable as a result of such
damage or less than fifty percent (50%) of Tenant's operations are materially
impaired) and if the mortgagee of the Property (if any) shall permit the
proceeds received by Landlord from the insurance policies described in Section
4.04B to be applied to the necessary repairs, this Lease shall remain in effect
and Landlord shall repair the damage. In the event Landlord repairs the damage,
such repairs shall be substantially completed within 180 days from the date
Landlord is allowed by governmental authorities, the insurance companies, and
the mortgagee of the Property (if any) to enter the Premises for the purpose of
beginning repair of the damage.
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(2) If the Premises are only partially damaged as described
in Section 7.01B(1) and if any mortgagee or beneficiary under a deed of trust
encumbering the Premises should require that proceeds payable as a result of
said fire or casualty be used to retire or reduce any debt secured by a deed of
trust encumbering the Premises, Landlord may elect either to (i) repair the
damage within 180 days from the date Landlord is allowed by governmental
authorities and the insurance companies to enter the Premises for the purpose of
beginning repair of the damage, in which case this Lease shall remain in full
force and effect, or (ii) terminate this Lease as of the date the damage
occurred. Landlord shall notify Tenant within thirty (30) days after notice of
the occurrence of the damage whether Landlord elects to repair the damage or
terminate the Lease. If Landlord elects to repair the damage, such repairs shall
be substantially completed within 180 days from the date Landlord is allowed by
governmental authorities and the insurance companies to enter the Premises for
the purpose of beginning repair of the damage. If the damage was due to an act
or omission of Tenant, or Tenant's employees, agents, contractors or invitees,
Tenant shall pay to Landlord upon demand the difference between the actual cost
of repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate this Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Premises. Tenant
shall pay the cost of such repairs, except that upon satisfactory completion of
such repairs, Landlord shall deliver to Tenant any insurance proceeds received
by Landlord for the damage repaired by Tenant. Tenant shall give Landlord
written notice of such election within ten (10) days after Landlord's
termination notice.
C. TERMINATION. If the damage to the Premises occurs during the
last six (6) months of the Lease Term and such damage will require more than
thirty (30) days to repair, either Landlord or Tenant may elect to terminate
this Lease as of the date the damage occurred, regardless of the sufficiency of
any insurance proceeds. The party electing to terminate this Lease shall give
written notification to the other party of such election within thirty (30) days
after Tenant's notice to Landlord of the occurrence of the damage.
SECTION 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Premises are
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Premises is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate the later of (i) the date the destruction occurred, or (ii) the date
Tenant ceases to do business at the Premises.
SECTION 7.03. REDUCTION OF RENT DUE TO CASUALTY LOSS. If the Premises
are destroyed or damaged and Landlord or Tenant repairs or restores the Premises
pursuant to the provisions of this Article 7, any rent payable during the period
of such damage, repair and/or restoration shall be reduced according to the
degree, if any, to which Tenant's use of the Premises is impaired. Except for
such possible reduction in Rent or as otherwise provided in Section 5.06, Tenant
shall not be entitled to any compensation, reduction, or reimbursement from
Landlord as a result of any damage, destruction, repair, or restoration of or to
the Premises.
ARTICLE 8. CONDEMNATION
If all or any portion of the Premises is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the Building is taken,
Tenant may terminate this Lease as of the date the condemning authority takes
title or possession, by delivering written notice to Landlord within ten (10)
days after receipt of written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority takes title or
possession). If Tenant does not terminate this Lease, this Lease shall remain in
effect as to the portion of the Premises not taken, except that the Base Rent
and Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Premises, with due consideration of the employment of such floor
area prior to the Condemnation for warehouse or office uses. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
mortgagee or beneficiary under a deed of trust encumbering the Premises, the
amount of its interest in the Premises; (b) second, to Tenant, only the amount
of any award specifically designated for loss of or damage to Tenant's trade
fixtures or removable personal property; and (c) third, to Landlord, the
remainder of such award, whether as compensation for reduction in the value of
the leasehold, the taking of the fee, or otherwise. If this Lease is not
terminated, Landlord shall repair any damage to the Premises caused by the
Condemnation, except that Landlord shall not be obligated to repair any damage
for which Tenant has been reimbursed by the condemning authority.
ARTICLE 9. ASSIGNMENT AND SUBLETTING
SECTION 9.01. PERMITTED TRANSFERS.
A. Tenant may assign this Lease or sublease the Premises, without
Landlord's consent, to (i) any entity which controls, is controlled by or is
under common control with Tenant, (ii) any entity resulting from the merger of
or consolidation with Tenant or (iii) any successor of Tenant which acquires all
or substantially all of Tenant's assets ("Tenant's Affiliate"), provided Tenant
has received Landlord's reasonable written approval of the credit of such
transferee and Tenant shall give Landlord a minimum of thirty (30) days advance
written notice and Tenant's Affiliate shall assume in writing all of Tenant's
obligations under this Lease including, without limitation, those obligations
described in Section 5.03 of this Lease.
B. Tenant may sublease portions of the Premises, without
Landlord's consent, to an entity ("Strategic Supplier") substantially dedicated
to supplying Tenant's product requirements. Tenant shall give Landlord a minimum
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of thirty (30) days advance written notice of subleasing to a Strategic
Supplier. Such sublease shall not affect, release, or impair Landlord's right of
recourse against Tenant under this Lease, and shall be subject to all of the
terms and conditions hereof.
C. Tenant may grant to a lender or agent on behalf of a lending
consortium a deed of trust against the leasehold estate created by this Lease
for the purpose of securing a Credit Facility (as defined in Section 10.02F),
provided that such Credit Facility constitutes Tenant's primary line of credit
or working capital credit.
SECTION 9.02. PROHIBITED TRANSFERS. Except as permitted by Section
9.01, Tenant shall not, without Landlord's prior written consent, which consent
shall not be unreasonably withheld or delayed, sell, assign, mortgage, sublease,
or otherwise transfer or permit the transfer of (collectively or individually, a
"Transfer") all or any portion of or interest in the leasehold under this Lease.
For purposes of this limitation, each of the following events shall constitute a
Transfer: (A) if Tenant is an individual, a transfer of all or any portion of or
interest in the leasehold by operation of law or by bequest, devise, or
inheritance; (B) if Tenant is a partnership, any cumulative sale, assignment or
transfer (excluding any pledge or mortgage of such interest) of any part of the
partnership interests the effect of which is to change or alter control of the
partnership; and (C) if Tenant is a corporation, any change in the ownership of
a controlling interest of the voting stock of the corporation (except for
transactions described in Section 9.01). Any attempted Transfer without
Landlord's consent shall be void and shall constitute a non-curable breach of
this lease. Landlord has the right to grant or withhold its consent to a
Transfer (except as permitted by Section 9.01) as provided in Section 9.03
below.
SECTION 9.03. LANDLORD'S CONSENT.
A. LANDLORD'S CONSENT; FACTORS. Tenant's request for consent to
any Transfer described in Section 9.02 shall set forth in writing the details of
the proposed Transfer, including the name, business and financial condition of
the prospective transferee, the material financial details of the proposed
Transfer (e.g., the term of and the rent and security deposit payable under any
proposed assignment or sublease), and any other information generally deemed
relevant to such a transfer. Landlord shall have the right to withhold consent,
if reasonable, or to grant consent, based on the following factors: (i) the
business of the proposed assignee or subtenant and the proposed use of the
Premises; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's past and current compliance with all of its
obligations under the Lease; and (iv) such other factors as Landlord may
reasonably deem relevant. In the event Tenant effects or purports to make a
Transfer of this Lease without the express written consent of Landlord, Landlord
shall have the right to terminate this Lease. Any purported Transfer in
violation of this Section shall be void.
B. ASSIGNMENT PROFIT. If Tenant assigns or subleases, the
following shall apply:
(1) Tenant shall pay to Landlord as Additional Rent under
the Lease Fifty Percent (50%) of the Profit (defined below) on such transaction
as and when received by Tenant, unless Landlord gives written notice to Tenant
and the assignee or subtenant that Landlord's Share shall be paid by the
assignee or subtenant to Landlord directly. The "Profit" means (A) all amounts
paid to Tenant for such assignment or sublease, including"key" money, monthly
rent in excess of the monthly rent payable under the Lease, and all fees and
other consideration paid for the assignment or sublease, including fees under
any collateral agreements, less (B) costs and expenses directly incurred by
Tenant (excluding Tenant's overhead) in connection with the execution and
performance of such assignment or sublease for real estate broker's commissions
and costs of renovation or construction of Tenant Improvements required under
such assignment or sublease. Tenant is entitled to recover such costs and
expenses before Tenant is obligated to pay any portion of assignment or sublease
revenue to Landlord. The Profit in the case of a sublease of less than all the
Premises is the rent allocable to the subleased space as a percentage on a
square footage basis, or as Landlord and Tenant may otherwise mutually agree in
writing.
(2) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Premises within thirty (30) days after the transaction documentation is signed,
and Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall immediately furnish to Landlord
copies of all the transaction documentation, all of which shall be certified by
Tenant to be complete, true and correct. Landlord's receipt of the Profit shall
not be a consent to any further Transfer. The breach of Tenant's obligation
under this Section 9.03B shall be a default under this Lease.
C. TERMINATION AND RELETTING. If Landlord elects to terminate
this Lease pursuant to Section 9.03A, Landlord may, if it elects, enter into a
new lease covering the Premises with the intended assignee or sublessee on such
terms as Landlord and such person may agree or enter into a new lease covering
the Premises with any other person; in such event, Tenant shall not be entitled
to any portion of the profit, if any, which Landlord may realize on account of
such termination and reletting. From and after the date of such termination of
this Lease, Tenant shall have no further obligations arising hereunder prior to
the date of such termination, except those obligations expressly provided to
survive termination of this Lease.
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SECTION 9.04. NO RELEASE OF TENANT. No assignment, sublease or transfer
of any kind permitted by this Article 9, whether with or without Landlord's
consent, shall release Tenant or change Tenant's primary liability to pay the
Rent and to perform all other obligations of Tenant under this Lease, except
that, in the event of a Permitted Transfer described in Section 9.01, Landlord
shall release Tenant from its obligations under this Lease if, and only if, (i)
Tenant provides to Landlord such material financial details as to the
creditworthiness of the proposed transferee to reasonably assure Landlord that
the proposed transferee is as or more creditworthy than Tenant was on the
Commencement Date and (ii) the proposed transferee assumes all of Tenant's
obligations under this Lease including, without limitation, ALL OF TENANT'S
OBLIGATIONS, LIABILITIES AND RESPONSIBILITIES UNDER SECTION 5.03 OF THIS LEASE.
Landlord's acceptance of rent from any other person is not a waiver of any
provision of this Article 9. Consent to one Transfer is not a consent to any
subsequent Transfer. If Tenant's transferee defaults under this Lease, Landlord
may proceed directly against Tenant without pursuing remedies against the
transferee. Landlord may consent to subsequent assignments or modifications of
this Lease by Tenant's transferee, without notifying Tenant or obtaining its
consent. Such action shall not relieve Tenant's liability under this Lease.
SECTION 9.05. NO MERGER. No merger shall result from Tenant's sublease
of the Premises under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE 10. DEFAULTS; REMEDIES
SECTION 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Premises and exercise of any
other right granted Tenant under this Lease is conditioned upon such
performance. Time is of the essence of the performance of all covenants and
conditions.
SECTION 10.02. DEFAULTS. Tenant shall be in material default (a
"Default") under this Lease:
A. ABANDONMENT. If Tenant's abandonment or vacation of the
Premises results in the cancellation of any insurance described in Section 4.04.
B. FAILURE TO PAY. If Tenant fails to pay Rent or any other
charge when due and such failure continues for a period of ten (10) days after
the date such payment is due, provided that with respect to the first two late
Rent payments which shall occur in any calendar year during the Term, Landlord
agrees to give Tenant written notice of default following nonreceipt of Rent
payment on or before the due date, and seven (7) days opportunity to cure such
default before a Default shall be deemed to have occurred hereunder. No written
notice shall be required with respect to subsequent Rent payment defaults during
such calendar year.
C. FAILURE TO PERFORM NONMONETARY OBLIGATIONS. If Tenant fails to
perform any of Tenant's nonmonetary obligations under this Lease for a period of
thirty (30) days after written notice from Landlord; provided that if more than
thirty (30) days are required to complete such performance no Default shall
occur if Tenant commences such performance within the thirty (30) day period and
thereafter diligently pursues its completion.
D. BANKRUPTCY. (i) If Tenant makes a general assignment or
general arrangement for the benefit of creditors and does not vacate such
assignment or arrangement within sixty (60) days; (ii) if a petition for
adjudication of bankruptcy or for reorganization or rearrangement is filed by or
against Tenant and is not dismissed within sixty (60) days; (iii) if a trustee
or receiver is appointed to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease and
possession is not restored to Tenant within sixty (60) days; (iv) if
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within thirty (30) days. If a court of competent
jurisdiction determines that any of the acts described in this Subsection (d) is
not a default under this Lease, and a trustee is appointed to take possession
(or if Tenant remains a debtor in possession) and such trustee or Tenant
transfers Tenant's interest hereunder, then Landlord shall receive, as
Additional Rent, the excess, if any, of the rent (or any other consideration)
paid in connection with such assignment or sublease over the rent payable by
Tenant under this Lease.
E. GUARANTY REVOCATION OR TERMINATION. INTENTIONALLY DELETED
F. DEFAULT BY TENANT ON CREDIT FACILITIES. (i) if Tenant
defaults, or an event of default shall occur, under any working capital,
inventory financing or asset financing Credit Facility (herein so-called)
including, but not limited to any term loan, line of credit, letter of credit,
guaranty, or other extension of credit under which Tenant is an obligor or
guarantor and such default authorizes the Tenant's creditor to pursue the
creditor's remedies for default under the instruments creating or securing the
Credit Facility, after expiration of any applicable notice or cure periods
(including agreed extensions of cure periods) to which Tenant is entitled under
such Credit Facility; or (ii) if any creditor of Tenant as to a financial or
other performance obligation of Tenant under a Credit Facility shall allege in
writing or file suit against Tenant, charging Tenant with breach or default in
the payment or performance thereof; (iii) if Tenant fails to notify Landlord in
writing within ten (10) days of (a) Tenant's defaults, or an event of default
occurring, under any Credit Facility including, but not limited to any term
loan, line of credit, letter of credit, guaranty, or other extension
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of credit under which Tenant is an obligor or guarantor and such default
authorizes the Tenant's creditor to pursue the creditor's remedies for default
under the instruments creating or securing the Credit Facility, after expiration
of any applicable notice or cure periods (including agreed extensions of cure
periods) to which Tenant is entitled under such Credit Facility; or (b) any
creditor of Tenant as to a financial or other performance obligation of Tenant
under a Credit Facility alleging in writing or filing suit against Tenant,
charging Tenant with breach or default in the payment or performance thereof.
SECTION 10.03. REMEDIES. On the occurrence of any Default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have:
A. REPOSSESSION; DAMAGES. Terminate Tenant's right to possession
of the Premises by any lawful means in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. If
Tenant shall receive a demand for the payment of past due rent or any other
charge, any payments tendered thereafter to cure any default by Tenant shall be
made only by Cashier's Check. In event of repossession of the Premises following
Tenant's Default, Landlord shall be entitled to recover from Tenant all damages
incurred by Landlord by reason of Tenant's Default, including an amount equal to
the excess of (i) the total rent for the unexpired balance of the Term following
the date the damage judgment is entered (or otherwise awarded)(the "Judgment
Date"), including, without limitation all applicable late charges and interest,
discounted at the Default Discount Rate (hereinafter defined) to the present
value on the Judgment Date, together with all other damages incurred by Landlord
in connection with Tenant's Default as specified in Section 10.05, below, plus
the unpaid rent due as of the Judgment Date, over (ii) the market rental value
of the Premises for the balance of the Term, discounted at the Default Discount
Rate to the present value on the Judgment Date. For the purposes of clause (i)
above, the components of monthly rent (other than Base Rent) for the remainder
of the Term shall be deemed to be equal to the respective monthly amounts
thereof as were due and payable during the month in which the Lease was
terminated. As used in clause (ii), the term "Default Discount Rate" shall be
the average of discount rates of the Federal Reserve Bank of Dallas in effect on
the first day of each of the six calendar months preceding the month in which
the Judgment Date falls, plus one percent (1%). If Tenant has abandoned the
Premises, Landlord shall have the option of (i) retaking possession of the
Premises and recovering from Tenant the amount specified in this Section 10.03A,
or (ii) proceeding under Section 10.03B.
B. CONTINUANCE OF TENANT'S RIGHT TO POSSESSION. Maintain Tenant's
right to possession, in which case this Lease shall continue in effect whether
or not Tenant has abandoned the Premises. In such event, Landlord shall be
entitled to enforce all of Landlord's rights and remedies under this Lease,
including the right to recover the Rent as it becomes due.
C. RELETTING. Enter upon and take possession of the Premises as
Tenant's agent without terminating this Lease and without being liable for
prosecution or any claim for damages therefor, and Landlord may relet the
Premises as Tenant's agent and receive the rental therefor, in which event
Tenant shall pay to Landlord on demand all sums due pursuant to Section 10.05,
below, together with any deficiency that may arise by reason of such reletting.
D. PERFORMANCE OF TENANT'S LEASE OBLIGATIONS. Do whatever Tenant
is obligated to do under this Lease and enter the Premises, without being liable
for prosecution or any claim for damages therefor, to accomplish such purpose.
Tenant shall reimburse Landlord immediately upon demand for any reasonable
expenses which Landlord incurs in thus effecting compliance with this Lease on
Tenant's behalf, together with interest thereon at the highest lawful rate from
the date Landlord incurs the expense in question until Landlord is reimbursed
therefor.
E. OTHER REMEDIES. Pursue any other remedy now or hereafter
available to Landlord under the laws or judicial decisions of the state in which
the Premises is located, including, but not limited to, reentering the Premises,
changing the locks, taking possession of any furniture or fixtures and selling
same at a private or public sale and applying the proceeds of such sale to the
costs of the sale, payment of damages and payment of sums owing under this
Lease.
SECTION 10.04. MITIGATION. By execution of this Lease, Tenant
acknowledges that Landlord shall have no duty to mitigate damages caused by
Tenant's Default other than as specifically set forth in Texas Property Code
Section 91.006. If any duty shall be imposed under such law under the
circumstances of Tenant's Default, Tenant acknowledges that Landlord shall have
discharged any such duty if Landlord shall (a) market the Premises for reletting
with a sign posted on or in the vicinity of the Property, visible from a public
street, and by retention of a licensed real estate broker or agent, and (b)
advertise the availability of the Premises for reletting in any newspaper
circulated in the county in which the Premises are situated no less frequently
than monthly.
SECTION 10.05. ADDITIONAL DAMAGES ATTRIBUTABLE TO TENANT DEFAULT. Upon
the occurrence of Tenant's Default, in addition to any other sum provided to be
paid herein, Tenant also shall be liable for and shall pay to Landlord: (i)
brokers' fees incurred by Landlord in connection with reletting the whole or any
part of the Premises; (ii)
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the costs of removing and storing Tenant's or other occupant's property; (iii)
the reasonable costs of repairing, altering, remodeling or otherwise putting the
Premises into condition acceptable to a new tenant or tenants; (iv) all
reasonable expenses incurred in marketing the Premises; and (v) all reasonable
expenses incurred by Landlord in enforcing or defending Landlord's rights and/or
remedies. If either party hereto institutes any action or proceeding to enforce
any provision hereof by reason of any alleged breach of any provision of this
Lease, the prevailing party shall be entitled to receive from the losing party
all reasonable attorneys' fees and all court costs in connection with such
proceeding.
SECTION 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11. PROTECTION OF LENDERS
SECTION 11.01. RIGHT TO MORTGAGE AND TRANSFER. Landlord shall have the
right to transfer, mortgage, pledge or otherwise encumber, assign and convey, in
whole or in part, the Project, this Lease, and all or any part of the rights now
or thereafter existing therein and all rents and amounts payable to Landlord
under the provisions hereof. In the event of any such transfer or transfers
resulting in the transfer of Landlord's title to the Premises, Landlord herein
named (and in case of any subsequent transfer, the then transferor) shall be
automatically freed and relieved from and after the date of such transfer of all
personal liability with respect to the performance of any covenants or
agreements on the part of Landlord contained in this Lease thereafter to be
performed (without impairing Tenant's recourse, if any, against Landlord for
previous performance breach).
SECTION 11.02. SUBORDINATION. This Lease shall be subordinate to any
deed of trust or mortgage encumbering the Premises, any advances made on the
security thereof and any renewals, modifications, consolidations, replacements
or extensions thereof, whenever made or recorded. Landlord shall use its best
efforts to obtain from Landlord's mortgagee, if any, a subordination,
non-disturbance and attornment agreement in the form attached hereto as Exhibit
"E" or such other form providing for nondisturbance rights as is then required
by Landlord's lender, provided that Tenant's obligations under this Lease shall
not be increased in any material way (the performance of ministerial acts shall
not be deemed material), and Tenant shall not be deprived of its rights under
this Lease. In the event Landlord has a mortgagee at the time this Lease is
executed, and Landlord is unable to obtain from such mortgagee and deliver to
Tenant a subordination, non-disturbance and attornment agreement as described in
this Section 11.02 within thirty (30) days after the date hereof, this Lease
shall terminate and be of no further force or effect unless, within ten (10)
days following Landlord's notice to Tenant of Landlord's inability to provide
such subordination, nondisturbance and attornment agreement, Tenant notifies
Landlord in writing of Tenant's desire to maintain this Lease, in which case
this Lease shall not terminate and shall remain in full force and effect except
that Landlord will not be required to provide such subordination,
non-disturbance and attornment agreement. Tenant shall cooperate with Landlord
and any lender which has or is acquiring a security interest in the Premises or
the Lease. Tenant shall execute such further documents and assurances as such
lender may reasonably require, in connection with the subordination of this
Lease to any deed of trust or mortgage encumbering the Premises. Tenant
covenants and agrees to execute and deliver upon reasonable demand such further
instruments subordinating this Lease to the lien of any such mortgage, deed of
trust or security agreement as shall be requested by Landlord and/or mortgagee
or proposed mortgagee or holder of any security agreement. Tenant's right to
quiet possession of the Premises during the Lease Term shall not be disturbed
except as expressly allowed by the terms of this Lease or any subordination,
non-disturbance and attornment agreement(s) binding Tenant. Notwithstanding
anything to the contrary contained herein, if any beneficiary or mortgagee
elects to have this Lease prior to the lien of its deed of trust or mortgage and
gives written notice thereof to Tenant, this Lease shall be deemed prior to such
deed of trust or mortgage whether this Lease is dated prior or subsequent to the
date of said deed of trust or mortgage or the date of recording thereof. Tenant
waives the provisions of any current or future statute, rule or law which may
give or purport to give Tenant any right or election to terminate or otherwise
adversely affect this Lease and the obligations of the Tenant hereunder in the
event of any foreclosure proceeding or sale.
SECTION 11.03. ATTORNMENT. If Landlord's interest in the Premises is
acquired by any beneficiary under a deed of trust, mortgagee, or purchaser at a
foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Premises and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Premises upon the transfer of Landlord's
interest.
SECTION 11.04 SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instruments or documents necessary or appropriate to evidence any such
attornment or subordination agreement to do so which are on forms reasonably
agreeable by the parties.
SECTION 11.05 ESTOPPEL CERTIFICATES.
A. CERTIFICATE REQUIREMENTS. Upon Landlord's written request or
the written request of any mortgagee or beneficiary under a deed of trust
encumbering the Premises but not more than twice in any calendar year, Tenant
shall execute, acknowledge and deliver to Landlord or to any mortgagee or
beneficiary under a deed of
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trust encumbering the Premises, as the case may be, a written statement in the
form attached hereto as Exhibit "F" or such other form as is then reasonably
required by Landlord's lender, certifying: (i) that none of the terms or
provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been canceled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Premises may reasonably require. Tenant shall
deliver such statement to Landlord within ten (10) business days after
Landlord's request. Landlord may give any such statement by Tenant to any
prospective purchaser or encumbrancer of the Premises. Such purchaser or
encumbrancer may rely conclusively upon such statement as true and correct.
B. LANDLORD REMEDY. If Tenant does not deliver such statement to
Landlord or to any mortgagee or beneficiary under a deed of trust encumbering
the Premises, as the case may be, within such ten (10) business day period,
Landlord, and any prospective purchaser or encumbrancer may conclusively presume
and rely upon the following facts: (i) that the terms and provisions of this
Lease have not been changed except as otherwise represented by Landlord; (ii)
that this Lease has not been canceled or terminated except as otherwise
represented by Landlord; (iii) that not more than one month's Base Rent or other
charges have been paid in advance; and (iv) that Landlord is not in default
under the Lease. In such event, Tenant shall be estopped from denying the truth
of such facts.
SECTION 11.06 TENANT'S FINANCIAL CONDITION. Within ten (10) days after
written request from Landlord or any mortgagee or beneficiary under a deed of
trust encumbering the Premises, as the case may be, Tenant shall deliver to
Landlord Tenant's most recent audited financial statements as Landlord
reasonably requires to verify the net worth and credit standing of Tenant or any
assignee or subtenant of Tenant. Tenant represents and warrants to Landlord that
each such financial statement is a true and accurate statement in all material
respects as of the date of such statement. Except for the delivery of financial
statements to any mortgagee or beneficiary under a deed of trust on the
Property, all financial information delivered by Tenant shall be confidential
and shall be used only for the purposes set forth in this Lease. This Section
11.06 shall not be applicable to Tenant as long as Tenant's financial
information described above is available from the Securities and Exchange
Commission.
ARTICLE 12. LEGAL COSTS
SECTION 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any
reasonable costs or expenses that the Nondefaulting Party incurs in connection
with any breach or default of the Defaulting Party under this Lease, whether or
not suit is commenced or judgment entered. Such costs shall include reasonable
legal fees and costs incurred for the negotiation of a settlement, enforcement
of rights or otherwise. Furthermore, if any action for breach of or to enforce
the provisions of this Lease is commenced, the court in such action shall award
to the party in whose favor a judgment is entered, a reasonable sum as
attorneys' fees and costs. The losing party in such action shall pay such
reasonable attorneys' fees and costs. Each party to this Lease (hereafter, the
"Indemnitor") shall also indemnify the other (the "Indemnitee") against and hold
Indemnitee harmless from all costs, expenses, demands and liability Indemnitee
may incur if Indemnitee becomes or is made a party to any claim or action (a)
instituted by Indemnitor against any third party, or by any third party against
Indemnitor, or by or against any person holding any interest under or using the
Premises by license of or agreement with Tenant; (b) for foreclosure of any lien
for labor or material furnished to or for Indemnitor; (c) otherwise arising out
of or resulting from any act or transaction of Indemnitor; or (d) necessary to
protect Indemnitee 's interest under this Lease in a bankruptcy proceeding, or
other proceeding under Title 11 of the United States Code, as amended.
Indemnitor shall defend Indemnitee against any such claim or action at
Indemnitor's expense with counsel reasonably acceptable to Indemnitee or, at
Indemnitee s election, Indemnitor shall reimburse Indemnitee for any reasonable
legal fees or costs Indemnitee incurs in any such claim or action.
ARTICLE 13. MISCELLANEOUS PROVISIONS
SECTION 13.01. LATE CHARGES. Tenant's failure to pay Rent immediately
may cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Project and Premises. Therefore, if Landlord does not receive any Rent
payment within ten (10) days after it becomes due, Tenant shall pay Landlord a
late charge equal to five percent (5%) of the overdue amount for all other such
late payments, if any, in said calendar year. The parties agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
SECTION 13.02. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate of
eleven percent (11%) per annum from ten days after the due date of such amount.
However, interest shall not be payable on late charges to be paid by Tenant
under this Lease. The
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<PAGE> 18
payment of interest on such amounts shall not excuse or cure any default by
Tenant under this Lease. If the interest rate specified in this Lease is higher
than the rate permitted by law, the interest rate is hereby decreased to the
maximum legal interest rate permitted by law.
SECTION 13.03. LANDLORD'S LIABILITY; CERTAIN DUTIES.
A. DEFINITION OF LANDLORD. As used in this Lease, the term
"Landlord" means only the current owner or owners of the fee title to the
Property or Project at the time in question. Each Landlord is obligated to
perform the obligations of Landlord under this Lease only during the time such
Landlord owns such interest or title. Any Landlord who transfers its title or
interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date of transfer.
However, each Landlord shall deliver to its transferee, or credit its transferee
with all funds that Tenant previously paid if such funds have not yet been
applied under the terms of this Lease.
B. NOTICE. Tenant shall give written notice of any failure by
Landlord to perform any of its obligations under this Lease to Landlord and to
any mortgagee or beneficiary under any deed of trust encumbering the Property
whose name and address have been furnished to Tenant in writing. Tenant agrees
to accept cure of any Landlord default from any mortgagee or beneficiary under
any deed of trust encumbering the Property, provided such party shall have no
liability or obligation to tender any cure. Landlord shall not be in default
under this Lease unless Landlord (or such mortgagee or beneficiary) fails to
cure such non-performance within thirty (30) days after receipt of Tenant's
notice. However, if such nonperformance reasonably requires more than thirty
(30) days to cure, Landlord shall not be in default if such cure is commenced
within such thirty (30) day period and thereafter diligently pursued to
completion.
C. PERSONAL LIABILITY. Notwithstanding any term or provision
herein to the contrary, the liability of Landlord for the performance of its
duties and obligations under this lease is limited to Landlord's interest in the
Property and neither the Landlord nor its partners, shareholders, officers or
other principals shall have any personal liability under this Lease. Tenant
agrees to look solely to Landlord's interest in the Property for the recovery of
any judgment against Landlord, and Landlord shall not be liable for any
deficiency. The foregoing provision shall not limit any right that Tenant may
otherwise have to obtain specific performance of Landlord's obligations under
this Lease.
D. RIGHTS OF LANDLORD. At any time during the Lease Term,
Landlord or its agents may enter the Premises at reasonable times upon for the
purpose of exercising any or all of the following reserved rights without being
liable in any manner to Tenant, provided that Landlord shall have no duty or
obligation to perform any of the rights so reserved:
(1) To change the name of the Project without notice to
Tenant;
(2) To take any and all measures, including making
inspection, repairs, alterations, additions and improvements to the Project as
may be necessary or desirable for the safety, protection, preservation, or more
efficient operation of the Project or the enhancement or protection of
Landlord's interests therein; and
(3) During the last 180 days of the Term or any renewal or
extension, to display a sign advertising the availability of the Premises for
lease, to show the Premises to prospective tenants, and to otherwise market the
Premises for the purpose of reletting same, provided that Landlord shall
exercise Landlord's best efforts to avoid unreasonable interruptions of the
conduct of Tenant's business in the Premises.
(4) To enter upon prior reasonable notice to Tenant and
conduct an inspection of the Premises, including invasive tests, at any
reasonable time to determine whether Tenant is complying with the terms of the
Lease, including but not limited to the compliance of the Premises and the
activities thereon with Environmental Requirements, provided that (i) Landlord
shall exercise Landlord's best efforts to avoid unreasonable interruptions of
the conduct of Tenant's business in the Premises; (ii) Tenant shall have the
right to be present during such entry by Landlord or its agents; and (iii) in
the case of an emergency, no such notices shall be required. The cost of the
Landlord's investigation shall be paid by Landlord unless such investigation
discloses a violation of any Environmental Requirement by The Tenant Group or
the existence of a Hazardous Material on the Premises or any other Premises
caused by the actions of The Tenant Group (other than Hazardous Materials used
in compliance with all Environmental Requirements and previously approved in
writing by Landlord), in which case Tenant shall pay such cost.
SECTION 13.04. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
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<PAGE> 19
SECTION 13.05. INTERPRETATION. The captions of the Articles or Sections
of this Lease are to assist the parties in reading this Lease and are not a part
of the terms or provisions of this Lease. Whenever required by the context of
this Lease, the singular shall include the plural and the plural shall include
the singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Premises with Tenant's expressed or
implied permission.
SECTION 13.06. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of the
Premises and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
SECTION 13.07. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be either personally delivered, or sent via
telecopy with receipt confirmation, or by Federal Express or other regularly
scheduled overnight courier or sent by United States mail, registered or
certified with return receipt requested, properly addressed and with full
postage prepaid. All notices shall be effective upon delivery by the sender
(which, in the case of telecopied notice, shall be the date such telecopy is
transmitted with confirmation of receipt) or the day delivery is tendered to the
addressee (in the case of hand delivered notices) or three (3) days after the
day the notice is consigned by the sender (in the case of couriered or mailed
notices). Either party may change its notice address upon written notice to the
other party.
Said notices shall be sent to the parties hereto at the following
addresses, unless otherwise notified in writing (provided that upon Tenant's
taking possession of the Premises, the Premises shall be Tenant's address for
notice purposes).
To Landlord: Argent Frankford, L.P.
5949 Sherry Lane, Suite 1000
Dallas, Texas 75225
Attn: C. E. Cornutt
Phone: (214) 361-6090
Facsimile: (214) 361-5032
with copy to: Charles C. Jordan
Carrington, Coleman, Sloman & Blumenthal, L.L.P.
200 Crescent Court, Suite 1500
Dallas, Texas 75201
Phone: (214) 855-3000
Facsimile: (214) 855-1333
To Tenant: Home Interiors & Gifts, Inc.
4550 Spring Valley
Dallas, Texas 75244-3705
Attention: General Counsel
Phone: (972) 386-1084
Facsimile: (972) 386-1106
with copy to: Weil Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Att'n: Robert C. Feldman
Phone: (214) 746-7744
Facsimile: (214) 746-7777
To Mortgagee:
----------------------------
Phone:
----------------------
Facsimile:
------------------
SECTION 13.08. WAIVERS. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord
-17-
<PAGE> 20
from enforcing that provision or any other provision of this Lease in the
future. No statement on a payment check from Tenant or in a letter accompanying
a payment check shall be binding on Landlord. Landlord may, with or without
notice to Tenant, negotiate such check without being bound to the conditions of
such statement.
SECTION 13.09. NO RECORDATION. Except for a memorandum hereof if in
form and content reasonably approved by Landlord required by a leasehold
mortgagee to perfect the mortgagee's lien on the leasehold in connection with
leasehold financing permitted in this Lease, Tenant shall not record this Lease
without prior written consent from Landlord. The party requiring such recording
shall pay all transfer taxes and recording fees.
SECTION 13.10. BINDING EFFECT; CHOICE OF LAW. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. THE LAWS OF THE STATE OF TEXAS SHALL GOVERN THIS LEASE.
SECTION 13.11. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is
a corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has fully authority to do so and that this Lease binds the
corporation.
SECTION 13.12. JOINT AND SEVERAL LIABILITY. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
SECTION 13.13. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control are acts of God, war,
civil commotion, labor disputes, strikes, fire, flood or other casualty,
shortages of labor or material, government regulation If Landlord shall be
unable to perform or shall be delayed in the performance of any obligation under
this Lease by reason of events beyond Landlord's control, such nonperformance or
delay in performance shall not render Landlord liable in any respect for damages
to either person or property, constitute a total or partial eviction,
constructive or otherwise, work an abatement of rent or relieve Tenant from the
fulfillment of any covenant or agreement contained in this Lease.
SECTION 13.14. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
SECTION 13.15. SURVIVAL. All representations and warranties of Landlord
and Tenant not fully performed on the date of the expiration or termination of
this Lease shall survive the termination of this Lease for a period of one year,
except the covenants, warranties, and indemnities of Landlord and Tenant set
forth in Article 5, which shall survive such expiration or termination for the
maximum period of time allowed by law.
SECTION 13.16. GENDER AND NUMBER. Whenever the context so requires
herein, the neuter gender shall include the masculine and feminine, and the
singular number shall include the plural.
ARTICLE 14. BROKERS
SECTION 14.01. BROKER'S FEE. When this Lease is signed by and delivered
to both Landlord and Tenant, Landlord shall pay a real estate commission to both
Brokers named in Section 1.05 above, if any, as provided in the written
commission agreements between Landlord and such Brokers. Tenant shall have no
responsibility to pay either Landlord's Broker or Tenant's Broker.
SECTION 14.02. NO OTHER BROKERS. Tenant represents and warrants to
Landlord that the brokers named in Section 1.05 above are the only agents,
brokers, finders or other parties with whom Tenant has dealt who are or may be
entitled to any commission or fee with respect to this Lease or the Premises.
ARTICLE 15. TAX DEFERRED EXCHANGE, PURCHASE OPTION AND RENEWAL OPTION
SECTION 15.01. PURCHASE OPTION. Landlord grants to Tenant the option to
purchase the Property subject to the terms and conditions set forth in Exhibit
"G" to this Lease.
SECTION 15.02. PURCHASE AND SALE OF BUILDING. Landlord and Tenant agree
to the purchase and sale of the Property in the event Tenant shall consummate
the Minimum Exchange (as defined in the PSA) within the period set forth on
Exhibit "G" to this Lease. Such purchase and sale shall be subject to the terms
and conditions of Exhibit "G."
SECTION 15.03. RENEWAL OPTION. Landlord grants to Tenant the option to
renew this Lease subject to the terms and conditions set forth in Rider 1 to
this Lease.
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<PAGE> 21
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED
HERETO OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED,
PLEASE DRAW A LINE THROUGH THE SPACE BELOW.
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<PAGE> 22
Landlord and Tenant have signed this Lease at the place and on the
dates specified adjacent to their signatures below and have initialed all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on , 19 ARGENT FRANKFORD, L.P.,
--------------------- --- a Texas limited partnership
at
- ----------------------------------
By:
----------------------------
By:
----------------------------
"TENANT"
Signed on , 19 Home Interiors & Gifts, Inc.,
--------------------- --- a Texas corporation
at
- ----------------------------------
By:
----------------------------
Its:
---------------------------
By:
----------------------------
Its:
---------------------------
<PAGE> 23
EXHIBIT "E"
SUBORDINATION, NONDISTURBANCE AND
ATTORNMENT AGREEMENT
THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT (this
"Agreement") is made this ___ day of ______ , 199__ , by and among _________ , a
__________ chartered banking institution (hereinafter called "Mortgagee"),
__________ , a ___________ (hereinafter called "Tenant") and ______________ , a
_______________ (hereinafter called "Landlord").
W I T N E S S E T H:
WHEREAS, Mortgagee is or will be the owner and holder of a ___________
(hereinafter called the "Mortgage"), covering the real property described in
Exhibit "A" attached hereto and made a part hereof and the Building and
improvements thereon (hereinafter collectively called the "Property") securing
the payment of a promissory note in the stated principal amount of $______ ,
executed by Landlord and payable to the order of Mortgagee; and
WHEREAS, Tenant is the holder of a lease (hereinafter called the
"Lease") dated ______, 19__, by and between Landlord, as the landlord, and
Tenant, as the tenant, covering that portion of the Property described therein
(hereinafter called the "Leased Premises"); and
WHEREAS, Landlord, Tenant and Mortgagee desire to confirm and agree
upon certain of their rights and obligations with respect to the Lease and the
Mortgage;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Landlord, Tenant and Mortgagee hereby agree and covenant as
follows:
1. Subordination. The Lease now is, and shall at all times continue to
be, subject and subordinate in each and every respect, to the Mortgage and to
any and all increases, renewals, modifications, extensions, substitutions,
replacements and/or consolidations of the Mortgage.
2. Nondisturbance. So long as Tenant is not in default (beyond any
period given Tenant in the Lease to cure such default) in the payment of rent or
in the performance of any of the terms, covenants or conditions of the Lease on
Tenant's part to be performed, (i) Tenant's possession of the Leased Premises
and Tenant's rights and privileges under the Lease, or any extensions or
renewals thereof, or expansions into additional space within the Property which
may be effected in accordance with the terms of the Lease, shall not be
diminished or interfered with by Mortgagee in the exercise of any of its rights
under the Mortgage, (ii) Tenant's occupancy of the Leased Premises or any such
expansion space shall not be disturbed by Mortgagee in the exercise of any of
its rights under the Mortgage during the term of the Lease or any such
extensions or renewals thereof, and (iii) Mortgagee will not join Tenant as a
party defendant in any action or proceeding for the purpose of terminating
Tenant's interest and estate under the Lease because of any default under the
Mortgage.
3. Attornment. In the event any proceedings are brought for the
foreclosure of the Mortgage or if the Property be sold pursuant to a trustee's
sale under the Mortgage, or upon a transfer of the Property by conveyance in
lieu of foreclosure, Tenant shall attorn to the purchaser upon any such
foreclosure sale or trustee's sale or transfer in lieu thereof and shall
recognize such purchaser as the Landlord under the Lease. Such attornment shall
be effective and self-operative without the execution of any further instrument
on the part of any of the parties hereto. Tenant agrees, however, to execute and
deliver at any time and from time to time, upon the request of Landlord or of
any holder(s) of any of the indebtedness or other obligations secured by the
Mortgage or any such purchaser, any instrument or certificate which, in the
reasonable judgment of Landlord or of such holder(s) or such purchaser, may be
necessary or appropriate in any such foreclosure proceeding or otherwise to
evidence such attornment. In the event of any such attornment, Tenant further
waives the provisions of any statute or rule of law, now or hereafter in effect,
which may give or purport to give Tenant any right or election to terminate or
otherwise adversely affect the Lease and the obligations of Tenant thereunder as
a result of any such foreclosure proceeding, trustee's sale or conveyance in
lieu thereof.
4. Foreclosure and Sale. If Mortgagee shall succeed to the interest of
Landlord under the Lease in any manner, or if any purchaser acquires the Leased
Premises upon any foreclosure of the Mortgage or any trustee's sale under the
Mortgage, Mortgagee or such purchaser, as the case may be, shall have the same
remedies by entry, action or otherwise in the event of any default by Tenant
(beyond any period given to Tenant in the Lease to cure such default) in the
payment of rent or additional rent or in the performance of any of the terms,
covenants and conditions of the Lease on Tenant's part to be performed that
Landlord had or would have had if Mortgagee or such purchaser had not succeeded
to the interest of Landlord. From and after attornment by Tenant, Mortgagee or
such purchaser shall be bound to Tenant under all of the terms, covenants, and
conditions of the Lease, and Tenant shall, from and after the succession to the
interest of Landlord under the Lease by Mortgagee or such purchaser, have the
same remedies against Mortgagee or such purchaser for the breach of an agreement
contained in the Lease that Tenant might have had under the Lease against
Landlord if Mortgagee or such purchaser had not succeeded to the interest of
Landlord; provided further, however, that Mortgagee or such purchaser shall not
in any event be:
<PAGE> 24
(a) liable for any act or omission of any prior landlord
(including Landlord); or
(b) subject to any offsets or defenses which Tenant might have
against any prior landlord (including Landlord); or
(c) bound by any rent or additional rent which Tenant might have
paid for more than the current month to any prior landlord
(including Landlord), or by any security deposit, cleaning
deposit or other prepaid charge which Tenant might have paid
in advance to any prior landlord (including Landlord), unless
actually received by Mortgagee or such purchaser; or
(d) bound by or liable for any obligation of the landlord to pay
any sums of money to or for the benefit of or on behalf of
Tenant for concessions or inducements granted to Tenant by the
landlord (including Landlord) except as expressly set forth in
the Lease; or
(e) bound by any amendment or modification of the Lease made
without its consent.
5. Acknowledgment and Agreement by Tenant. Tenant acknowledges and
agrees that:
(a) Mortgagee, in making any disbursements to Landlord, is under
no obligation or duty to oversee or direct the application of
the proceeds of such disbursements, and such proceeds may be
used by Landlord for purposes other than improvement of the
Property.
(b) From and after the date hereof, in the event of any act or
omission by Landlord which would give Tenant the right, either
immediately or after the lapse of time, to cease paying rent
or terminate the Lease or to claim a partial or total
eviction, Tenant will not exercise any such right:
(i) until it has given written notice of such act or
omission to Mortgagee; and
(ii) if Landlord shall have failed to cure such default
within the time provided for in the Lease, then the
Mortgagee shall have an additional thirty (30) days
within which to cure such default or if such default
cannot be cured within that time, then such additional
time as may be necessary to cure such default shall be
deemed granted to Mortgagee if within such thirty (30)
days Mortgagee has commenced and is diligently pursuing
the remedies necessary to cure such default (including,
but not limited to, commencement of foreclosure
proceedings, if necessary to effect such cure), in
which event the Lease shall not be terminated while
such remedies are being so diligently pursued.
(c) It has notice that the Lease and the rent and all other sums
due thereunder have been assigned or are to be assigned to
Mortgagee as security for the Loan secured by the Mortgage. In
the event that Mortgagee notifies Tenant of a default under
the Mortgage and demands that Tenant pay its rent and all
other sums due under the Lease to Mortgagee, Tenant shall
honor such demand and pay its rent and all other sums due
under the Lease directly to Mortgagee or as otherwise required
pursuant to such notice.
(d) It shall send a copy of any notice or statement claiming a
default by Landlord under the Lease to Mortgagee at the same
time such notice or statement is sent to Landlord.
(e) This Agreement satisfies any condition or requirements in the
Lease relating to the granting of a non-disturbance agreement.
6. Acknowledgment an Agreement by Landlord. Landlord, as landlord under
the Lease and mortgagor or grantor under the Mortgage, acknowledges and agrees
for itself and its successors and assigns, that:
(a) This Agreement does not:
(i) constitute a waiver by Mortgagee of any of its rights
under the Mortgage; and/or
(ii) in any way release Landlord from its obligations to
comply with the terms, provisions, conditions,
covenants, agreements and clauses of the Mortgage;
(b) The provisions of the Mortgage remain in full force and effect
and must be complied with by Landlord; and
(c) In the event of a default under the Mortgage, Tenant may pay
all rent and all other sums due under the Lease to Mortgagee
as provided in this Agreement.
7. Notice. All notices to be delivered hereunder to Mortgagee shall be
deemed to have been duly given if mailed under United States registered or
certified mail, with return receipt requested, postage prepaid to Mortgagee at
_____________ (or at such other address as shall be given in writing by
Mortgagee to Tenant) and shall be deemed complete upon any such mailing.
<PAGE> 25
8. Miscellaneous.
(a) This Agreement supersedes any inconsistent provision of the
Lease.
(b) Mortgagee shall have no obligations nor incur any liability
with respect to any warranties of any nature whatsoever,
whether pursuant to the Lease or otherwise, including, without
limitation, any warranties respecting use, compliance with
zoning, Landlord's title, Landlord's authority, habitability,
fitness for purpose or possession.
(c) This Agreement shall inure to the benefit of the parties
hereto, their respective successors and permitted assigns;
provided, however, that in the event of the assignment or
transfer of the interest of Mortgagee, all obligations and
liabilities of Mortgagee under this Agreement shall terminate,
and thereupon all such obligations and liabilities shall be
the responsibility of the party to whom Mortgagee's interest
is assigned or transferred.
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MORTGAGEE:
------------------,
a chartered banking institution
--------------
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
TENANT:
--------------------------------------------,
a
---------------------------
By:
------------------------------------------
Name: (Printed)
----------------------------------------
Title:
---------------------------------------
LANDLORD:
--------------------------------------------,
a
---------------------------
By:
------------------------------------------
Name: (Printed)
----------------------------------------
Title:
---------------------------------------
<PAGE> 26
STATE OF TEXAS '
'
COUNTY OF DALLAS '
This instrument was acknowledged before me on this ____ day _______ of
_________ , 199___, by _________, ______________ of Compass Bank, a Texas state
chartered banking institution, on behalf of said bank.
[SEAL]
_____
Notary Public, State of Texas
STATE OF__________'
'
COUNTY OF_________'
This instrument was acknowledged before me on this ____ day ________ of
, 199___, by _________, ___________________ of _________________, a
______________, on behalf of said ____________.
[SEAL]
_____
Notary Public, State of Texas
STATE OF TEXAS '
'
COUNTY OF __________ '
This instrument was acknowledged before me on this ______ day of
__________, 199___, by _________, _______________ of ___________________, a
_______________ corporation, on behalf of said corporation.
[SEAL]
_____
Notary Public, State of ______
<PAGE> 27
EXHIBIT "F"
ESTOPPEL CERTIFICATE
The undersigned, ___________________, does hereby make the following statements:
Article 1. The undersigned is the Tenant under a certain Lease dated
___________ _____________________, with ___________, as Landlord,
leasing the Premises commonly known
as______________________________________________.
Article 2. The Lease dated ______________________ is in full force and effect
and the undersigned is aware of no defaults under the terms and
conditions of the Lease and has no offsets against rentals due the
Landlord or to become due the Landlord.
Article 3. The undersigned accepted possession of the Premises on __________,
the Lease Term began on , and ends on , pursuant to the terms and
conditions of the Lease.
Article 4. The total Base Rent to be paid pursuant to the terms of said Lease
is not less than $____________________ and no Base Rent has been
paid more than one month in advance.
Article 5. In the event of a default by the Landlord under any of the terms and
conditions of the Lease, the undersigned at the same time notice
thereof is given to the Landlord, will notify the holder of any
first mortgage or deed of trust covering the Property, provided
Landlord has provided Tenant the address of such mortgagee. In the
event that the default is not cured by the Landlord within the time
provided for under the terms and conditions of the Lease and
provided the Mortgagee has given the undersigned written notice of
mortgagee's intention to cure such default, the undersigned will
allow the mortgagee the opportunity and sufficient additional time
within which to correct Landlord's default, provided the mortgagee
diligently pursues such cure.
------------------------------------
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
<PAGE> 28
EXHIBIT "G"
INDUSTRIAL REAL ESTATE LEASE
(SINGLE TENANT FACILITY)
TAX DEFERRED EXCHANGE AND PURCHASE OPTION PROVISIONS
A. Landlord hereby grants to Tenant the right to purchase the Property (the
"Option") on the terms set forth in this Rider. Tenant shall use its best good
faith efforts to consummate the Minimum Exchange (as defined in the PSA) on or
before July 1, 2001, keep Landlord informed on a regular basis of the status of
such transaction, and notify Landlord if the Minimum Exchange shall be
completed. It is the intention of the parties that if the Minimum Exchange is
consummated, the Tenant shall complete its tax-deferred exchange through the
Buyer's purchase of the Property, or alternatively, the Tenant may elect to
purchase the Property without disposing of the Exchange Tracts. If Tenant shall
consummate the Minimum Exchange on or before July 1, 2001, Landlord agrees to
sell and Tenant agrees to purchase the Property in accordance with the
applicable terms of the PSA thirty (30) days after the Minimum Exchange is
consummated (or on the first business day following such period, if it expires
on a day which is not a business day). (Applicable terms of the PSA refers to
the PSA sections described in item B.8., below.)
B. Alternatively, if Tenant shall exercise the Option, Landlord agrees to sell
and Tenant agrees to purchase the Property subject to the following terms and
conditions:
(1) Each capitalized term defined in this Rider shall have the
meaning set forth in the PSA, unless otherwise defined herein.
(2) The purchase price (the "Option Price") for the Property under
the Option shall be the greater of: (i) [the Purchase Price as
calculated at lease commencement date] , and (ii) the fair
market value (the "Market Value") of the Property (giving
effect to the costs of constructing Buyer Elections, as
defined in the PSA), determined in accordance with
subparagraph 4, below.
(3) Tenant shall have the right to exercise the Option by written
notice (the "Option Notice") to Landlord at any time through
5:00 p.m., Dallas, Texas time, April 1, 2001. Tenant's notice
of exercise shall specify Tenant's opinion of Market Value and
a closing date a minimum of forty five (45) days following the
date of Tenant's notice. Closing shall occur no later than
July 1, 2001. If Tenant shall have failed to exercise the
Option on or before April 1, 2001, or, if exercised, to have
closed the purchase of the Option on or before July 1, 2001,
for any reason (other than the failure or refusal of Landlord
to deliver a deed to the Property or to comply with the terms
of subparagraph 4), the Option shall be null and void.
(4) During the thirty (30) day period following the Option Notice,
Landlord and Tenant shall diligently negotiate the purchase
price of the Property in good faith, based on the Market Value
proposed by Tenant in the Option Notice and Landlord's opinion
of Market Value. If the parties are unable to reach agreement
with respect to the purchase price within such period, the
Market Value of the Property shall be determined in accordance
with the following procedure:
(a) Within ten (10) days after receipt of Tenant's
written notice of such an election, each party, by giving
written notice to the other party, shall appoint an appraiser
to render a written opinion of the Market Value. Each
appraiser must be a member of the Appraisal Institute of
America (MAI) for at least five years and with at least ten
years experience in the appraisal of industrial property
values in the area in which the Property is located. The two
appraisers shall render their written opinions of the Market
Value within twenty (20) days after the appointment of the
second appraiser. If the greater of the determined Market
Values is within 105% of the lesser of such Market Values,
then the average of the two appraisals of Market Value shall
be utilized as the Market Value and shall be binding on the
parties. If one party does not appoint its appraiser as
provided above, then the one appointed shall determine the
Market Value. The Market Value so determined under this
subparagraph shall be binding on Landlord and Tenant.
(b) If the greater of the determined Market Values is
more than one hundred five percent (105%) of the lesser of
such Market Values, then the two appraisers shall pick a third
appraiser within ten (10) days after the two appraisers have
rendered their opinions of Market Value as provided above. If
the two appraisers are unable to agree on the third appraiser
within said ten (10) day period, Landlord and Tenant shall
mutually agree on a third appraiser within ten (10) days
thereafter. The third appraiser shall be a person who has not
previously acted in any capacity for either Landlord or Tenant
and must meet the qualifications stated above.
(c) Within twenty (20) days after his appointment,
the third appraiser shall
<PAGE> 29
render its written opinion of the Market Value ("Third
Opinion"). The appraisal of Market Value made by Landlord's or
Tenant's appraiser that is closest to the Market Value
specified in the Third Opinion shall be the Market Value. If
the Market Value set forth in the Third Opinion is equidistant
from the Market Values determined by Landlord's and Tenant's
appraisers, then the Market Value contained in the Third
Opinion shall be the Market Value. The Market Value so
determined under this subparagraph shall be binding on
Landlord and Buyer.
(d) Each party shall bear the cost of its own
appraiser and one-half (1/2) the cost of the third appraiser.
(e) In the event that the procedures for
determination of the Market Value shall result in a
determination of the purchase price occurring later than five
(5) business days prior to the closing proposed in the Option
Notice, the closing shall be extended to the fifth (5th)
business day following the date on which the Market Value
shall be determined.
(4) Within thirty (30) days following the Option Notice,
Landlord shall deliver to Buyer:
(a) A survey (the "Option Survey") of the Land and
Rail Easement conforming with the provisions of Section 4 of
the PSA, except that the survey shall be dated no earlier than
the date of the Option Notice and shall locate all
improvements constructed on the Property; and
(b) A Commitment for Title Insurance (the "Option
Title Work") for the Land and Rail Easement conforming with
the provisions of Section 4 of the PSA.
Tenant shall have the right to review the Option Survey and Option
Title Work in accordance with the provisions of Section 4 of the PSA,
provided that any item which was a Permitted Exception in connection
with Landlord's initial review of the Survey and Title Commitment shall
be a Permitted Exception in connection with the Option.
(5) At the closing of the Option, Landlord shall convey good
and indefeasible fee simple title to the Land, the Building, and such
other improvements as are incorporated into the Property by Landlord in
accordance with Exhibit "C" to the PSA, and nonexclusive easement
rights in the Rail Easement, free and clear of all liens, encumbrances,
easements, restrictions, rights, conditions and exceptions to title,
except the Permitted Exceptions, to Tenant by special warranty deed and
other legal instruments and documents of conveyance.
(6) Closing shall occur in accordance with the terms of
Section 6 of the PSA on the date provided in the Option Notice
(extended, if necessary, in accordance with Section B.3(e), above),
subject to the following terms:
(a) The terms, provisions and conditions pertaining
to the consummation of Tenant's tax deferred exchange in the
second grammatical paragraph of Section 6 of the PSA shall not
apply in the closing of the Option transaction.
(b) The purchase price shall be the Option Price, and
Landlord's obligation with respect to the Owner's Policy of
Title Insurance shall be to pay the cost of the basic premium
for the Title Policy in the amount of the Option Price. Tenant
shall be credited for reimbursements made under Section 16C of
the PSA.
(c) Tenant shall be obligated to reimburse Landlord
at the closing of the Option for the following fees and
expenses (collectively, the "Financing Costs") which Landlord
incurs or is obligated to reimburse to prospective lenders in
connection with any financing alternative for the period after
July 1, 2001:
(i) If the Option Notice (hereafter defined) shall be
given on or after December 27, 2000, but prior to
March 27, 2001, reasonable preparatory costs,
including attorneys' fees, survey costs, appraisal
fees, and other costs related to preparation for
obtaining a permanent loan commitment on the Property
(but excluding standby or loan commitment fees, which
shall be subject to reimbursement only as provided in
subparagraph ii); plus
(ii) If the Option Notice (hereafter defined) shall
be given after March 27, 2001, but on or prior to
July 1, 2001, standby and/or loan commitment fees
payable to obtain assurance by the lender that the
Landlord will have available to it permanent
financing on the Property, in the event the Tenant
does not exercise its option to purchase the
Property.
<PAGE> 30
(iii) It is expressly provided, however, that the
aggregate of out-of-pocket permanent loan-related
costs reimbursable by Tenant under subparagraphs (i)
and (ii) shall not exceed one percent (1%) of the
principal of the permanent loan sought by Landlord.
Landlord agrees to furnish Tenant with true and correct copies
of the invoices, statements, or other evidence of such
out-of-pocket costs incurred or assumed by Landlord.
(d) Possession of the Property shall be delivered to
Tenant at the closing of the Option, subject to Tenant's
possessory rights under Tenant's lease (if any) and subject to
the Permitted Exceptions.
(7) The representations of Landlord and Tenant in Sections 7
and 9 of the PSA shall apply in connection with the Option.
(8) The provisions of Sections 12 (Casualty Damage), 13
(Condemnation), 14 (Termination, Default and Remedies)(other than the
provisions of Section 14 relating to termination of the Agreement
pursuant to Section 5, which shall not apply), 15 (Exchange), 17 (Force
Majeure), 18 (Shared Access Drive), and 19 (Miscellaneous) of the PSA
shall apply in connection with the Option.
C. In the event that the Option expires without exercise or is otherwise
terminated, Tenant shall have a continuing right of first refusal to purchase
the Property at the price and on the terms offered to Landlord by a third party,
pursuant to a bona fide offer to purchase in the form of a contract offer or
nonbinding letter of intent, submitted to Landlord which Landlord is prepared to
accept during the lease term. Landlord shall provide Tenant with a copy of such
offer and Tenant shall be obligated to return the offer to Landlord, signed by
Buyer, within five (5) business days after Landlord's delivery, if Tenant
intends to exercise its right of first refusal. If Tenant fails to do so for any
reason, Tenant's right of first refusal shall terminate with respect to the sale
to the party extending the offer refused by Buyer, and Landlord shall have the
right thereafter to sell the Property to such party free of any rights of Tenant
to purchase same. If Landlord's proposed sale is not consummated with such party
(or affiliates controlled by, or under common control with, the original
offeror), Tenant's right of first refusal shall remain in effect with respect to
future sales proposed by Landlord during the ten year term of the Tenant's
lease. Tenant agrees to furnish Landlord with a written release of Tenant's
right of first refusal upon request, from and after expiration of such right in
accordance with its terms.
<PAGE> 31
RIDER 1
TO
INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT FACILITY)
RENEWAL OPTION
Provided Tenant is not in default and no event has occurred which, with
notice or the passage of time could become a Default when Tenant delivers such
notice, Tenant may renew this Lease for up to two (2) consecutive additional
periods of five (5) years each, on the same terms provided in this Lease, except
that the Base Rent payable for each month shall be market rate for space of
equivalent size, quality and utility taking into account the credit standing of
Tenant; Tenant Finish Out, and like factors affecting Tenant's utilization of
the Premises and Landlord's return on investment from the Premises ("Renewal
Rate"), as mutually agreed by Landlord and Tenant. Tenant's right of first
refusal to purchase the Property shall not apply during any renewal term.
Tenant shall deliver written notice to Landlord indicating whether or
not Tenant elects to preserve its option to extend the Term no later than 270
days prior to the expiration of the Term ("Election Date"). Within 30 days after
the Election Date, Landlord shall provide Tenant with a proposed Base Rent
Renewal Rate. The proposed Renewal Rate shall be determined by Landlord in its
reasonable discretion, taking into account the factors described herein above.
If Tenant shall object to Landlord's proposed Renewal Rate, Landlord and Tenant
shall, by mutual agreement of the parties, either (i) negotiate in good faith to
determine a mutually acceptable Renewal Rate or (ii) enter into non-binding
mediation. If Landlord and Tenant reach mutual agreement as to the Renewal Rate
on or before the day 180 days prior to the expiration of the Term (the "Renewal
Deadline"), such rate shall be the Renewal Rate, and Landlord and Tenant shall
enter into an agreement confirming Tenant's exercise of this renewal option at
such Renewal Rate. If Landlord and Tenant fail to reach mutual agreement on or
before the Renewal Deadline, this renewal option shall be null and void.
Notwithstanding anything contained herein to the contrary: (a) if Tenant fails
to deliver written notice indicating whether or not it elects to preserve its
option to extend prior to the Election Date, Tenant shall be deemed to have
elected not to extend the Term and the renewal option set forth herein shall
automatically terminate, and (b) Tenant's rights hereunder shall terminate if
(i) this Lease expires or is canceled, or because of an event of Default, this
Lease or Tenant's right to possession of the Premises is terminated, or (ii)
Tenant fails to timely exercise its option hereunder time being of the essence
with respect to Tenant's exercise thereof.
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<NAME> HOME INTERIORS & GIFTS, INC.
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0
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